Excerpts from the annual letter
The problem with customer obsession is that optimizing for delivering value to customers can cause a company to make structural choices that are detrimental to the company's long term operational efficiency. A company that is inefficient becomes painful to work for; when a company becomes painful to work for, the best people leave – and when the best people leave, a company becomes disadvantaged in its pursuit of delivering value to customers. Paradoxically, customer obsession as a company's paramount operating principle can lead to a declining experience for the customer over time.
“The kind of work tied to running a production service that tends to be manual, repetitive, automatable, tactical, devoid of enduring value, and that scales linearly as a service grows.”
If "fear is the mind killer," toil is the soul-killer. Eliminating toil allows people to focus on the inherent complexity of the difficult, interesting problems at hand, rather than the incidental complexity caused by choices made along the way. Of course, most companies are neither customer- nor operations-obsessed, and, without an explicit optimization function, drift around aimlessly with middling results.
To be sure, a customer-obsessed company can also prioritize operational excellence, just as an operations-obsessed company can also – must also – prioritize delivering exceptional customer value. The difference between the two comes at the margins: when push comes to shove, what takes priority? In other words: will the company incur toil in order to further its success with customers? Or will it leave upside – that is, revenue or profit – on the table in order to further its long-term operational advantage?
Stedi is definitively in this latter category: we are an operations-obsessed company. When push comes to shove, we are willing to leave revenue or profit on the table in order to reach ever-lower levels of operational toil.
Most of us have heard the first law of thermodynamics, though likely aren't familiar with it by name – it's also called the law of conservation of energy, and it states that energy can neither be created nor destroyed.
“The universe as a whole is drifting from a state of order to a state of disorder[…]over time, all order, structure, and pattern in the universe breaks down, decays, and dissipates. Cars rust, buildings crumble, mountains erode, apples rot, and cream poured into coffee dissipates until it is evenly mixed.”
Stedi itself is a thermodynamic system. It imports energy in the form of capital (either from investors or from customers), which it uses to pay humans – that is, all of us – to create order and structure in the form of software that our customers can use, along with the various business systems required to support that customer-facing software.
You and I are thermodynamic systems, too – we use some of that capital to buy food, and we use the energy stored in that food to repair that damage that entropy has done since our last meal and to power the energy-hungry brain that works to build Stedi. From a thermodynamic standpoint, the food we eat becomes the intellectual assets – code, pixels, docs, emails, and more – that makes Stedi, Stedi. I think that's pretty remarkable (it's also another great reason why Stedi pays for lunch).
Another way of thinking about this is that if we continue to mitigate toil wherever we find it, we'll find ourselves with ever-larger amounts of time to work on building new order and structure for our customers. That's the basic reason why an operations-obsessed business model wins out over a long enough time horizon: it's designed to minimize the surface area upon which entropy can do its work.
When we choose to whom and to what we outsource our fight against entropy, there are a number of questions to ask ourselves. Is the entity in question – be it a library or a service or a company – winning, losing, or standing still in the fight against entropy? Pick a GitHub library at random, and the overwhelming odds are that there hasn’t been a commit made in recent history – the library is rotting. Amongst more popular libraries, the picture is better, with brisk roadmaps and regular housekeeping.
When it comes to managed services, though, it’s quite rare to find a company that's winning – the vast majority of Software-as-a-Service companies are either treading water or falling behind. NetSuite is one example; it’s in some state approaching disrepair – no reasonable onlooker would say that NetSuite is definitively winning the war against entropy (though it certainly seems to be winning the war for market share). It has so much surface area that it has to dedicate an overwhelming percentage of its resources just to fight decay, leaving little to build new order and structure. Once a company reaches this state, it’s extraordinarily unlikely that it will ever recover.
There are certainly counterexamples, like AWS, GCP, and Stripe. They are good operational stewards of their production services and they routinely create new and valuable order and structure. But even then, we have to dig deeper: do they truly insulate us from the fight against disorder and decay, or do they leak it through in batches? Each time a provider like GCP deprecates a service or makes a breaking API change, they push entropy back onto us.
Same goes for price increases. A SaaS provider brings the code within the boundaries of their own infrastructure – that is, the thermodynamic system for running and operating the code – and we have to give them energy (in the form of money, which is a store of energy) as compensation. When the price goes up, they’re changing the energy bargain we’ve made.
The four horsemen of SaaS entropy, then, are: feature velocity, operational excellence, minimal breaking changes, and price maintenance. This is the reason we prefer working with AWS over most other providers – AWS has an implicit commitment to its customers that it will do everything in its power to avoid deprecating services, breaking APIs, and making price increases. For the same reason, we hold these principles near and dear for our products, too – our customers are entrusting us to fight their business-system-related entropy, and we want to be excellent stewards of that trust.
