Sunday, April 17, 2022

Gambling or Groceries?



Following on the post about sustaining software, here’s an opposing argument. 

Go big or go home. Deliver shocking value. Focus attention on exponential results instead of linear ones. Leverage your investment into the biggest possible return.

All of those exciting phrases are exciting because they mean increasing risk. Some are drawn to that risk, preferring to be a dead eagle than a live turkey. “No one ever achieved greatness by playing it safe” said Harry Gray. There’s truth to this statement: taking risk does not guarantee a reward, but a high degree of risk avoidance can guarantee the absence of reward.

And so, the question becomes how to balance pursuit of risk against safe bets, which luckily is the sort of thing that businesses have been thinking about for a long time. Unfortunately, some of the tools available to the finance department may not work as well for a product team. For instance, diverse asset allocation makes a ton of sense for a financial advisor, and is a legitimate company goal up to the point of market saturation, but becomes less great when you’re spreading your development efforts across unique and unrelated product efforts. The essence of strategy is making choices, after all, and it's potentially hard to be unified behind a single strategy as well as diversified in your investments. Still, the idea of isolating risk budget from non-risk budget has merit.

Therefore we think of gambling versus groceries, or more prosaically, Research and Development. The gambling side of the house does research into ideas that become new products, and the groceries side of the house develops and maintains the products that already exist. A very sensible model, but one that has been known to produce a house divided. If internal political pressures or external market drivers shift an R&D organization into full groceries or full gambling, then another organization will most likely be formed or funded to solve the other need.