MountainMuzeBoy

[domendwars-blog]

Best-in-Class.....or A-Class-of-our-Own

Best-in-Class was an amazingly satisfying goal when I worked in the corporate world. The win in the marketplace was simple – or so we believed. Define a metric and be best-in-class: we strove for best-in-class customer satisfaction; best-in-class operating cost; best-in-class margins; best-in-class share or market or revenue or customer growth; best-in-class employee turnover…the list went on. We stood up with pride and told the world when we achieved best-in-class. We expected extraordinary bonuses…and got them. We had achieved nirvana.

Now, as I look at start-up companies coming into the market place, disrupting the market and rapidly gaining market share, market value, and customer loyalty, I realize how limiting and destructive best-in-class goals are, how they create corporate self-delusion.

Best-in-class goals by definition say you are in the same class as all your competitors; that to win in the class you simply have to be better than your competitors on a range of measures; that a little better will make all the difference; that your mission is continuous improvement of your products and processes; and that best-in-class is the ultimate requirement to win.

This very commitment to best-in-class is a solace to the meek. It is also a gift to the bold.

Upstart companies are truly bold. Upstarts dream of something that is truly disruptive: forget best-in-class; think class-of-our-own. Upstarts don’t care about existing competitors – other than that they are all doing a terrible job - they care about the customer and what can create a truly amazing and revolutionary experience for customer. Upstarts don’t care about “better, faster, cheaper” – the best-in-class mantra; they care about terms like “amazing, immediate, simple, ubiquitous, low cost” – the promise they deliver to their customers. They know, by definition, delivering this promise will be better, faster, cheaper, and more.

They build a culture around continuously amazing their customers, not simply being better for their customers than their competitors, often in such marginal ways that customers seldom notice, and never tell their friends. They are so revolutionary that they don’t have to do social marketing; they simply get social marketing and are driven by word-of-mouth.

The implications of Best-in-Class?

The obvious one: large corporations yield market share to upstarts. Less obvious: when large corporations invest in or acquire the upstarts and bring the culture of best-in-class to them, they start them on the inevitable downhill trend. The most insidious: when upstarts hire senior talent from large companies and let them infect the corporate culture with the best-in-class scourge, the upstart slowly and inexorably stops being an upstart.

[domendwars-blog]

Disrupting the Credit Card Market

There is a little-told disruption happening in the credit card market as P2P and other alternative finance companies are stealing revolving credit card business from traditional card companies.  And if and when more of the millions of credit card users truly understand how credit cards work, the present disruptive trickle will turn into a flood. 

Credit cards have traditionally served three purposes: they are a convenient payment system ; they provide funding flexibility to consumers and businesses who have short term cash flow needs; their provide long-term credit to consumers and businesses who have long-term credit needs. 

They are nothing short of brilliant as a convenient payment system and as a way of bridging cash flow needs for a month or two. However, they are a complete disaster as a provider or long-term credit. And it is this long-term credit function is where the banks make all their money; and where the customer is ignorant, under-informed and therefor exploited. As always, this allows disruptive financial services providers to grasp the amazing possibility of providing a better product to the consumer and business owner, and still provide a good return to their shareholders. 

Credit Cards providing Long-Term Credit:

Our exp ample: Anne has a credit card with a $8,000 credit line at 18% Annual Percentage Rate (APR). Her job, commitments and living expenses allow her to pay off a credit card balance of $500 a month. She is quite disciplined and understands her cash flow very well. So she normally spends an average of $400 to $500 a month on her credit card. 

One day she goes out - planningfully - and purchases $5,000 of furnishings for her home using her credit card to pay for the furnishings. Her calculations are flawless: by paying $500 to the credit card company each month she can continue to spend $400 a month on the card, pay off the $400 monthly and slowly reducing her balances until she is back with no credit card debt at all. 

Anne is the perfect customer for the credit card company. The credit card company is the wrong lender for Anne. 

