Jodee Bock writes some very kind words about my post on The story so far.
Thank you Jodee, I’m truly honored!
A while ago I asked “How do you find your playmates”, and increasingly “Through their blogs” is the answer.
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The lazy way
Fred Gratzon is
an entrepreneur who hates hard work. In fact, I refuse to do it. Yet two of my businesses grew like Jack’s beanstalk. Each made Inc. magazine’s list of the 500 fastest growing companies in America. One of those businesses appeared three times and was even ranked #2.
His blog is excellent. Check out his run-in with jackal investment bankers or this story of financial growing pains solved by the question “Does it feeeeeeeel like you’re making money?”.
I could write a long piece on the value of laziness, but I can’t be bothered right now, so I’ll just point to this excellent quote by Mark Twain who says it much better anyway.
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Trouble on the blue ocean
Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne has much in it to like, but in the end it fails to deliver usable business tools because of one huge flaw: It completely misrepresents the nature of corporate innovation.The book is subtitled “How to create uncontested market space and make the competition irrelevant” and is based on a blue ocean vs. red ocean metaphor. Businesses can stay in their place in the market and fight all others in that red-ocean space (think red with blood) or they can sail of into the blue ocean where no one else has gone yet.
The book cites ventures by companies such as Cirque Du Soleil, Southwest Airlines, [yellowtail] wine, Apple and Curves gyms as examples of Blue Ocean Strategies.
Blue Ocean makes 4 major points that every business can learn from:
Pay attention
All change begins with an appreciation of your current situation. First get to know your business and your market. Listen to your customers and to those who are not your customers.Go simple
Look at what you can do, but also examine what you can stop doing. What are you doing that isn’t really of value to the customer? How can a simpler product be of even greater value?Play a non-zero-sum game
Don’t fight over the pie – grow the pie. Cirque Du Soleil didn’t steal customers from Ringling Bros., they brought a whole new crowd of people to the circus.Visualize your strategy
The book demonstrates a strategy canvas – a 1-page chart that visualizes what areas to focus more or less on compared to the business today and to competitors. This helps sell the strategy inside the organization.That’s good advice. However, the approach described will not help companies create major change.
The problem is the role the book gives to innovation. When the Blue Ocean strategic process is outlined, only one point out of 10 mentions new ideas, saying “See which factors you should eliminate, create or change”. In other words, one word (“create”) in one sentence focuses on the actual process of creating new ideas – everything else is strategy. That’s not the way it works.
It is typical, though, of the way many businesses misunderstand creativity. There’s a widespread illusion that innovation happens like this:
- A manager somewhere notices an untapped business opportunity
- He tasks someone with finding a way to tap that potential
- Someone comes up with an idea that matches the opportunity
- The idea is implemented
In real life, however, innovation usually happens like this:
- Somebody, somewhere in the organizations has an idea – often totally unrelated to his actual job
- He tries to interest others in it and is told to drop it
- He perseveres and finally someone else agrees to try it out
- The company suddenly discovers that it has a runaway hit on its hands
If you don’t believe me, read this story of how post-its were invented at 3M. If ever there was a Blue Ocean product this is it, but the process was most definitely NOT as described in the Blue Ocean book.
It is my firm belief that few companies will be able to apply the tools in the Blue Ocean book to actually create ground-breaking innovation. Even the case stories cited in the book support this – only two stories are told in which companies apply the book’s metods and they result only in incremental innovation.
Which is not surprising. A measured strategic approach like the one described here is fine for creating measured, incremental change, but if you really want to take your business into uncharted water, you will need a completely different approach to innovation.
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IPO? Hell, no!
In the previous post CEO Jim Goodnight explained why he won’t take SAS Institute public. He believes that:
There is no trust anymore in public companies. I think it’s an excellent time to be private.
And this article in the CEO Refresher by Steve Kayser backs him up. IPO’s are a bad idea for many reasons including that:
- Being a private company, you are not under pressure to grow by merging or acquiring companies to meet shareholder expectations.
- Section 404 of the 2002 Sarbanes Oxley Legislation (which governs how public companies report their finances) is 180 words. Yet estimates of costs for publicly traded companies to comply are between $10 billion to $20 billion ? yes, $10 billion to $20 billion, or approximately $55 million to $111 million per word.
- Senior management now, instead of concentrating on planning a future, building a business, filling customer needs, creating jobs and becoming a valuable cog in the economic engine of prosperity, is tasked with design, implementation, assessment, controls and auditing results.
- Public ownership can make any unique culture difficult to sustain if one bad quarter forces you to lay off 20% of your workforce, or the market drives pressure for meeting certain results regardless of their long-term implications
I can definitely see the lure of the IPO. The massive amounts of money. The chance to grow the organization quickly. The ability to cash in on your initial investment and hard work. The validation of seeing your company highly valued on the stock exchange. So it’s good of Goodnight and Kayser to remind us of the downside.
One company did manage to go public and keep their identity: Google. When they announced their IPO, founders Brinn and Page made it very clear that they would continue to run the company their way. They promised to go on treating their employees extremely well and making long-term decisions rather than living from quarter to quarter. If investors didn’t care for that, they were kindly requested to take their money elsewhere. Google being Google, investors flocked to buy the stock anyway – less famous companies might not get away with this model.
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Perks gone wild
It started with free M&M’s. Now there’s a country club, on-site Montessori daycare, on-site doctors and nurses, 35-hour work week, live piano music during lunch, 50.000 square foot fitness center, swimming pools, no dress-code, masseur, on-site car detailing. And more. If you need assistance in adopting a child or finding a college for your child or a nursing home for a parent, they have people to help you with that too.SAS Institute’s perks are legendary, and the Software Company’s 9.000 employees certainly know they have it good. Normally IT companies have employee turnover rates of 20%. At SAS it’s 3% which saves them an estimated $80 million a year in recruting costs alone. Conservatively.
