Multipliers Don’t Create

Well, that’s a rather general topic, isn’t it?  Okay, let’s get specific:  in the last twenty years, computers and software, roughly labeled “technology,” have become absolutely ubiquitous and necessary in first-world business.  And yet, human expectations of them have been rather wildly unrealistic, generally being let down in spite of the successes they bring.

These themes have played themselves out in the startup community for two straight decades now, and I’ve been neck-deep in it the entire time.  Companies fail time and time again when it seems like a no-brainer for success.  I’m always a little surprised that people still seem to miss out on what really is going on there.  In the context of this article, let’s pretend it’s a Tom Clancy novel and the tech always works as intended, no failures, okay?

Let’s first answer the implied question:  Why is Tech so commonplace now?

Obviously the first answer from many people in the working-day world is “I can’t do my job without the computer.”  But why is that?  Outside of the people whose jobs are the computer (IT staff, etc.), most people have jobs that either used to be done, or could have been done, in the “real world” with paper and pen, filing, mechanicals, etc.

So what happened here?

The competitive landscape changed.  Tech as a tool is a Force Multiplier.  That’s a military term that generally refers to any mechanism, terrain, or other condition that can make a fighting unit more effective.  Park a squad of infantry in the middle of an open field and call it a “force value” of 1.  Put them in a light forest and you might have a value now of 2 or 3.  Put them in a reinforced bunker with fixed guns and you can really amplify their ability.

Tech in business works as a force multiplier for most jobs it applies to.  The accountant who used to have to slave away at the books with a pencil and a calculator (an early force multiplier, pun intended) now has a PC running Excel (I was tempted to say Lotus there, giving away my Internet age), which can do much of the job far, far faster and enabling that person to do multiple times the amount of work in the same time.  It multiplied that person’s ability to work.

The digital photographer can now snap thousands of shots and find the keepers much faster.  Tech has made film photography largely obsolete.

The astronomer can now sift through enormous mounds of data in a week that in the past would have taken decades to work through.

The marketing and sales execs of companies can determine worthy paths of action based on decision support systems built over the last couple of decades which produce accurate and timely information much faster and more accurately than human calculations and instinct could.

The end result, and the short answer to the question is:  businesses that don’t use Tech as a force multiplier are subject to a hefty disadvantage in the marketplace.  In a capitalist society, where money wins over all, such a disadvantage either amounts to corporate suicide or is suffered as a result of some benefit provided that disallows the use of the multiplier (think: handcrafted woodworks sold in a niche market – obviously can’t use a computer-driven lathe to do the job).

So…tying back to the original theme – how does this relate to human expectations?

Humans, as a rule, don’t “get” computers.  People don’t understand them, they just understand how to use them.  A very low percentage of the population really understand how to convince a computer to do something (and even fewer among them understand what they need to convince the computer to do).

When computing arrived on the scene, it was first a precious commodity.  The investment in computing was serious business, and only the richest could afford it – which is slightly ironic, given its nature in reducing human costs.

In short order, however, computing and the spread of computing devices put computing into commodity status, even children had them – and computing made certain things possible that simply were not possible before, generating the illusion that Tech was a creative force unto itself.  For example:

  • The special effects of the film “Return of the Jedi” would not have been possible without a supercomputer. Later films have moved almost entirely into CGI.  “Avatar” is a prime example of a film with enormous percentages of its shots being entirely computer-enabled.  Tech looks like the creative force here, but isn’t.
  • You, personally, can now carry a device that contains high-fidelity recordings of every piece of music you have ever heard in your life, and has room to contain every piece of music you ever will hear for the rest of your life.  Tech is an enabler here, people begin taking it for granted.
  • You can use a device (probably the same one as from the previous bullet) to connect to and have a conversation with anyone similarly equipped on the planet in seconds. And send them spreadsheets or other files at the same time.  Another tech enabler.
  • Video conferencing, Dick Tracey style (yeah, I remember the comics, get back on topic please) could not be done without Tech.  Very enabling.
  • Distribution of movies was restricted to specially equipped public places and homes of the very wealthy – until Tech came along and offered to deliver practically any film ever direct to your screen, before you’re done making the popcorn.
  • Cars, planes, and nuclear reactors that can run under their own supervision will shortly be the norm.

These things made tech seem like the magical creator that could whisk us into a Jetson’s future.  And so we got the 90s Tech Bubble, the Silli Valley .com boom which is (arguably) still going on.  What we don’t notice among the now-ubiquitous presence of technology and the headline stories of great successes are the millions of other ideas that did not survive.  For every successful business like Amazon.com, thousands died on the vine, even some that catered to extremely large markets.

Many folks don’t remember Pets.com, WebVan.com, Garden.com, Kozmo.com, or Flooz.com – but these were companies valued near or above a billion 1990s USD each, not insignificant chunks of change.  Each of them had a pretty decent idea, even if one or two were a few decades too soon.

Take WebVan.com, for example.  Solid idea, on paper – order your groceries online and schedule their delivery to your home.  Using tech as a force enabler for orders and allocation of distribution resources, great.  What happened here?  The businesspeople involved did not recognize that tech is a multiplier – not a creator.  They assumed that the use of technology would make business problems irrelevant, just a thing of the past.  Because once you’ve got the system humming, it’s just going to keep working, right?

