Paul Wallbank | Paul Wallbank - Communications Professional

Culture beats strategy

What does the executive car park tell us about a business’ management culture?

Writer and business consultant Joseph Michelli says”Culture beats strategy, in fact it eats it for breakfast and lunch”.

This was one of the key points in a recent webinar about online retailer Zappos and its customer service culture.

Joseph’s right, the culture of an organisation is the ultimate key to its success, if managers and staff work “according to the book” and declaring “it’s not my job” then you end up with a siloed organisation where management are more interesting in protecting and growing their empires over helping customers.

With Zappos it’s interesting how it appears easy the integration into Amazon’s ownership has gone and this is probably because both have service centric cultures.

Both companies seem to have avoided employing Bozos as Guy Kawasaki famously put it a few years ago.

Your parking lot’s “biorhythm” looks like this:

8:00 am – 10:00 am–Japanese cars exceed German cars

10:00 am – 5:00 pm–German cars exceed Japanese cars

5:00 pm – 10:00 pm–Japanese cars exceed German cars

Guy’s German car observation is spot on. When I was running a service business, one measure I used for a potentially troublesome client was how many expensive German cars were in the executive parking spaces, it was usually a good indicator that an organisation’s leaders are more interested in management perks than maintaining their technology.

Another useful measure was where those cars are parked, a good indicator of management’s sense of entitlement is when executive parking spots are conveniently next to the building entrance or lift lobby while customers expected to find a spot anywhere within ten blocks.

It all comes down to culture and when management are more concerned about parking spots and staff about free lunches, you know you’re dealing with an organisation where the customer – or the shareholder – isn’t the priority.

Taking care of our own

Our governments can’t fix every problem or address our every need. We need to take matters into our own hands.

“The council ought to do something” growled a friend who’d been stuck in a peak hour traffic jam.

That innocuous comment illustrates the fundamental challenge facing the developed world’s politicians – that we expect our governments to fix every problem we encounter.

In the case of the local traffic jam, the cars creating gridlock are parents driving their children to two nearby large private schools.

Despite the problem being caused by the choices of individuals – those decisions to send their kids to those schools and to drive them there – our modern mindset is “the government aught to do something” rather than suggesting people should be making other choices.

Socialising the costs of our private decisions is one of the core beliefs of the 1980s mindset.

Eventually though the money had to run out as we started to expect governments to solve every problem.

We’re seeing the effects of this in the United States where local governments are now having pull up black top roads, close schools and renege on retirement funds as those costs become too great.

As a society we have to accept there are limits to what governments can do for us.

Increasingly as the world economy deleverages, tax revenues fall and the truth that a benign government can’t fulfill our every need starts to dawn on the populace, we’ll realise that expecting politicians and public servants to save us is a vain hope as they simply don’t have the resources.

Bruce Springsteen puts this well in his song “We Take Care Of Our Own.”

The truth today is the cargo cult mentality of waiting for governments or cashed up foreigners to come and save us is over.

We’re going to have to rely more on our own businesses, families and communities to support us in times of need.

The existing institutions of the corporate welfare state are beginning to collapse under the weight of their own contradictions.

Joe Hockey knows this, but as a paid-up agent of the establishment he doesn’t dare nominate the massive cuts to middle class welfare and big business subsidies that are necessary to reform those institutions.

Waiting for the council to fix the local roundabout is nice but it doesn’t address the bigger problems.

It’s up to us to build the new institutions around our local communities and families. This is not a bad thing.

It’s all in the timing

Being first is no guarantee of success if your timing is wrong.

This morning I sat in on a corporate breakfast and heard a well known presenter talk about social media for business owners and managers.

The advice was terrible and what was valid could have come from a 2008 book on business social media marketing.

But the room loved it and obviously the client – a major bank – thinks the speaker’s work is worthwhile. He has a market while many of us who’ve been covering this field for a decade don’t.

