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November 2008  
  
One of the differences between big companies and startups is that big
companies tend to have developed procedures to protect themselves against
mistakes. A startup walks like a toddler, bashing into things and falling over
all the time. A big company is more deliberate.  
  
The gradual accumulation of checks in an organization is a kind of learning,
based on disasters that have happened to it or others like it. After giving a
contract to a supplier who goes bankrupt and fails to deliver, for example, a
company might require all suppliers to prove they're solvent before submitting
bids.  
  
As companies grow they invariably get more such checks, either in response to
disasters they've suffered, or (probably more often) by hiring people from
bigger companies who bring with them customs for protecting against new types
of disasters.  
  
It's natural for organizations to learn from mistakes. The problem is, people
who propose new checks almost never consider that the check itself has a cost.  
  
_Every check has a cost._ For example, consider the case of making suppliers
verify their solvency. Surely that's mere prudence? But in fact it could have
substantial costs. There's obviously the direct cost in time of the people on
both sides who supply and check proofs of the supplier's solvency. But the
real costs are the ones you never hear about: the company that would be the
best supplier, but doesn't bid because they can't spare the effort to get
verified. Or the company that would be the best supplier, but falls just short
of the threshold for solvency—which will of course have been set on the high
side, since there is no apparent cost of increasing it.  
  
Whenever someone in an organization proposes to add a new check, they should
have to explain not just the benefit but the cost. No matter how bad a job
they did of analyzing it, this meta-check would at least remind everyone there
had to _be_ a cost, and send them looking for it.  
  
If companies started doing that, they'd find some surprises. Joel Spolsky
recently spoke at Y Combinator about selling software to corporate customers.
He said that in most companies software costing up to about $1000 could be
bought by individual managers without any additional approvals. Above that
threshold, software purchases generally had to be approved by a committee. But
babysitting this process was so expensive for software vendors that it didn't
make sense to charge less than $50,000. Which means if you're making something
you might otherwise have charged $5000 for, you have to sell it for $50,000
instead.  
  
The purpose of the committee is presumably to ensure that the company doesn't
waste money. And yet the result is that the company pays 10 times as much.  
  
Checks on purchases will always be expensive, because the harder it is to sell
something to you, the more it has to cost. And not merely linearly, either. If
you're hard enough to sell to, the people who are best at making things don't
want to bother. The only people who will sell to you are companies that
specialize in selling to you. Then you've sunk to a whole new level of
inefficiency. Market mechanisms no longer protect you, because the good
suppliers are no longer in the market.  
  
Such things happen constantly to the biggest organizations of all,
governments. But checks instituted by governments can cause much worse
problems than merely overpaying. Checks instituted by governments can cripple
a country's whole economy. Up till about 1400, China was richer and more
technologically advanced than Europe. One reason Europe pulled ahead was that
the Chinese government restricted long trading voyages. So it was left to the
Europeans to explore and eventually to dominate the rest of the world,
including China.  
  
In more recent times, Sarbanes-Oxley has practically destroyed the US IPO
market. That wasn't the intention of the legislators who wrote it. They just
wanted to add a few more checks on public companies. But they forgot to
consider the cost. They forgot that companies about to go public are usually
rather stretched, and that the weight of a few extra checks that might be easy
for General Electric to bear are enough to prevent younger companies from
being public at all.  
  
Once you start to think about the cost of checks, you can start to ask other
interesting questions. Is the cost increasing or decreasing? Is it higher in
some areas than others? Where does it increase discontinuously? If large
organizations started to ask questions like that, they'd learn some
frightening things.  
  
I think the cost of checks may actually be increasing. The reason is that
software plays an increasingly important role in companies, and the people who
write software are particularly harmed by checks.  
  
Programmers are unlike many types of workers in that the best ones actually
prefer to work hard. This doesn't seem to be the case in most types of work.
When I worked in fast food, we didn't prefer the busy times. And when I used
to mow lawns, I definitely didn't prefer it when the grass was long after a
week of rain.  
  
Programmers, though, like it better when they write more code. Or more
precisely, when they release more code. Programmers like to make a difference.
Good ones, anyway.  
  
For good programmers, one of the best things about working for a startup is
that there are few checks on releases. In true startups, there are no external
checks at all. If you have an idea for a new feature in the morning, you can
write it and push it to the production servers before lunch. And when you can
do that, you have more ideas.  
  
At big companies, software has to go through various approvals before it can
be launched. And the cost of doing this can be enormous—in fact,
discontinuous. I was talking recently to a group of three programmers whose
startup had been acquired a few years before by a big company. When they'd
been independent, they could release changes instantly. Now, they said, the
absolute fastest they could get code released on the production servers was
two weeks.  
  
This didn't merely make them less productive. It made them hate working for
the acquirer.  
  
Here's a sign of how much programmers like to be able to work hard: these guys
would have _paid_ to be able to release code immediately, the way they used
to. I asked them if they'd trade 10% of the acquisition price for the ability
to release code immediately, and all three instantly said yes. Then I asked
what was the maximum percentage of the acquisition price they'd trade for it.
They said they didn't want to think about it, because they didn't want to know
how high they'd go, but I got the impression it might be as much as half.  
  
They'd have sacrificed hundreds of thousands of dollars, perhaps millions,
just to be able to deliver more software to users. And you know what? It would
have been perfectly safe to let them. In fact, the acquirer would have been
better off; not only wouldn't these guys have broken anything, they'd have
gotten a lot more done. So the acquirer is in fact getting worse performance
at greater cost. Just like the committee approving software purchases.  
  
And just as the greatest danger of being hard to sell to is not that you
overpay but that the best suppliers won't even sell to you, the greatest
danger of applying too many checks to your programmers is not that you'll make
them unproductive, but that good programmers won't even want to work for you.  
  
Steve Jobs's famous maxim "artists ship" works both ways. Artists aren't
merely capable of shipping. They insist on it. So if you don't let people
ship, you won't have any artists.  
  
  
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