Be Sir Paul

Musicians and enterprises alike must connect with their customers (or audience) to remain relevant over time.  Artists connect with theirs by making an emotional connection; enterprises also do well to make an emotional connection, but theirs also must be practical and move their customers closer to where they want to go.  Moving the customer involves both connecting and driving the action .

By creating connection and maintaining momentum, this gentleman has remained relevant over more than 50 years, and across three and even four generations:

His music has spanned perhaps too many styles to catalog, and probably more than any individual audience member can appreciate.  Still, he began with a seemingly innate talent for catchy songwriting, added a lot of hard work, and long ago compounded his own stock by mastering of the art of connecting with his audiences.  I doubt this came as naturally as it appears.  For my part, I believe a phenomenal amount of deliberate work and dedication went into that.  Sure, talent helps, but perspective and persistent hard work are essential.  The world is full of talented people who never manage to launch.

Contrast Sir Paul against the current roster of comeback ‘80s bands.  Some of these groups had a fair stock of talent and ran a reasonable course before moving on to other projects.  Others just flashed in the pan and went away.  Several are back now, serving the market segment of children of the ‘80s who now have disposable income and a sentimental predisposition to revisit those years.  OK, it could be kinda’ fun – just not my thing, although I do get a bit of pleasure from seeing one or two of my old favorites revisiting some of the material for the sheer pleasure of sharing it again.

One glaring case, though, struck me in a blaze of irony when one of my daughters was trying out her fiddle chops in a local coffee shop with a bluegrass band consisting of three guys aged more or less 60 years, and an 11 year old banjo playing, singing whiz-kid.  The impromptu coffee shop jam was a load of fun, and we were all terribly proud of our kids.  What took me by surprise, though, was the poster on the wall advertising the upcoming “Ham and Yam Festival” and prominently featuring one of these flash-then-gone-now-back-again bands:

In some sense, I am glad for these bands, that they have found new purpose and a renewed stream of income.  That’s always a nice thing.  However, it is hardly arguable that they never mastered the art or discipline of building and sustaining a sense of relevance and connection.  So it becomes the amusing and sometimes pitiable case that artists who do not sustain such connection and relevance become relegated to playing free shows at local festivals.  Enterprises that fail to connect and remain relevant do worse – they simply fizzle.

Be relevant.  Connect.  Stay relevant. Stay connected. With no particular malice to the on-again-off-again 80s stadium rockers, I say: be Sir Paul; don’t be Night Ranger.

Uncle Sam, You Got Some ‘Splaining To Do (Lucy-nomics)

I recently noticed a post[i] that called out the fact that job growth in the federal government was outpacing[ii] that of the private sector.  This is not particularly newsworthy, but does deserve some critical consideration, especially since some analysts have been touting this as positive, and using such shell games to inflate[iii] important economic indicators.  Before anyone becomes too optimistic about job growth at present, we should take note that with an average federal salary[iv] of $67,691, an average private sector salary of $60,046 and an average federal income tax rate[v]^{, [vi]} of 12.7%, each new federal job requires approximately 9 jobs on average simply to bear the salary burden, let alone the fringe costs of the position or other expenses pertaining to government operations.

My wife astutely pointed out that this contrived shuffle of jobs and funds evokes an episode of I Love Lucy in which Ricky had decreased Lucy’s weekly allowance because of her habitual over-spending.  Lucy in turn began to take grocery orders from her neighbors, obtained the goods under Ricky’s line of credit at the market, and collected cash payments from the neighbors to increase her available funds.  We all know the outcome.  The scheme collapsed and Ricky was left with a very large grocery bill.

A rudimentary look at tax and salary statistics shows that roughly 13% of jobs in the U.S. are in the government sector, including federal, state and local[vii].  On a like-for-like basis in which income tax is weighed against government salary burden, government payrolls already consume more than half of that available funding stream.  To identify the specific tipping point would require a much deeper analysis, but a current federal budget deficit and a total federal debt approaching 12% and 53% of Gross Domestic Product[viii], respectively, are good tell-tales.  To accelerate the consuming side of the payroll equation, both in jobs growth and pay rate (in the case of federal jobs) is to court inevitable collapse.

The Lucy episode was funny.  This is serious.  Spending is in vain without productivity.  Even the Keynesian faith depends on short-term spending to ultimately provoke long-term productivity increases.

In the sitcom world, Lucy had separated her own interests from those of her husband, even though they were members of the same household.  Similarly, our leaders at a national level have drawn an artificial line between the private and public sectors even though our society and economy are only effective and sustainable as one people: “We the People.”

