orangehornet>

Veterans Day

I was going to write, "Happy Veterans Day" but I'm not sure that's the right way to think about it. Is it? Perhaps it should be more of a directive, like "Commemorate Veterans Day."

My generation of my family is really the first since World War II to not serve in the military. My grandfathers were colonels in the Marines and the Army. My father served in the Army and my uncles served in the Navy. And those are just a few examples.

Because they and others served, you and I can sit here today and do what we do.

Here is a commemoration of our veterans.

What Jeff Bezos knows

It's already old news that Amazon.com offered to buy Zappos for $850M today but what I think is more interesting is what Jeff Bezos says in the video below. He gets around to discussing the rationale for the deal near the end but spends more time talking about what he's learned running Amazon the past 15 years. I'll summarize for you so you can learn in 1 minute what will take 8 minutes in the video:

1. Obsess over customers

- Pay attention to competitors but start with customers and work backward - it will cover up lots of mistakes

2. Invent

- Customers won't tell you everything - invent on their behalf

- Never accept "either/or" thinking - you can accomplish both

- You can invent yourself out of any box if you believe you can

3. Think long term

- It is much rarer than you think

- Most initiatives take 5-7 years to pay off for a company

- Thinking long term not only requires, but allows a willingness to be misunderstood

4. It's always day #1

---

At first you might flinch, but in the long run? Great stuff

The title is a quote from a movie. I could tell you which one if you don't know but it doesn't matter. The point is that negative stuff (more specifically, perceived negative stuff) that happens in the here and now can cause discomfort but in the long run almost inevitably causes the opposite.

On Tuesday I read an article in the Wall Street Journal titled From Ordering Steak and Lobster, to Serving It - it's about a guy who was working in a high-paying Wall Street job who got laid off and now works at the same restaurant (the Palm in New York) he used to frequent as a customer. I imagine it must be humiliating sometimes to run into former colleagues and discouraging to get a paycheck that is 80%+ lower than he used to get.

It's easy to be short-sighted and to not see the positives in such a story. But perhaps he sees his family more now. Maybe he wasn't meant to be a Wall Streeter and instead he's meant to open up one of the best restaurants in Manhattan someday. Possibly his job satisfaction is higher.

On the other side of the coin, if you have a corporate job in this economy you might be working harder than ever because you're short staffed. Everyone else has been laid off and even though there's not as much revenue coming in the door there's plenty of work to go around. You may even wish you had some of that free time that your friends on the unemployment rolls have. But you're probably learning more. And getting more responsibility. And you'll be better positioned to move up when things improve.

The stock market recently finished a long time going down. Now it's going up but it's still hard to buy. Why? Recent memory is still too recent and it's hard to think about where stocks will be one or two years from now. If you bought a bunch of stocks today and the market took a quick dive next week you might flinch, but in the long run you'd likely be doing great.

You may be getting ready for the CFA exam tomorrow. In fact, if you are you've (hopefully) been getting ready for the past several months. I've been down that road and I know that pain that causes - but if you prepared in the right way then good things will come.

You may be training or preparing for any number of things, or may be dealing with stuff that just isn't pleasant to deal with right now. Deal with it in the right way and focus on the long range outcome and you'll see great stuff on the horizon.

Lloyd Christmas, Bill & Ted, the Matrix and Cinco de Mayo

Disclaimer: If you're not too good at movie references this post isn't going to make much sense.

Lloyd Christmas: "Excuse me, Flo, what's the soup du jour?"

Flo: "It's the soup of the day."

Lloyd Christmas: "Mmmm, that sounds good. I'll have that."

Ask someone today what Cinco de Mayo is and you may get the response, "It's the 5th of May." That's about as useful as what Flo said. So what is Cinco de Mayo then?

It's not Mexico's Independence Day - that's September 16. I'll give you a clue: Mexico defeated the French on this day. But why was Mexico fighting the French?

Nicholas Andre: "Where's all the money?"

Lloyd Christmas: "That's as good as money, sir. Those are IOUs. Go ahead and add it up - every cent is accounted for. Look, see this? That's a car - 275 thou. Might want to hang on to that one."

France, along with Spain, England and others, lent Mexico some money following the 1846 Mexican-American war. Quite a bit of money in fact. And when collection day arrived in 1862 and Mexico couldn't pay, everyone was complacent except the French, who invaded under Napoleon III. Instead of offering repayment, the Mexicans offered IOUs. Bad move.

