Most people can't even describe where the money in their business comes from.
I find this quite remarkable, and does not match my experience.
Every company I've worked for, from startups to Fortune 500, it was very clear what products the engineers contributed to, and what that product portfolio revenue stream looked like, and what it meant to the business (right down to the product margins). For startups, pre-revenue, at least the "TAM" (total available market) that the product was targeting, and/or expected revenue projections were openly/regularly discussed.
I feel like I have to disagree, on the grounds that many companies mistakenly label indirect profit centers as 'cost centers' and end up cutting off their noses to spite their faces. They strangle R&D and get outclassed in the market. They strangle infrastructure and get nasty surprises that tarnish their reputation.
And then there's mistaking users for customers. If you're a McDonald's customer you might think their money comes from trading hamburgers for cash, and you'd be wrong on any number of fronts. If you're a McDonald's competitor, you would know that they make more money from fries, and way more money from selling soda (hence the discount for a meal). But if you're the McDonald's corporation, you know that you make most of your money from franchisees, who happen to sell burgers and fries and oceans of soda. You're providing logistics and real estate acumen for most of your money. The general public is their customer's customer.
I don't know if they still do but Burger King used to 'steal' McDonald's real estate acumen by building Burger Kings as close to the nearest McDonald's as they could manage. Let them get 10% or whatever higher profits by getting the correct corner lot in the right neighborhood instead of the incorrect lot in the right neighborhood, meanwhile we save tons of money on market research.
This is exactly what I'm talking about. It can surprising why a business actually exists. It can be counterintuitive(i.e. the mcdonald's is actually a real estate company conundrum). Even the "Product Engineer" guy who can probably talk up a storm about the financials of what he is doing, but in a Fortune 500 business does he really understand how that rolls up to the company's strategy? Is it a side line, is the landscape in transition and this is a existential hail mary? At one point facebook made no money, then they made all their money from placement ads, last I checked they made it from video interstitials. Of their 50,000 employees how many really know the revenue breakdown and how it has changed over time
I used to work there. At one point, I guess the worker population got large enough that they calculated the odds of insider trading or leaking data got too big (I think they were right) and nearly everyone lost access to the dashboards that would give insight into that kind of question. Despite this, the FEC enforced trading windows persisted.
Really digging your insights. Do you have a blog or newsletter? I’d love to ask you to present to Product Managers at our org. Would you get in touch? @charlesw on twitter.
Every company I've worked for, from startups to Fortune 500, it was very clear what products the engineers contributed to, and what that product portfolio revenue stream looked like, and what it meant to the business (right down to the product margins).
This sounds quite remarkable to me, and definitely does not match my experience. I've found that most engineers have an incredibly vague notion - at best - of how their companies make money. And it is, IME, a vanishingly small set of engineers who would ever use terms like "product portfolio revenue stream", or "total addressable market", etc. And discussing revenue projections?!?? All I can say is, you've worked with some folks who do things very differently than the folks I've worked with!
I'd be a bit surprised if a sizable portion of engineers at a public company didn't have at least a rough notion of how their companies make money. It's right there in the quarterly and annual earnings reports. (And while reading SEC filings at a very detailed level is a skill you need to learn, the basics are pretty straightforward.) But maybe a lot of engineers just can't be bothered by any of that stuff. <shrug>
What is almost certainly true is that a lot of engineers as well as people in a lot of other groups can't conceive of why the company needs all those people in digital marketing or finance or partner management or ...
My experience (not specifically with engineers) is that very, very few people read the 10K, 10Q or other public statements of the company they work for.
A friend of mine used to be a management consultant for one of the big firms. On one memorable project she worked with senior executives of a large ($1b + revenue) non-tech company that had retained the consulting firm, to do an operational diagnostic. It became incredibly clear that many of these senior execs had never really read the company's financial statements in any detail, that they did not understand that the company was cash flow negative, and that they did not know that the company's debt load was increasing over time as it financed losses with bond issuances.
At the same time they were spending incredible amounts of money on luxurious office furniture and trappings.
Stories like this were common. Most managers knew their area, but did not learn about the business more broadly. (Could be selection bias with firms that hire management consultants!)
