103 results found.
103 results found.
Every time I take a walk around a company that I’m working with and talk to employees I hardly know, I discover something interesting about the business. As often as not, that something is a problem.
Some of the problems are small. Some are serious. Many of them are years old. What’s shocking is that they almost always come as a surprise to the CEO.
On a recent walk around, for example, I discovered that there was a glitch in the way orders were processed. (And we’re talking thousands of orders every day.) Not only was it causing week-long fulfillment delays, a shocking number of orders were simply dropping out of the system.
Since the problem had developed over a long period of time, the decrease in revenues looked like a gradual decline in sales that upper management was attributing to a weak market.
After alerting the CEO to the problem, it was solved in less than a month. But during the investigation, it was discovered that at least half a dozen line workers had tried to contact management about it. Somehow, their concerns never reached anyone that paid any attention. I would estimate that the total loss in revenues had been millions and millions of dollars.
I discovered a less-dramatic example earlier this week. When the receptionist in one of the company’s buildings has to leave her desk, she asks the people in the mail room to back her up. But the people in the mail room can’t always hear the doorbell ring. So if you ring the bell when the receptionist is gone (as I did), you are likely to stand there for a very long time.
This isn’t the sort of problem that can (usually) stop your business cold or whose cost can be calculated in dollars. But it can damage your business in small but significant degrees. (In this case, if you consider the fact that it was going on in the building that houses the company’s top brass, you can imagine the impression it was having on VIPs that came by for appointments or meetings.)
Many senior executives I know pride themselves on being “big picture” people. They rely on subordinates to identify problems and solve them. Or at least bring them to their attention if an easy solution isn’t available. That only increases the risk that such problems will arise all over the place and go unnoticed for who knows how long.
When you’re at the top, it may feel like everything is going smoothly. But down below, there could be dozens or even hundreds of flawed processes and protocols that are eating away at your business like termites in a wooden building.
This should not be a new idea to anyone with even limited experience in management. Experts call it “incremental degradation.” It’s a term that’s usually used to describe the process of gradually degrading product quality by chipping away at production costs. However, entropy operates at every level and in every part of every business: customer service, production, fulfillment. Even sales and marketing.
Business termites are a fact of life. And unfortunately, there is no sure-fire, one-step way to identify and exterminate them. But there are several things you can do to keep them to a minimum.
I asked Bismarck, the resident director of FunLimon, our family’s community center in Nicaragua, how that “whacky solar power experiment” was going.
He said the panels and related equipment were installed and that the system had been active for nearly two weeks.
“Do we know how well it’s doing?” I asked. “Like how much of FunLimon’s energy it’s going to be supplying?”
“I just got a report from Alan V,” he replied. (Alan V is Rancho Santana’s chief engineer.) “He said that it will be supplying all of it.”
“All of it? Really?”
My longstanding impression of solar energy was that it was costly and inefficient. I knew that progress was being made. But I never expected that these panels, located on top of the roof that covers the basketball court, would be sufficient to power the classrooms, administration buildings, gymnasium, and irrigation system.
Bismarck and I went over the numbers…
It cost $45,000 to install the solar system, including the panels and the batteries and all the equipment. We’ve been spending about $800 a month on electricity at FunLimon. So if the system does indeed provide all the energy we need, the payback will take about five years. After that, the cost of our power will be de minimus– only what it takes to maintain the equipment.
I contacted Alan directly, and he reminded me that the system he had installed a year earlier was now powering most of our company’s buildings at Rancho Santana, including the hotel, clubhouse, restaurant, and a dozen related structures.
I did more research. And it turns out that solar power has come a long way from its crude beginnings 40-odd years ago. Back then, it was, as is often the case with new technology, not just inefficient but very costly. So costly that many predicted it could never compete with fossil fuels. It took almost 30 years to bring the cost down to $8 per watt in 2010. Today, it’s dropped, on average, to about $3 per watt, with some systems producing energy at half that cost.
This astonishing reduction is the result of making solar panels more efficient while, at the same time, reducing their costs. A parallel advancement was made with the batteries that store the energy produced by solar panels.
