Thursday, April 11, 2019

Do Entrepreneurs Lie?

A Whitney lock, 1822
Scene 1: It’s 1798 and Eli Whitney is in big trouble.  His cotton gin business has ground to a halt as he fails repeatedly in court to stop copycat gins from spreading across the South.  His New Haven factory has been idled, his experienced workers threatening to leave.  He is deep in debt. 

But Whitney sees a chance.

The federal government, frantic that Napoleon might declare war on the US, is taking bids from private contractors to build muskets.  Skilled craftsmen up and down the Eastern seaboard are offering to produce 50, 100, and as many as 200 muskets for the government.

Whitney has never built a firearm, but no matter: he offers to deliver 10,000 muskets, one of the most difficult manufacturing processes in the world—stock and barrel being hard, but the lock being especially complex.  Not only that, but he says he’ll take a giant, disruptive leap forward, foregoing individually crafted firearms and relying instead on machined, interchangeable parts. 

If two muskets break in the field, identical parts can be swapped to make a single working musket.The Secretary of the Treasury is skeptical but agrees, committing Whitney to deliver 4,000 muskets the following September and 6,000 the next year.  He also provides Whitney $5,000, the first advance ever given an individual by the government.[1]  

After that, nothing goes right for the entrepreneur.  New Haven is hit with 12 snowstorms. Construction of Whitney’s factory and tooling falls behind.  Yellow fever in Philadelphia delays critical raw materials.  By the time the 4,000 muskets are due, Whitney has delivered 500 and is broke again.

In crisis, Whitney heads to Washington to save his business.  The setting is the War Department, located in the White House.  President-elect Thomas Jefferson and President John Adams attend, among others.

Whitney lays parts for a number of locks on the table before his distinguished audience.  Then he tells them to mix and match the lock parts in any combination to assemble complete, functioning locks.  The gathering is astounded.  Jefferson later writes that Whitney “has invented moulds and machines for making all the pieces of his locks so exactly equal, that take 100 locks to piece and mingle their parts and the hundred locks may be put together as well by taking the first pieces which come to hand. . . .”[2] 
Whitney departs Washington with another advance, this time for $10,000, and an extension of five years on his delivery dates.  Not only will he one day be known as the Father of the Cotton Gin, but he has now become the Father of Interchangeable Parts. He is triumphant.
Until December 1959.
That’s when MIT historian Robert S. Woodbury concludes in a research paper that Whitney is a fraud. His demonstration of interchangeable parts before Jefferson and Adams was a sham.  “A test of a number of known Whitney arms in at least one collection proved that they were not interchangeable in all their parts,” Woodbury writes.  “Some were not even approximately interchangeable.”  
Whitney eventually fulfilled his musket deliveries to the federal government.  He went on to build high-quality muskets for state militias, becoming wealthy in the process.  It's unlikely, though, that he ever delivered true interchangeability.  
So, did Whitney lie to Adams, Jefferson, and his country?  And, if so, was it ok?

Scene 2: Steve Jobs insisted that product demos be done live, a risky practice but one that was sure to excite audiences.  His single most famous product demo was done at the Macworld trade show in San Francisco on January 9, 2007, when he presented the Apple iPhone, a product so revolutionary it was dubbed “the Jesus phone” and described by some analysts as the “most anticipated consumer product in the history of time.”    
Jobs opened by saying, “Every once in a while a revolutionary product comes along that changes everything.”  What followed, according to one observer, was “a mind-bendingly awesome display of cutting edge technology” that “probably made your eyes melt.”  
The truth that day in 2007 was different, however.  Jobs' iPhone demo was held together with bubble gum and baling wire, almost literally.  The prototype rarely worked.  “In truth,” reporter Fred Vogelstein wrote, “the list of things that still needed to be done was enormous.  A production line had yet to be set up.  Only about a hundred iPhones even existed, all of them of varying quality . . . And the software that ran the phone was full of bugs.”    
In fact, the iPhone team had jerry-rigged something called “the golden path,” a set of tasks which, only if performed in a specific order, made the iPhone appear to actually work.  The device was unable to play an entire song without crashing, quickly ran out of memory, and was preprogrammed by engineers to always show “five bars” of phone reception no matter how poor the actual signal. 
Six months later when the iPhone launched, it worked as advertised.  You know the rest of that story.
So, did Steve Jobs lie at that January demo?  What if the iPhone had later underperformed, or never performed as advertised?


