December 29

Understanding the Chaos Theorem and the Resulting Cost


Because life is too short to build crappy products, that consumers don’t love, at a company where everyone dreads Monday morning.

Welcome to the Chronicles of Chaos for 2023.

This weekly series aims to illuminate chaos hindering product team performance and exploring ways to subdue these unproductive behaviors.

Far too often we scrub our perception of reality, only choosing to focus on positive elements which has a tendency of sweeping these behaviors under the rug. This is true of all levels of the organization, often choosing to bury our heads in the sand, hoping the cultural broken windows can be ignored.

However, when we slow down to address these taxes on our efforts, we realize organization-wide growth, enjoyment, and productivity – ultimately generating more customer value faster.

To normalize radical candor and have a bit of fun with things, I've spun negative behaviors into characters that are no doubt in and around your productization teams. Whether they are blatantly grandstanding in your organization or it lurking in the shadowy corners, these characters will be familiar to you.

Some of the characters will be framed as (knowingly or unknowingly) villains harming cultural health and others will be victims of a toxic culture. Each coming with a background level of understanding, the primary negative behavior, the cultural effect, and strategies for correcting the problematic behavior.

Some of these characters may be familiar to you and others may not. In fact, some of these behaviors you may recognize in your own working style, providing you with cringe worthy recognition from a deep look into the mirror.

This may certainly be an uncomfortable moment, yet your team will appreciate you embracing this newly found recognition to forge more productive interpersonal behaviors, or minimally gaining additional breadth of skills to vary your approach.

Other characters may feel like sanity boosting validation for problems that you couldn't put your finger on, giving you a new vocabulary and ways to shift toward higher performance.

While others will be immediately recognizable because they have haunted you and others on your team for ages, potentially hitting a little too close to home, yet offering new strategies to treat the root cause.

While your reaction will vary, what is certain for everyone is the fact that many of these characters are creating friction for your teams and are hindering your performance.

All that said, before we embark on the quest to discuss ineffective characters, we must recognize the impact of the disorder that we face in our productization cycles. To outline our purpose, let's start with a definition of the chaos that we seek to avoid.

cha·os noun

Definition of chaos

    1. Common Complete disorder and confusion.
    2. Physics Behavior so unpredictable as to appear random, owing to great sensitivity to small changes in conditions.
    3. Mathematics Impossible to predict their future behavior with a high degree of certainty.
    4. Carver Action without purpose.

Chaos. It lives everywhere. It is a fact of life. And as the speed of modern life increases, it only gets more pervasive.

However, in the high stakes game of business, some chaos is necessary. If you were to eliminate all sources of chaos from your business, you would stifle innovation and smother your business. Thus, we only aim to eliminate unproductive chaos.

That is the aim of our quest, or more specifically, outline how to build products that matter, in a company that people love to work at. Also known as a company that is not under constant siege from chaos. To do that I have identified the worst Villains of Chaos and what to do to counter these villains and defend ourselves in a productive manner.

When these villains run unchecked, they create a glass ceiling that prevents your organization from reaching it’s potential. Often leaders respond to these symptoms by over-hiring to make up for the lost productivity. In the short run this appears to help, but in reality, this kicks the can down the road and makes the problem much worse. Eventually, as the debt of this chaos compiles, forward progress feels impossible.

The good news is that you are not alone in suffering from this problem. I have worked with companies of all sizes and have witnessed these villains in business after business. I have worked with entrepreneurs and startups that had great marketable ideas which fizzled because they could not execute against the promise of the concept due to their inability to deal with the chaos villains that prevented them from getting to traction.

I have also worked with 9-figure organizations who have allowed these villains to create so much dysfunction that they can barely make forward progress in spite of having tens of millions of dollars invested to overcome the problem.

All of these experiences frustrated me.

Yet, the silver lining is that while these sources of chaos are widespread, resolving them is within reach.

My frustration led me on a quest to search high and low for the secret decoder ring to battle these productivity killers. To unearth the principles that routinely led to success and find the anti-principles that bred chaos. Some of the answers came quickly, and some were harder to find and validate. More on these remedies later, right now we need to agree to the cost of chaos.

The Hidden Cost of Chaos Villains

There are many ways to measure the impact of chaos on business. Unfortunately, many are very hard to quantify. The easiest way that I help clients understand the effects of chaos is by looking at lost productivity and then show how that ripples into a negative monetary impact. So let’s start there.

What you will find is, in all cases, businesses who eliminate the chaos can accomplish ten times more, with the same amount of effort, with the same monetary investment.

Is that possible?

Absolutely. It isn't magic. In fact, it is basic algebra.

Let me show you.

