No Business Model is Forever

I’m guilty. I often assume that how things are today is how they will
be in two, five, and ten years, especially in regard to business. Its
just easier to think this way because a majority of major companies
will still be powers in their industries. But just ten years ago,
Google was working for Yahoo, Enron was a growing energy company, WorldCom
was a long distance company, and Wall St had half a dozen investment
houses.

So when I read other blog posts like Umair Haque’s How to Challenge Google (and Win) it reminds me that no business model is
infallible. To recap the post, it says Google separates itself by
providing the most useful and valuable ads to potential customers. The
payment model is contingent on Google delivering on this promise. It is
a variable rate model. What is significant about the post is that it
looks at the issue of ads from the end user perspective. There are lots
of software options that block ads in the web browser. But what these
companies find is that it isn’t the ads themselves that’s the problem,
its ads that aren’t interesting. Ads through Google assumes that I need
to eventually buy something so they force feed me reminders. But many
of these ads are just trying to improve the rate of coincidence. A
change might occur where the consumer determines usefulness, rather
than relevance. Here is Haque in his own words:

What’s going at Ad Blocker Plus is the beginning of the End of the Google Era.
Ad Blocker Plus is on the verge of turning into an open network that
(finally) does the same as Google does: massively boost ad relevance,
stripping out the useless junk — by factoring in whether or not people
find ads useful or not.

Ad Blocker plus is, almost unwittingly, making the world’s first
reverse ad network. It doesn’t aggregate more ads to push — it
aggregates people’s preferences about ads, so better ads can be chosen.

Google revolutionized the ad industry by waging peace. Imperfectly,
certainly. Yet, when consumer preferences were factored into the value
of ads, the result was disruptively more relevant ads. Advertisers,
publishers — and, finally, people — were all better off. Now, Ad
Blocker Plus is on the verge of waging an economically more valuable
kind of peace: a more open, broader peace, which can boost relevance
more significantly.

Imagine a button underneath every ad at every newspaper, magazine,
and blog that said: “tell us this ad sucks.” That’s a simple but
powerful way to begin waging peace, turning Google’s monopoly on
tomorrow into Microsoft’s monopoly on yesterday.

Let’s zoom out even more. Imagine a button at every supermarket that
said: “should we stock this?” Imagine a pharmacy that stopped trying to
sell you junk food — and focused on comparing the efficacy of different
health options for you instead. Imagine an open standard for credit
ratings, instead of the opaque, conflict-ridden mess we’ve got now.
That’s what waging peace might look like.

I never really thought about an Ad Blocker having unique insight
into what the potential consumer finds valuable, but the logic is
right. And its these unconsidered competitors that in ten years will
be major factors and another list like the one above will exist.

Being a Good Boss During a Down Economy

My last post, called Happiness is Making the Best of It, is about how uncertainty is really more of a mental factor than things like the poor economy. Why is this? Because once you come to terms with bad situations you make the best of it. When you don’t know what the bad situation fully is, you can’t begin to deal with it. This leaves the person in an ongoing state of anxiety.

I got my latest Harvard Business Review magazine in the mail the other day and it is mainly about trust. This is right up my ally. One article in it is called How to be a Good Boss in a Bad Economy by Robert I. Sutton. He highlights four areas for bosses to be aware of:

  1. Predictability
  2. Understanding
  3. Control
  4. Compassion

Predictability and Understanding really jumped out at me because it talks about uncertainty:

If predictability is about what will happen and when,
understanding is about why and how. The chief advice here is to
accompany any major change with an explanation of what makes it
necessary and what effect it will have—in as much detail as possible.
This advice, too, is rooted in psychological research: Human beings
consistently react negatively to unexplained events. The effect is so
strong that it is better to give an explanation they dislike than no
explanation at all, provided the
explanation is credible.