Timing is everything in business. Earlier this week stories went around the Internet about how Microsoft could have invented the first smart phone.

Microsoft could well have done it, they tried hard enough with Windows CE devices through the late 1990s and there was also the Apple Newton and the Palm Pilot.

While all these companies could have developed the smartphone in the 1990s it wouldn’t have mattered as neither the infrastructure or the market were ready for it.

Had Microsoft released the smartphone in the mid 199os it would have been useless on the analogue and first generation GSM cellphone networks of the time.

Customers were barely using the web on their personal computers, let alone on their mobile phones, so the smartphone would have been useless and unwanted.

Ten years later things had changed with 3G networks and real consumer demand so Apple seized the gap in the marketplace left by Motorola, Nokia and the other phone manufacturers with the iPhone and now own the market.

Apple weren’t the first to market with a smartphone, just as Microsoft weren’t the first with a Windows-style operating system and Facebook weren’t the first social media platform.

Those who were first to the market stood by while upstarts stole the market they built.

Plenty of people have gone broke when their perfectly correct investment strategies have been mistimed – “the market can stay irrational longer than you can stay solvent” is often proved true.

That’s the same with the speaker this morning; he’s not the first to discover social media’s business benefits but his timing is impeccable.

Being first is no guarantee of success if your timing is wrong.

Is small business too pessimistic?

The small business sector doesn’t seem to be too confident about the future.

The MYOB March 2012 Business Monitor report is a disturbing document; not only does it show how low confidence is among Australian business owners, it also portrays a group that are making sacrifices for an uncertain future. Is this what small business has come to?

One of the most disturbing aspects of the survey is how long company founders go without a break. With one third reporting they had not taken holidays since starting their business, this statistic is constant regardless of how long the operation has been going.

As somebody who went a decade without taking a holiday, I have a lot of sympathy for business owners in that situation.

What really jumps out is the pessimism of business owners – a quarter don’t expect the economy to improve for at least two years and only 39% expect their revenues to rise.

That business owners would be so negative about the future is disturbing; they should be the most optimistic.

It’s also interesting that more than half are disappointed with levels of support from the government, does anyone expect different?

Quite frankly, if you want money or support from the government then get a job with the public service. I tried that for a few months and there’s plenty of pessimistic people there.

That small business owners are becoming as disillusioned as public servants is a concern for our economy and society. Hopefully it’s not a permanent condition.

Are we prepraed to embrace risk?

The world is a dangerous place, can governments protect us?

It’s safe to say the Transport Security Administration – the TSA – is one of America’s most reviled organisations.

So it’s notable when a former TSA director publicly describes the system the agency administers as “broken” as Kip Hawley did in the Wall Street Journal on the weekend.

More than a decade after 9/11, it is a national embarrassment that our airport security system remains so hopelessly bureaucratic and disconnected from the people whom it is meant to protect. Preventing terrorist attacks on air travel demands flexibility and the constant reassessment of threats. It also demands strong public support, which the current system has plainly failed to achieve.

The underlying question in Kip’s article is “are Americans prepared to accept risk?” The indications are that they aren’t.

One of the conceits of the late twentieth Century was we could engineer risk out of our society; insurance, collateral debt obligations, regulations and technology would ensure we and our assets were safe and comfortable from the world’s ravages.

If everything else failed, help was just an emergency phone call away. Usually that help was government funded.

An overriding lessons from the events of September 11, 2001 and subsequent terrorist attacks in London and Bali is that these risks are real and evolving.

The creation of the TSA, along with the millions of new laws and billions of security related spending in the US and the rest of the world – much of it one suspect misguided – was to create the myth that the government is eliminating the risk of terrorist attacks.

It’s understandable that governments would do this – the modern media loves blame so it’s a no win situation that politicians and public servant find themselves in.

Should a terrorist smuggle plastic explosive onto a plane disguised as baby food then the government will be vilified and careers destroyed.

Yet we’re indignant that mothers with babies are harassed about the harmless supplies they are carrying with them.