So, kudos to the engineers who read these and have a rough idea of their company's financial position and how the business works. It's not clear that this is the median experience.
It may be the case that those managers had no reason to care about the health of the company as long as they were able to extract personal short term value before it all blew up. I think that applies to most tech company employees over the last 15 years.
And admittedly the company I work for has monthly company meetings including quarterly ones that coincide with earnings. Certainly not everyone attends or watches the recording but they lay out results in a very digestible (and not tailored for external audiences) way.
> IME, a vanishingly small set of engineers who would ever use terms like "product portfolio revenue stream", or "total addressable market"
I'd agree they don't know those terms, but people do generally grasp the concepts.
People do present financials at all hands meetings. I've certainly discussed the revenue projections with people, because we all found them hopelessly optimistic. Flat line suddenly increases exponentially for no reason.
If you've worked in startups before and then go on to big companies, you will have learned those terms, so it just depends on where your fellow engineers are coming from.
Still doesn't match my experience. Even in the startups I've worked for, engineers did not concern themselves with those kinds of details. Maybe it's a factor of just how early in the lifecycle a startup is when engineers join. Perhaps somebody who is there "day 0", before the first round is even raised, or maybe just a seed round, has a different perspective than somebody who joins after a C round or what-have-you.
I don't think Microsoft could just make Windows and Office and survive this long. So if you're not on those teams your chances of actually making money directly instead of being expensive advertising dollars are negligible.
Similarly if you're not working on adtech at Google. Your job doesn't actually make money. If you think about it too much you might not be that happy with how your life is going.
I work at Google on user facing product. I’m aware that my job is to make people like going to our website enough that they make searches for things that are sometimes ads. It’s the same as writing for a sitcom on tv. My whole purpose is to attract people with entertainment so they can be suggested to engage in some commercial activity.
Maybe specifically for product engineers, but does that extend beyond the specific product that engineer is working on. Do you think a network engineer knee deep in a data center knows the margins on all the products? I don't work for a fortune 500 but our revenue scheme and capital structure are complex. I could not profess to understand it in its entirety. We receive revenue from our products, managed services and support, one-off revenue streams, channel/revenue sharing arrangements, consulting, and on and on. This is for a lowly $120 million a year business look at a F500 earning $6 billion and I think it becomes opaque pretty quickly.
I think the majority of employees in most business do not have much visibility into the financial machine that justifies their existence.
> Every company I've worked for, from startups to Fortune 500, it was very clear what products the engineers contributed to
I joined a company that was a privatised spin-off from a large civil service organization. A new CEO interviewed each department head, asking them how their accruals were doing this FY. A couple, allegedly, said 'Our what?' and were immediately shown the door.
The next CEO, by the way, asked 'how many engineers do we have?'. The inability to answer that also led to some corporate soul-searching and eventually some major re-orgs.
accruals: Larger companies especially do accounting on an accrual basis. So what most matters is when the service was delivered or the product sold--not when the cash was received. (Large companies care about cash flow too but cash is king at small companies.)
Basically what's being asked is "In what ways does our cash balance not reflect our income and expenses?" Perhaps more common would be ask about bookings but accruals is broader.
Is it asking for the discrepancy between cash and accrual accounting (which seems to be what you stated) or is it asking what they are booking in accrual revenue?
This is one of those annoying things where I can talk about either concept, but don't know the language that serves as a proof of competency.
It probably requires some context based on the metrics that matter to a specific business. I'm not sure someone would ask the question that way where I am. (Not in finance, so may be wrong, but have been at numerous business reviews.)
Purely from the outside, I'd guess that yes they're asking for the discrepancy. Maybe they're asking for accrual revenue but I'm not sure I've ever heard the term used that way. I would expect someone would ask for bookings if that's what they wanted. (Which can get even more complicated for multi-year subscription deals.)
ADDED: It's been a long time since I got my MBA but, with all the data in front of me, if someone asked me that question, I'd have to ask what they actually wanted and, if they fired me a result, so be it.
Sorta. They've presumably been accounted for in some manner but revenue hasn't been collected or expenses paid out. (Doubtless lots of other things related to investment income etc.)