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[i] http://drudge.tw/92DXss

[ii] http://www.gallup.com/poll/127628/Federal-Government-Outpaces-Private-Sector-Job-Creation.aspx

[iii] http://www.businessinsider.com/trimtabs-ceo-explains-how-employment-numbers-get-inflated-video-2009-10

[iv] http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm

[v] http://www.taxfoundation.org/news/show/250.html

[vi] http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html

[vii] http://www.taxadmin.org/fta/rate/ind_inc.pdf

[viii] https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

Simple Liberty

Isn’t it curious how straightforward and unambiguous the precepts of liberty are, compared with the tortured reasoning needed to justify eroding people’s freedom?  Liberty needs no apologists.  The attending truths are indeed self-evident.  Our founders were not simple men by any means, but they understood very well the simplicity of the matter at hand.  Conversely tyranny in any form, and to any degree, requires endless machinations and justifications.  Weak excuses abound to legitimize confiscating the proceeds of your labor and giving them to others.  The economy will collapse.  It’s for the good of society.  It’s for your protection.  You just aren’t sophisticated enough to understand.  Kittens will be tortured.  It is for the sake of equality and justice.  It’s for the CHILDREN – won’t someone think of the children?!!

A very remarkable contradiction in all of this is also a very old one.  In the 1700s, John Locke decried the hereditary right of monarchs to govern, partly on the grounds that wisdom cannot be hereditary.  A modern reincarnation of this notion is the assumption that wisdom is endowed electorally.  Seemingly, many politicians now view their seats of power as somehow elevating them in wisdom above those who elected them as representatives.  It really is stunning to think that an arbitrary process invented by humans should magically bestow enlightenment upon a few select individuals while the pool of individuals from whom they came, and who chose them, should somehow remain morons.  Elected office equates neither to wisdom nor intelligence, and those best suited to make decisions about how people should live are those people themselves – individuals living their own lives, producing their own means of surviving and hopefully thriving.  Those who are so privileged as to hold elected office should remember that they live off of the means of their constituents, and usually not their own.

Stimulus and Bailout – Things Seen and Unseen

Frederic Bastiat’s 1848 essay “What is Seen and What is not Seen”, presciently exploded the foundation of Keynesian economic theory 35 years before Keynes’ birth and nearly a century before our greatest experiment in that idea – the New Deal.  In particular, he called out the importance of looking beyond the immediate expected results of economic policies and decisions when he wrote “the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”  Consider the following excerpt from the section entitled “The Broken Window.”

…if… you conclude, as happens only too often, that it is good to break windows, that it helps to circulate money, that it results in encouraging industry in general, I am obliged to cry out: That will never do! Your theory stops at what is seen. It does not take account of what is not seen.

The central point – which is habitually overlooked in Keynesian ideology – is that simply moving money from one party to another does not make it grow.  The value of our labor and investments grows when productivity increases.  Bailout and stimulus spending in 2008 and 2009 largely went to projects or supposed crises that did nothing whatsoever to increase productivity.  In many cases, the funds were either wasted or hoarded.  If you pour the money into fixing potholes, some of it does ripple through the economy, but the effect is a one-time event as opposed to the lasting effect and new opportunities associated with new investments – or better yet – the investments and innovations possible when those funds remain in the productive sector.

Stimulus and bailout spending is inflationary by definition because it increases the supply of currency.  This is true whether the spending came in the form of existing treasury funds that were released, additional debt instruments sold, or funds that were simply conjured out of thin air (the balance of the total after accounting for existing funds and debt financing).  For now, let’s consider the case of bailouts to financial institutions.  The U.S. Treasury released existing funds to these entities with the stated intention to stimulate new lending.  Perceiving uncertainty and the risk that goes with it, these banks predictably parked the money.  A happy side effect of this non-action is that those funds then had little immediate inflationary potential.  Even if they had been distributed as loans, though, they were existing dollars and would not have had as much currency dilution/inflationary effect of those funds newly borrowed or invented by the Treasury.

To frame this in more concrete terms, let’s look at a billion dollars, invested by the productive sector.  Economic multipliers depend on the phenomenon that any person or company that is paid an amount of money will spend (consume) a portion of it and save a portion of it.  These portions are called marginal propensity to consume (MPC) and marginal propensity to save (MPS) (MPS = 1 – MPC).  The equation for the economic multiplier, then, is:

M = 1/MPS or M = 1/(1 – MPC)

If the marginal propensity to save were 20%, the economic multiplier for the billion dollars we are considering would be 1/0.20 = 5, or $5 billion of total money movement through the economy.  The multiplier concept is not controversial, but is of special importance to Keynesian theory because it assumes that an initial stimulus of government spending will jump start economic activity in a widespread fashion.

