My old company was acquired by Ant Financial a few months ago. I’d known for some time, of course, but only recently caught up with my old boss to celebrate. I told him about the business adventures I’d been on after my Judo experiment. He told me about the journey that led to the acquisition, and what he’d been up to ever since. (He was effectively retired for about a year before the acquisition; it was not like things were very different for him, materially speaking.) But he was — as always — up to interesting business adventures. We took some time to reflect on our journey together.
Those of you who have been reading Commoncog for a few years know that I cut my teeth building a Point of Sales company in Vietnam and Singapore from late 2014 to the end of 2017. I helped my old boss bootstrap it from nothing to S$4.5 million in annual revenue. I explained how we did this in Fundraising Without Investors — an essay I waited years to write because the strategy that we discovered together was still in play after I’d left the company. It was also an essay that I left behind the Commoncog paywall, for obvious reasons: I didn’t want the story to spread too far, too quickly.
In the years since I’d left, my boss evolved the strategy further than I ever imagined was possible. “The DD (due diligence) with Ant was about a year long,” he said, “My conclusion is that they wanted to see how we operated.”
It turned out that along the way, we’d beat all of the Singapore-based startups that they’d invested in.
“I’m still not sure why they picked me”, he said at one point in our conversation. “I mean, I’m just a small-time Singaporean businessman.”
And I laughed. “No no,” I said, “You’re not.” I told him that the fact that he’d figured out a strategy and then executed on it was very rare:
“You know, I’ve met many businesspeople in the years after I left. Some of them are Asian, but also a lot of them from the West. Most businesspeople I know just execute blindly. They do whatever makes money, and then before they know it they’re doing nine different things, none of which fits together, all of which produces some temporary advantage. But what you did was different. Even when I left the company was a very coherent business — every bit worked together to exploit that original insight we found years ago. How you worked was not normal.”
I’m sure he knew this, of course. My old boss was a successful value investor before he ever became an operator.
We talked through some other aspects of the deal, and then as the dinner drew to a close, I got sentimental.
“I am very grateful that I worked for you,” I told him. “A lot of how I think about business today is shaped by what I saw during my time with you.”
“Thanks,” he said, grinning, and then I ordered dessert.
Coherence
One of the bigger things I learnt whilst working for my old boss was this concept called coherence. Coherence is easy to describe: it means that every part of your business works to strengthen every other part. Or, to put this more precisely: every tradeoff you make fits together to exploit some core insight that you have about your market — in a way that makes it difficult for competitors to copy you, and makes it more attractive for customers to buy from you.
I use ‘coherence’ because it is more precise and harder to lie about. It is easy to throw around words like ‘strategy’ and say things like ‘we found a strategy that works’ and ‘I’ve come up with a strategy for my company’. But what is strategy, really? The term is so overloaded today that it means almost nothing.
Coherence, on the other hand, is concrete. Coherence is the output of good strategy, and it is difficult to lie to yourself if your business has no coherence. Either large parts of your business works together to reinforce some core strength, or it doesn’t.
If you want an example of an extremely coherent business, check out Costco (click the link and go through the slides rapidly). Every tradeoff that Costco makes reinforces every other tradeoff. Costco is an anomaly, however. Most coherent businesses I know aren’t that coherent. In fact the norm is that most coherent businesses will have a few arms sticking out that look like random appendages — bits that don’t reinforce the core strength.
For a slightly less coherent (but still very coherent) business, read this 1991 memo by a then-36 year old Bill Gates. Microsoft was all over the place in the 80s. They were in applications across three operating systems, in dev tools for DOS and Windows, competing against Borland in compilers, building spreadsheets and word processing software on the Mac (but had completely given up against Lotus 1-2-3 and WordPerfect on their own operating system, DOS). Plus they were building two different operating systems — DOS and Windows. To call Microsoft overstretched in the 80s was to put it mildly: as an example, the core Excel team was 12 people; Lotus 1-2-3 had over 100 programmers. Bill Gates looked at the mess around him and took a week off to think about the problems facing the company. The memo he sent after this ‘Think Week’ set the strategy for Microsoft for all of the 90s. It is easy to see how his memo gave clarity to the rank-and-file — decades later, in his memoirs, Microsoft veteran Steven Sinofsky writes:
In fact, the memo codified what the market had seemingly decided — the winner was Windows. Bill was clarifying, crystalizing, and emphasizing that point with specific calls to action. He made sure that everyone knew OS/2 was no longer a priority and that we now had a strategy that was entirely Windows. In concluding he restated this as “The simplest summary is to repeat our strategy in its simplest form – ‘Windows’ – one evolving architecture, a couple of implementations and an immense number of great applications from Microsoft and others.”
What Gates was doing was strategy. What is strategy? Business professor Richard Rumelt has a formulation that I think about a lot. In Good Strategy, Bad Strategy Rumelt writes that every good strategy has three pieces:
- A diagnosis: a description of the playing field. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as critical.
- A guiding policy: an overall approach chosen to cope with or overcome the challenges identified in the diagnosis.
- A set of coherent actions: a set of actions that are designed to carry out the guiding policy. These are steps that are coordinated with one another to work together in accomplishing the guiding policy.
