Subject: Re: Larry Ellison on FSBs
From: "Ben Tilly" <btilly@gmail.com>
Date: Tue, 25 Apr 2006 15:29:37 -0700

 Tue, 25 Apr 2006 15:29:37 -0700
On 4/25/06, Thomas Lord <lord@emf.net> wrote:
> Ben Tilly wrote:
> > Then you heard wrong.  It is a book about how traditional  good 
> > management can be a form of corporate suicide in certain situations,
> >
> That's a pretty funny use of the word "good".   We're saying the same
> thing in different ways.

Here's a suggestion.  If it seems that I'm saying something really
stupid, then either I'm being a moron, or I'm not saying what you
think I am.  Rather than continually responding on the assumption that
the first is true, perhaps you might want to consider the second
possibility.

Which of the following do you consider to be BAD management practices?

- Listening to customers.
- Pursuing lines of business that make money.
- Avoiding lines of business where you're losing money.
- Giving money to suborganizations that you're trying to grow.

If you consider these traditional good management practices, then
you've accepted all of the ingredients of disaster in a disruptive
innovation situation.

> I'm really struck by your noting how throwing money at the
> problem of a disruptive innovation is bogus.   That seems right
> to me (and like a mgt fundamental).   Have you considered running
> for congress or trying to become the head of a federal agency?

The problem is that you'll create an organization that is sized wrong
for the target opportunity.  You'll also likely crate a dependency on
your regular cash infusions.

> What do you think of this strategy for someone with deep pockets
> wanting to get into the GNU/Linux business as a small part of a
> larger business that wants a GNU/Linux subsidiary:
>
> Year 1:  10 quasi-competing managers, $5M each.
> Year 2: 4 quasi-competing managers, $7M each.
> Year 3: 1 manager: $15M + share of revenues generated
> Year 4+: $10M + share of revenues.

Sounds like a bad idea.

> And that's it.  Just the money.  No facilities included other than a
> small cubicle for the mgr at the home office.

What do you think of the same strategy, only with an extra 0 added to
the end of each figure?  What do you think of the same strategy with
one zero removed?  Depending on the size of the opportunity to be
found, you have no idea how much money there is to be found, and hence
no idea of how much money is appropriate as a seed.  Those figures are
very unlikely to be realistic.

(Also without a business plan, you have no idea whether there is a
good way to spend $5 million in a year.)

> > In fact he explains, in detail, how managing by accepted principles
> > forces companies to go down a dead end and off the cliff.  And why it
> > is so hard to avoid doing that.  (Even if people at the top recognize
> > it, which they often do, their organizations are structured to fight
> > against moving in the needed direction.  And they can't restructure
> > the organization without losing their existing profitable businesses.)
> >
> Oracle has an advantage at the very top of the market where value-based
> pricing
> in terms of rock-solid stability and future is worth every penny.
> That's a good
> foundation on which to experiment a bit in the rest of the market.

That's an advantage that many before them have had.  It hasn't always
worked out well.  If you're curious about why not, then you should
read the books that I've suggested.

Cheers,
Ben