Ted: (after Napoleon articulates his new waterslide war strategy): "I don't think it's gonna work."

Napoleon: "Non?" (pauses, then slams his pointer down on the map, scattering pieces everywhere) "Triomphe Napoleon!"

Napoleon invaded to get his money but for other reasons as well - in this case he was trying to establish a French-backed monarchy in Mexico. On May 5, 1862 La Batalla de Puebla took place in which the Mexicans (outnumbered and outarmed) defeated the French. Cinco de Mayo exists to celebrate this unlikely victory. Unfortunately the Mexicans won the battle but not the war - France occupied Mexico about a year later. 

Lloyd: "What the hell are we doing here, Harry? We gotta get out of this town!"

Harry: "Oh yeah? And go where? Where are we gonna go?"

Lloyd: "I'll tell you where. Someplace warm. A place where the beer flows like wine. Where beautiful women instinctively flock like the salmon of Capistrano. I'm talking about a little place called Aspen."

Harry: "Oh, I don't know Lloyd. The French are assholes."

The French victory was short-lived - in 1865, with the Civil War over, the Americans were able to provide sufficient support to help turn the French back. Napoleon bolted back to France (where the wine flows like wine) leaving Maximilian (head of the Mexican monarchists) holding the bag. Maximilian was captured and killed in 1867.

Cypher: "You know, I know this steak doesn't exist. I know that when I put it in my mouth, the Matrix is telling my brain that it is juicy and delicious. After nine years, you know what I realize?" (takes a bite of steak) "Ignorance is bliss."

Surprisingly (or perhaps not so) we Americans celebrate Cinco de Mayo more vigorously than the Mexicans do. Perhaps it's because our celebration doesn't tend to be tempered by the somewhat triumphant yet somewhat tragic tale above. Or maybe it is just infused with less tradition. But more likely, it may be because Americans are always looking for an excuse to party. Ignorance is bliss.

Nobody is happy

This clip, with Louis C.K. (comedian, writer, actor) appearing on Conan O'Brien's show, has a bit of a "Pity-me-because-I-used-to-walk-10-miles-uphill-through-the-snow" ring to it, but it's great perspective and funny to watch. It's not that nobody is happy, of course - just that the media would have you believe it because that's what sells right now. It's up to you to be happy.

I hate Valentine's Day

I'm going to get in trouble for writing that. But let's consider the economic realities of this holiday - one in which consumers will spend tens of billions of dollars, even if it's a little less this year than last. 

Roses are the key culprit of course.

Why do roses suddenly get so expensive? Supply and demand. Valentine's Day is easily the biggest rose demand day of the year. Roughly a third of a rose grower's annual sales and two months of a florist's annual sales come from this day. When demand rises so sharply, prices do too.

But the supply side of the equation is just as responsible. It's a daunting and expensive task to get millions of roses to tens of thousands of florists and supermarkets within a few days of Valentine's Day. Growing roses in the midst of winter, at least in the northern hemisphere, takes longer and requires more artificial heat and sunlight. Getting them from warmer, farther-away places is expensive too. And shipping so many roses in a timely manner while keeping them fresh is a logistical challenge.

The key thing is that roses are perishable. They can't be supplied or bought ahead of time except by maybe a few days. So a demand spike, met by a high cost of meeting that demand, burdens your wallet more than on other days. Same goes for your Valentine's Day meal - it can't be bought in advance either. Helium balloons are a bit like this too unless you like to deliver yours floating near the floor.

Economics purists would say that jewelry and holiday cards don't fall into the same category because you can buy them all year long and well in advance of the holiday. The practical reality, however, is that most people wait and pay more than they have to because retailers anticipate the demand spike. We're at our own mercy, essentially.

There's the pressure too. My guess is that suggesting to your significant other that you celebrate on February 21 this year won't go over well. And here's a sampling of advertising around the web that instills urgency:

"It's officially last minute. Don't wait a second longer," from ProFlowers.com.

"Don't fumble this Valentine's Day!" from Teleflora.com.

"Make your loved one the envy of the office," from OrganicBouquet.com. (Or, make her colleagues feel sorry that her husband is spending so much of their hard-earned money on flowers that will be dead by next week.)