I saw a PraegerU presentation recently that argued against the effort towards alternative fuels. Fossil fuels, it said, provide 99% of the energy in the world today, and that percentage will not drop by more than a point or two over the next 50 years.
But based on what we are actually experiencing in Nicaragua, I find that hard to believe. If solar panels can pay for themselves in five years at FunLimon and at Rancho Santana, why can’t they do the same for millions of businesses all over the world?
If you are interested in an explanation of our system, you may find the following edifying:
The attached picture is a screenshot of the solar system application at 9:25 a.m., local time.
As you can see on this picture attached the icon means as below:
1) The solar panels are producing 6.91 kw at this time and delivering that power to the facility (FunLimon), see the upper left icon at the screen.
2) The facility is demanding or consuming 10.39 kw of power at this time, see the icon at the center of the screen.
3) The public power company is supplying 0.05 kw, see the icon at the right side of the screen.
4) In order to minimize the utility power consumption, the solar system is providing 3.43 kw to the facility from the battery (see the lower left icon at the screen, the battery charge state at this time is 22%) at this time to compensate for the demand, so if we add 6.91 kw from the panels and 3.43 kw from the battery we get 10.34 kw plus 0.05 kw from the utility power company for a total of 10.39 kw (see item 2).
In other words, right now (at the time of the screen shot) FunLimon is only using 0.05 kw out of total power consumption of 10.39 kw from the public grid, that is only 0.48%. The system is very dynamic and it changes slightly about every 5 seconds as the sun’s intensity and power demand varies….
The protocol is that when the solar panels are producing less than the power demand, the system uses the battery charge to compensate and minimize the use of the public grid. When the solar panels produce more than the power demand the system takes that excess of power and starts charging the battery. The idea is that at the end of the day on a normal sunny day the power consumption during the day from the public grid is going to be minimum and the battery state of charge is going to be 100% to be used at night until it gets 90% discharge….
One of the most commonly debated topics in direct marketing is how much and how often one should market to a customer or potential customer. The most common answer is: Enough to make sales but not so much as to become annoying.
This is not true. More importantly, it is the wrong question.
Like every other semi-science, direct marketing is awash with “proven facts” that are bogus. One of these is that information publishers should give their customers at least as much non-promotional education as advertising.
You can find studies that support this position, but they are almost always small and specific. And that means they are unreliable.
I was once in love with marketing “rules” and tested every one that appealed to me. What I found out after thousands of tests to millions of customers was that there are very few rules that you can rely on. And even those, you cannot rely on 100%. But one of the rules I believe you can trust is that there is no limit to how often you should market to your customers.
For some, this defies logic. Advertisements are inherently annoying, their thinking goes. So if you want to have good relationships with your customers, go easy.
There is a simple fact that undermines their reasoning: The average American consumer sees more than 500 ads a day. (That number must include billboards and radio and television ads, as well as every internet ad that pops into view.) The number of ads that they actually notice might be 20% of that… but it’s still 100 a day!
Think about that. And let me ask you this: How many of the ads that you see every day do you remember? READ MORE
My first real job was as “backseat wiper man” at the Rockville Center Car Wash on Long Island. I was 14 and happy with the $1.25 an hour they paid me. A couple of years later, when I had a summer job as a housepainter’s assistant in swank Hewlett Bay Harbor, I became an “entrepreneur.”
What happened was this. My friend Peter and I were scraping the shingles on a big yellow house when the lady of the house, a Mrs. Bernstein, came out and asked for Armando, our boss. Armando’s routine was to drop us off at the work site at 7:00 a.m. and disappear until 5 or 6 in the evening.
We were left to do the work, with virtually no experience and only Armando’s advice on watering down the paint and “dry rolling” the second coat to guide us. (Dry rolling is when your painter pretends to be giving you a second coat when, in fact, his roller is dry. This allows him to get the job done twice as fast and save a bundle on the cost of paint.)
“I’m onto your boss, Mrs. Bernstein said. “How much does that cheap bastard pay you?” We told her. She harrumphed and disappeared inside. When she came out, she announced, “I just fired that good-for-nothing. But if you know what’s good for you, you’ll be here Monday morning. I’ll pay you an extra dollar an hour to finish this job properly.”
