Monthly Archives: July 2011

Taking a “Product Debt”? Be Ready to Pay Interest

Last week I attended a conference kindly organized by Outbrain, a start-up company located in Netanya, Israel. Outbrain’s VP R&D, Itai Hochman, described their engineering philosophy, which includes—among other things—avoiding “broken windows”. The Broken Windows Theory (popularized by the decline of crime in New York in the 1990’s) suggests that having broken windows in a neighborhood quickly escalates into more severe crime. The engineering analogy would be that unattended “issues” in the product would similarly result in more global deterioration of quality.

The broken windows metaphor is appealing. But, a metaphor from the economics world—that of a debt—may provide a few more tools to handle product gaps.

In many parts of the world, it is common to take loans to finance large purchases, such as a house or car. Interestingly, most people can typically pretty easily understand the concept of a loan, or debt. There’s the net cost of what you want to buy (say $100,000). Rather than paying the net cost upfront, one pays some down payment (say $20,000), and then pays back the remaining portion in installments over a period of time (say $2,000 monthly). The eventual sum paid incorporates some interest, which means that the overall price paid is higher than the net price. Most people get the concept, and can even handle the math with some basic calculators.

What’s interesting is that when creating software, a similar phenomenon occurs. And, as the recent economic meltdown has proven, taking more debt than one can afford can have a detrimental effect.

Here’s how the analogy works.

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