How it Really Works:

In month 1, the month that Anne spends the $5,000, the credit card company statement shows her owing the $5,000 plus the $400 of incidentals she has purchased or a total of $ 5,400 for month 1. 

So far so good.

Her payment that month, as planned, is $500 - well above the minimum balance the credit cards would ask for - reducing her balance to $4,900.  She spends, as planned, her additional $400 on incidentals.  She expects that the next statement, for month 2,  will therefore show her owing $5,300 plus any interest charged as she now has a revolving balance. 

If Anne is like most people, she will believe that she will pay interest on the $4,900. But she will likely be wrong. How the interest will be calculated is something she may simply not understand.

In many, perhaps most, if not all credit card companies, interest is calculated daily on the balance of the day. The daily interest for month 2 will begin to accrue on day 1 of the month on the total $5,400 recorded on her prior statement. With each new transaction, her daily balance immediately increases - so if she spends $100 on day 5 it will go up to $5,500. With each payment, her daily balance immediately reduces - so if she send off her payment at the end of the month her balance may have risen all the way up to $5,800 before going back down to $5,300. With this methodology, it is a virtual certainty that she is paying interest on more than the $5,000 she thought she was borrowing; let alone the $4,900 she expected to pay interest on.   

This may be new news for Anne, but it is not good news for Anne.

What Should Anne Do?

Before credit cards, installment credit was the product people turned to when they borrowed money. Simply stated, Anne would have borrowed $5,000 and paid it back in installments over some agreed to time-frame at an agreed to APR.

Banks have largely stopped offering installment  credit. And that is exactly what many Person-to-Person or P2P companies (Lending Club or Prosper in the US; Zopa or Rate Setter in the UK) offer today: an option for consumers to avoid using credit cards for longer-term credit. 

To keep everything comparable, in the simplest case, Anne would get a $5,000 installment loan at an APR of 18% repayable over 60 months at a set installment amount. 

She would never pay interest on more than $5,000. And she would keep using her credit card for her incidental spending: never revolving and never paying any interest on the card

Doing so would save her interest and make planning and payments simple.

The Reality:

Most P2P companies provide a simple application process and rapid approval of loans. Most allow customers to consolidate many credit card balances and pay them all off with one consolidated installment loan. And, for any credit score band, most P2P companies provide lower APRs to consumers and small businesses than those same people and businesses could obtain from their banks and credit card companies. 

It is a real benefit!

Inertia and Brands:

It takes time for consumers to change their behaviors and their brand preferences. Inertia is a strong force. 

But over time, consumers and businesses will understand that credit cards are a poor option for long-term credit. And they will move to installment credit unless and until credit card companies change the way they charge and calculate interest.

The trickle will turn into a flood.

[domendwars-blog]

Being a truly great (smaller) company director

I was asked earlier this week what I thought the characteristics were of a great director for an earlier stage or growth company. I sit on and have sat on a lot of boards, so perhaps they thought I would know. 

Here goes:

Be Passionate: A great board member spends significant time thinking about, worrying about, promoting the company, not only at board meetings but virtually every minute of every day.  Board meetings are a small part of the time dedicated to the company. To do this, the board member needs to be passionate about the company and its people. And passion requires a deep seated belief that the company must thrive, and grow and prosper, and possibly change the world.

It’s a Job: A great board member joins a board because want to work hard to make the company and the management team successful. And like any job, they set themselves personal goals - outcomes they are looking to achieve from their position as board members.  Board positions may enhance resumes; providing credibility at cocktail parties; or generate great financial outcomes.  But those are the wrong reasons to take a board position!

Learn the Business: A great board member knows they can only contribute to the business if they know the business - truly know the business. The more detail they have at their fingertips, the more they can participate in  tactical and strategic discussions at the board, with the CEO, or with individual members of the management team. Learning and immersion cannot happen through osmosis at board meetings. A great board member will take the time - hours and days - early in their board membership, to get fully briefed on the business, meet the team, understand the culture, learn. And they will refresh their knowledge at regular intervals.