The point of this little story is to illustrate how I accidentally started working for myself. (Some other time, I’ll tell you what happened when Armando discovered our duplicity.)
I just fell into it. And I loved it. I although I didn’t stay in the painting business very long, the experience of having my own business became a habit that continued, with a few brief exceptions, for the rest of my life.
The stories that are told about entrepreneurs are about men and women with dreams. People who imagine building and selling better mousetraps, who risk all their money and time to make those dreams come true.
My story is not nearly as dramatic. And that’s probably why it’s seldom told. But it’s not a bad way to begin.
What Peter and I did, unwittingly, was to start a business by “knocking off” the business we worked for.
And this is not a terrible idea. (Well, that depends on how you do it.) In fact, it’s probably the easiest and surest way to become an entrepreneur. And I’ll bet it’s the most common way as well. Way more common than having the dream.
Last week, I suggested that it takes more than an idea – even if it’s a really fantastic idea – to attract potential investors. You need to prove that your idea has legs by turning it into a working model.
But then what? Once you’ve got a working model, where do you go for the money you need to turn it into a business?
In general, there are four sources of capital: venture capital firms, government agencies, commercial banks, and private investors or partners.
If you think your idea might be of interest to venture capitalists, check out the National Venture Capital Association (nvca.org). But for the average entrepreneur, venture capital isn’t a possibility.
As Paul Lawrence explained in his article “Raising Capital for Small Business Ventures”:
Yes, some venture capital firms will invest in new businesses, but such businesses are usually involved in technology or some other high-growth area. Frankly, for most small businesses, venture capital isn’t even an option. It’s rare for a small-business concept to have the kind of mammoth payoff venture capitalists look for.”
Plus, the cost of doing business with these companies is high. It’s basic economics. Their risk is high, so their reward must also be high. Even if you were to interest a venture capital company in your business, you’d be aghast at what they’d want in terms of their ownership position.
What about government grants? Tim Berry, author of Hurdle: The Book on Business Planning, points out that government funding agencies usually have “social” agendas. Grants and loans are available to minorities – especially minority businesses engaged in education, antidiscrimination projects, community services, fine arts, and other politically popular objectives.You can find out if your business idea might be a candidate for government money by checking into any of the government agencies whose purpose is to stimulate entrepreneurship. The best known is the Small Business Administration.
I wouldn’t advise taking this route, though. It requires too much bending to bureaucracy. Too much artificiality. Too much red tape. Getting these loans and grants takes months (or years) of filling out forms. And there are all sorts of reporting and regulatory requirements – enough to slow down even the most patient person. Plus, government-funded business projects have an extremely high failure rate once the funding is withdrawn. That’s because they begin with an idea, not a working model. And the idea isn’t good to begin with because it is based on social policy instead of being connected to profits – which is, after all, what fuels a business.
As for getting money from a commercial bank, I can make this short: Forget about it. The only way a bank will lend you money these days is if (a) you have excellent credit and (b) you can collateralize your loan with assets. If you have good credit and tons of money, you don’t need a bank loan. You can loan yourself the money.
This brings us to the fourth and final option…
“I come from a poor family. I want to start a business and make money to help them. But when I see successful businesspeople depicted on TV and in the movies, it seems like lying and cheating and screwing people is the way to go. I’m worried. Is that what I’m going to have to do?”
This question was posed just after I had given a presentation on entrepreneurship to a group of MBA candidates at Florida Atlantic University. I was momentarily startled by it. I was sure I hadn’t said anything that suggested success in business requires a cutthroat approach.
Still, the question was understandable. When Hollywood shows us business and businesspeople, it is more often than not in a negative light. And when Wall Street, the banking community, and the insurance industry screw their clients – as they’ve done so notoriously – how could any young person think differently?
So I told the young people in my audience what I’m about to tell you.
“Progress is exactly that which rules and regulations do not see.” – Ludwig von Mises
Is the Traffic Light a Menace to Society?
Traffic was heavy when the traffic lights went out. With hundreds of cars on Atlantic Avenue, the main thoroughfare in Delray Beach, it should have been a minor disaster, with honking and screaming, fender benders and eventually gridlock.
