More issues with Slack

A long time back I’d written about how Slack in some ways was like the old DBabble messaging and discussion group platform, except for one small difference – Slack didn’t have threaded conversations which meant that it was only possible to hold one thread of thought in a channel, significantly limiting discussion.

Since then, Slack has introduced threaded conversations, but done it in an atrocious manner. The same linear feed in each channel remains, but there’s now a way to reply to specific messages. However, even in this little implementation Slack has done worse than even WhatsApp – by default, unless you check one little checkbox, your reply will only be sent to the person who originally posted the message, and doesn’t really post the message on the group.

And if you click the checkbox, the message is displayed in the feed, but in a rather ungainly manner. And threads are only one level deep (this was one reason I used to prefer LiveJournal over blogspot back in the day – comments could be nested in the former, allowing for significantly superior discussions).

Anyway, the point of this post is not about threads. It’s about another bug/feature of Slack which makes it an extremely difficult tool to use, especially for people like me.

The problem is slack is that it nudges you towards sending shorter messages rather than longer messages. In fact, there’s no facility at all to send a long well-constructed argument unless you keep holding on to Shift+Enter everytime you need a new line. There is a “insert text snippet” feature, but that lacks richness of any kind – like bullet points, for example.

What this does is to force you to use Slack for quick messages only, or only share summaries. It’s possible that this is a design feature, intended to capture the lack of attention span of the “twitter generation”, but it makes it an incredibly hard platform to use to have real discussions.

And when Slack is the primary mode of communication in your company (some organisations have effectively done away with email for internal communications, preferring to put everything on Slack), there is no way at all to communicate nuance.

PS: It’s possible that the metric for someone at Slack is “number of messages sent”. And nudging users towards writing shorter messages can mean more messages are sent!

PS2: DBabble allowed for plenty of nuance, with plenty of space to write your messages and arguments.

 

Generalist and specialist managers

A really long time ago, I’d written this blog post about “comparative advantage” versus “competitive advantage” employees. A competitive advantage employee is better at a particular kind of task or skill compared to the rest of the team, and he is valued for that kind of skill.

A comparative advantage employee, on the other hand, is “dominated” by at least one other person in the team – in the sense that someone else is better than this person at everything required for the job. In that sense, the value that the comparative advantage employee adds is by taking load off his colleagues, and allowing them to do more (and focus on the more productive parts of their jobs).

Thinking about it now, I realise that a similar classification exists from the manager’s perspective as well. And this is broadly correlated with whether the manager manages a “generalist” or a “specialist” team.

A specialist manager manages a team all of whose members work on and excels at one specialist task. This task could come from any part of the organisation – it could be sales or a particular kind of operations, or some financial activity or whatever. The defining feature of this kind of task is that it is usually repetitive and needs to be done in high volumes. Such tasks also offer high “returns to experience”.

The average employee of a specialist team is usually a “comparative advantage” employee. In most cases, such an employee is likely to be “dominated” by the manager, and the value he adds is by taking the load off the manager and allowing him to do more. Over the course of time, he becomes good enough at the job to become a manager himself, and the cycle continues – he will manage a team of people who are mostly inferior to him in the job.

Due to managers dominating direct reports, such teams end up being largely hierarchical, and there can be a tendency for the manager to micro-manage – if you are better at the task than the person actually doing it, you can do worse than giving specific instructions.

Generalist managers, on the other hand, manage teams that involve at least a few competitive advantage employees. What this implies is that there is a set of people who are better than the manager at certain parts of the business. The manager’s role in such a team is more of a facilitator, in terms of bringing the team together and coordinating in a way that they can maximise the team’s effectiveness.

Generalist managers seldom micromanage, since usually their team members know better (literally). They are also usually open-minded, since extracting full value from the team means recognising each member’s strengths (and consequently their own weaknesses). They learn the art of asking questions and verifying insights and work of the team in a cheap manner (remember from complexity theory that the complexity of verifying a solution can be much lower than the complexity of finding a solution).

Regular readers of the blog might have anticipated this paragraph – the trouble comes when a generalist manager has to manage a specialist team or the other way round.

A generalist manager managing a specialist team may not offer as much as he can to the team based on his experience. He might be too hands-off and team members used to more handholding and direction might feel lost. And so on.

A specialist manager managing a generalist team can be more damaging – not appreciating that some members might know more about some parts of the business might limit the performance of the team (since what the team can do is limited by what the manager knows). Also too much micromanagement on employees who know better about some parts of the business than the manager can result in disillusionment and ultimately backfire on the manager.