Do your Homework: A great board member prepares before every meeting; reads every document and presentation carefully; goes through all the numbers; reads all the emails and memo’s that come to them; puts the company, and possibly their main competitors on their search so that they are ahead of all the news and market changes that affect the company and the industry. They arrive at a meeting assuming the materials will not be covered, but the board will dive immediately into discussion , debate and decision making. They will always be prepared to participate fully.  

Know who you are working for: A great board member never forgets their fiduciary responsibility to all shareholders. Regardless of who appointed them, who they “represent” , or what they do, when they are making decisions on the board, they always seek an outcome that is best for all shareholders. They are not partisan.  All board members should have the same objectives. 

Add Value: A great board member knows when they can and should add value; and when they should say “I have nothing to add”. They understand that their contribution is not measured by how much they say, or whether they have an opinion, but whether they have helped move the company and the executive team forward - in the most effective and efficient way possible. 

Be Decisive and Direct: A great board member will make their opinion known based on the facts at hand - “based on what you have told me, I would recommend you do.....” - and will only ask for additional facts and analysis if it  would provide a different and better outcome for the company, considering the complexity, time and cost of those facts. Waffling, delaying and deferring decisions helps no one. 

Only One Vote: A great board member knows and understands that they are only one vote on a board. While their opinion is valuable and sought and listened to, if it is not the prevailing opinion it may not carry the day. Endless debate kills board meetings, frustrates fellow board members, and destroys executive teams. Provide your decision; make your argument; take a vote; get on with it!

Below the Waterline: A great board member may have a deep and closely held conviction that a decision made by the board may sink the ship - create a hole below the waterline. Hopefully this is a rare occurrence. When and if this occurs, a great board member knows that their responsibility is to extend the debate; to make the board aware of their concern. 

Respect: A great board member treats everyone with respect  and dignity- even if they personally consider the individual to be incompetent, disruptive or unethical. Without respect a board meeting cannot produce any positive outcomes. There is a time, place and process for providing executive feedback on an executive, or engaging in the removal  of executives from the company and board members from the board. A great board member follows the process - accelerating the process if necessarily - but doesn't use the board meeting as a forum for expressing their frustration with a person.  

Listen Carefully: A great board member focuses on the board meeting when they are at the board meeting. They engage fully and completely in every meeting and every call. Board members are busy people. But they are not doing other work, answering emails, walking in and out of meetings, asking for discussions to be repeated because they were simply not engaged. 

Be Available: A great board member makes themselves available for work outside of the board meetings and does it generously. Small companies are resource constrained and often lack the experience, competency or independent judgement to do everything that needs be done. Board members can and should help - a lot - not only by participating, but by doing real work: going on sales calls, doing analysis, interviewing candidates.....

It stays in the Boardroom: A great board member lets what goes on in the boardroom stay in the boardroom. What is discussed in the boardroom is private and should stay private. Decisions made in the boardroom are real decisions and should not be re-opened outside of the boardroom. Disagreements and debates in the boardroom are for the good of the business and its shareholders and should not continue outside the boardroom. If a single board member cannot live by these principles, then the tenor, honesty and openness of all board discussions is compromised.

Provide Feedback: A great board member will provide feedback to the CEO and to fellow board members in a constant attempt to improve the performance of the company and the board. But there is a time and place for feedback; and if it is not structured into the board process, a great board member asks for feedback sessions to be scheduled on a boards agenda.

Ultimately a board is as good as the sum of its parts: It requires great board members, a great management team and a great chairman. When these three components come together, good companies can be made truly great. 

[domendwars-blog]

INHAOT: I have never fired someone too early

(INHAOT: I Never Had An Original Thought - a series of great lessons I have learned from others)...

Many of us have had the terrible task of firing someone who is just not good enough to get the assigned job done. It is never easy and over time, never gets easier. 