Every time we move up the ladder to a higher-order system, we have to make some tradeoffs. When we use a library, we lose some flexibility. Maintaining the library’s order is no longer our problem, but we have to live with their decisions unless we want to maintain our own fork. When we use a managed service, we lose even more flexibility – we lose the ability to change the system’s order altogether. Our system becomes harder to test, since it isn’t self-contained, which makes development slower and riskier.
There are big tradeoffs in terms of flexibility, development speed, testing, and more, and they all add up. But on the other hand, there’s the colossus that is entropy working every single minute of every single day to erode everything we dare to build. When I take stock of it, I’d prefer just about anything to fighting the second law of thermodynamics and the inevitable heat death of the universe.
- Developers should only pay for what they use – 100% usage-based pricing, with no fixed costs or minimums.
- Products are priced such that developers think of ways to use more of the product, not less of the product.
- Prices should never go up – only down.
- Generous free tiers allow for liberal experimentation.
To drive usage, we're also expanding our product offering.
To think about our building blocks again in terms of thermodynamics, each building block is a piece of order or structure that we’ve committed to create, maintain, and improve on behalf of our customers; our customers can outsource their fight against entropy by using our building blocks.
There are a limited number of use cases that customers can address using only these three products – there is a large amount of entropy that customers need to maintain in order to build end-to-end use cases.
To address this, we're launching a wide-reaching range of new products (many in June) – broadly, these products allow developers to build complete, end-to-end integrations all within the Stedi platform. Those products are:
- Functions: a serverless compute service to run code on Stedi's infrastructure (now in Developer Preview).
- SFTP: fully managed serverless SFTP infrastructure for exchanging files at any volume (now in Developer Preview).
- Stash: simple, massively scalable Key-Value store delivered as a cloud API (now in Developer Preview).
- Buckets: cheap, durable object storage to accommodate any file, in any format (coming soon to Developer Preview).
- Guides: EDI specifications defined in standardized JSON Schema, and accessible via API (coming soon to Developer Preview).
Developers can use these building blocks as standalone items for just about any business application they might need to build – or assemble them together to build powerful, flexible EDI applications and integrations. With each building block we add, the number of use cases we can support rises exponentially.
“So if I have a process that can discover building blocks,” says Holland, “the combinatorics [of genetic systems] start working for me instead of against me. I can describe a great many complicated things with relatively few building blocks. The cut and try of evolution isn’t just to build a good animal, but to find good building blocks that can be put together to make many good animals.
We are here to build a world-class business – a serious, first-rate business that the entire world of commerce can depend on, and that each of us can depend on for a first-rate, exceptional professional career with an exceptional financial return. My job is to be a steward of that path.
In a letter like this, it’s easy to get lost. What is most important? What is our focus?
To that end, I’d like to share a few passages.
For six months I’ve been piecing together the puzzle of why Kenyans are such good runners. In the end there was no elixir, no running gene, no training secret that you could neatly package up and present with flashing lights and fireworks. Nothing that Nike could replicate and market as the latest running fad. No, it was too complex, yet too simple, for that. It was everything, and nothing. I list the secrets in my head: the tough, active childhood, the barefoot running, the altitude, the diet, the role models, the simple approach to training, the running camps, the focus and dedication, the desire to succeed, to change their lives, the expectation that they can win, the mental toughness, the lack of alternatives, the abundance of trails to train on, the time spent resting, the running to school, the all-pervasive running culture, the reverence for running.
When I spoke to Yannis Pitsiladis, I pushed him to put one factor above all the others. “Oh, that’s tough,” he said, thinking hard for a moment. Then he said pointedly:
“The hunger to succeed.”
“It follows from that, that you must, through this process of discernment and storing away, create in yourself a balanced man-whereby you can handle concurrently all the different parts of the job. You don't concentrate on one and forget the other, such as maintenance; you don't concentrate on marksmanship and forget something else. The best organizations in the American Army are the organizations that are good or better in everything. They may not make many headlines, they may not be "superior" in any one thing, but they are our best organizations.”
“Successful investing requires thoughtful attention to many separate aspects, all at the same time. Omit any one and the result is likely to be less than satisfactory.”
“The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom.”
It’s remarkable to me that when you look across so many different disciplines – sport, military, investing, and dozens more – the common theme from the people at the pinnacle of their game is that there’s no one single secret, no shortcut to being the best. It requires doing it all.
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