BoS digest: why you can't just trim the fat

I think it was J.K. Galbraith, the economist, who pointed out the problem with trimming the fat in hard times. The image is of taking a slice of bacon and then cleanly removing the fatty rind with a sharp pair of scissors, just leaving the meat behind. In reality, the fat is marbled into your company’s flesh. There’s no easy way of getting rid of it. And, indeed, often you shouldn’t: it’s the fat that gives Wagya beef its flavour and keeps Eskimos warm in winter.

So what do companies do when they need to lose the flab? Unfortunately, a lot of them take the effective, if drastic, short-term weight-loss solution of cutting off both legs. Wouldn’t it be much better to be “lean”? As a Venture Hacks article in October explains:

“Lean” is the most capital-efficient way to run a business. Lean is the never-ending process of eliminating waste: finding every activity that does not create value for the customer and eliminating it. The two greatest wastes are overproduction (making things the customer doesn’t want) and inventory (making things that aren’t used immediately) […] Lean startups eliminate waste: they eliminate every activity that is not necessary for creating customer value.

Sounds sensible, right? What can be wrong with eliminating waste? And ‘lean’ is such a nice word, with its connotations of health, lissomness, agility and athleticism.

But drill into it and the metaphor shatters.

Sure, ‘lean’ is good if you’re trying to build as many widgets as possible, in the fastest time and with the lowest defect rate; or if you’re trying to fly as many people from London to Paris as cheaply and efficiently as possible; or maybe even if you’re trying to ship a single product release with a given feature set as quick as you can. But creating a software business isn’t like running an assembly line or running a no-frills airline. It’s not about maximising measurable output and minimising inventory or aircraft turnaround times. It’s about creating an environment where highly creative people can thrive, and building products that your customers might not even know they need yet.

And what is “value for the customer” anyway? Value for the specific customers in your current customer base, right now? Or value for all your potential customers over all time? Or do you need to strike a nuanced balance between the two? And isn’t the “value” you can provide to your customer somehow correlated to the culture of your organisation? So how much time, and money, should you spend on that?

Earlier this year Red Gate hit a long-standing sales target. To celebrate, we hired out the local Apple store after hours, closed it to the public and gave everybody at Red Gate £300 ($600 at the time) of Apple vouchers. Was this an activity “necessary for creating customer value”? No. Was it a hell of a good thing to do anyway? I think so, and that’s because running a software company for the long term isn’t as narrow as shipping an individual product as quickly as possible with the minimum set of features to keep the maximum number of customers happy.

The Venture Hacks article goes on to quote Taiichi Ohno, the founder of the Toyota Production System:

True efficiency improvement comes when we produce zero waste and bring the percentage of work to 100 percent

Can you hear that rumbling noise? That’s Ohno turning in his grave. Sure, superficially, the Toyota Production System is about eliminating wastage and increasing productivity. But it’s deeper than that: it’s a product of the Toyota Way, which is not a set of processes but a philosophy. It’s about – among other things – being humble, reflecting on oneself, experimenting, iterating, learning and continuous improvement. Taking lessons learnt in one industry and blindly applying them to another would be anathema to Taiichi Ohno.

Hmm. Running a software company turns out to be a lot trickier than, paraphrasing, not spending time and money on worthless crap.

The Business of Software social network is growing, but can you help us grow it even more? Take a look at this link for a couple of ideas.

It’s almost the New Year, and Mark Dalgarno asks what are your New Year resolutions?

I’ve got a guest post on hiring your first employee at

I’ve got three speakers signed up for BoS 2009 so far – Don Norman, Geoffrey Moore and Joel Spolsky. I’m hoping to announce some more soon.

Perry Ismangil is presenting to 7,000 people at a conference and would like to know how to maximise the opportunity.

Tom Moellering wants recommendations for a web usability company in San Francisco or Chicago.

I’m going to leave last week’s question of the week on who would you like to hear speak at Business of Software 2009 open for another week, and add a new QOTW for this week: what are your predictions for 2009? $20 of Amazon vouchers will go to the best replies on both posts.

I probably won’t blog again until the New Year, so, in the meantime, have a cracking Christmas and if you liked this post then please follow me on Twitter or subscribe to my blog’s RSS feed.

8 responses to “BoS digest: why you can't just trim the fat”

  1. Matt R says:

    Great post Neil. A lot of great ideas.
    I highly recommend the book “Slack” by Tom Demarco on this topic.
    Like most issues in business, these are difficult questions. If the situation is truly dire, maybe it’s time for the mammalian diving reflex to kick in, but these are not measures to be taken lightly.
    Some organizations use the excuse of a downturn to address problems that should have already been handled, but the downturn provides the urgency or cover that wasn’t present earlier.
    I agree that product development is very different from manufacturing and requires different tactics and strategy. In that light, I think the Apple store is necessary for creating value for all stakeholders. The best effort of your team can only be volunteered, never coerced.