My advice is simple: If you know the person needs to be replaced, do it now. Put them out of their misery - invariably they know that this is about to happen; put their peers and team out of their misery - invariably they are hoping and praying for better leadership or support; and put yourself out of your misery - invariably it is weighing on your head, diverting you from more important things, affecting your and everyone's performance.

Amazing things happen the minute after it is done and announced: Everybody breathes a sigh of relief and goes back to work with more energy, more vigor and greater happiness. 

A couple of additional lessons:

Treat the person fired with the respect and dignity they deserve. Not having the capability to do a job well is seldom a character flaw. It is more often that people are promoted beyond their capability; people don't have the passion for the tasks at hand; or people don't have ability or indeed the desire to acquire the necessary competencies. Even more frequently, particularly at higher levels, they don't have the leadership skills to attract, retain and motivate large groups of people around a vision that all can and will follow.

There is always someone better. The fear of finding a replacement is grossly overstated. There is always someone better out there - sometimes in the organization under your very nose. New people bring energy, find new talent, seize opportunity. It is amazing what the change will yield.

No-one is irreplaceable. Frankly, if someone thinks they are irreplaceable, you had better replace them now. In many large organizations and some smaller ones, there is someone who creates a "cult" around themselves, sharing little or no information, ruling by fear and intimidation, creating a toxic environment, and frequently instilling the view that the whole organization would collapse without them and their skills, and their dismissal would lead to a massive desertion by all their minions. There is no one who should be fired more rapidly! The only effect of their dismissal will be the discovery of great and suppressed talent throughout organization; visibility of other areas of incompetency that they have been protecting; a sigh of relief; and better performance all round. 

What are you waiting for?

[domendwars-blog]

In the Taxpayer Protection Pledge, candidates and incumbents solemnly bind themselves to oppose any and all tax increases. That's one bad idea!

Let me start by declaring that I am opposed to big government; I am opposed to tax increases in general; I am opposed to governmental interference and particularly in trivial involvement in our personal and business lives.

But I am also opposed to having a broad swath of regulators who blindly and blithely accept the full swath of complex, misdirected and frequently damaging tax breaks that we live under today, simply because removing a tax break would compromise the promise of "any and all tax increases".

Senators and congressmen should be elected in the full belief that they will use all the tools available to them to move the country in the right direction. The Taxpayer Protection Pledge eliminates half of their tool set and 100% of the trust that electors have in their integrity. The fact that senators and congressmen sign it shows that they do not understand the scope of their jobs; the fact that citizens demand it shows that they do not understand the corrupt tax regimen they live under. Unless the citizenry of these United States are looking for a Congress with only half a tool box, they should absolutely avoid anyone who has signed this pledge.

The smart thing for Congress to do it to pass a "Zero-Base Subsidy Act" eliminating every subsidy and, after detailed anaysis of each, adding back only those that can be shown to have a real positive  on the nation in the short, medium and long term. This should apply accross the board: Mortgages, Personal Jets, Farming, Ethenol, and the list goes on.

And if the voters demand it, every dollar saved from the subsidies and other tax adjustments can be returned to the nation in the form of reduced tax rates for all. Assuming we need a pledge --- and it talks to the sorry state of our  trust in elected officials that we do ---then a better pledge may be one where candidates and incumbents solemnly bind themselves to oppose any tax action that increases taxes without a compensating action that reduces taxes. After all, we are simply asking for the net effect on the nation to be no tax increase overall.

[domendwars-blog]

For Miles and Points Junkies: Triple-Dipping is the New Deal

In the beginning there were simple airline miles. American Airlines introduced them sometime in the '80s. You flew on American Airlines and you received points allowing you to redeem them for air travel.

Simple airline points soon evolved into double-dipping when American Airlines teamed up with Citibank to offer the American Airlines Card. You could now earn American Airline miles when you flew American Airlines, when you bought the ticket on the American Airline/Citibank Card --- that was the double-dip --- and when you bought anything else on the card. This double dipping soon spread to every airline.

