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July 2017
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2017-07-27 »

I'm continuing with my business book reading. One interesting concept I've just learned is the idea of "capabilities" (a pretty weird name, but the standard name, for this concept). There are three kinds of business capabilities: resources ("what"), processes ("how"), and priorities ("why").

Ignoring the awkwardness of calling people "resources," in this framework, resources include people, knowledge, and physical assets (like data centers for example). Resources are what finance types tend to do their accounting based on, including when they say "people are our most valuable resource," which is an entirely true statement, especially in a software company.

But most people don't account for processes and priorities when doing evaluations. Non-resource capabilities are very valuable. If you took the same people, removed them from their company, put them in a startup, and let them do whatever they want, that startup would not make nearly as much money as at their original company, at least not for a long time. The reason is that a big company has many processes (how do I get code deployed at scale? how do I decide how much to pay people? how does someone become a manager?) that, as much as we complain, mostly work okay. We also have a system for prioritizing projects and tasks and spending that, as much as we complain, also works okay (in that it prioritizes selling ads which then make a lot of money).

There are many companies without nearly the level of resources of a big company, that do quite well. The trick is that they make more out of those resources, using better processes and better prioritization. Because a big company has huge resources, they can afford to be worse at the other things.

And that's why it's possible for startups to have so little money and still outdo the big companies at some kinds of projects. Processes and priorities are cheap compared to resources, but you can't just buy them. They take a long time to form, and to change when you realize you have the wrong ones.

I'm CEO at Tailscale, where we make network problems disappear.

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