Learning about Risk and Reward in the Marketplace

The US has a culture where commerce permeates everything. It’s practically omnipresent. Because of this many Americans unknowingly learn facets of business that other cultures do not. A Harvard Business Review blog entry by Vijay Govindarajan called Marketplace Literacy: A Reverse Innovation Opportunity? pulls out three aspects of business: the skill being sold, the know-how to be efficient and the know-why to be effective. Here’s an excerpt example:

Marketplace literacy itself can be viewed at three levels: the concrete level of vocational skills or a trade, the more abstract level of business know-how, and the level of understanding, or “know-why,” about the marketplace. For instance, suppose a poor woman who knows how to cook (a vocational skill) starts a food shop. To run the business, she needs know-how — specifically, she needs to know how to set the menu and prices, choose a location, and promote her business. She also needs “know-why” — to understand why it’s important to be customer oriented, why to choose one location and not some other, and, ultimately, why to go into this business and not something else.

The second two items really leverage planning. Knowing details, spotting trends, and anticipating demand levels enable a good business person to set up a business for success. Many people in the US get lulled into a belief that their intuition is the same thing as truly understanding what can or will happen. Another HBR blog entry discusses the differences between foresight and intuition. It’s by Jeff Stibel and it’s called How Forethought (Not Intuition) Separates the Good from the Great. Here’s an excerpt:

But let’s beclear: Intuition is different than forethought. Intuition is another oneof those necessary but not sufficient traits. Without intuition, thehuman race would have been finished a long time ago. Intuition rests onthe ability of the brain to read patterns, and react accordingly. Forinstance, you don’t need to accumulate hundreds of details about acoiled object in your path to jump out of the way. The brain decidesinstantly that it’s a snake. Now the object may merely have been acoiled rope — and you may have jumped into the air needlessly, to theamusement of passers-by. But that is because the brain is built to reactquickly. It doesn’t wait for all the details.

Here’show forethought is different from intuition. To have forethought, youneed an abundance of details and you must labor over them. There is noright answer when thinking about the future, merely an endless number ofscenarios. It is what the Stanford economist Thomas Sowell calls”long-range thinking.” Forward thinking is the brain’s way to chip awayat the edges of uncertainty, to make bets based on past experience. Thebest of the best do this incessantly.

Finally, I mention these two items because the US economy is essentially sitting still. The inputs – the data – used for decision making is not currently trust worthy. Legislation over the past two years, such as Health Care reform and Financial Reform, have left many businesses flummoxed as to what to do, so they’re not investing until a path is clear. Geoff Colvin in his article Uncertain of future regulation, businesses are paralyzed provides a stat that is indicative of a business environment in wait:

Once these mammoth laws are enacted, government agencies must write new rules to implement them. For example, the Dodd-Frank law requires 243 new rules, by the count of the Davis Polk & Wardwell law firm, and no one yet knows what they’ll require. 

But it’s also a time of getting ahead. Sunk costs are a reality in business and holding off on investments or hiring is valid to a point. The problem is waiting too long can lead to lost opportunity in the marketplace. After all, business is all about risk and reward.

Working Thoughts 10/21/08
The Next Stimulus Package Must be a Job Creator

Working Thoughts 10/21/09
US Values have Changed, but the Change is Subtle

Generational Delay in Leadership

A few entries ago I wrote about a movie called Waiting For Superman. Today I learned that Jeff Skoll is the man behind it. He funds movies with an angle beyond entertainment; his movies inform, potentially leading to social activism. His films include: Good Night, and Good Luck, North Country, Syriana, An Inconvient Truth, Murderball, Fast Food Nation, The Kite Runner, and Charlie Wilson’s War.

He can fund all these movies because he was the first President of eBay. In 2002, he cashed out for a take of $2 Billion. He was 31 years old when he became the lead of the internet auction house. In his 20s he took some entrepreneurial risks, those successes earned him the eBay opportunity and he is credited with forming the business model the company uses.

Fortune.com is running a theme about leaders under the age of 40. They have a 40 Under 40 piece and a 20 Highest Paid Under 40 section going currently. These people are featured because they are leaders. They are changing the world. And they are young.