The days of hiring someone for life are long gone, so everyone understands that layoffs are going to happen. What people need is to understand why they happened and when they are over. This allows the employees to drop their level of anxiety and get back to work. Here is an example of a good strategy cited in the article:

Seligman observed that when a stressful event can be predicted, the
absence of a stressful event can also be predicted. Thus a person knows
when he or she need not maintain a state of vigilance or anxiety.
Seligman cites the function of air-raid sirens during the bombing of
London in World War II. They were so reliable a signal that people felt
free to go about their business when the sirens were silent. The
hypothesis was bolstered by studies in which some animals and not others
were given a warning in advance of a shock. Those that were never warned
lived in a constant state of anxiety.

The same holds true for organizational shocks like layoffs. If
you give people as much information as you can about what will happen
(to them as individuals, to their work groups, and to the organization
as a whole) and when it will happen, they will prepare to the extent
they can and suffer less. Just as important, they can learn to relax in
the absence of such a warning. This was the thinking behind one CEO’s
decision to issue a heads-up memo to the staff of his nonprofit
organization. In it he laid out in detail the worst-case scenario that
would result if the stock market and donations failed to rebound over a
certain time period. But while preparing people for a future that might
well involve job losses, he also made a firm commitment: No one would be
asked to leave for at least three months. At another company I know,
managers opted for a deeper staff cut than was immediately necessary,
because they were determined not to inflict a second one right away and
thus create a distracting fear of still more to come. They followed that
cut with the message that although more might be needed in the future,
none would be made for at least six months.

Here is a video of Robert Sutton talking about these situations:

http://www.mckinseyquarterly.com/App_Themes/v2.0/swf/external_player.swf

Happiness is Making the Best of It

There are many sayings about happiness. Two I find relevant are:

The
road of life twists and turns and no two directions are ever the same.
Yet our lessons come from the journey, not the destination.

by Don Williams, Jr. quotes (American Novelist and Poet, b.1968)

Focus on the journey, not the destination. Joy is found not in finishing an activity but in doing it.
Greg Anderson quotes
(American best-selling Author and founder of the American Wellness Project., b.1964)

But
each of these flies in the face of how many American’s think. Because
of the development of the prefrontal cortex, humans have the ability to
envision something that hasn’t happened – an experience simulator. An
example is the taste of red onion ice cream. You already know that it
would taste bad without actually tasting it. Dan Gilbert says this expectation and goal
setting ability results in a couple of different types of happiness:
Synthetic happiness and natural happiness. Natural happiness is getting
what you want or what you were aiming for. Synthetic happiness is the
substitute for not getting what you want. Most people consider
synthetic happiness as secondary. But in reality, synthetic happiness
is more vital. Why? Because you can’t always get what you want, but
synthetic happiness evens out this issue. You make the best of it.

But
uncertainty throws a wrench into both of these. You can’t create the
vision for yourself, whether practical or not, without knowing the
rules for which to frame it. This prevents you from realizing what you
potentially want or at least how to cope with what you have. Our
current economic time is made much worse because we don’t know what the new
world order will look like. We don’t know if a vision for ourselves
is plausible. This creates anxiety. But once the media, the President,
or your family decides everything is fine, we will see a US that is gushing with potential. I believe this because a new future is drawn. The old future wasn’t sustainable.

Thanks for Daniel Gilbert for writing in the NY Times an article called What You Don’t Know Makes you Nervous and this video:

http://video.ted.com/assets/player/swf/EmbedPlayer.swf

Business Leaders Need to Realize a Generational Shift has Occured

Earlier this year I wrote that President Obama is making 30 year decisions. The premise is that we have generational Presidents. Those that set true directional policy. He reinforced this recently with the change in the average miles per gallon metric – it is set to 35.5 by 2016.