It’s a no-win.

This is not an American problem, in Australia we see the same thing with the public vilification of a group of dam engineers blamed for not holding back the massive floods that inundated Brisbane at the end of 2010.

While we should be critical of governments in the post 9/11 era as almost every administration – regardless of their claimed ideology – saw it as an opportunity to extend their powers and spending, we are really the problem.

Today’s society refuses to accept risk; the risk that bad people will do bad things to us, the risk that storms will batter our homes or the risk that will we do our dough on what we were told was a safe investment.

So we demand “the gummint orta do summint”. And the government does.

The sad thing is the risk doesn’t go away. Risk is like toothpaste, squeeze the tube in one place and it oozes out somewhere else.

While Kip Hawley is right in that we need to change how we evaluate and respond to risk, it assumes that we are prepared to accept that Bad Things Happen regardless of what governments do. It’s dubious that we’re prepared to do that.

Hubris and risk

Technology brings benefits and risks, we need to understand both

Today is the centenary of the Titanic’s tragic sinking. In many ways, the RMS Titanic described the 20th Century conundrum; a blind faith in technology coupled with a struggle to deal with the consequences of those innovations.

It’s worthwhile reflecting on the hubris of those who believed their technology made a ship unsinkable, or those who believed their shipyards would never close and – probably most relevant today – those who believe the sun never sets on their empire.

Technology can liberate our lives which is shown by the fact the average American, European or Australian lives far longer and better than even kings did two centuries ago. But we should never assume these improvements don’t come at a real cost to ourselves, the environment or the ways of life we take for granted today.

Passion and pain

Being passionate about work can bring on its own problems

“Don’t buy the hype about following your passions”, is the advice from business writer and entrepreneur Penelope Trunk in her blog post The career passion myth and how it derails you.

Sonja Lyubomirsky talks about workplace engagement as a result of having control over one’s time and being able to make people feel good. Janitors, she finds, are happiest at work because they can control their workday and they can see immediately how they are helping people. Lawyers, by contrast, are the most universally unhappy, because they have little control over their hours and they are generally dealing with people who hate that they have to hire a lawyer, whatever the lawyer is doing.

Penelope has a good point and it’s something I encountered in my business with passionate staff – the most committed and dedicated are also those most prone to burn out and depression.

In the computer business, good technicians have a combination of two character types; the geek and the concierge.

The concierge attribute like to help people; this the key character trait for successful hospitality and customer service staff.

Geeks are the garage tinkerers; they enjoy being confronted with a technical issue and fixing it. Nothing makes them happier than being confronted with a tough problem and a successful resolution.

What I realised in watching computer techs over time is that both personality traits were driven down by the nature of the industry.

As Penelope points out in her article, lawyers aren’t happy because people don’t want to deal with them; this is common in the repair industries. Customers aren’t happy to see the tech and are suspicious that bills may be being padded out.

This was particularly true during the spyware epidemic of the early 2000s; often an effective fix involved backing up data, reformatting the system and then rebuilding it. Often the technician’s bill was more than the cost of buying a new computer.

Making matters worse was often the spyware infection was due to a family member or trusted employee visiting inappropriate websites. Having to explain to a staid matron that her husband was downloading megabytes of hard core pornography is a diplomatic skill in itself.

Naturally horny husband or frustrated staff member would be on those sites again shortly after the technician’s visit so the freshly cleaned computer would often be infected again and the customer would, understandably, be cranky at the tech for having another expensive call shortly after the first one.

Along with spyware, it’s common that technology products from big vendors don’t deliver on the flash marketing promises or aren’t as reliable as a customer has a right to expect.

This would become the technician’s problem again.

Many of these problems would be outside of the tech’s control which is devastating for one’s inner geek that takes pride in fixing problems.

All of these factors would eventually grind both the geeks and the concierges down and they would become demoralised over time.