Why do they do it? Are they naïve altruists? Jeff Chambers, director of human resources at SAS, puts it like this:
No, we’re not altruistic by any stretch of the imagination. This is a for-profit business and we do all these things because it makes good business sense.
There are four interesting points to notice about what SAS is doing:
1: It works
Their annual report for 2004 rightly brags about their 28th consecutive year of growth and prosperity, a record unmatched in the software industry. Their revenues in 2004 was $1.5 billion. That’s pretty impressive.
2: It’s possible because they’re privately owned
CEO Jim Goodnight refuses to take the company public because it might change the way employees are treated and destroy their ability to make long-term plans:
You can’t just have a weak quarter and then all of a sudden start bailing out and cutting things. I am basically my own board. So, I don’t have to worry about pressure from the board or being fired if I don’t improve earnings.
…
There’s no possible way I can tell you what my earnings are going to be to the penny each quarter. There’s only one way to get there to the penny — you have to cook the books.3: They’re committed to treating their people well
Goodnight says it very simply:
If the employees are happy, they make the customers happy. If they make the customers happy, they make me happy.
4: It’s not the perks
SAS employees are happy and stay at the company for years doing good, creative work. But that’s not because of the perks – because no amount of perks can make up for lousy leadership, a bad atmosphere or a lack of respect for employees.
The truth is this: The perks, combined with Goodnight’s and the company’s attitude, make people feel valued – and that’s what’s making them happy.
This is good news for companies that don’t have as much money in the bank as SAS. It’s not the (expensive) perks, it’s the commitment to your employees’ happiness that makes a difference. And that doesn’t take country clubs and Montessori schools but can be done on a much tighter budget.
Most of the information in this post comes from the piece 60 minutes did on them back in 2003.
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Open Source Car
The OScar Project is an attempt to design a car using an Open Source, web-based approach. Anybody can contribute to the concept and design at the website.I loved this quote from the site:
You can’t treat a car like a human being. A car needs love.
– Walter Röhrl
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Startup vs. corporate
Kathy Sierra nails it yet again with a laugh-out-loud funny list of differences between the startup and the corporate mindset.
I added a few examples of my own in the comments:
Startup Corporate When we screw up Admit it, apologize, fix it, compensate customers, move on. Hide it. When that fails, blame the customers. Meetings Fun, chaotic, everyone is heard. The boss talks, you listen. When you disagree with management You’re valued. You’re fired. Work-time Whatever works for you 9-5. On paper. In reality: 9-9. Having children Congratulations! Come back in 6 months. Or when you’re ready. Are you sure you want to jeopardize your career? When you succeed The whole company celebrates with you. “Employee of the month” certificate.
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Common sense takes a beating
In yet another telling blow to common sense, a recent study in British schools concluded that:
…there was no evidence at all that the teaching of grammar had any beneficial effect on the quality of writing done by pupils.
This excellent article in The Guardian by Philip Pullman (author of some great children’s fantasy books – think Harry Potter. only darker) has the whole story.
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High CEO pay – low performance
To get results you must get a really good CEO. To get a really good CEO, you must pay a very high salary. That’s established wisdom. And it’s wrong!
James Surowiecki wrote the excellent book The Wisdom of Crowds that showed how heterogeneous groups of people can be better at making decisions than individuals or groups of experts, and now he’s taken a critical look at exhorbitant CEO salaries in this excellent article in the New Yorker. A quote:
it’s becoming increasingly clear that, from a shareholder’s perspective, overpaid C.E.O.s aren’t just expensive; they’re downright destructive. One recent study of the market between 1992 and 2001 by economists at Rutgers and Penn State found that the more a C.E.O. was paid, relative to his peers, the more likely his company was to underperform in the stock market. The economist David Yermack, of N.Y.U., has found that companies that allow their C.E.O.s to use corporate jets for personal reasons fall short of market benchmarks by four per cent annually.
There are myriad ways in which excessive or poorly designed pay packages can do damage. “Golden parachutes,??? which guarantee executives huge payoffs if their companies are acquired, may encourage them to sell out even when the company would be better off remaining independent. Conversely, according to a study by the finance professors Jarrad Harford and Kai Li, very highly paid executives are more likely than their peers to make acquisitions, and to receive major financial rewards for doing so, even when the acquisition ends up destroying corporate value. And there is evidence that overpaid C.E.O.s are more likely to commit fraud that props up stock prices—perhaps because the more you have to gain from criminal activity, the more likely you are to engage in it.
We need to stop following the maxim that “A highly paid CEO is highly motivated to create results.” It may be true, but the question is: Results for who – the CEO or the company. Surowiecki clearly shows that high CEO compensations may be driving the wrong behavior.
I have two more reasons why high CEO salaries are bad for a company:
1: Company employees can hardly avoid comparing their salary to the CEO’s and ask “Is he really worth that much more?” It can lead to resentment towards top management.2: It may make the salary the main reason the CEO works there. I believe companies get better results from a CEO who feels a true commitment to the company instead of one who’s just there for the company jet and the stock options.
Also, take a look at Alfie Kohn’s excellent book Punished by Rewards which shows that rewards (monetary or otherwise) don’t generate long-term, beneficial behavior.
At the very least companies should publish top management salaries and explain to shareholders why that money was well spent.