The Business Community follows a similar path. I believe that much of the financial breakdown we are currently dealing with is a result of President Reagan’s policy directions. In the 1980s it made a lot of sense, we had to deal with new international competitors. It spawned a boom of productivity in the 1990s and has been manipulated in the 2000s. The lifecycle has run has its course. But the problem is that many in business don’t recognize it. Here is an excerpt taken from Alan Webber‘s blog on HBR.com called Conversation Starter:

But what if the problem isn’t economics? What if the problem is a
business problem–a failure of management and an absence of leadership?
Shouldn’t business and business schools be looking at their practices
and precepts with the same critical eye as the economics profession? I
recently wrote a book called Rules of Thumb, a collection of 52 life lessons. I think three of them can help propel the thinking on these issues in the right direction.

Years ago, when America’s competitiveness appeared to be failing,
two legendary HBS professors, Bill Abernathy and Bob Hayes, challenged
business schools and business leaders to take a hard look at
themselves. “Managing Our Way to Economic Decline” became a must-read text. Isn’t it time for another such review?

What is the business of business school? And what is the purpose of business?

At least once per decade for the last 30 years we’ve seen American
business go seriously off the rails. The reengineering fad, Mike Milken
and junk bonds, the savings and loan crisis, the dotcom boom and bust,
the Long Term Capital Management panic–only a partial, abbreviated
history of business disasters–suggest that something systemic is wrong
with the way business goes about business. An individual with this
track record of crises would be a candidate for an intervention, a time
out in a recovery center, and life-long participation in the 12-step
program of their choice. Something is wrong–and it’s time to face it.

Business schools teach finance and strategy, marketing and HR, IT
and operations management. Those are the courses of a trade school, not
the developmental curriculum of a profession.

He then goes on to give three questions/rules. They are (I especially like the last one):

The first question business schools should teach their
students to ask is my Rule #3: Ask the last question first. The last
question is, what’s the point of the exercise?
Jack Welch
famously said it was to maximize shareholder value–a terrible answer
in retrospect. Peter Drucker famously said it was to make and keep a
customer. What is the answer that fits our situation in 2009, and
beyond? Today, business schools need to teach students to ask the last
question first–or risk taking their company down the old dead-end path.

The next piece of the curriculum has to be Rule #23: Keep
two lists, one that holds what gets you up in the morning and one for
what keeps you up at night.
Managers and leaders have got to
know themselves before they know their businesses. They’ve got to have
passion for their work and concern for their world. Otherwise they’re
just punching the time clock and risking everyone’s future.

Finally I’d teach Rule #4: Don’t implement solutions. Prevent problems.
Everything that will be put in place as a clean up to the mess we’re in
now won’t be enough if we keep creating new disasters. We need a new
generation of business leaders who anticipate problems and prevent them
from happening. It’s smarter, cheaper, and more effective than the
every-ten-year clean up we’ve become accustomed to.


Working Thoughts 05/21/08
Empower Your Employees or They Become Powerless

Make Sure Your Brand has a Message

I occasionally talk about branding and how vital it is when your
product isn’t sufficiently different than your competitors (early on is
this blog I preached Blue Ocean Strategies). For small business owners
or entrepreneurs the way you define your brand can be the difference
between making and failing. Actually, the worst thing to do is to
ignore your brand efforts altogether.

The NY Times ran a piece the other day called Message in What We Buy, but Nobody’s Listening by JOHN TIERNEY.
Its a well written synapses of why brands matter and why competitors
can exist in a marketplace without being a low cost leader. Here is an
excerpt that I liked particularly.

Suppose, during a date, you casually say, “The sugar maples in
Harvard Yard were so beautiful every fall term.” Here’s what you’re
signaling, as translated by Dr. Miller:

“My S.A.T. scores were
sufficiently high (roughly 720 out of 800) that I could get admitted,
so my I.Q. is above 135, and I had sufficient conscientiousness,
emotional stability and intellectual openness to pass my classes. Plus,
I can recognize a tree.”

What
I take from reading this article is that a specific story is what you
want to tell with your product. It can be one of aggressiveness or
conscientiousness or something else, but it has to be purposeful.