For the most passionate this would manifest itself in burn out and often depression. In fact, I started feeling this myself and was one of the reasons I had to step away from the PC Rescue business.

Being passionate about your work is great; but passion and depression are often close together if you feel your love is not being requited.

As an employer, it’s important to watch those passionate staff members as the risk of burn out is real.

Rivers of gold

Can there be a downside to Google’s massive profits?

Google’s announcement that their revenues have increased by 24% over the last year shows the search engine juggernaut keeps rolling on.

It’s tempting to think that Google is untouchable and that’s certainly how it appears when you’re on track to earn forty billion dollars a year and book close to 40% of that income as profits.

On the same day, Sony announced a massive restructure including with 10,000 redundancies and the company’s CEO, Kazuo Hirai, spoke of a sense of urgency to address the once dominant corporation’s drift into irrelevance.

Twenty years the thought of Sony – one of the world’s innovators in consumer electronics – would be wallowing in the wake of companies like Apple and unknown upstarts like Google was unthinkable.

Fortunes are won and quickly lost in a time of great change and this is something we should keep in mind about Google when we look at their rivers of gold.

“Rivers Of Gold” was a term coined to describe the advertising riches of the newspaper industry in the 1980’s. Google’s online advertising is partly responsible for destroying that business.

Today Google is a search engine business that makes its money from the advertising that deserted print media and went online.

It may be that manufacturing mobile phones, running “identity services” disguised as social media platforms or augmented reality spectacles are the future of Google but right now they it’s search and advertising that pays the bills and books the massive profits.

The challenge for Google is not to lose sight of its current core business while building the future rivers of gold.

If Google’s leaders can’t manage this, then they risk following the newspaper industry that they themselves disrupted.

Tracking the end of the consumer society

One statistic illustrates how economies are changing

I’m currently researching a presentation about the retail industry.

One of the things that leaps out when researching consumer behaviour is the savings rate.

For twenty-five years from the early 1980s to mid 2000s, the savings rate collapsed in Western economies; below are the US and Australian rates.

The US Personal savings rate shows the rise of consumerism — US Savings rates 1950 to 2020 – St Louis Federal Reserve

How did the Australian savings rate fall during the consumer boom — Australian Savings Rates 1980 to 2012 – Reserve Bank of Australia

The graphs show the same thing; households spent their savings over the 25 years which drove the consumer economy. It’s no accident that period was a good time to be a retailer.

Being on a deadline, I don’t have time to analyse these number further right now, but one thing is clear; most of the consumer boom from the Reagan Years onwards – or the equivalent from Maggie Thatcher or Paul Keating – was driven by households reducing their savings.

That couldn’t last and didn’t. Businesses and governments that are basing their decisions on what worked through the 1980s and 90s are going to struggle in the next decade.

Looking at these figures raises another suspicion – that graphs showing non-real estate investment by businesses and government would show similar declines over the 1980-2005 period.

It might be that golden period of what appeared to economic success was just us living off society’s collective savings.

Bubble economics

The fear of missing out drives most investment booms. Today’s Silicon Valley is no different.

You know you’re in an investment bubble when the pundits declare “we’re not in a bubble”.

A good example of this is Andy Baio’s defence of Facebook’s billion dollar purchase of Instagram.

Justifying the price, Andy compares the Facebook purchase with a number of notorious Silicon Valley buyouts using two metrics; cost per employee and cost per user.

Which proves the old saw of “lies, damn lies and statistics”.

The use of esoteric and barely relevant statistics is one of the characteristics of a bubble; all of a sudden the old metrics don’t apply and, because of the never ending blue sky ahead, valuations can only go up.

Andy’s statistics are good example of this and ignore the three things that really matter when a business is bought.

Current earnings

The simplest test of a business’ viability is how much money is it making? For the vast majority of businesses bought and sold in the world economy, this is the measure.

Whether you’re buying a local newsagency outright or shares in a multinational manufacturer, this is the simplest and most effective measure of a sensible investment.