"Lying Isn't a Sin; It's a Business Plan"
In the same way that Eskimos have 50 words for snow, it’s possible that entrepreneurs have 50 words (or more) for lying, or fibbing, or forecasting, or anticipating—well, you get what I mean.
Entrepreneur Tom Kulzer believes that few entrepreneurs start with a plan; when forced to justify their activities, they “tell themselves and everyone around them they know exactly what they’re doing.  ‘We are right on track,’ ‘Everything is going as planned,’ and ‘We couldn’t be better,’ are common phrases heard in the startup world.  But it’s a lie.”
In his article, “Should Entrepreneurs Lie?”, Daniel Isenberg lays out a series of examples where entrepreneurs must embellish or obscure the truth in order to advance their business interests.  One of Isenberg’s business associates, an experienced venture capital fund manager, told him that “if a person does not know how to seriously twist the truth from time to time, he (she) cannot be an entrepreneur.” 
In one case, an entrepreneur seeking his first round of funding saw a critical strategic relationship blow up the day before closing; he decided not to tell his investors until after the funding was secure.  The venture went on to be successful.  Another company printed brochures indicating products were installed and field tested when they were still under development; customers in America understood but those in Japan were horrified.  One entrepreneur in Isenberg’s article admitted, “We had no idea: this was an entirely new market, so we just put down numbers that the investors wanted to see.”
Venture capitalist and economist William H.Janeway wrote, “Sooner or later, nonetheless, the venture capitalist learns the law of life: entrepreneurs lie.”  When the world is reluctant to accept the innovation being proposed, when the pace of delivery is stalled, when all of the technical bugs have yet to be addressed, “the accuracy of reported results is likely to suffer.” 
In his “Top Ten Lies of Entrepreneurs,” pundit Guy Kawasaki lists as #1 “Our projections are conservative.”  One modern investor has a solution for this kind of general deception: At the close of each pitch, he asks the entrepreneurs to go back through the slide deck “and point out every lie they have just told.  There are always plenty.”   
Google CEO Larry Page once told a roomful of marketing executives that “their profession was built on an ability to lie.”  A 2012 article discussing Presidential-candidate Mitt Romney’s willingness to embellish the truth concluded that his years in private equity convinced him that “Lying isn’t a sin.  It’s a business plan.”
There even developed in the late 1960s a kind of accepted (though never entirely acceptable) commercial deceit that came to be known as “vaporware,” when technology products were announced far in advance of their release.  In 1969, for example, IBM detailed upgrades to its System 360 three years in advance of their market release, reducing sales of Control Data Corporation’s latest computer.  Twenty-five years later Apple announced improvements to its operating system some two years from market release to blunt Microsoft’s latest system upgrades. 
FUD is still a common marketing ploy to delay the sale of competitive offerings.
In the infamous “browser war” of the mid-1990s that pitted Netscape’s Navigator against Microsoft’s Internet Explorer, Netscape’s founder Jim Clark was a key player.  Few technology entrepreneurs have been more successful than Clark, credited with three billion-dollar startups (back when a billion dollars was still real money).  When called to testify under oath in the Justice Department hearings, Clark’s colleague and the President and CEO of Netscape, Jim Barksdale, was asked this question about his boss by a Microsoft lawyer:  “Do you regard Jim Clark as a truthful man?”
Barksdale’s answer, quoted in Michael Lewis’s The New New Thing, was as clever as it was evasive: “I regard him as a salesman.”
Sorry, salespeople; no harm intended.  He really meant “entrepreneur,” but it was in the age before that term became ubiquitous.
Whether Eli Whitney was a fast-talking salesman or an epic hero, one historian surmised, is a test that “functions to distinguish historians of technology from ordinary people.”  
But there’s a third option, more in line with Steve Jobs’ iPhone experience and that of thousands of modern entrepreneurs:  Had Whitney delivered interchangeability six months or even six years after his dazzling Washington product demo—as he very well may have anticipated—his reputation would be largely intact.  In other words, selling the future is only lying if the goods are never delivered.
One sensible conclusion is to regard Eli Whitney not as a hero or a swindler, but as one of America’s first practicing entrepreneurs.

[1] Jeannette Mirsky and Allan Nevins, The World of Eli Whitney, New York: Macmillan, 1952, 146.
[2] Joseph Gies and Frances, Those Ingenious Yankees: The Men, Ideas, and Machines That Transformed a Nation, 1776–1876, New York: Thomas Y. Crowell Company, 1976, 78.

Wednesday, April 3, 2019

Novel Combinations: Making the Most of Too Much

Credit: the author went shopping
Charles Sanna died recently at 101 years old.  His family’s company, Sanna Dairy Engineers (sold to Beatrice Foods in 1967 and now a part of Conagra), delivered powered coffee creamer to the U.S. Army during the Korean War. 

Fearful of missing deliveries to the military, Sanna Dairy regularly overproduced, leaving the company with a perishable product destined for disposal.

Sanna took to the family kitchen in Wisconsin.  By combining water, cocoa, and the excess powdered creamer, he created what would become the Swiss Miss brand of instant hot cocoa.  It was a novel combination, a stroke of genius, and a windfall for Sanna’s company.

Constraint is often described as a key to innovation.  Not having enough of something can lead to all sorts of interesting ideas.  In the case of Charles Sanna, however, his motivation was excess.

Wednesday, March 20, 2019

History Hacks for STEM Majors

(No STEM majors were harmed in the writing of this post.)

History is in a bad way. 

A poll conducted in 2018 revealed that only one in three Americans could pass a U.S. Citizenship Test.  A similar percentage believed Ben Franklin invented the lightbulb.  Twelve percent thought Dwight Eisenhower led troops in the Civil War.

Friday, February 8, 2019

Simple Rules: In Praise of Steve Dodge

A tribute to Steve appeared in the WSJ here.
Let's say you open a small retail store, one where you get to know all of your customers by name.  Things go so well that you open another store, and another, and the stores grow, and pretty soon you not only don't know all your customers, you don't even know all of your employees.

That's what happened to Harry Gordon Selfridge (1857-1947), the founder of London's Selfridges department store.  Selfridge had so much success that he decided he needed a simple rule to serve the customers he could no longer meet each day and the employees he could no longer mentor.  His rule: The customer is always right.

Wednesday, January 9, 2019

25 Rules for Writing a Book

1. Pick a topic that is bigger than you are capable of handling, something like the history of entrepreneurship in America.

2. Choose the wrong architecture for the book.  This is important because, while you think you're going to Mars, you'll actually be heading for Uranus.

3. Do lots of time-consuming primary research that you will throw away later.

4. Stop a year into the research process to write another book about, say, the history of modern air conditioning.

5. Realize that some of what you learned writing the other book could be used for the book you were already writing, but in the middle section.  So, research and write the middle section of your book.  And, as you put the cart before the horse, carefully maintain the wrong architecture.