I wonder if this has something to do with the Peter Principle!

Freelancing and transaction costs

In the six years of running my own consulting business, I’d forgotten about an essential part that you need to endure as part of a job – piecemeal work. It is fairly often when you’re working for someone else that you get work that is so tiny or insignificant that you can hardly take ownership of it. The best strategy for dealing with it is to quietly get it over with and hope you won’t get such stuff again.

However, sometimes you can get caught in a rut of continuously getting this kind of work, and start wondering what you actually signed up for. And this is one thing I hadn’t expected to encounter when I got back to full time working earlier this year.

Thinking about why I never had to encounter such stuff during my consulting life, I realised there’s a fairly simple explanation – transaction costs.

Being a consultant is high transaction cost business. Every time you need to take on a new piece of work, you need to go through the charade of negotiating specifics with the client, pricing and drawing up a contract. All put together, the effort is not insignificant.

Moreover, in the line of work that I used to do, there was this massive overhead cost of understanding, cleaning and getting comfortable with the client’s data  – the effort involved in that meant that after a particular point in time I stopped taking work that wasn’t chunky enough. For a while I started refusing such work, but then got smarter and started pricing myself out of such work (though some clients were generous enough to meet that price to get their little tasks done – effectively I’d passed on the transaction costs to them).

The downside of this, of course, was that there was a fair amount of money I could have made taking up small works which I didn’t since the transaction cost was too high – this can be thought of as potential lost revenues. The upside was that whatever work I did was of high quality and (hopefully) made a big impact on the client’s business.

In the nature of the firm, Ronald Coase wrote that the purpose of the corporation was that transaction cost of dealing with co-workers can be eliminated. But then, I realise that sometimes this transaction cost can also be a good thing!

Oh, and obligatory plug here – my book Between the buyer and the seller deals with transaction costs, among other things. It’s available for sale (both in print and digital) on Amazon.

 

The nature of the professional services firm

This is yet another rejected section from my soon-t0-be-published book Between the buyer and the seller


In 2006, having just graduated from business school, I started my career working for a leading management consulting firm. This firm had been one of the most sought after employers for students at my school, and the salary they offered to pay me was among the highest offers for India-based jobs in my school in my year of graduation.

The elation of being paid better than my peers didn’t last too long, though. In what was my second or third week at the firm, I was asked to help a partner prepare a “pitch deck” – a document trying to convince a potential client to hire my firm for a piece of work. A standard feature in any pitch deck is costing, and the cost sheet of the document I was working on told me that the rate my firm was planning to bill its client for my services was a healthy multiple of what I was being paid.

While I left the job a few months later (for reasons that had nothing to do with my pay), I would return to the management consulting industry in 2012. This time, however, I didn’t join a firm – I chose to freelance instead. Once again I had to prepare pitch decks to win businesses, and quote a professional fee as part of it. This time, though, the entire billing went straight to my personal top line, barring some odd administrative expenses.

The idea that firms exist in order to take advantage of saving in transaction costs was first proposed by Ronald Coase in what has come to be a seminal paper in 1937. In “The Nature of the Firm”, Coase writes:?

The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism. The most obvious cost of ‘organising’ production through the price mechanism is that of discovering what the relevant prices are.

In other words, if an employer and employee or two divisions of a firm were to negotiate each time the price of goods or services being exchanged, the cost of such negotiations (the transaction cost) would far outstrip the benefit of using the price mechanism in such a case. Coase’s paper goes on to develop a framework to explain why firms aren’t larger than they were. He says,

Naturally, a point must be reached where the costs of organising an extra transaction within the firm are equal to the costs involved in carrying out the transaction in the open market.

While Coase’s theories have since been widely studied and quoted, and apply to all kinds of firms, it is still worth asking the question as to why professional services firms such as the management consulting firm I used to work for are as ubiquitous as they are. It is also worth asking why such firms manage to charge from their clients fees that are far in excess of what they pay their own employees, thus making a fat spread.

The defining feature of professional services firms is that they are mostly formed by the coming together of a large number of employees all of whom do similar work for an external client. While sometimes some of these employees might work in teams, there is seldom any service in such firms (barring administrative tasks) that are delivered to someone within the firm – most services are delivered to an external client. Examples of such firms include law firms, accounting firms and management consulting firms such as the one I used to work for (it is tempting to include information technology services firms under this banner but they tend to work in larger teams implying a higher contribution from teamwork).