Not so fast.  Webvan never sorted out the basic business premise in the first place, and as a result the quality of their offering suffered.  Their distribution centers cost double what their competitors’ did, with capacities that were double what their own traffic could generate – wasted money.  Their products suffered – people often complained about receiving rotten produce, and who wants to spend an hour on the phone with Customer Support over a rotten lettuce?  They alienated their customers and eventually people stopped buying.

Their management was also roundly criticized for being massively incompetent in the grocery business by the experienced grocers who left the company after acquisitions.  So here you had businesspeople with the expectation that just by “internetting” a business, it could be made successful – no knowledge of that industry needed.

It wasn’t the tech that wrecked them, it was their business execution.  The tech, as a force multiplier, multiplied the impact of their business decisions – in some of these cases, taking a bad situation and making it worse.

There’s also a factor here that isn’t often mentioned – arrogance.  The arrogance of ignorance, of “how hard can it be to sell food?”  This usually happens because the founders are so focused on making a gigantic IPO (because hey, the tech is here and the business has to be easy, right?) that they forget to build – or never really figure out how to build – a really solid business.  If it looks good, it’ll IPO well, or it’ll be acquired by someone else, and then making the company actually work is their problem.  This is a theme which, regrettably, has not departed the tech startup scene.

And this is the same problem suffered in most startups.  The assumption that by just throwing tech into a business one will “disrupt” or “revolutionize” an industry and make the company worth a billion dollars is hugely prevalent.  It’s also hugely wrong.  Oh, there might be a billion valuation somewhere, but the company won’t be worth that price tag – and it will fail despite the big numbers.  So you get a bubble buildup, perceived values exceed actual by a long stretch right up until a collective coming-to-their-senses occurs and everyone’s stock values crash.

When you add tech to a bad business, it doesn’t make the business better, at best it’ll simply add more to the cost of operations, and at worst it accentuates what is worst about the company and result in an accelerated demise.

Pets.com was another good example of this – their premise was to sell pet products and food at big discounts over buying them in the store.  The assumption, that tech as a method of ordering would reach enormous amounts of customers, and the business would be amplified dramatically by this.  They spent monstrous sums on advertising to bring up their brand awareness – this, largely, was successful.

Except what they didn’t drum up was desire to buy.  People, in general, were buying their pet food in grocery stores and the local pet store as they walked past.  Those sales which did get made were at a much lower margin than their competitors had (due to the steep discounts) and operational costs were higher (because the product had to be shipped to the consumer), and suddenly those lines of sales revenue and cost crossed one another – and Pets.com wasn’t earning money.  It was a case where tech was imagined to be the solution, but a solid business simply didn’t exist behind it.

A more modern example, perhaps – which shall remain nameless.  Taking payday loans (the predatory interest short-term loans designed to get people hooked and keep pumping them for interest and penalties) and stick them on the internet.  Again, top management with zero prior experience in the field, hyping up about how they’ll be a “billion-dollar” valuation – looking at their exit.  Throw tech at it and it’ll all work out, right?

Except it won’t.  The business showed minor successes at first and received a lot of press, developing the illusion of quality, but with a less-than-optimal development team, a deeply unethical product line in an age where social awareness of disadvantage is becoming mainstream, competitors already present in the marketplace offering more ethical and more affordable products, and a management team desperate to make their exit, the business is on a collision course with its iceberg.

The overwhelming theme in these cases are the assumptions that tech will create the magical conditions where a business will succeed. 

The raw fact is:  tech won’t do that.

The business model must be correct, and tech can’t really help that (at some point in the future, courtesy of AI and learning algorithms, that might change).  That means management must be capable of building a good, solid business – and that MUST be their focus.  Not their “exit.”  Notice I’m not saying the business has to exist first – it doesn’t.  What I am saying is that tech doesn’t create the business – the people behind it do.  Tech enables the business to accelerate, enables it to operate faster, become successful faster, reach more people faster.

The holy grail of all this?  The Business.  Building a lot of hype and a lot of awareness are great, but if the Business behind it all simply doesn’t work, it’ll just be a very costly and public embarrassment when the whole thing crashes.    The Business is the product inside the wrapper, the hype and awareness are the wrapper – if the product is bad, most people won’t buy.  You might find the occasional sucker among investors to sink a big chunk of change blindly into further funding a bad business, and you might trick the public with a hyped IPO (images of The Wolf of Wall Street come to mind), but in the end, if the business is bad, it won’t survive.  Tech cannot stop that any more than throwing more money into the hole.  It can only act upon what already exists.  And if the processes in place generate more cost than revenue, tech will only make that loss happen faster.  Investors and fund managers would be well advised to keep in mind that they might be better off ignoring the tech flash when doing their due diligence (unless of course, the tech is core to the business).

On the other hand, if you have a good business model, of course tech can amplify that successful business and carry it around the globe in a matter of seconds (hours if you’re running on CDN resources).

And then, only then, will that tech be the force multiplier that creates a front-page story that will give people something to really smile about.  What might have been a local success story can be taken to extremes never before imagined, case in point – Amazon.com.

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