Back in the 13th century, Princess Kinga of Hungary received an engagement ring from Duke Boleslaw of Poland. When discussing her dowry with her father, instead of just offering the usual "gold and money" which was relatively common in those situations, Kinga asked her father to gift a salt mine. Salt was a scarce resource and the only way to conserve food at the time, so it inherently had a lot value.
When gifted the largest mine in the Austro-Hungarian empire ( Maramureș ), she was worried that the whole mine couldn't be moved to Poland and therefore she'd still be under the thumb of her parents. So after significant thought and even prayer, she dropped the engagement ring down the mine's shaft.
Later, when princess Kinga was in transit to Cracow for her first meeting, she took a handful of Hungarian miners with her. She ordered her party to stop around the Wieliczka area. And asked them to start digging. They hit a rock and said they can't go any further. Kinga asked that the rock be crushed open. It turned out that it was essentially rock salt, and her engagement ring was found inside.
While the truth behind this origin story has been lost in the mists of time, a mineral repository was discovered. What did happen as a result? Huge economic growth in the region. The cities in the country went from being built in wood with wooden forts to brick and mortar and castles. Largely financed by salt mine profits.
Over the longer term, the price of salt fell. With it, the economics importance of the salt mine to the country's treasury. And other resources became important to economic growth. A paradigm shift occurred. And the medieval salt warlords drifted into irrelevance and obscurity.
How is that relevant today?
The closest analogue today is probably the petrochemical industry that fuels the Middle East's economic engine. As long as the price of oil stays high, that whole region has a disproportionate amount of wealth generated. These profits are reinvested in other parts of the economy local and global economy. And the prospect of peak oil would seem to give the sheikhs high hopes for even higher prices of oil and oil-based products over the longer term.
Yet already there are longer term trends at play which are likely to disrupt this. Looking at companies like Tesla, Elon is betting that the solar energy will replace oil as a source of energy. And the bottleneck will move from generation to storage and possibly transport. At that point, the price of lithium and other minerals needed to build batteries is likely to enter into a longer term bull market.
So, just because oil is valuable now, doesn't mean it will always be valuable. If Elon's strategic hypothesis proves to be right, the oil magnate sheikhs will be out of luck too. Nobody really knows how this will play out. But I'd be willing to bet the oil, gas, and automotive industries will look different in 50 years than they did 50 years ago.
It's easy to overlook one particular resource
Strategic resources or "factors of production" to consider according to classical economics:
- Land
- Labor
- Capital
- Enterprise/Entrepreneurship
- Technology
- Natural resources
Usually the current strategic approach is to think about finding the optimal balance in the resources above for your particular industry. The goal is to maximize wealth in the long run.
In the case of software, tech decision-makers usually spend their time focus on labor-sometimes called human capital-as many skills tend be hard to find where it actually matters. Once you recruit and train the right people, then it's a question of making sure they have everything they need to do their jobs. Especially being clear on what needs to be built or modified. But also the other factors in frameworks like Gallup's 12 Questions.
In the executive offices or founder's garages, the discussion extends to capital and entrepreneurship. Knowing where and how to raise budget (capital) and how to allocate it to the biggest opportunities (entrepreneurship) is an ongoing effort.
Over time, a successful company will tend to accumulate technology assets which are unique and which have value. Which make them uniquely capable of executing a business model that beats comparable companies in the same industry.All of these play out over time.
Time is considered an obvious given. Really?
So in addition to the actual resources you need, you need to figure out optimal timing of when to inject in the resources to improve your company's business outcomes. In other words, most companies focus on finding the optimal balance of resources right now-relative to one another. Which is completely reasonable given the current paradigm.
What I'm exploring at the moment...what if time itself is a resource and input? In other words, instead of only thinking about how output changes right now if you add or remove people, what about allowing yourself to think about varying time.
- How would you change your approach if you had year runway to release something?
- How would you change allocations if you had one week before a client wanted to use your product?
- How much are you actually affected by time consuming efforts like training up a new recruit?
- How much time does the team spend on "hardening" and bugfixing before a release in a big batch?
- When will your clients or your actually need to have the product and how does that look in relation to competitor's actions?
These somewhat philosophical questions, if thought through, could have quite significant practical implications on most projects. Because time is money, too. If you have a detailed plan to build a product and prospects who need what you're building, you are effectively paying an economic cost of delay, as per Don Reinertsen's work, for each day the product isn't ready to ship. And if you want to allocate resources rationally, you should be taking into account this cost.
Tech product life cycles are shortening. Company lifetimes are shortening. Industry lifetimes are shortening. At which point does time itself become too valuable of a resource to ignore, when in the throes of pursuing an opportunity?
No comments:
Post a Comment