But it wasn’t. It was, in fact, a stress-free and inspiring experience. I reached the beach house, a four-mile trek, in record time. With a smile on my face?
Without being told what to do, drivers were treating the intersections like four-way stops. Instead of relying on a traffic light to direct their stop-and-go decisions, they were using common sense and civility, and it worked. Not just well enough, but better than usual.
Every so often, someone would move out into the center when it wasn’t his turn. But since everyone was paying more attention than usual to the flow of traffic, this was not a problem. No one seemed upset with the rule breakers. We all seemed to have the same thought: “It must be someone scared and confused. No reason to make it worse by honking at him.”
This was not the first experience I’d had like this. Living in South Florida, it happens at least once a year. I’ve also had it a dozen times in Rome and Paris while driving through traffic circles.
I remember reading in a Malcolm Gladwell book about a town in Europe that removed all of its traffic lights and stop signs. The result: significantly fewer accidents than they had before.
In the past 10 or 15 years, there have been dozens of studies that have come to the same counterintuitive conclusion: When it comes to traffic safety, less can be better than more. And not only because, in the absence of governance, everyone pays closer attention.
One example: In an effort to cut costs, officials in Detroit were considering removing more than 1000 traffic lights in the city. (Operating a single traffic light can cost a city upwards of $8000 a year.) Michael Schrader and Joseph Hummer, civil engineers at Wayne State University, were hired to look into the situation. They did an initial study of a sample of 100 of the lights. And of those 100 lights, they found that 21 could be replaced with a two-way stop and 24 could be replaced with a four-way stop, without any negative impact on traffic flow. Extrapolating those findings to the entire 1000+ lights deemed eligible for removal, they determined that 460 of them could be safely removed.
A side note: Schrader and Hummer pointed out that many of the signals that had not been eligible for removal were lights serving traffic between the city and the suburbs. “In effect,” they wrote, “a poor city is subsidizing the travel of residents of wealthier ones.”
Reid Ewing, who literally wrote the book on this subject (Traffic Calming: State of the Practice), pointed out that though stop signs may help make traffic flow in a more orderly fashion, they do not necessarily make it safer. “They don’t do a lot for speeding,” he said, “because there’s a tendency for drivers to make up for the lost time.”
And I found this on the NYC DOT website: “Studies made in many parts of the country show that there is a high incidence of intentional violations where stop signs are installed as ‘nuisances’ or ‘speed breakers.’ While speed is reduced in the immediate vicinity of the ‘nuisance’ stop signs, speeds are actually higher between intersections than they would have been if those signs had not been installed.”
Instead of stop signs and traffic signals, street safety advocates recommend speed humps or curb extensions – self-enforcing measures that force drivers to slow down.
So if traffic lights and stop signs are of limited use, why is it that they are being installed across the country at an ever-growing rate?
The answer, experts say, is simple: Citizens demand them.
And if the answer is that simple, you might be justified in asking (if you’ve read this far), why I have just written nearly 700 words on the overabundance of traffic lights and stop signs?
I have two answers:
First and most importantly, it’s to illustrate that government regulations, however well-intentioned, tend to become excessive and counterproductive unless there is a constant force to question them. Some are downright damaging, causing unintended harm that exceeds that which they were enacted to reduce.
And second, the cost of unnecessary regulations is much, much larger than most people think. In terms of traffic lights and stop signs in the US, it’s not millions of dollars, but billions. And once we move into other areas, such as public health and defense, these excesses amount to trillions of dollars – enough to feed millions of the world’s poorest people, with hundreds of billions left over for boondoggles. And where there is government, there are always boondoggles.
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“Collette said hope costs nothing. But it does. It costs the time you spend hoping.” – Michael Masterson
The Corona Economy: How Bad Is It… Really?
It’s time for another look at our Corona Economy. Time to assess the amazing amount of economic damage the shutdown has caused and make some guesses about how long, how bad, and how widespread the coming recession will be.
Recession? What? You think that things are under control? You feel confident that the economy will bounce back once we get this virus thing out of the way?
This is the way I see it…
The US economy is shrinking.