Why are we beholden to February 14 to show our affection for others? How about just doing that every day of the year? Or at least half the days? That would seem to work out better for everyone except maybe retailers and florists. 

Nonetheless Valentine's Day is celebrated in many places around the world.

Many Europeans celebrate in much the same fashion as Americans, willingly submitting to economic servitude for a day. The poor Romanians have traditionally had their holiday on February 24 but now find themselves celebrating on February 14 as well. Understandably this has resulted in significant backlash alongside accusations that the day is superficial and too commercialized.

Asians, being a commercially-centered culture, spend the most money of anyone on Valentine's Day thanks to heavy marketing efforts. Interestingly there's a bit more gender equality happening in Japan - women are obligated to give chocolate candy to men on February 14 and men are obligated to give non-chocolate candy to women one month later. Hence retailers get two bites at the proverbial economic apple.

South Americans celebrate on varying days depending on which country you live in. I like how Guatemala does it - friends appreciate friends, taking power away from retailers. There's so much variation in how friends exchange appreciation that it's impossible to leverage pricing on a specific set of gift items. 

Brazil had to move Valentine's Day to June because people are too exhausted, not to mention broke, to celebrate after the debauchery of Carnival. But it still exists.

In Venezuela people suffer through a week-long holiday, creating two instances in which one needs three months of salary at his disposal - for the purchase of an engagement ring, and during the Venezuelan "week of love." 

In Saudi Arabia Valentine's Day was banned in 2008. Reasons include that it's a non-Islamic festival and that it encourages the mingling of single men and women. This is an interesting case. My view is that where there's a will there's a way. Men and women will mingle if they are attracted to each other. And banning the holiday won't stop it - in fact, a black market has developed for traditional Valentine's Day items making the day even more expensive than it was before.

After all this consideration, though, you can't really hate Valentine's Day. It's good to celebrate our loved ones. And the economics are our own fault. Prices aren't high because production costs are high. Prices are high because we - yes, we consumers - want so many roses on one specific day every year. We've colluded against ourselves and picked a perishable good to symbolize our feelings, no less. 

Maybe in March we can start brainstorming a new way to do it.

The difference a recession can make

Recessions can be a great time to start a new business. You have your pick of talent and have some running room to launch while other businesses are suffering. But what if you're not launching a business? How can you leverage a recession if you're already running one?

How about this simple idea: Do things that build brand equity with your customers, like helping them when they need it. By being their ally rather than their adversary. By putting an even better foot forward.

I recently heard an ad on the radio by a regional furniture company called American Furniture Warehouse. What's their angle nowadays? They recognize that consumers are stretched but still need furniture and that this is an opportunity to steal market share. Its advertising is centered on the fact its prices have been lowered across the board because of the recession. No doubt the company's margins are affected by this now but it should exit the recession poised to become a more profitable company with a larger and more loyal customer base.

Yesterday it was warm and sunny outside so I took my car to a full service car wash. What are they doing, besides welcoming and smiling at customers driving up? If it rains or snows within 72 hours of your wash you can come back and get the same service again - for free.

Consider car makers. What can they do? They already offer 0% financing and negotiate on price. But what else? How about offering a bonus good with the car that consumers attribute value to? Freedom Grill has successfully done this alongside truck companies. Or how about an added service overlay? Or pre-paid fuel credits?

How could an imperiled bank do itself well in times like these?

Admit it was wrong - it should have been more diligence in its risk taking. Send personalized communications to affected stakeholders. Rather than foreclosing on a home, it could work out a new arrangement directly with the consumer. Give her temporary relief. Provide extra time. When times get better, undoubtedly she'll be back for more business. Or if it's going to foreclose, as Seth suggests, do it and offer the consumer money to create goodwill and preserve the asset.

What can cosmetics makers do? Their products are expensive and they rarely, if ever, move on price. And that space is very competitive. How much brand equity could one create if it offered heavy price promotions for a time? It would cheapen the product image, you say? Nonsense - it would increase market share.

Or take Whole Foods (a.k.a. "Whole Paycheck") - how about a $30 credit for every 5 trips to a store? Or a discount card for regular customers? Or a price-matching program?