The fatal flaw in the jump-start assumption is the fact that the money the government spends, supposedly to stimulate the productive sector, must be taken from the very same group.  With this, the historically active, innovative entities no longer have as much money to invest.  In fact, with each spending iteration this sector has smaller and smaller fractions of the money that was taken from it.  Further aggravating the problem, government processes tend to be significantly less efficient than private sector processes.  This implies an efficiency loss (EL) factor that needs a home in the equation: M = 1/(MPS x EL).  This is a large part of “what is not seen” in the stimulus/bailout picture.  The outcome is a smaller potential multiplier than if the funds had remained in the productive sector and a weaker currency.

In a recent column Doug French, President of the Mises Institute, summarized the inflationary implications of the issue writing “The government’s legal-tender money — the dollar — is now under questioning. While the commercial-banking fractional-reserve monetary engine is stalled with loan write-downs and bank failures, the Federal Reserve has expanded its balance sheet like never before. Man of the Year Ben Bernanke is deathly afraid of deflation, and John Maynard Keynes is a hero again. The inflation cake is in the oven, albeit not quite fully baked.”

On the Intrinsic Value of Time

Let’s begin with the core assertion that the one thing I have that my children consistently want is my time.  Management applications follow quite naturally from there.  I can give away money and I can gain money.  I can give away goods and replace goods.  With a few exceptions, there is nothing I own that cannot be replaced with something of similar value, quality and function.  To an even greater extent, every dollar is identical to every other dollar.  Money is like oxygen molecules – each one is identical.  On the other hand, every single moment is unique.  Some moments offer opportunities that are similar to others, but once a moment is gone, you cannot replace it.  Every one of us has a fixed amount of time in our account.  We cannot add to the balance.

This perspective that every moment is unique forms the foundation for the principle that time – my time, your time, your team’s time – has intrinsic value.  With this as a core value, being organized and focused become cultural norms.  This arises because of internal priorities surrounding bits of available time.  Without organized files, communications, project plans, thought processes and such, you will find yourself squandering this precious limited resource.

Meetings tend to be black holes of time consumption.  They can take on lives of their own, and become insatiable.  They can consume vast numbers of man-hours and waste irrecoverable opportunities, leaving residue of crushed productivity and diminished morale in their wake.

Of course, some meetings are necessary, and can even be useful.  Keeping this core perspective in mind, and being organized and focused certainly is important to maintaining appropriate priorities and remaining productive.  More importantly, it helps to ensure respect for others on whom we also depend.

Leadership in a Nutshell

Leadership is not the same as management.  No matter how much you want to believe the idea, you cannot manage people.  You can lead people.  You can manage resources and processes.  These are fundamentally different concepts that often get confused.  What tends to follow is a disconnect between leaders, and those who turn the crank and make the machine go.

I find that the most effective leaders are, in fact, servants to the team at large.  Ego trips can be fatal: not only to the outcome of projects, but to relationships with team members.  Remember, these are people whose help you will undoubtedly need in the future.

The concept is simple.  When you demonstrate through your consistent actions, that you care not only about the outcome of the project, but about the well-being of each member of your team, they are more likely to give their best effort.  As a team leader, you are responsible for the outcome of projects, both to clients and to those above you in the chain of command.  That means that you depend upon others (your team) to execute the scope of work.  Adopt the correct perspective, and the rest follows.

John Moore’s Five Heresies of Energy

John Moore, CEO of Acorn Energy, gave a talk at the June 2009 SJF Ventures Summit on the New Green Economy, entitled The Five Heresies of Energy Technology Investing.  In the talk, Mr. Moore lays out a list of potentially disruptive ideas that seem to get more to the heart of energy market realities than most of the mainstream.  The five assumed truths and the corresponding “heresies” that Moore posits are:

1. We are running out of energy

• Energy supplies are as infinite as the human imagination

2. Our environmental crisis is inevitable

• Transforming our architecture of energy will ensure our prosperity and environment.
  • Malthus in the 1700s claimed that humans were about to consume all of the forests and exhaust the ability of the land to produce – he didn’t foresee the technological advances of the steam engine – or any other advances.
  • Migrating from a wood-based economy to a coal-based economy unleashed unprecedented worldwide prosperity.
  • Edison, Tesla and their contemporaries further drove down the unit cost of available energy. Edison – “I will make electricity so cheap that only the rich will be able to afford candles.”
  • Moore’s law is the key to improving energy productivity.
  • #1 use of energy in the world is extracting, refining and distributing energy – microprocessors have driven that cost down.
  • The supply of engineers is dwindling – we will have to use them more efficiently in the future by leveraging information technology advances.