In my May 1 blog post, I noted that since the Corona Crisis began, our national production was down $10 trillion. That’s $10 trillion that was lost forever. No matter what happens in the future, that loss cannot be erased. In the three months since then, GDP has continued to shrink. In the second quarter alone, it fell by 10%. That’s higher than any 3-month period in the history of our country.
Unemployment is still crazy high.
The unemployment rate has gone down considerably since it peaked this spring, with jobless claims down from nearly 7 million in the third week of March to 1.2 million last week. Overall, the official unemployment rate has dropped from about 13% in April to 10.2% today.
Of course, the official unemployment rates are entirely bogus. They don’t count people who are unemployed and not looking for work. This number was about 6 million before the $600 giveaways. It’s probably 10 million now. Plus, the official rates don’t include part-time workers that want, but can’t find, full-time jobs. And on top of that are the problems with the way workers are classified. The most egregious: Those on furlough are counted as working, rather than as unemployed.
If you add back in those purposeful and possibly accidental errors, the actual unemployment rate is probably about 16%, which would make current levels higher than at any time since the Great Depression.
200,000+ businesses have been closed for good.
According to a study by the University of Illinois, Harvard Business School, Harvard University, and the University of Chicago, more than 100,000 small businesses had shut down permanently from March to the beginning of May. In June and July, another 100,000 may have been shuttered.
“We are going to see a level of bankruptcy activity that nobody in business has seen in their lifetime,” James Hammond, chief executive of New Generation Research told The Washington Post. “This will hit everyone, but it will be harder for small businesses since they don’t have a lot of spare cash.”
And Mark Zandi, chief economist at Moody’s Analytics, predicts that total failures for small businesses this year will pass 1 million.
It goes without saying that the closing of hundreds of thousands of small businesses will have a domino effect on hundreds of thousands more, the little shops and restaurants that survive on the patronage of these small businesses in small communities around the country.
Entire industries have been decimated.
Travel bans have gutted the transportation industry, drastically cutting not just airline revenues but train travel, bus travel, and car travel. Uber and other such businesses are down more than 75% since last year.
The near halt in travel has sent oil prices tumbling, putting thousands of businesses that support oil and gas distribution out of business and millions more Americans out of work.
In the retail sector, it’s not just small shops and restaurants that have been forced into bankruptcy, it’s beauty shops and fitness studios and day care centers. The list goes on and on.
But things don’t seem so bad… right?
I know. The unemployed have been getting federal paychecks. Businesses are getting billions in loans. And the stock market has been charging along.
That don’t change the facts.
When I last wrote about this (May 1), I noted that the numbers then were worse than they were at the nadir of the Great Recession of 2007-2009. And that even though the Great Recession officially ended in June of 2009, the growth of the GDP afterwards was anemic. Well… except for a modest improvement in the phony unemployment rate, all the key economic health indicators have only gotten worse.
Remember how difficult it was to make ends meet from 2009 to about 2016? It could be worse this time.
What about the bailout? Shouldn’t that help?
The coronavirus scared the hell out of millions of Americans, with studies predicting mortality rates of 6% and 3 million dead before the end of the year.
It was a national health emergency that could have united the country. Instead, it morphed into a ludicrous political drama, with the Democrats accusing the Republicans of being heartless and incompetent, and the Republicans accusing the Democrats of exaggerating the danger to tank the economy and bring Trump’s ratings down.
When it came time to pass an economic stimulus bill, partisan politics continued. The first round of bailouts cost US taxpayers $2.4 trillion that the Treasury had to borrow. And that was on top of $2.2 trillion approved to cover the budget deficit. The current package will add another $1 trillion to $3 trillion to that, bringing the total national debt to $25 trillion or more.
That – spending trillions of dollars we don’t have – has been the government’s solution to an economic disaster that is as bad as any we’ve had since the Great Depression.
Let’s stop here and remind ourselves that debt and spending have been the primary causes of every economic disaster the US economy – and, for that matter, every economy – has ever had.
If your kid were in debt because of a gambling habit and told you he was going to get himself square by borrowing money from a loan shark, would you think that was a good idea?
So that’s the real problem. We may never know how necessary it was to shut down the economy, but the solution to the economic damage it did has been a borrowing spree greater than ever in our history (and in the entire world).