Take an extremely annoying company like Comcast - if you want cable service in many parts of the country Comcast is unavoidable. One day that may change however - what could it do to build goodwill now and hedge against customers defecting to a new innovation down the road? Design a new offering around a la carte channel service. Provide a free premium pay-per-view movie each month. Offer automatic credits for service outages.

A final example. Consider some of the wrong-headedness that goes on at Apple. Sure, great products through and through. I've been a customer since the 1980s. But the rigidity of its policies with customers is striking, especially now. Take the iMac I purchased last month. It stopped working after 5 weeks. 5 weeks. What did the "genius" tell me when I took it to the store? 

That Apple can't provide a new machine unless an iMac breaks within 2 weeks of purchase. (It's good to know Apple believes its products have at least a 2-week shelf life.) What occurred next?

Apple determined the malefactor was a bad hard drive and said it would replace the drive by ordering a new one. Upon receiving and installing the new drive, it failed, as did a second hard drive that was ordered, as did a replacement of the logic board, as did a replacement the cable to the logic board.

My iMac was ill. Very ill. And all the while I received no status updates - in every case I had to place a call or stop by the store. More important, Apple didn't think to offer me a new machine. 

As I recall, Apple recently reported a significant slowdown in computer sales. How could it bolster such sales and end up in even better stead with consumers when things improve? By treating customers better. By being more flexible. But doing some of simple things I mention above. Even if only temporarily.

During recessions discounters and consumer staples do fine because of two respective factors - price and stable demand. How about behaving like a discounter for a bit while also focusing on customers and service? Or try to behave like a consumer staple - act like customers need you no matter what. Build brand. Establish mass. Take share. Become a tougher competitor, even if it's at the expense of margins, and when things pick up you'll have even more leverage.

We're gonna be in the Hudson

The recorded communications, released today, between the heroic pilot of Flight 1549 and his communications tower have undoubtedly been heard by millions of awed individuals by now.

I've heard people wonder aloud: "How could he have had the nerve to attempt that?" "How could he have stayed so calm?" "What enabled him to make such a good decison so quickly?"

The answer? A combination of experience and leadership. 

I've written before about needing 10,000 hours of experience to be an expert - undoubtedly this pilot had that kind of seasoning under his belt. A less experienced pilot would have tried to get back to the airport and the flight would have ended in disaster. This pilot's experience enabled him to execute heroically.

Similarly, his ability to lead enabled him to make a decision in a situation that was pressured and far from black and white. His air traffic controller was suggesting he return to Laguardia. Then to Teterboro. And then reacted in bewilderment when he heard, "We're gonna be in the Hudson." Meanwhile the pilot didn't lose focus - he knew the Hudson was the only option almost as soon as he hit the flock of birds.

Clearly the pilot was lucky as well. Personally I'd rather be lucky than good, but being lucky and good deserves applause.

The thing about unintended consequences

In the midst of Judge Greene's AT&T break-up in 1983, a sign hung in many Bell facilities and read:

"There are two giant entities at work in our country, and they both have an amazing influence on our daily lives. . . one has given us radar, sonar, stereo, teletype, the transistor, hearing aids, artificial larynxes, talking movies, and the telephone. The other has given us the Civil War, the Spanish-American War, the First World War, the Second World War, the Korean War, the Vietnam War, double-digit inflation, double-digit unemployment, the Great Depression, the gasoline crisis, and the Watergate fiasco. Guess which one is now trying to tell the other one how to run its business?"

While splitting up AT&T was obviously bad for its business - it ended its monopoly - one can argue it was good for consumers - it gave them more choice and reinvigorated innovation. But on the other hand, have consumers been better off with all the extra options? 

Many aren't savvy enough to understand what's available. Studies have always shown that most consumers want one bill only. "Bundling" services has met this desire but at the same time stifles the very competition Judge Greene aimed to create. And millions of consumers remain with AT&T anyway, getting price gouged on basic service and with add-ons like call waiting, caller-ID and voicemail. 

Is there a parallel to today? 

In the midst of a recession (jobless claims are at the same level they were at in 1982) the government is dictating how businesses should be run. Firms are being told how much they can pay people, lately in the form of a $500k salary cap for executive wages at companies receiving federal help. The Treasury's bailout of financial institutions communicated that if you're not a commercial bank, you're probably not worth helping. Hence the rapid consolidation with commercial banks and the sudden conversion to the same by the likes of Goldman Sachs and Morgan Stanley. Sarbanes Oxley, an upshot of the prior recession, dictates what firms' boards should look like.