  2. I have an undergraduate degree in Computer Science and a Masters in Business Administration (MBA). I obtained the MBA After being in the Software Development industry for more than ten years. It is unfortunate to say, but the current Harvard based curriculum that I was taught does not have any relevancy in the Software Development industry. As you mentioned, the Toyota Production system and other waste reducing systems like Six Sigma in my opinion have no place in the software development process.
    That being said, it leaves a large gap in what the current educational system is teaching and what needs to be known to run a successful Software Development company. Some people like yourself Neil, and others like Bill Gates and Joel Spolsky get it, and they run their companies with the realization that software developers are artists in addition to being engineers. Google and SAS are other examples of companies that recognize the importance of the creative aspect of software development, and how trimming fat is not effective.
    Great software products come from software developers who have the desire to make them great. You can name dozens of average or below average software products that just don’t seem like the developers really cared to make them great, or even good. To Neil’s credit, every Red Gate software application that I have used is fantastic. And there is no better Integrated Development Environment than Visual Studio in the case of Microsoft. Give the developers an environment they can be comfortable in, tools that let them be efficient and management that support them and knock down barriers for them, and you will end up with great products. There is no reducing the fat in that process. It is such a simple concept, but it is screwed up so often you would think it was rocket science.

  3. john says:

    I agree that product development is very different from manufacturing and requires different tactics and strategy. In that light, I think the Apple store is necessary for creating value for all stakeholders.

  4. Martin Cron says:

    Interesting article, and I see where you’re going with it. Despite what the name implies “Lean” is about a lot more than just eliminating waste. Toyota didn’t have “lean-ness” as a goal, and the term wasn’t even coined until later, when it was observed by American academics that Toyota could reliably do more with less.
    Personally, I find the term unfortunate, as it contributes to shallow understanding of the concepts.
    Some other core concepts from lean as they relate to your Apple store trip:
    Respect for people: I would say that you’ve got that one down.
    Optimize the whole: Cost-cutting is often a pointless micro-optimization, spending dollars to save pennies. Treating your employees well has an obvious benefit to the performance of the whole system.
    I send to see the waste-reduction concept in software more as “don’t establish a Soviet-style development process” and “don’t overbuild useless crap” than “don’t give bonuses”.

  5. Ken Hughes says:

    I read this with real interest, as I am all about productivity.
    I think there is a difference between directly creating customer value (building the right stuff, not ‘gold plated’ and on time) and indirectly creating customer value (things like your Apple store event).
    Indirectly creating customer value is all the bits that are scrutinized at times like these. The ‘lets produce video demos so customers can easily understand how to use our products’, ‘lets build some team spirit’, ‘lets reward our employees well so they stay committed’ kind of projects….
    Sure, some of these are superfluous, but they all contribute to the overall deliverable, which is the customer experience in dealing with your company and using your product.
    Cancelling this kind of stuff without consideration can have huge effects :
    Cancel all the team events and suddenly Company B across the road starts looking like a better place to work – you lose key staff
    Cancel training/demo videos (‘cos you already provide a user manual) and your product is no longer easy to use, cue the dip in sales…
    You really have to look at your business holistically, what are the things you are doing and how do they add value (directly or indirectly) – sure cut some to save money, but make sure you understand what you are losing the implications of that loss.
    .. KJ

  6. Matt R says:

    Excellent points Geoffrey.
    I recall an interview with Steve Jobs where he was asked about the challenges of managing such diverse groups as the software engineers at Apple and the artists at Pixar. He replied to the effect that you manage them both the same way because both groups are so similar.

  7. David Locke says:

    Geoffrey, I agree.
    The MBA content is of little value in a software startup. It does become more relevant as your product becomes a commodity.
    Moore, Christensen, and the profit pool people do provide good tools. Then, again, Christensen’s consulting practice had to bend his recommendations, because the big public companies were not buying the necessity of separation. That’s ok, because it means that they will fail.
    The big business paradigm also tells us that radical innovation is risky? But, why is it risky? It’s risky because they want to use the standard MBA approach, rather than Moore’s approach. The MBA approach doesn’t work for radical innovation. Nor, does it work for anything except the big public companies.
    Some of it might work for mom and pops. Some of it might work for bootstrappers. Some of it might work for VC-backed startups. But, none of it works for every company. The broad application of economic indifference only leads to indifferent performance.
    The last thing a wealth creating company needs is the standard B-school approach.

  8. Cindy says:

    I disagree. You can indeed trim the fat. You may end up with a lot less of the overall meat/staff than you thought you would’ve, since yea fat gets everywhere within the good meat/staff, but still you can do it. You’ll be left with less than you thought you would, but what you have will be a lean, mean working and efficient machine.