Future earnings

More complex, but more important, are the prospects of future earnings. That local newsagency or multinational manufacturer might look like a good investment on today’s figures, but it may be in a declining market.

Similarly a business incurring losses at the moment may be profitable under better management. This was the basis of the buyout boom of the 1980s and much of the 1990s.

Most profitable of all is buying into a high growth business, if you can find the next Google or Apple you can retire to the coast. The hope of finding these is what drives much of the current venture capital gold rush.

Strategic reasons

For corporations, there may be good strategic reasons for buying out a business that on paper doesn’t appear to be a good investment.

There’s a whole host of reasons why an organisation would do that, one variation of the Silicon Valley business model is to buy in talented developers who are running their own startups. Google and Facebook have made many acquisitions of small software development companies for that reason.

Fear Of Missing Out

In the Silicon Valley model, the biggest strategic reason for paying over the odds for a business is FOMO – Fear Of Missing Out.

To be fair to the valley, this is true in any bubble – whether it’s for Dutch tulips in the 17th Century or Florida property in the 20th. If you don’t buy now, you’ll miss out on big profits.

When we look at Andy Baio’s charts in Wired, this is what leaps out. Most of the purchases were driven by managements’ fear they were going to miss The Next Big Thing.

The most notorious of all in Andy’s chart is News Corp’s 580 million dollar purchase of MySpace, although there were good strategic reasons for the transaction which Rupert Murdoch’s management team were unable to realise.

eBay’s $2.6 billion acquisition of Skype is probably the best example of Fear Of Missing Out, particularly given they sold it back to the original founders who promptly flicked it to Microsoft. eBay redeems itself though with the strategic purchase of PayPal.

Probably the worst track record goes to Yahoo! who have six of the thirty purchases listed on Andy’s list and not one of them has delivered for Yahoo!’s long suffering shareholders.

The term “greater fools” probably doesn’t come close to describe Yahoo!’s management over the last decade or so.

While Andy Baio’s article seeks to disprove the idea of a Silicon Valley bubble, what he shows is the bubble is alive, big and growing.

One of the exciting things about bubbles is they have a habit of growing bigger than most rational outsiders expect before they burst spectacularly.

We live in exciting times.

Hyping start ups for pleasure and profit

The Silicon Valley VC model is not sustainable for most businesses and industries.

Monday’s announcement that Facebook would buy photo sharing website Instagram shows the power of Silicon Valley investor networks and how they operate, we should be careful about trying to emulate that model too closely.

Intagram has been operating for 18 months, has 13 employees, has no prospects of making a profit and is worth a billion dollars to the social media giant. Pretty impressive.

A look at the employees and investors in Instagram shows the pedigree of the founders and their connections; all the regular Silicon Valley names appear – people connected with Google, Sequoia Capital, Twitter, Andreessen Horowitz.

The network is the key to the sale, just as groups of entrepreneurs, investors, workers and innovators came together to build manufacturing hubs like the English Midlands in the 18th Century, the US midwest in the 19th Century and the Pearl River Delta at the end of the 20th Century, so too have they come together in Silicon Valley for the internet economy.

It’s tempting for governments to try to ape the perceived successes of Silicon Valley through subsidies and industry support programs but real success is to build networks around the strengths of the local economy, this is what drove those manufacturing hubs and today’s successful technology centres.

What’s dangerous in the current dot com mania in Silicon Valley is the rest of the world is learning the wrong lessons; we’re glamourising a specific, narrow business model that’s built around a small group of insiders.

The Greater Fool business model is only applicable to a tiny sub set of well connected entrepreneurs in a very narrow ecosystem.

For most businesses the Greater Fool business model isn’t valid.

Even in Silicon Valley the great, successful business like Apple, Google and Facebook – and those not in Silicon Valley like Microsoft and Amazon – built real revenues and profits and didn’t grow by selling out to the dominant corporations of the day.

The Instagrams and other high profile startup buy outs are the exception, not the rule.