Let's think back to junior high when you covered balanced equations and factoring. Hold on, stick with me here. This won't be as painful as you imagine.

Let's start with the following equation:

That is what a clean entrepreneurial journey looks like. Unfortunately, the typical software product journey looks much more like this:

I know what you are thinking. "But wait, that doesn't balance. I know math. There are ten chaos on one side and five on the other side while there are seven actions on one side and twelve on the other side. That does not compute."

I know that it doesn't make sense yet, but it is accurate. Mathematically speaking, you are just missing a piece of the formula:

Wait, what? How is action without purpose the same as chaos? Well, let me explain with a quick analogy.

Let's say you have a cat that you have trained to use a litter box. (… stay with me on this!)

This is good because the alternative is that you have to clean up messes on the floor. Depending on your flooring type and health of the cat's bowel movements (sorry for the runny visuals you are now experiencing), you will have varying degrees of work to clean up the mess. So, dealing with a cat box is much better than a sick cat on your carpet, right? Of course. This is because with a cat box you can let the poo build up for a little while before you have to take care of it. If on the other hand, if there is a deposit made on the carpet, then you better drop what you are doing and take care of it right away …or else the cleanup efforts will be even worse.

No matter how you look at it, you have to spend the time to handle the issue, and the larger the problem is, the more time you have to dedicate to the activity. Now, if you were forward thinking, you could take courses or watch YouTube videos to learn how to teach your cat to use the toilet. (Yes seriously. I can't make this up. Search online for 'teach your cat to use the toilet,' and you will find a whole industry formed around the idea.)

… getting back on point and bringing the analogy full-circle, the unexpected kitty poo on the floor is a source of chaos. Likewise, the reactionary activity that you have to take to deal with the issue is also chaos. It is chaos because it is not something that you originally planned to do at the moment you had to it. Thus, it disrupted your original plans. More importantly, it is chaos because it was not time spent moving you forward. Instead, it was time spent restoring you to a previous state. So, to summarize, chaos creates chaos. Are you following me so far?

Okay, enough about cats, let's get back to math. (I bet you've never been so happy to think about math.) Under the chaos begets chaos theorem, the updated equation looks like this:

Using algebraic simplification, it now this looks like this:

You can now clearly see that chaos in your path creates a lot of unnecessary friction. The more chaos that you have, the more energy that you are spending to balance the equation. You must spend additional effort that offered no added value to your customer, and thus you are just staying in place and not getting ahead.

Can you think of similar activities impacting your daily efforts?

How much of your time do you think that you waste on an average month dealing with chaos across your business?

When I surveyed entrepreneurs and product professionals around the sources of chaos at work, they estimated between 20% and 40% of their time was wasted on a monthly basis. Does your estimate fall in that range?

What happens if you are a solopreneur who is pouring in 100 hours a week into your venture? That means that you are wasting 80-160 hours a month adding up to wasting over 960-1,920 hours a year.

Wow! Can you afford to lose that much time?

How much more of an impact could you make for your customers if you eliminated that wasted effort? What would you be able to accomplish if you spent those 240-480 hours a year creating value for your customers?

What happens if you are a company with 25 people working 40 hours a week who all fall in that same 20-40% range? What if you have 100 people?

Great questions. I’m glad you asked. Let's look at the numbers.

Based on my research, the reality is that you are likely reading this thinking one of two things, "we are better than the norm" or "we are way worse than the norm."

Okay, before you pull out your calculator, let's agree that if you are still reading this, you know that you have chaos in your product world, so let's say that the low bar for you is 10%. Next, for the outliers, the next most frequent estimate outside of the range was that they were wasting 75% of their time.

Is that possible? 75% waste? Absolutely. In fact, in more instances than I could believe, the standard case reported for this estimate was that the respondents were part of abandoned projects after 9-18 months of effort was invested. In that case, we are talking well over 75% waste.

Okay, so let's look at the calculations:

For most, looking at huge numbers of hours does not explain the gravity of the situation. So instead, let's look at something a little more tangible -> money invested vs. expected ROI.

Understanding money invested is simple for fixed wage cases. The only challenge is to estimate your average wage. I'm going to aim super low and say that product employees earn an average of $50,000/year working 40-hour weeks. For entrepreneurs, it is harder, so we will overgeneralize and say that all founders will invest 100 hours per week and need a living wage of $25,000/year.

For ROI, we want to have healthy margins so that we can ensure that we have money to invest so we will use the revenue/employee ratios of successful companies which generically equal $3 of revenue per $1 of employee salary.

This means that in cases where we waste 10% of our time and lose out on equivalent revenue, it is a 4x swing.

Let's look at those numbers and pull out a couple of likely cases.