Double dipping soon evolved into double-dipping with choice. American Express offered Membership Rewards (originally Membership Miles) allowing you to earn reward points whenever you spent, and, in a moment of brilliance, unlocking those points from a single airline, allowing you to decide at a later time, when you knew where you wanted to travel, which airline to allocate the points to.  This soon spread to other cards, but never at the benefit level provided by American Express. 

In the latest evolution, we now have triple-dipping.  And if you haven't discovered this you should.

Today I found a site called www.overwhelmingoffers.com which allows you to use whatever your favorite card is today, get additional points for buying through their site, and a little like Groupon, get significant "Overwhelming Offers" with amazing low prices every day, and major discounts from a pretty broad group of national merchants in travel, apparel, electronics, etc.  It is simple to sign on to, and because they give multiple points for some purchases, they mount up quickly.

I used the overwhelmingoffers.com Priceline powered travel capability to buy a ticket on Continental for $681.00 using my American Express Card.  Dip #1: I will get points from Continental; dip #2: I will get 681 points from American Express; dip #3 I will get 5 X 681 WOW points from overwhelmingoffers.com or 3405 WOW points.

Pretty cool.

[domendwars-blog]

Rate Teachers: Then let Seniority Reign

Lets all agree:

Schools do not exist for the benefit of teachers, but for the benefit of students.

For students to truly benefit from the schools they are in, they need to have the best teachers they possibly can.

To get the best teachers they possibly can, a fair system of teacher evaluation is required and should be enforced.

A fair system would evaluate all teachers based on the outcomes they produce for their students.

A fair system will not be perfect, but will reasonably differentiate between the good and the bad teacher.

Once teachers have been evaluated, at each evaluation level appointments, retention or promotion  should then be based on seniority. If the evaluation system rates all teachers from 1 to 10, the teachers rated, say, in group 1 should be given priority according to their seniority.

Two final thoughts:

Experience does count! If the evaluation system is used well early in a teacher's tenure, there is a reasonable probability that all teachers with high tenure will be evaluated among the best.

Everyone cannot be a good teacher!A bad teacher may be deeply concerned about their students, deeply driven to impart everything they know to their students, and absolutely committed to their personal excellence and that of their students. This is not a character flaw. They may be wonderful people. But they simply may not have the ability and skill to be a great teacher. 

[domendwars-blog]

It's not the Unions, its the 19th century Pension Plans

There is general agreement that many of the fiscal problems in the US --- whether public or private --- can be laid at the door of benefit programs. The issue is that most were designed for 19th century conditions and simply don't work in the 21st century. It's time the country set its mind to creating the fair, equitable and economically viable equivalents that will work now.

Our pension and social security plans were built when people worked long and hard in stable jobs, usually for one institution. They retired late. And then they conveniently died. This provided a perfect environment for plans that contemplated a long contribution period and a short payout period.

The 21st century has reversed this: In a world where jobs are less stable, people are laid off, people retire earlier and importantly, live longer, the world increasingly contemplates a short contribution period with a long payout period. Whether we are talking about members of the Congress of the United States, retired corporate board members, teachers, the military or any other organized or unionized group, the mathematics of benefits programs simply no longer work.

The 21st century model will not be too complex to construct, whether for Social Security, for union benefits, or for the benefits paid to retired congressmen and senators, or corporate board members. And if the principles are well established, the 21st century models should satisfy the politics of the most fiscally conservative and most liberal politicians.

The principles need to include: "as you sow, so shall ye reap" --- base benefits will  be a function of how long you worked for; how much you made in the job; and when you started asking to receive a payout; "scientific realism" --- payout will be based on expected mortality rates, expected interest rates, and expected inflation based cost of living adjustments; "life time assurance" --- if you outlive the expected mortality, you continue to get paid; if you die early, you are helping others in the union or the nation.

The mathematics is simple. The more complex question is whether any politician, union leader or corporate board has the motivation and the spine to commission the work and lead the way.