If we define “success” by finding someone willing to spend shareholders’ equity on a business without profits then these businesses are insanely successful.

Should we define business success by creating profits, jobs or shareholder value then the Silicon Valley VC model isn’t the one we want to follow.

We need to also keep in mind that Silicon Valley is a historical accident that owes as much to government spending on military technology as it does to entrepreneurs and well connected venture capital funds.

It’s unlikely any country – even the United States – could today replicate the Cold War defense spending that drove Silicon Valley’s development and much of California’s post World War II growth.

One thing the United States government has done is pump the world economy full of money to avoid a global depression after the crisis of 2008.

Some of that money has bubbled up in Silicon Valley and that’s where the money comes to buy companies like Instagram.

Rather than try to replicate the historical good fortune of others, we need to make our own luck by building the structures that work for our strengths and advantages.

What if Bill Gates had been born in Australia?

Can a society that puts property speculation before innovation succeed in the 21st Century?

Microsoft founder Bill Gates is today one of the world’s biggest philanthropists having built his business from an obscure traffic management software company to what was at one stage the world’s biggest technology corporation.

But what if he’d been born in Sutherland, New South Wales rather than Seattle, Washington? How different would things have been for an Australian Bill Gates?

The first thing is he would have been encouraged to study law; just like his dad. In the 1970s lawyers had far more status and career prospects than software developers in Australia.

Causing more concern for his parents and career counselor would have been his determination to run his own business. It’s far safer to get a safe job, buy a house then start buying investment properties to fund your retirement.

The Funding Drought

If Bill still persisted with his ideas, he’d have hit a funding problem. No bank wouldn’t be interested in lending and his other alternatives would restricted.

In the Australia of the 1970s and 80s they’d be few alternatives for a business like Micro Soft. Even today, getting funding from angel groups and venture capital funds depend upon luck and connections rather than viable business ideas.

Bill Gates’ big break came when IBM knocked on his door to solve their problem of finding a personal computer operating system; the likelihood of any Australian company seeking help from a small operator – let alone one run by a a couple of twenty somethings – is so unlikely even today it’s difficult to comprehend that happening.

Eventually an antipodean Bill Gates would have probably admitted defeat, wound up his business and gone to work for dad’s law firm.

Invest in property, young man

Over time a smart, hard working young lawyer like Bill would have done well and today he’d be the partner of a big law firm with a dozen investment properties – although some of the coastal holiday properties wouldn’t be going well.

While some things have changed in the last thirty years – funding is a little easier to find in the current angel and venture capital mania – most Australians couldn’t think about following in Bill Gates’ path.

Part of the reason is conservatism but a much more important reason are our taxation and social security systems.

Favoring property speculators over entrepreneurs

Under our government policies an inventor, innovator or entrepreneur is penalised for taking risks. The ATO starts with the assumption all small or new businesses are tax dodges while ASIC is a thinly disguised small business tax agency and assets tests punish anyone with the temerity to consider building an business rather than buying investment properties.

At the same time a wage earner is allowed to offset losses made in property or shares against their income taxes, something that those building the businesses or inventing the tools of the future are expressly forbidden from doing.

Coupled with exemptions on taxing the capital gains on homes, Australian households – and society – is vastly over invested in property.

Making matters worse, the ramping up of property prices over the last thirty years has allowed generations of Australians to believe that property is risk free and doubles in value every decade.

That perception is reinforced by banks reluctant to lend to anyone who doesn’t have real estate equity to secure their loans.

So we have a society that favours property speculation over invention and innovation.

Every year in the run up to Federal budget time tax reform becomes an issue, the real effects of negative gearing and other subsidies for housing speculation – the distortion of our economy and societies investment attitudes – are never discussed.

In Australia there are thousands of smart young kids today who could be the Bill Gates’ of the 21st Century.

The question is do we want to encourage them to lead their generation or steer them towards a safe job and an investment property just like grandpa?