As much as the 6.2 million long term unemployed are a long term economic problem for the US, the slowing of the ascension of next generation leaders is as well. There are Pew Research Studies showing a delay in independence  in 20 somethings in the US. Here are some stats:

  • In 2010, 85% of college seniors planned to move back home with their parents after graduation.
  • In 2006, 67% of college seniors planned to move back home.
  • In 1970, the age of someone who is not college educated to get married was 22 years old. For the college educated, it was 23 years old.
  • In 2008, the age of someone who is not college educated to get married was 28 years old. Same for college educated.

This is important for a variety of reasons, but the two main ones are: it delays leadership chances and it stunts income potential. A study was performed by Columbia University called Elites Research Network. The point of the work was to understand how, or what, made someone elite financially. The seminal finding was most of the people were put in early career opportunities, the type that makes the person a generalist and not a specialist. This advantage, more than privilege or inheritance, is the key to lasting success.

So what does it mean for the US that 85% of college grads are living at home post graduation? Or that marriage on average is 6 years later than it was in 1970? Is 40 the new 30? And if so, without the compounding interest of 401k or pensions does that mean 75 is the new 65?

September 2010 Jobs Report and Wages

Here are the job market and compensation numbers for September 2010 (based on the job report):


Net loss
of 95,000 jobs in the month

  • Census workers accounted for a loss of 73,500 workers and government hiring as a whole lost 159,000
  • Private sector payrolls increased by 64,000 (July revised to a gain of 117,000 and 93,000 last month)
  • Analysts expected an overall gain of 18,000
  • One year ago the US lost 225,000 jobs
  • August was revised to a loss of 57,000 from an original reading of a loss of 54,000
  • July was revised to a loss of 66,000 jobs from a revision of 54,000 jobs and an original reading of 131,000 lost jobs
  • 6.1 million people have been jobless for more than 6 months (long term unemployed) – virtually unchanged from August

    • 41.7% of the unemployed are long term unemployed
  • Businesses
    (private sector) have now added 863,000 jobs since the start of
    2010, after cutting 8.5 million in 2008 and 2009 combined

Unemployment rate stayed at 9.6%

  • Analysts predicted it would be 9.7%
  • The employment to population ratio is 58.5% – unchanged
  • The U-6 report, which is a broader group to count (workers who are part time but want to be full time and discouraged worker), rose to 17.1% from 16.5% two months ago (it had held steady for a few months)
  • PMI,
    a measure of manufacturing pace, is 54.4% and the 17th consecutive month of readings over 50 percent.
    Anything above 50% means the machines are running, but the rate has been declining

Specific Segment Job numbers:

  • Manufacturing lost 6,000 jobs
  • Construction lost 21,000 jobs
  • Retailers added 5,700 jobs
  • Leisure and Hospitality Services grew by 38,000 jobs
  • Government sector lost 159,000, Federal losses were 76,000
  • Education and Health Services grew by 17,000 jobs
    • Health Care and Social Assistance grew by 32,000

  • Professional and Business Services grew by 14,000
  • Mostly added by the 16.900 jobs added in Temporary Help

Wage (can be revised):

  • The average weekly paycheck (seasonally adjusted) is $639.85 – an increase of 32 cents
  • The average hourly earning (seasonally adjusted) is $19.10 – an increase of a penny
  • Average
    weekly hours and overtime of production and nonsupervisory employees on
    private nonfarm payrolls by industry sector, seasonally adjusted is
    33.5 hours

Bureau of Labor Statistics

Job Report Stats Summary

Right Place at the Right Time Happens, It Isn’t a Fluke.

There’s a movie out called The Social Network . The story shares a few perspectives on the founding of Facebook. But there are no shortage of opinions for this drama.

One common view is Mark Zuckerberg was in the right place at the right time. He was just lucky. It’s hard to argue he didn’t benefit from several favorable circumstances. Luck isn’t fated though. Good businessmen tend to be luckier than others because they play the favorable odds and work to improve their chances.

Many success stories start with a few individuals meeting at a coffee house and exchanging ideas. Connections are made and enterprises are launched. It isn’t luck these people were in the coffee house. They purposefully went there wanting to meet people who also wanted to people. A $4 coffee every other day results in a pretty wide network. So when right place at the right time happens, it isn’t a fluke.

Anthony Tjan from Harvard Business Review writes up a couple of sections in his blog first describing the type of luck he observes and then the characteristics of people who tend to be lucky. Here’s some excerpts from his blog entry Make Luck Work in Your Favor :

1. Circumstantial Luck. You go to lunch with a friend and bump into another acquaintance who introduces you to a stranger who eventually becomes your biggest client. The unintended but welcomed outcome (a new client) was unrelated to the initial action (lunch with a friend). Being at the right place, at the right time, made the difference. You were circumstantially lucky.