One of my main challenges as a freelance consultant is to manage my so-called “pipeline”. Given that I’m a lone consultant, there is a limit on the amount of work I can take on at any point in time, affecting my marketing. I have had to, on multiple occasions, respectfully decline assignments because I was already tied up delivering another assignment at the same point in time. On the other hand, there have been times (sometimes lasting months together) where I’ve had little billable work, resulting in low revenues for those times.

If I were to form a partnership or join a larger professional services firm (with other professionals similar to me), both my work and my cash flows would be structured quite differently. Given that the firm would have a reasonable number of professionals working together, it would be easier to manage the pipeline – the chances of all professionals being occupied at any point in time is low, and the incoming work could be assigned to one of the free professionals. The same process would also mean that gaps in workflow would be low – if my marketing is going bad, marketing of one of my busy colleagues might result in work I might end up doing.

What is more interesting is the way in which cash flows would change. I would no longer have to wait for the periods when I was doing billable work in order to get paid – my firm would instead pay me a regular salary. On the other hand, when I did win business and get paid, the proceeds would entirely go to my firm. The fees that my firm would charge its clients would be significantly higher than what the firm paid me, like it happened with my employer in 2006.

There would be multiple reasons for this discrepancy in fees, the most straightforward being administrative costs (though that is unlikely to account for too much of the fee gap). There would be a further discount on account of the firm paying me a regular salary while I only worked intermittently. That, too, would be insufficient to explain the difference. Most of the difference would be explained by the economic value that the firm would add by means of its structure.

The problem with being a freelance professional is that times when potential clients might demand your services need not coincide with the times when you are willing to provide such services. Looking at it another way, the amount of services you supply at any point in time might not match the amount of services demanded at that point in time, with deviations going either way (sometimes you might be willing to supply much more than what is demanded, and vice versa).

Freelance professionals have another problem finding clients – as individual professionals, it is hard for them to advertise and let all possible potential clients know about their existence and the kind of services they may provide. Potential clients have the same problem too – when they want a piece of work done by a freelance professional, it is hard for them to identify and contact all possible professionals who might be able and willing to carry out that piece of work. In other words, the market for services of freelance professionals is highly illiquid.

Professional services firms help solve this illiquidity problem through a series of measures. Firstly, they acquire the time of professionals by promising to pay them a regular income. Secondly, as a firm, they are able to advertise and market the services of these professionals to potential clients. When these potential clients respond in the affirmative, the professional services firms sell them the time of professionals that they had earlier acquired.

These activities suggest that professional services firms can be considered to be market makers in the market for professional services. Firstly, they satisfy the conditions for market making – they actually buy and take on to their books the time of the professionals they hire, giving them a virtual “inventory” which they try to sign on. Secondly, they match demand and supply that might occur at different points in time – recruitment of employees occurs asynchronously with the sale of business to clients. In other words, they take both sides of the market – buying employees’ time from employees and selling this employees’ time to clients! Apart from this, firms also use their marketing and promotional activities that their size affords them to attract both employees and clients, thus improving liquidity in the market.

And like good market makers, firms make their money on the spread between what clients pay them and what they pay their employees. Earlier on in this chapter, we had mentioned that market making is risky business thanks to its inventory led model. It is clear to see that professional services firms are also risky operations, given that it is possible that they may either not be able to find professionals to execute on contracts won from clients, or not be able to find enough clients to provide sufficient work for all their employees.

In other words, when a professional joins a professional services firm, the spread they are letting go of (between what clients of their firms pay the firms, and what professionals draw as salaries) can be largely explained in terms of market making fees. It is the same case for a client who has pays a firm much more than what could have been paid had the professional been engaged directly – the extra fees is for the market making services that the firm is providing.

From the point of view of a professional, joining a firm might result in lower average long-term income compared to being freelance, but that more than compensates for the non-monetary volatility of not being able to find business in an otherwise illiquid market. For a potential client of such services also, the premium paid to the firm is a monetisation of the risk of being unable to find a professional in an illiquid market.

You might wonder, then, as to why I continue to be a freelance professional rather than taking a discount for my risks and joining a firm. For the answer, we have to turn back to Coase – I consider the costs of transacting in the open market, including the risk and uncertainty of transactions, far lower than the cost of entering into a long-term transaction with a firm!