But if you want to avoid falling for these traps as a consumer remember:

The grand edifice of brand-name consumerism rests on the
narcissistic fantasy that everyone else cares about what we buy. (It’s
no accident that narcissistic teenagers are the most brand-obsessed
consumers.) But who else even notices? Can you remember what your
partner or your best friend was wearing the day before yesterday? Or
what kind of watch your boss has?

A Harvard diploma might help
get you a date or a job interview, but what you say during the date or
conversation will make the difference. An elegantly thin Skagen watch
might send a signal to a stranger at a cocktail party or in an airport
lounge, but even if it were noticed, anyone who talked to you for just
a few minutes would get a much better gauge of your intelligence and
personality.

“But who else even notices?” – So true.

Portfolio Closes Up Shop and Credit Suisse Gets it Right

Its practically common knowledge that magazines and newspapers are in
survival mode with the way advertising budgets are pared down. So I
wasn’t surprised to learn my subscription to Conde Nast’s Portfolio was
coming to an end. It was very helpful for me, a blog writer, in coming
up with ideas. For instance, this past month it ran a piece about how Credit Suisse is paying bonuses. Here is the excerpt I really like:

So is there a better way? Credit ­Suisse,
a Swiss bank that has weathered the credit crisis better than most,
created an ingenious and gratifying solution to the problem of outsize
pay for Wall Street failure. It decided late last year to pay out part
of its bonuses in toxic assets. On Wall Street, the old saying is that
you “eat what you kill.” In this case, Credit Suisse is making its
employees eat their own garbage.

What’s satisfying about
Credit Suisse’s plan is that it shows that investment banks are capable
of learning and bowing to outside pressure. Bonuses on average at the
bank were down 44 percent in 2008 compared with 2007, and employees in
the investment-banking division took a greater hit relative to others.
Bankers at Credit Suisse did get about half of their bonuses in cash,
but instead of stock, top employees, including all the managing
directors (except for the very top dogs, who received no bonus at all
last year), received an interest in what the bank is calling the PAF,
the Partner Asset Facility. It’s made up of assets the bank valued at
just over $5 billion after roughly $2.6 billion in write-downs—meaning
that the employees got assets worth about 65 cents on the dollar.

Notably,
that valuation is surely higher than what the assets would get if they
were sold in the market right now. The great question about all these
illiquid assets currently on bank balance sheets—one which goes to the
heart of whether Treasury Secretary Tim Geith­ner’s bank-rescue plan
will work—is what are they worth? Is the market setting fire-sale
prices that don’t reflect their actual value, or are they truly
impaired? The banks argue that the market has become temporarily
irrational and that the prices it’s setting don’t represent the assets’
true value. In recent years, this hasn’t been an argument as much as a
desperate belief. At least in Credit Suisse’s case, it’s putting its
money where its beliefs (and employees’ mouths) are.

This seems like such a simple way to both placate your employees (who
doesn’t want a bonus) and the tax paying public. Plus I like the idea
of particular products being part of the portfolio of the bonus. It
ensures a real belief in what you are selling.

Working Thoughts 05/14/09
Oil Attention

Donate Your Birthday with DonorsChoose.com

I regularly write about how one of my favorite charities is DonorsChoose.com. The different programs they do to get people excited about giving is what draws me in. Well that and how $50 gets a teacher real close to creating a memorable learning experience for the kids.

I didn’t realize this was an option, but a video of Stephen Colbert mad me aware that you can donate your birthday. Here is an excerpt explaining it:

Great Give-Back Birthday

You are cordially invited to The Great Give-Back Birthday
— our online donation celebration! The party will go year-round, and
we welcome birthday celebrants of all ages. It’s easy to join, here’s
how it works: 1) You donate your birthday to DonorsChoose.org, 2) You
create a personalized Giving Page with classroom projects you care
about, and 3) You share your Giving Page with friends and family. Your
“party guests” can donate to the classroom projects you’ve selected.

Here is the video: