Stimulus Question

While the details of President-Elect Obama's proposed stimulus plan have not been released, tidbits s are trickling out, along with the expected and all too familiar criticisms. In what should be no surprise, Republicans are against increased spending while the Democrats are opposed to tax cuts. That is the beauty of politics - some things never change.

From a business perspective, I found the criticisms rather intriguing. Within this article from the Huffington Post, there is an interesting quote from Senator Kent Conrad (D-ND) regarding a proposed $3,000 tax credit for companies that hire or retrain employees. As the Senator noted:

"If I'm a business person, it's unlikely if you give me a several-thousand-dollar credit that I'm going to hire people if I can't sell the products they're producing," said Sen. Kent Conrad, D-N.D., a member of the committee. "That to me is just misdirected," Conrad said. Apparently, the Senator doesn't quite grasp the reason people aren't buying products - they don't have jobs!

Not to be outdone, our own Senator Kerry stated "I'd rather spend the money on the infrastructure, on direct investment, on energy conversion, on other kinds of things that much more directly, much more rapidly and much more certainly create a real job." Not to criticize the need for long-term invesntment, but it would seem to me that getting people hired is a "direct investment" and that helping existing companies hire will certainly create a real job faster than a long-term investment in infrastructure or "energy conversion".

With that being said, Senator Conrad, who has no experience as a "business person" poses an interesting question for all of us who happen to be a business person. Here it is: "as a business owner, would you take advantage of a tax credit that allows you to hire or retrain an employee?" What do you think?

New Years Resolution

Over the past several months, I have been the worst kind of blogger. I have a blog and it has been completely inactive, which in all reality is a bigger sin than not having a blog at all. So, as part of my New Year's resolutions, I have resolved to take my blogger responsibilities seriously and blog much more frequently than I have this past year. Given that its January 8th, you can see that I am slightly behind on my resolutions - but I'm getting there.

One of the challenges I have had with this blog is my own stubbornness regarding the medium. Blogging requires short and frequent posts whereas I think I'm writing for the Wall St. Journal. This is because I like to provide thoughtful insight into topics which requires both time and a passion. Lately, both have been in short supply. After all, who wants to hear anymore about the recession/depression, bailouts, job losses, etc. Also, there has already been enough written about surviving the market and positioning your company to survive the recession. Lately I have zero interest in putting time and energy into providing the world with yet another opinion on these topics (I'll save that or the newsletter). Therefore, another resolution is to not only blog more but to attempt to stay away from many of these depressing topics that are consuming the media and the blogosphere.

The third resolution I made regarding my blogging activity is to ensure that I am providing value to those of you who decide to read my meanderings. So, I promise that I will provide insight and links that will either enhance your business and/or your personal knowledge. Starting that today, I want to provide you with a link to a great study that was just released by Vell & Associates entitled "Characteristics of Successful Technology CEO's". While the report is geared towards technology companies and those with revenue exceeding $100 million, there are some great insights that small business owners can take from it. Items that I found interesting:

• MBA degrees didn't correlate to better performance in companies with revenues exceeding $1 billion. As the report notes "An MBA is a useful early indicator of business savvy – and perhaps drive, but as executives build their experience, results should be a larger factor in selecting candidates than whether they have an MBA or not"
• An Ivy league degree does correlate to better performance, so perhaps there is something to be said for spending $50,000 a year to send junior to Harvard.
• Only 29% of companies had a CEO who had prior CEO experience. An interesting response and one growing entrepreneur companies should consider when they think they need a seasoned CEO to get the company to the next level.
• Companies who had founders at the helm were top performers.

There are lots of other interesting pieces in the study, so I would recommend giving it a good review.

Do you believe?

"I believe in America. America has made my fortune"

Amerigo Bonasera
The Godfather

As I've watched the unfolding financial crisis come to the forefront of our world, I, like many have attempted to grasp its impact and look beyond the loss of a staggering amount of accumulated wealth. In doing so I could not help but think of Amerigo Bonasera. the funeral director from the Godfather. An Italian immigrant in 1940's New York, his opening remarks to the Godfather made it clear of his standing, his belief system and that he embodied the American dream. With all Americans, immigrant or otherwise, our country has been defined by our belief and embrace of the democratic form of capitalism that our country has practiced since before its founding. Beyond demonstrating a definitive confidence in our country and its system, Bonasera also makes it very clear to Don Corleone that he achieved the desired outcome of a belief in America - "my fortune".

So as I have watched Paulson and the various talking heads on tv over the past couple of days, I could not help but think about whether or not I still believed in America and the dream that this belief defines. Sadly, if the American dream is the ideology that has created a system solely focused on providing the opportunity to make my fortune, then I must say that I no longer believe. In saying that, I don't mean that we don't have the opportunity to make a fortune and to create wealth, because we will. What I am saying is that the underlying ideology of capitalism that has defined the American dream is dead because it can no longer support our current definition.

What began as a crawl towards government activism when Bear Stearns imploded became a full sprint towards a nationalized financial system when Paulson announced the bailout plan and the decision to take ownership in banks. In announcing this plan, the administration didn't just commit taxpayers dollars to fixing a clearly broken system, they also committed to a fundamental change in America's ideology of capitalism.

After thirty years of allowing the financial sector to scale the heights of deregulated capitalism and reap the apparently limitless profits it provided, the sector reached the top of the mountain. When the climb finally stopped the government and the financial Gods on Wall St. realized there were only two ways down. It could follow its ideology and find a way back itself no matter how ugly or painful that might be or it could call for a lifeline. Assessing the options available they blinked and quickly abandoned their ideology of deregulated free markets. Apparently, an unyielding commitment to an ideology is not an American trait when it has an actual cost.

By choosing the survival of certain financial institutions rather than staying true to the principals that have governed our financing philosophy our country has effectively consented to fundamental changes in how risk is quantified and collateralized. Changes in this ideology will most definitely lead to an over correction in lending standards. This will impact every aspect of our country as cheap risk has allowed us to leverage ourselves into a nation of borrowers who consumed far above rational levels.

By providing a bailout that appears to partially nationalize our financial system, our government has concluded that the financial sector can no longer be the winner. Deleveraging of the American consumer and by extension American business must occur. This can only be realized by changing the lending paradigm from one that worshiped at the altar of OPM to one where the extension of credit is once again a privilege. Consequently, the tolerance of risk, a core element of how the American dream has been financed and collateralized will be substantially altered.

The impact of what we are witnessing and experiencing will be nothing short of a fundamental shift in our society. What we don't currently know is what is the extent of the social change and how will it impact the American Dream? As I consider this question, I am obligated to think of it in the context of Bonasera as this may be where the answer lies. The definition of the American Dream has evolved quite a bit since the days of Bonasera as the self made man. What has also changed is the manner in which that dream is achieved.

In Bonasera's day and probably the days before his, the American Dream was achieved when one had a reasonable level of financial independence. Perhaps this meant ownership of a home or other property but most likely meant that you did not live paycheck to paycheck and had the cash to acquire desired goods and services. The American Dream today requires the ownership of at least one home, two cars, big screen TVs', and the credit/cash flow to ensure that you have the ability to dine out virtually any night and travel across the globe. For Bonasera, his success in achieving and maintaining the American Dream was likely financed by his own capacity for hard work and saving/sacrifice or by family and friends that were confident in him. Conversely, our American Dream has been financed by a dizzying array of financial institutions who were more than happy to encourage and provide the leverage to finance whatever our hearts have desired.

For individuals and businesses alike, the American Dream today is the pinnacle of consumerism. What happens when the system that has driven the mechanics of our quest for more and better can no longer support blatant consumerism? Mr. Jones, meet Mr. Bonasera. Now, in making this observation I am not implying that we are going to go back that far - we can't put the consumer genie back in the bottle. But, I believe that American consumerism will be more reflective of Bonasera's American Dream than the one I have grown up with.

So, if I am to look forward three or five years, what do I envision? Here are some thoughts that I believe will occur:

1. Home ownership will no longer be practical for everyone. Buying a house will once again require a good chunk of cash in and it won't be realistic for most Americans to have $60,000 - $100,000 in cash to put into a home.
2. A continual decline in housing prices with eventual appreciation being relatively modest. The return on investment just won't be there and the general costs of ownership will make renting more attractive.
3. The return of the lay-away desk at your local Wal-Mart, Target and Kohl's. Credit cards will still be available, but credit will be focused towards those with the means to maintain zero or low balances. Retailers that cater to the poor and the lower spectrum of the middle class will need to adapt to reflect the change in credit.
4. As access to cash becomes more critical to running our daily lives, the savings rate will likely increase which will provide stability and soundness to the economy.
   
5. The reemergence of the community bank and the credit union. While lending will continue to become more and more transactional, local institutions that focus their activities on all of the Five C's of lending will find an audience and market from companies and individuals who have been shut out of the larger system.
6. The formalization of peer lending. With tighter access credits cards, start ups and early stage businesses and individuals will need to look to their family, friends and fools to secure the initial capital to finance their business dreams. However whereas in the past this was a loosely monitored and under-managed segment of lending, technology will allow for this to become more sophisticated and pervasive.
7. Consumer driven industries that provide luxuries or convenience will be significantly impacted. Dining out will not be as prevalent and home entertainment options will become far more competitive and desirable for a society that cannot finance every trip to Applebees with a Visa.
   
8. As consumerism is down-scaled, the world will need to get used to slower growth. Investing in the stock market will be impacted, because the earnings growth will not be there to drive appreciation of the stock price.
9. With lower market returns, the country will need to reconsider its commitment to the entitlement society that we have created. The sizable baby boom generation that is just beginning its retirements will look to the government to subsidize their market losses. The generations behind them will revolt which will create an interesting dynamic among three or four generations that may be living in one house.
10. Smart people and businesses that have good businesses and concepts that work hard and can successfully function within the time-tested fundamentals of business and finance will continue to thrive.

I recognize that this is a rather lengthy post and I still haven't answered the question I have posed to myself - "do I believe in America"? As I ponder all that I have written and all I thought about I can only conclude that I do believe. Despite the current circumstances and the challenges ahead that I see I still believe that here is where I will make my fortune because as screwed up as it is, its still the most conducive country for wealth creation. And, while it may not be the fortune I and my generation had defined for ourselves, I can sleep well tonight knowing that above all it will still be mine.

Quick Hits

A couple of recent newspaper articles caught my attention, so I thought I would pass them along this morning.

In yesterday's New York Times, Thomas Friedman of the World is Flat fame, published an op-ed and the future of the US economy. Friedman makes some great points and they actually tie in quite nicely to an interesting book by John Kao entitled Innovation Nation about innovation that I am in the process of reading. Bottom line for Friedman and Kao is that for the United States to retain its position it needs to focus on continuous innovation within all sectors of the economy.

The other article that is worth a read is this one by Rob Weisman that appeared in yesterday's Boston Globe. The article targets the question of what is more important for leadership - youth and exuberance or age and experience. While it should be no surprise that Weisman's article didn't choose one or the other, I thought the article was interesting because it tied into a couple of the key points we made in our last post regarding criteria for choosing a successor.

I hope you enjoy the articles and have a good week.

The Question of Succession

Welcome back from the summer! I hope everyone out there enjoyed their vacations. In as much as the summer was fun, its great that its past because its time to get back to work! The fall is my favorite time of year to focus on business I find the season revitalizing - the crispness of the air seems to create a sense of urgency and a renewed focus on business and moving life forward.

As much as I enjoy the energy that fall provides, it also helps highlight the need to prepare for the "autumn of our lives". This means that succession planning should, if it is not already, be a topic to tackle in the coming months as it is too critical to leave to chance. Coincidentally, this fall is also our country's opportunity to do its own succession planning. As the polls seem to indicate, our country is equally undecided on who should be the next president. I have been torn between the two candidates - the maverick and independent nature of McCain is appealing as is the message of hope and confidence that Obama exudes.

I've long stopped worrying about what political candidates positions on the campaign trail as they are always negotiable soundbites (see moderate Republican candidate George W. Bush in 2000). The only way then to choose a political candidate is by measuring their actions while a candidate. From a business perspective, the most critical decision we make is the selection and development of our management teams which by extension implies our eventual successer. As the Commander-in-Chief, the most critical action a presidential candidate takes during the campaign is the selection of his Vice President - his/her own succession plan for the country.

Accordingly, with both picks announced, I thought it would be appropriate to apply what I consider the three primary tenants of succession planning to the picks to see how the candidates have done in their first decision as an executive. In considering a successor within a succession planning exercise, we ask these three questions:

1. Does the potential successor have enough of the necessary skill set and experience to inspire confidence within the organization in the event they need to immediately step into the leadership position?
2. Does the potential successor have a long enough runway to be a true successor; i.e. do they have the ability to be positioned to lead for a period of time that ensures organizational stability and establishes continuity of values/strategy?
3. Will the potential successor have the support of the organization? Will the organization rally around the successor or is this person a lightning rod, one that will create divisive fissures within the organization that will distract and ultimately undermine it.

Before I begin assessing the two VP picks, let me state that it is not my intent to make a political statement or to politicize this blog; the views I am expressing here are only mine and not those of my firm. My purpose here is to utilize a timely topic to shed some insight into the importance of succession planning and ensuring smart decisions. With that being said, I'll start by looking at Joe Biden:

1. In as much as you can question the experience of any lifetime politician, by the nature of the experience required in the job description, its safe to say that Biden is a yes when it comes to the first question.
2. At 65 years old and a two time Democratic primary loser, Biden does not provide a long-term succession for the Obama vision or for the democratic party. An Obama loss likely makes the 2012 Democrats look like the 2008 Republican field.
   
3. Biden is on the edge here, but ultimately his baggage is typical of those of a politician. He's got the plagarism thing and a history of foot-in-mouth disease but there doesn't seem to be any true vitrol towards him or his views. He is what you expect of a career politician.

Next up is Sarah Polin:

1. I don't care how much you want to spin her time as governor and mayor, she does not have the experience on the national and global stage to warrant being the Vice President. Given the circus of the past couple of days regarding her selection and experience, it appears that her selection does not inspire confidence amongst the masses.
2. With this metric, she does measure up as she has the runway to become a big time player in national politics. Furthermore, her views are certainly aligned with those of the current administration and the base of the party, indicating that she will be able to provide the continuity of leadership that the party wants.
3. With Palin the Republicans think they found thier "Obama"; what they haven't realized yet is that they have likely found their "Hillary". She is opinionated, has controversial views and as her speech last night demonstrated, she is not afraid to be aggressive and take shots at her opponents - much like Hillary. The confluence of those traits typically mean people will like her or hate her; their is no middle ground. Bottom line - she is a lightning rod.

These picks are the polar opposites which makes them great examples when discussing the question of succession. As these gentlemen will surely attest, finding the right successor is never easy but a critical decision for a leader and a key barometer to measure a leader. Based on the basic tenants of choosing a succeser its clear that both could have done a better job with their selection.

In closing, when making your own succession decisions, carefully consider how your choices will fit into the three tenants I laid out. And, for comparative sake, consider them in the context of our Presidential candidates VP selections.

Summer Reading

Before I get into my picks and pans for summer reading, I wanted to comment on a couple of items. First of all, many thanks to all of you who attended my recent presentation for the RTC covering "Strategic Planning in a Downmarket". We had almost forty people on a Friday in July - great turnout and I greatly appreciate all of you attending and the fantastic questions I got.

No need to belabor the point, but what a sad fall for Fannie Mae. From one of only 11 companies identified as a Good to Great Company, to the subject of legislation providing a bailout. Just goes to show you how hard it is to sustain greatness. For an excellent breakdown on the recent bailout legislation, check out this post from Dealbreaker. No comments necessary on this, but as a fiscally responsible taxpayer, I cannot begin to tell you how disappointed I am in this legislation.

For more on the impact of the implosion of the housing market, check out this article from the New York Times on the challenges businesses are facing in getting bank loans. No surprise and I hate to say it, but I think secretly there are many banks happy about this about face. Many will tell you that for too long the easy money that was available was screwing up the balance of power between borrower and lender.

With those out of the way, on to the summer reading list. In providing this list, I'm only going to comment briefly on a couple of books - there are enough sources of reviews out there.

Buying In by Rob Walker. I've just about finished this and I'll be candid - I'm going to need to read it again to fully grasp all the key points about the concept of murketing. Fascinating read and I'm convinced that it will take a place of cocktail conversation starter for the Blink/Freakonomics/Tipping Point crowd.

Outsmart! How to Do What Your Competitors Can't by Jim Champy. This is a nice quick read that profiles a number of different companies, including Smith & Wesson on how they were able to think a little outside the box to gain a competitive advantage. At the end of each chapter the author provides a number of probing questions that I found interesting for assessment purposes.

The Breakthrough Company by Keith McFarland. Can't say that this one wasn't a disappointment as it was hyped as being in the family of Good to Great because of the extensive research that the author and his team undertook. Decent read but doesn't provide the "it moment" that you look for in a business classic. Still, if you got time to kill on the beach its worth giving a read.

In addition to these three, I would also recommend a classic to read. If you haven't read it yet, you must readThe Godfather by Mario Puzo, a classic business book that I refer to a on a constant basis. I'm bringing it with me to the beach this week for another read. In addition to these, I've put togehter an aggressive list for my week away. This includes:

• The Age of Speed by Vince Poscente - sent to me complimentary by the Entrepreneurs Organization. Somebody there thinks enough of it, so I thought I should give it a go.
• The E-Myth Revisted by Michael Gerber - I read this years and years ago when I didn't think it applied to me. Going to try it again now.
• Making Innovation Work by Tony Davila. With all apologies to Clayton Christenson, I'm still searching for a book on innovation that grabs me.
• The Granularity of Growth by Patrick Vigurie - it looked kind of interesting sitting on the bookshelf, so Ithought why not.

And, lest anyone think that all I'm going to do is read about business on my vacation, I am also going to pick up The Guns of August which covers the start of World War I. Enjoy your reading.

Fixing the Republican (and your local newspaper)

This past week I had the opportunity to spend a lot of unwanted quality time in airports and planes. It’s never good when a three-hour trip turns into eight. Needless to say, I had more time than I desired to read and think than I cared to have. Fortunately, it turned out to be a productive use of time as I came across an interesting article in the most recent issue of Business Week. The article, “Writing on the Wall (and the Web)” provides a commentary on the current state of the newspaper industry. Let’s just say it’s appropriate that they publish obituaries!

I’m normally not a sentimentalist about industries that have found themselves irrelevant or altogether extinct as there is usually a reason for it. After all, I don’t miss MS-DOS any more than I would miss buggy whips or freeze dried ice cream. That being said, as fan of the medium and a former newsboy I am disappointed that future generations will likely not have the opportunity to enjoy the full depth of the newspaper experience. I’ve always loved reading the paper and have since I was old enough to read. I would often ride my bicycle up to the nearest corner store and buy two or three newspapers to read; usually over breakfast at a diner by myself. There has always been a great joy in spreading the paper over the table and consuming its knowledge more voraciously than my eggs and bacon. I don’t get to do it much anymore, but reading the Boston Globe is a Sunday ritual for Amanda and I, regardless of where we are.

Note that I said the Boston Globe and not my hometown paper the Sunday Republican. We subscribe to the Globe because of the depth and content. A Sunday paper should take a least two hours to read and that hasn't been the case with the Republican in a long time. To be fair, up until recently we subscribed to the Republican but that was only because Amanda liked to have access to the local coupons. The subscription lapsed months ago, but for some reason we still receive the paper. I can only assume that circulation counts matter in setting ad rates and giving us a paper for free makes sense financially.

This past Sunday I happened to briefly read through the Republican as I hadn’t had the opportunity to get on Masslive to check out the local news. I was saddened by what I came across or rather what I didn’t read in the paper. There was essentially no business section, the editorial page was lacking, the local section was bland and much of the overall content seemed to be AP wire stories. This was not the paper I proudly delivered when I was growing up. Neither was it something that I would pay to have come to my house or I would buy in a store.

So as I sat in the Louisville airport and then the Charlotte airport reading my magazine I thought about what could be done to make our hometown paper relevant again; something that I would want to read as I eat my Top Pot Donut and drink my Grande Pike’s Peak coffee (Starbucks needs to pay me for this plug!). While brainstorming it I came up with three basic concepts that I think could help the Republican and other newspapers, particularly the smaller community types survive and transition into the digital age as viable business entities.

Partner with Local Publications
Do you know that the business section of the Republican essentially consists of a two-sided rehash of the past weeks Wall St. Journal articles? Do the publishers realize that there is a good chance that most of the people who read the business section actually read those articles during the week? Also, what does it communicate to the region and to companies considering locating their businesses here that we don’t have a business section that covers the local business scene? Wouldn’t it make sense to partner with someone that has a pulse on the region, has the reporting capacity and the advertiser network to generate ad revenue?

My suggestion to this challenge would be to have a branded Business West business section on Sundays. They can provide stories on local business topics and leverage their advertisers to sell more ads. The Republican can provide the print and distribution and they can split the revenue. It would be a win/win for both parties – Business West could expand its reach and the Republican could provide value content and ideally both would make money.

Beyond Business West, the same could be done with the Valley Advocate for the entertainment/living section and the Western Massachusetts Sports Journal could do the same with the sports section. Getting out the content side of the business would allow the Republican to focus its content generation on in-depth local stories and distribution.

Publish User Content
There is a reason why Blogs and other sources of individual created media are popular. User created content is unique in that it provides insight and perspective that one cannot find with traditional media. The Republican should embrace this concept and publish a section that is user generated content. I’m not talking letters to the editor, but insightful writings and artwork. Masslive has a whole blog section, why not take the best posts each week and print them in the paper? Taking that a step further, why not have the Masslive users choose what will get printed?

A Blended Approach
As more and more people get their news from online sources, newspapers need to find a way to attract these readers to the paper. Leveraging the strengths of each medium to create a blended news experience can do this. As an example you could have a review of a new music artist online and in the paper but within the newspaper provide a password for a free download of a song. The only way to get the song is to buy the paper.

Another potential way to blend the two would be to follow WRNX’s Save 30 model and provide discounts on gift certificates and other items to print subscribers. They would need a code that would be found in the paper to go online and buy the item. Or, you can have your advertisers provide specific codes for their ads leading them to online coupons and shopping. In the long-term shotcodes will allow this to happen with the snap of a cell phone camera, but until then it would be an easy way to blend the offline with the online.

Whether my ideas make sense or not, the newspaper industry needs some creative thinking if its going to remain a viable business. Clearly there are many minds working on the issue as this other article in Business Week attests to. As always, we are willing to contribute our two cents to a business challenge, so if you own or run a newspaper, send us an email or post a comment - we'll be happy to help!