Scott Adams, careers and correlation

I’ve written here earlier about how much I’ve been influenced by Scott Adams’s career advice about “being in top quartile of two or more things“.  To recap, this is what Adams wrote nearly ten years back:

If you want an average successful life, it doesn’t take much planning. Just stay out of trouble, go to school, and apply for jobs you might like. But if you want something extraordinary, you have two paths:

1. Become the best at one specific thing.
2. Become very good (top 25%) at two or more things.

The first strategy is difficult to the point of near impossibility. Few people will ever play in the NBA or make a platinum album. I don’t recommend anyone even try.

Having implemented this to various degrees of success over the last 5-6 years, I propose a small correction – basically to follow the second strategy that Adams has mentioned, you need to take correlation into account.

Basically there’s no joy in becoming very good (top 25%) at two or more correlated things. For example, if you think you’re in the top 25% in terms of “maths and physics” or “maths and computer science” there’s not so much joy because these are correlated skills. Lots of people who are very good at maths are also very good at physics or computer science. So there is nothing special in being very good at such a combination.

Why Adams succeeded was that he was very good at 2-3 things that are largely uncorrelated – drawing, telling jokes and understanding corporate politics are not very correlated to each other. So the combination of these three skills of his was rather unique to find, and their combination resulted in the wildly successful Dilbert.

So the key is this – in order to be wildly successful, you need to be very good (top 25%) at two or three things that are not positively correlated with each other (either orthogonal or negative correlation works). That ensures that if you can put them together, you can offer something that very few others can offer.

Then again, the problem there is that the market for this combination of skills will be highly illiquid – low supply means people who might demand such combinations would have adapted to make do with some easier to find substitute, so demand is lower, and so on. So in that sense, again, it’s a massive hit-or-miss!

Selling yourself for job and consulting

So for the first time in over eight years, I’m looking for a job. This was primarily prompted by my move to London earlier this year – a consulting business where you rely on networks rather than a global brand to get new business cannot be easily transplanted. Moreover, as I’d written a year back, a lot of the objectives of the “portfolio life” have been achieved, so I’m willing to let go of the optionality.

While writing a “Cover Letter” for a job application yesterday I realised what makes selling yourself for a job so much harder than selling yourself for a consulting assignment – in the former case, you need to also communicate a “larger purpose”.

For the last 5-6 years I’ve been mostly selling myself for consulting assignments, and while it hasn’t been easy, all I’ve needed to do to sell has been to convince the potential client that I’ll do a good job solving whatever problem they have, and that my fees is a worthy investment for them. And to some extent I’ve become better over the years making such arguments.

When you’re applying for a job, you not only have to convince the counterparty that you’ll be good at whatever you need to do, and that you are worth the salary that you are asking for, but also need to argue how the job will “improve your life”. You need to explain to them why the job fits in to the list of stuff you’ve already done in your life. You need to talk about where you see yourself 5/10/50 years from now. You need to actually express interest in the job, and irrespective of how mundane the job description, you need to act like it’s the most exciting job ever.

And this is a part I haven’t been good at, basically since I haven’t done any of it for a long time now. And in any case, this is a part of the cover letter that people routinely bluff about, so I don’t know if recruiters even take this part seriously. In any case, I’ve been filling most of my cover letters so far with explanations of how I’ll do an awesome job of the job, and keeping only a cursory line or two about “how the job will improve my life”!

Introverts and extroverts

I find the classification of people into introverts and extroverts to be rather simplistic. While it is bad enough that people are commonly classified into one of these, you also have metrics such as the Myers Briggs Type Indicator (MBTI) that formalise this classification, with top consulting firms actively using such classifications in their day-to-day work.

What makes introvert-extrovert thing complex is that it is not even a spectrum between introversion and extroversion – you can’t say, for example, that you’re “20% introvert and 80% extrovert”. So you can’t even convert the binary classification into a scale.

The thing is that introversion and extroversion is context sensitive. For example, I like to socialise by talking to people (I HATE “catching up” in cinema halls or loud bars, since they don’t allow conversation). In terms of work, though, I largely prefer to be left alone. Even within that, I sometimes like to talk to people when I’m ideating but wholly want to be left alone when I’m executing on something.

And with each person, there might be different contexts in which they might derive energy from people around them, and contexts where they might want to be left alone. And within each context, whether they want to be with or without people is probabilistic, without a good classifier telling when they want to be how.

So introversion or extroversion is a rather large and complex set of personality traits that people have tried to force-fit not only on one axis, but also into binary classifications. And with it being part of management theory as practiced by top strategy consulting firms, it’s simply sad.