And nobody in Washington thinks there is the slightest thing wrong! The old debate about responsible spending and balancing the budget has gone out the window. Those free checks from the government have bought the hearts and minds of the entire electorate. We may be doing something we’ll regret later, the most conservative say, but what the hell! Let’s print more trillions and wish for the best!
What to expect. What to do.
If you believe the stock market is the economy, I don’t know what to tell you. There are good reasons to believe stocks will continue to move up. The biggest reason is all these trillions of free dollars.
I have converted about 75% of my stocks into cash for reasons I explained on July 24. As I said then, my decision wasn’t based on any certainty that the market is going to crash, but on the possibility that it might.
If you understand that the stock market is not the measure of the wealth of the US but the measure of only the wealthiest 10%, you should be very concerned about all this debt and continued spending. You should be worried that sooner or later the bill will come due. And the only feasible way that the government can manage that debt is by allowing for an extended period of “moderate” inflation – low enough that the Treasury can pay the interest on its debt, but high enough that it can erode the value of that debt. And what that means is stagflation: years and years of increasing prices without any significant economic growth.
Unless you are already wealthy, this means that you will get a lot poorer over the next 5 or 10 or even 15 years.
There are things you can do to protect yourself and profit. I’ll tell you about it in my next essay on the Corona Economy.
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August 3-August 7, 2020
a look back at this week’s essays…
Collecting Art: The Six Lessons I Had to Learn
My education in buying the right kind of art – art that makes sense as an investment – began when I was lucky enough to wander into an art gallery owned by Bernard Lewin. I didn’t know it when I met him, and he never mentioned it, but he was the most important broker of Mexican art in the world at that time.
Click here to read more.
The Innovation Myth
One of the great myths in business is that the first to the finish line is the one that gets the biggest prize. “Get this product out before the competition,” say marketing and product development executives, “or we will fail.”
The evidence does not support that rationale.
Click here to read more.
10 Books That Made Me Feel Smarter
(They Might Make You Feel Smarter, Too)
Some books make you wiser. Some books make you kinder. Some books make you reconsider your beliefs. And some books make you feel – well, they make you feel smarter.
Here are 10 books that did that for me…
Click here to read more.
what I’m reading
Eat, Sleep, Work, Repeat
by Bruce Daisley
I found two-thirds of this book persuasive – the two-thirds that explained things I already knew. The other third is touchy-feely bullshit that doesn’t work.
It’s not a great book, but it’s worth an hour, which is how long it took me to read it. Here’s the gist:
83% of American employees say their jobs stress them out. Other studies confirm that workplace unhappiness lowers both productivity and creativity. Companies can solve these problems by arranging opportunities for employees to get together and shoot the breeze informally. Individual employees can help themselves by interrupting their work to take short breaks. Take a walk. Have a coffee break with a workmate. Take a short nap, if you can. Also – very important – turn off your phone and stop checking social media.
So if you have an hour, read Eat, Sleep, Work, Repeat. Or listen to this: “Eat, Sleep, Rave, Repeat” by Fatboy Slim. LINK
recommended links from this week’s blog
* Another mesmerizing video from the Guggenheim’s WPA Virtual Commissions…
* Do you know these keyboard shortcuts? I knew only two of them. Very useful.
* This is how easy it is to lie with statistics…
Great essay Friday on the benefits of reading good books. I spend a lot of time driving, and I often listen to audiobooks. I find that I can immerse myself into a good audiobook better than reading the same book. Do you have an opinion on listening vs. reading?
There is evidence that listening to audiobooks can be just as – if not more – effective than reading. Studies have shown, for example, that we remember approximately 20% of what we hear and only 10% of what we read.
But what you read is much more important than how you read it.
Here’s how I look at it…
There are 4 kinds of books – good books, junky fun books, bad books, and great books.
With respect to fiction, I define them as follows:
Great books change you.
As for non-fiction books, these same standards hold true. But instead of plot, theme, character, etc., the primary quality is the strength of the thesis.
And, by the way, I believe you can apply these same standards to all forms of art and entertainment that include words, such as plays, movies, documentaries, and TV shows.
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For a look back at the stock market, click here.