Many companies have undoubtedly overstepped their bounds over the years and intervention is necessary from both an economic and messaging perspective. Rules against abuse must be in place. Shareholders and consumers shouldn't be taken advantage of. 

But in all things like this there are unintended consequences. What are the risks? Even under tighter regulation, are consumers really smart enough and disciplined enough to not take on debt that's inappropriate for them? Will premier talent and leadership leak to firms that have the willingness and ability to pay market-rate executive salaries? And if so, who will lead the firms in trouble to greener pastures? Are companies being run more effectively now that they must maintain independent board members who know nothing of their business?

All important questions and ones that policy makers may have thought about and ignored while the public didn't think about them at all. The former is willful ignorance while the latter is just ignorance, but they both have the same effect. And both are driven by wanting something so much that it's done at the expense of what else might happen. In the case of AT&T it was giving consumers choice. Today it's punishing Wall Street and saving Main Street. And there's always immediacy around messaging and perception that creates undue haste.

The thing about unintended consequences is that they are unintended - sometimes as a result of error, but more often because they are ignored. In fact we ignore our very nature to do such things over and over, despite being aware of it. Unintended means we are out of touch and that we aren't thinking things through well enough - things that can have long-lasting and far-reaching effects.

As an aside, the term unintended consequences was popularized by a tome written of the same name, but the book was so dense and difficult to read that the only real recognition it got was for its title. The author who undoubtedly slaved away for many hours probably didn't intend that, but the consequence is that we now have a term to apply to policy makers and the public for their unanticipated follies.

Here's to hoping for more intention.

A desensitized culture

The picture here shows the wildfire that was, and remains, uncontained, burning 3 miles north of my house last night and this morning.

In fact, that's about how it looked as I was heading west down the freeway into the Boulder valley yesterday evening. I flipped on the radio and heard that extraordinarily strong winds were busy fanning the flames as firefighters struggled to contain them.

Thoughts raced through my head - was my family safe? Would my house burn down? Were other people and their homes safe? I called home and my wife said the phone was ringing off the hook but all was okay. In fact, when I arrived home it was so peaceful, aside from the wind, that one could have been completely unaware of what was occurring just a few miles north. It wasn't until this morning, when the air was thick with brown smoke, that one could tell danger was so nearby. 

Just another fire though, right? We read about stories like this all the time - terrorism in India, mudslides in Southern California, war in the Middle East, SARS in East Asia, and even 9/11 and the 2004 tsunami in Indonesia - with a certain detachment and fascination because we aren't directly part of it. Unless we are, of course. And then we gain a perspective we never had, especially when we or the people we love are in harm's way and there's nothing we can do about it except let nature take its course and try our best to get out of the way. It's in moments like those when things really hit home. 

But do those moments persist? The media does a great job at keeping us emotionally at arm's length. Reporters dole out sensational stories often enough and with just enough detachment to desensitize us. A story about a panda being born in a Chinese zoo is reported with the same indifference as a shooting in which 3 people are killed. The weatherman cheerfully reports that we're in for some sunshine the moment following a story about a baby who was left abandoned in a trash can. The reporting is all so flat and categorical that our brains can't make heads or tails of it. We go on about our lives until the next story comes along.

We're all becoming incredibly desensitized. The edge of the envelope keeps getting pushed further and further, and not only by the news media but all over. Take movies, for example - they have a huge impact on popular culture. Compare the coming-of-age films done by the "Brat Pack" of the 1980s (e.g. Sixteen Candles, The Breakfast Club, About Last Night) to the "Frat Pack" films of the 1990s and 2000s (e.g. Old School, Dodgeball, Wedding Crashers) to other recent films like American Pie and those starring Seth Rogen and Jonah Hill like 40-Year-Old Virgin, Knocked Up and Superbad. The latter two really illustrate the point - they exploit most of whatever innocence remained in movies. Seems like run-of-the-mill stuff now to most of us.