Situation 1: Let's say that you are just starting a company on your own. You recognize that you are thrashing a lot on failed experiments and ineffective pivots to the tune of 40% waste. Again, assuming that you require $25K of a living wage, this means that you are wasting $10,000 of your income on unproductive activities. As a new startup, this does not sound too bad. However, you have lost out on $30K of revenue which means that you may not be able to pay yourself your full living wage. This could spell the end of your new venture. Back to working for others you go.

Situation 2: Let's say that you are a newer 10-person product shop with an of average 20% chaos in your business paying out an average of $50K/employee/year. You are wasting $100K of wages on chaos and losing out on $300K of revenue. This combines to a net result of $400K of loss to your bottom line. Ouch!

Situation 3: Same as above, but you have now been at it for five years, and your employee wage has elevated to an average of $75K. Now you are wasting $150K on chaos wages, losing out on $450K of revenue, and now have a net loss of $600K.

Situation 4: Now you have reached a fantastic level of success and have 100 employees dedicated to product development activities in your company. Let's again assume that you only have 20% of waste in your organization and due to your success level, you are paying an average of $100K per employee. This means that you have wasted 2 million dollars of wages, you are missing out on 6 million dollars of revenue, and have a net impact of 8 million dollars of lost opportunity on your bottom line.

Let that sink in for a minute.

8 million dollars of waste.

8 million dollars of money that should have been used for salary increases, bonuses, new product lines, etc.

8 million dollars flushed down the toilet handful by handful, day after day.

A shocking number, right? Guess what. It gets worse. When you consider the impact of this year's lost productivity on next year's potential, you miss out on the compounding of success.

Imagine if you could rewind last year and save the 20% of wasted productivity by eliminating the chaos. Under the theory of compounding interest, you would have been able to make an even more significant impact this year by building on the success of last year. More customer value, more revenue, more, more, more … except that instead, you had a net-negative productivity loss.

Does this frustrate you?

As you can tell, it certainly frustrates me!

Okay, so what can we do about this? That is precisely the question that I set out to understand next.

Let me tell you what I found.

The Quest for a Business without Chaos Villains

To understand how to eliminate chaos, I stepped back to square one and iterated over the process of going from day one entrepreneur to the first hints of chaos.

First, I did it with my endeavors. Then I started working with other entrepreneurs, closely monitoring for the introduction of chaos. It was like starting a video game level over and over until you could run through it flawlessly. With each failure came a quest for a new path without chaos. I was continually researching emerging industry best practices such as Agile, DevOps, Lean Startups, Design Thinking, and on and on.

I was looking to find the right building blocks that correctly connected every time. Over time this emerged into a new collection of mental models and practices which formed a new entrepreneurial framework. This framework, which I initially only created to quench my thirst of finding a more fruitful path for my next product launch, began to be validated by other entrepreneurs as useful. As the framework solidified, I continued to get additional votes of confidence that the framework filled a gap. I received feedback such as referring to the framework as an "MBA Masterclass" and one person even claimed that it "turned the game (of starting a business) into child's play."

Meanwhile, I simultaneously continued to look at the problem from the other end of the spectrum – large enterprise product companies. Here I began to catalog the most common types of chaos villains that challenge maturing software product companies so that I could be sure that my framework not only worked as preventative measures but also as a way to retroactively eliminate deep-rooted chaos. Adding to the entrepreneurial villains, I began to identify a new set of villains associated with larger teams.

These villains were more related to leadership, culture, and scaling upon success. Some characters you may be familiar with such as 'the Gatekeeper,' 'the Land-Grabber', 'the Rebel,' and 'the Lobbyist.'

The villains that we will discuss will span the full spectrum, but will be viewed through the vantage of product companies.

Many of these Villains need no introduction. When you read their bio, you will immediately think of a current or past situation where these villains have been present. As I explain each villain, you will find yourself nodding your head, thinking "Oh that explains (certain person or company) exactly." Some readers have told me that at times it hits too close to home. Other readers have admitted that this identified their blind spots by helping them recognize past instances where they had been a source of this type of chaos.

Hopefully, you are part of the minority, and these are just entertaining cautionary tales.

Along the way I will also disclose the principles that most commonly dissuade the introduction of these villains into your environment while unpacking the 5 most common categories of chaos:

  • lack of clear purpose,
  • lacking principles of excellence,
  • lacking healthy tactical team practices,
  • lacking a culture of trust and accountability,
  • and a lack of market traction.

Next week we will embark on our Chronicles of Chaos journey by exploring our first villain by peeking through the keyhole that this character's demoralizing grip blocks us from seeing.

Until then, have fun and play well!


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