2. Constitutional Luck. Age, heritage, cultural background, or upbringing can predispose you to a certain outcome.

3. Ignorance, or Dumb Luck. As with the other kinds of luck, dumb luck’s role in the outcome is clear only in hindsight.

Here are the three most important things lucky people tend to do:

1. Entrepreneurially lucky people are driven by a deep intellectual curiosity. Constant focus on self improvement affords more opportunities for luck to occur. Business leaders who regularly question the norm and who seek both continuous improvements in their business, and in themselves, end up being luckier because they want to learn.

2. Lucky people feel lucky and are optimistic.  In a conversation with Tony Hsieh, the CEO of Zappos, he shared with me how people who self-described themselves as “lucky” picked up more hidden clues in a quiz. He described the fascinating test experiment in which two groups of people are given newspapers with hidden messages. While they are told to count certain images, the headlines and text on the pages have hidden messages telling them they are done and to mention a particular message to collect an extra $100. People who answered that they were “lucky” were much more likely to find the clue. Why? We think it is because they approach the world with an open and optimistic mind that enables them to see unexpected opportunity more readily.

3. Lucky people are vulnerable and humble.  These qualities are the antidote to the hubris so common among successful business builders.

Inspiration and Institutions

Malcolm Gladwell, the author of several best sellers including a favorite of mine The Tipping Point, wrote a New Yorker article last week about the bonds of Social Networking tools like Twitter and Facebook. To explain his point he describes the fears and risks of the “sit in” generation of the 1960s. Social change at that time required a particular type of nerve: courage and restraint. It was needed because the threats, occasionally deadly, were often carried out. They knew they had to endure because their weakness would lead to weakness in others. Gladwell calls these strong bonds.

6.2 million people have been unemployed for more than six months. Being without work for that long is troubling to the mind. Being available in case something comes up and the instability of simply not knowing is tough. Plus it’s lonely. But 6.2 million is a big number and it means there’s probably someone within your community who is in the same predicament. That is where a site called Unemployed-Friends.com comes in. It’s a means for those without work to exchange messages, thoughts, and prospects. But besides the fringe benefits of venting, it’s a market for helping each other. That’s the genius of it, these people have time and unused skills available. And this is just the short term benefit. Strong bonds might be the long term benefit.

When I was about eight years old, I remember the pull the professional wrestling. “Who won Wrestlemania?” I’d ask my dad because it was too late for me to stay up. This was the ’80s and wrestling wasn’t obvious about the scripted action yet. People like Hulk Hogan would get the crowd going with their back stage interviews. In the late ’90s a resurgence followed and people could smell what The Rock was cooking. The camera would pan the stands and see signs with clever sayings like “Hogan was a Flintstone” and “This Space for Rent.” Everyone would chant the catch phrases and nothing would be better than Jerry Lawyler’s high pitch announcement of a surprise wrestler “WHAT?! That’s Stone Cold Steve Austin’s music!” Simply exciting.

But this type of connection is weak. It’d only last while the entertainment was going and then it was time to move on to something else. I think this is what Gladwell was trying to get across with his New Yorker piece. That Twitter and other Social Networks are forms of entertainment and have no lasting kinship. But we are also in a society where the threat of an act is all that is needed. It’s pretty powerful. So getting a few thousand signatures via facebook isn’t the same as a “sit-in” but it sends the message to the offending party that they could be in a costly confrontation. And then they have to decide if it’s worth it.

I mention all this because I think a real test of these tools is underway. The US election cycle for 2012 will begin in about six weeks. About a year later we’ll begin to see a lot of movement around a third party candidate. Thomas Friedman in the NY Times writes about the idea in a Op-Ed piece called Third Party Rising . He should have used a former wrestler as an example – Jesse Ventura ran a grass roots campaign in the mid ’90s, about the time the Rock was cooking, and became governor of Minnesota. Michael Bloomberg might give it a shot, we’ll see, but I don’t think a third party can win, but he can get close, and the mere threat should send shock waves to the Democrat and Republican Parties. From a business perspective, the time is right to capitalize on the on coming need and use of the strong and weak bonds.

Working Thoughts 10/4/08
September 2008 Jobs Report and Wages