3. Wind and solar power are the solution

• We need to invest in energy technology to improve the productivity of our existing infrastructure.
  • We still need base-load capacity.
  • Coal represents ~50% of generation capacity in the U.S.; Nuclear represents ~20%.
  • Environmental impact of coal plants has decreased 77% in the past decade; 1/3 of capital investment in coal plants is for air pollution controls.
  • Energy technology investors need to “look around corners.”
  • Low-hanging fruit: layering logic and semiconductors on top of current infrastructure.
  • Even if wind and solar are the technologies that will drive the future, we still need to manage our present.
  • We should use solar where it has the highest return on investment.

4. High oil prices reflect scarcity and the high cost of extraction

• Price rises and sags are tied to political and regulatory instabilities, not discovery and extraction costs.
  • Distance-to-oil in terms of drilling has increased over time, while real unit prices have decreased – due to technology advances.
  • Nixon-era price controls, not OPEC, caused the 1970s price shock.
  • Public-private partnerships instead of command-and-control will help to drive needed technology improvements.

5. More efficient technology will help us consume less energy

• The more efficient our technology, the more energy we as a society consume and the more energy we find.
  • Since 1950, real GDP has increased seven-fold, while energy demand has only increased three-fold.
  • The difference comes in the form of prosperity, productivity and savings.
  • Energy policies should reflect this reality, and focus on productivity and prosperity.

Moore concludes that as a society, we need to define our problems as those of infrastructure, not fuel.  His proposed solutions to current infrastructure problems are to move from analog to digital systems, and to play to our software and silicon strengths as a nation.  To underscore the point, he points out that Google – a company founded ten years ago – has a market capitalization greater than the five largest energy companies combined.

Moore’s heresies reflect classical economic realities resulting from productivity increases.  They also seem to be inspired by a long history of invention and innovation that have come as a result of our society’s history of personal and economic liberty.  Creating artificial scarcity certainly will not provide a long-term solution to our society’s energy situation.  Creating new technology-driven solutions on the other hand, holds the promise of past generations’ leaps in productivity, prosperity and standard of living.

Santa Claus Comes to Agribusiness

Leave it to Santa Claus to bring creative business model disruption to agribusiness.  For many years, my wife and I have been taking our kids to the Meadow Lights Christmas extravaganza to kick off the season.  More than twenty years ago, a few families in the rural community of Meadow, NC apparently began to get a little crazy with their lights.  About fifteen years ago, they went full guns and installed commercial light displays and put up a country store building that serves as a candy shop.  For $2 per person, the kids (and non-kids) can enjoy a 10 minute train ride through the lights, and at a range of very reasonable prices, people can buy themselves nearly any variety of sugar coma they can imagine.

 

If I did things correctly with Google Maps, the whole affair occupies about 17 acres of former crop land.  By my very crude estimates based on average crop yield statistics and recent per bushel prices, this bit of real estate could yield between $10,000 and $20,000 per year in crop revenue.  Just for fun, my wife and I have done a little mental math over the years.  We have estimated that in the 30 or so days that this wonderland is open each year, the train ride alone brings in several times that amount, and presumably at a much more favorable profit margin.

 

It’s impressive what creative people can conceive to do with their own property.  This family has taken a slice of their crop land and converted it into a regional icon – seemingly at a nice profit margin.  I think this one fits squarely in the category of blue ocean strategies.  Whereas fall corn mazes fill a related niche, they have by comparison, become fairly commonplace.  This one is unique – at least within its own region.

Core Leadership Responsibilities

I recently read a blog post on servant leadership with some interest ( reference blog from  http://inside919.ning.com/ but no longer active ).  It reminded me of a conversation the week before in which I asserted that when one of our company’s project managers deploys a team, that PM’s first responsibility is to the members of the team for their well-being. This does not diminish any responsibility to the client, company or shareholders, but it reflects a proper attitude toward and appreciation for those who execute the hands-on work.  On a practical level, modeling this attitude with consistent actions yields manifold benefits in the form of team effort and project outcomes.  When you go beyond mere words and demonstrate that you care about your team and consistently guard their interests, they tend to go the extra mile for you.

Garbage Truck Business Model Innovation

Three waste companies serve my neighborhood.  The first truck in the cul-de-sac this morning was not from the company that we use, but they picked up the stack of boxes that I had placed by our big can.  Odd, I thought.  The final truck this morning was from Waste Industries – our service provider.  Unlike the manual operation I have seen in the past, the truck had a robotic arm that performed all the can handling.  Neat stuff.  I connected the dots and speculated that this company has invested in the robot hardware to improve per-driver productivity metrics (revenue per driver).  I suspect that they also have subcontracted the less productive task of manually handling the incidental boxes and other odd extras.  Business models and innovation in such mundane services often go unnoticed, but if my speculation is true, then kudos to some bright business minds in the trash world.