The volume of information we receive every day is having the same effect. Between phone calls, emails, text messages, instant messages, Twitter feeds, RSS feeds, web pages, iPods, Xboxes and the rest, we are bombarded with so much information stimulation that nothing phases us. In things like politics, human rights, sexuality, technology, medicine and education, the rapidity of communications has created so much awareness - almost forced "acceptance" - about all the competing interests of the many that each of us just seems to fall in line, rank-and-file, holding our view just like the rest. What used to be middle-of-the-road is now just road; what used to be fringe is now just normal.

And it's all going to keep happening. Lots of this is just the ongoing evolution of society, but over hundreds of years this evolution has occurred in more or less slow, linear fashion. With the advent of fast and distributed communication mediums like the Internet and an increasingly larger and more varied population, it's occurring in exponential fashion now. It's kind of like we traded in our old Dodge Omni for a Porsche 911 and really hit the accelerator.

I'm not on my soap box, by the way. I happen to get a laugh out of movies like Superbad, even if the content is truly bottom-of-the-barrel. I certainly wouldn't see it with my parents, mind you - that's where discretion comes in. But I do think it's important to realize how numb we might be becoming. It's important to emotionally connect more. And to realize that the media plays such a large role in preventing us from doing so. I'm emotionally connected to the fire blazing near my house. It sounds like they'll contain it, but who knows. And I'd suggest we try to connect more with what's going on around us as well.

Waxing poetic

In the spirt of the holiday season, I thought I'd post something I wrote back in 2005 when running for student government at Kellogg. Per election rules, each candidate could send one email message to the entire student body; I chose to craft a poem written in the form of “Twas the Night Before Christmas.” I received all kinds of feedback on what I wrote - one friend suggested he "almost shed a tear" since it had been so long since he'd been inspired to write a poem. Others probably thought it was gimmicky. Regardless, the point is that sometimes you've just got to put yourself out there. Here is the email in full:

Dear Class of 2006,

Tomorrow and Friday, you will be faced with the most important event of your lives:  electing your very own 2nd Year KSA Board Representatives!!  As someone who has been involved in CIM-week leadership, PEEK leadership, and has supported the continued development of the Kellogg Joint Ventures program that serves your very own significant others, I want to represent you next year!

The most important thing to do tomorrow and Friday is VOTE!  Here’s a statistic for you:  only about half of this country’s population votes in elections.  Maybe it’s because people aren’t registered, or they’re apathetic, or other factors.  The good news is that tomorrow and Friday the wind is at your back!  Why?

Reason #1:  You don’t have to go to the DMV to register to vote!  This means no long lines and no worries about getting called for jury duty two months from now because your name is now in the “system.”

Reason #2:  Voting is quick and easy. You don’t have to drive to a polling booth and risk “hanging chads” on your ballot cards. Take a few moments to put down that book (or beer) and vote the way your heart tells you to vote, online.

Reason #3:  You should be passionate, like I am, about what your next three quarters will be like!  This is your opportunity to elect a team that will represent your interests.  I, for one, look forward to the opportunity to give back to you and to the school next year.

And with that, as I contemplated what else I would say in my message to all of you, I was inspired to write a short poem…

'Twas the eve before elections, when all through the school

Students stressed about midterms but tried to keep cool;

The KSA candidates campaigned with their might

In hopes they’d be elected the following night;

 

Amidst email inboxes flooded with clutter

Campaign slogans and messages the candidates uttered;

If we could all get elected, why that would be fine!

But in the end students will pick five out of nine…

 

With clean second-floor bathrooms packed to the gills,

The ones on the ground floor were empty and still;

The Atrium bustled at lunch with much chatter

And students without tables wondered what was the matter.

 

And why isn’t there Starbucks or maybe Potbelly’s?

Instead we have donuts that fatten our bellies;

What about taller lockers, where we can hang our suits?

Or should a new building be our pursuit?

And then there is Kellogg (but not the cereal brand),

It’s the #1 ranked business school, so fabulous and grand!

Getting to the top is easier than staying there, friends,

But with leadership and rigor, we’ll continue to ascend!

 

Yes, these issues have been discussed back and forth

From west to east, and south to north;

Some will become reality, some will remain dreams,

In the end all you need is a strong leadership team!

 

So, tomorrow, I ask you, first of all: VOTE!

And if you like what I stand for (or like what I wrote),

Then elect me for Board Rep – John Duke is the name,

And know that I stand for visible change!

(Thanks for reading.)