If you read the text carefully, you’ll see that Gates’s memo has all three components:
- Diagnosis: Windows 3.0’s unexpected breakout success gives us (Microsoft) an opening. If we double down on Windows, we should be able to take away applications market share from our competitors, fend off IBM’s OS attack, and secure our systems software franchise.
- Guiding policy: “Windows — one evolving architecture with hardware freedom for all users and freedom to choose amongst the largest set of applications.”
- Coherent actions: Every initiative — from dev tools to apps to system software — now prioritises the success of Windows, in every way possible. Deprioritise projects that focus on competitive operating systems.
The great irony is that I hated Rumelt’s definition when I first read it … about the same time that we were coming up with our strategy for winning in the Singapore POS market.
I won’t go into detail here, since the full story is covered in the aforementioned essay. Basically, my boss and I discovered that a particular segment of the POS market in Singapore was distorted … and then we reorganised the entire business to exploit that distortion. The easy money we made from this market funded all the other activities we did in the business, until such time that the market distortion vanished.
Were we the only companies exploiting this? No. There were a few other companies; you could say that we had stumbled onto a ‘Cornered Resource’ Power (in the language of Hamilton Helmer’s 7 Powers). But what made all the difference was how we exploited the distortion — and how we used the temporary, supernormal profits that we generated. Our competitors enjoyed the ‘free’ profits but didn’t think through the implications; we, took those implications seriously enough to follow them to their logical conclusions.
My old company killed our direct competitors a few years after I left, and then my boss basically ‘retired’.
Chaos
With the benefit of hindsight, I realise now that perhaps I had learnt the wrong lessons from running strategy under my old boss.
I knew I had experienced something unusual. Years later, when I started reading Warren Buffett and Charlie Munger more seriously, I began to realise that what we had found was an ‘economic moat’: something that prevented competitors from arbitraging away the large profits we earned.
But it took me a long time to come around to the idea that we had done ‘strategy’, and longer to admit that thinkers and writers like Richard Rumelt and Roger Martin had developed language that accurately described what we were doing. (I thought all academic discussion of strategy was rubbish — so little of what I’d read during that period I found helpful).
Worse, having experienced coherence once, I mistakenly believed that coherence was all-important. I refused to explore business activities that I thought would not lead us to coherence. (Or, more accurately, I refused to try business activities where I could not imagine leading to eventual coherence in my businesses). I looked down on entrepreneurs who were chaotically thrashing about.
I refused to be chaotic.
This language around chaos is carefully chosen. A few weeks ago, angel investors Chris Barber and Charlie Songhurst published an article titled The Chaos-to-Conscientiousness Phase Transitions. In it, they introduced the idea that there are — broadly speaking — two types of founders: high chaos founders, and high conscientious founders.
The argument goes that each type works best for different types of startups, and they face different challenges as their companies scale.
High chaos founders excel at network effect startups, because a strong network effect hides the weaknesses of chaos. In other businesses, their natural chaos becomes a liability during scaling. So they have to learn conscientiousness as they grow; growth tends to demand structure and process.
High conscientious founders do better with companies like B2B SaaS startups, where their methodical approach works brilliantly. But then they struggle if they’ve tapped out their original market and need to launch new products or expand into other markets — because, surprise, surprise, uncertainty isn’t their strong suit.
I realised that a) my default leaning is towards conscientiousness, and b) my aversion to chaos was an emotional response to my time with my old boss. I was the person who made the ‘trains run on time’, after all. My boss was the chaotic one. In fact, it was probably worse than that: my conscientiousness enabled my boss to act more chaotically than normal.
As an example, it was not uncommon for him to ping me on, say, a Wednesday, and go “Oh, I forgot about this important customer, we have a demo scheduled for Friday. I need you to pull engineers off whatever they’re working to build a prototype for the demo.”
“Two days from now?!” I would exclaim. “When did this deal close?”
He would grin sheepishly: “Err, two months ago.”
This was, to be clear, terrible for us — every engineer I had was working on customisations for customers with deadlines the following week. Pulling an engineer off meant being yelled at by another customer in a week’s time.
This chaos was often too much for me. Before I worked for my old boss, I was quite willing to do random, uncomfortable experiments in the projects I ran (which was how we built the NUS Hackers from scratch). But this level of chaos was often too horrible, and in my opinion unnecessary. In this particular example, the deal closed more than two months ago. There was no reason to tell us so late!
So I was traumatised. And I swore to myself that when I ran my own company, I would do away with the chaos. Just coherence, no mad scramble for survival.
But this was the wrong lesson. It turns out that some amount of chaos is necessary to build a good business — it’s the only way you can generate enough information to figure out what you can use for your strategy. If you don’t take enough chaotic actions, cut random deals, or start random new products, you won’t unearth the Lego blocks that you can combine into new, coherent parts of your business.
Sure, the mistake that most entrepreneurs make is that they focus on making money with no regard for coherence. But my mistake was in not taking enough chaotic actions — enough, that is, to generate the information I needed to come up with strategy. Seen from this lens, my old boss was ten times the entrepreneur I was.
My boss had to learn conscientiousness after I left. There was a time where things in his business broke down, and he had to return from his retirement to fix systems and processes. But he succeeded, clearly. On the other hand, I needed to learn chaos. And so Barber and Songhurst’s essay came at just the right moment; this acquisition was as good a time as any to learn this.
Originally published , last updated .
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