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read a blog post on servant leadership with some interest ( reference blog from  http://inside919.ning.com/ but no longer active ).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 (and increase 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.

Marginal Liberty

Thinking at the margins certainly can be a hallmark of advanced understanding in many disciplines.  It forces a perspective of “will this decision improve or degrade the situation?” and is often a critical aspect of business strategy.  A recent blog post about political versus economic competition sent my mind immediately to that topic.  Of course, the blog title “Marginal Revolution” did help to steer my thoughts in that direction.  The entry briefly mused about the differences between economic and political competition, and why a two-party system was not particularly a bad thing.

 

I am inclined to think that the number of parties is not so significant compared to the principles that those parties espouse.  Without a solid foundation in the principles of liberty, which are simple to understand, any party is likely to revert either to despotism or intellectual laziness.  The former is inherently a perversion of the natural rights of humans.  It involves an individual or group of individuals arbitrarily imposing their will upon other individuals – when all of these players should be free moral agents by virtue of their humanity.  The latter may be even more insidious because it can lull people to sleep and induce them to surrender or delegate their liberty without much resistance, potentially fueling the engines of tyranny and usurpation.  Conversely, a true dedication to liberty is inherently attractive, but it requires work and responsibility.

 

Back to the margins.  How might our current political and economic morass be improved?  More private property seizures?  More bailouts?  More rule by fiat?  No.  Each step in that direction has expanded the margins of our society in a downward direction – beginning decades in the past, but more recently accelerating at an increasing rate.  A wholesale refounding in the basic principles of liberty is a very attractive, romantic and morally superior idea – although not a very likely outcome.  But what about moving the margins of our society in the direction of personal and economic liberty?  These two forms of freedom are inextricably intertwined.  Granted, the notion is about as fuzzy as “refounding,” but what would it look like on the ground?  What would the practical steps be?  What incremental results would they yield?  That would be a national dialog worth having.

Economic Freedom: China vs. the U.S.

A friend recently returned from a visit to one of China’s technology clusters, disappointed with the disparity that he saw between their monumental progress and our comparative stagnation.  He remarked that this particular cluster had mushroomed to over 10 million in population, and that the technology enterprises he visited there were every bit as advanced as anything he had seen in the U.S.  He further lamented that these companies’ pricing models for high-tech products far outstripped many in the U.S.

 

In light of our own President’s visit this week to China, a country that has transformed itself through the engine of capitalism into to a technological and industrial giant, I am left wondering if the global tables of economic freedom are turning.  Might the Chinese business climate in the near future become more free than our own?  My underlying train of thought began by recalling a case study that examined a pair of Chinese state owned enterprises.  These were essentially organs of a communist dictatorship that understands and harnesses the power of capitalism to sustain its political system and its people.  Some other case studies that were swept into my stream of thoughts chronicled the paths of individuals who were educated in the U.S. in engineering and business, and returned home to the People’s Republic of China to form successful enterprises.  To an increasing degree, it seems that the PRC is rewarding innovation and investment.  At the same time, American tax policies are comparatively hostile to manufacturing, and regulatory burdens increase on what often seems a daily basis.

 

Now, down to some hard data.  The current Index of Economic Freedom for the U.S. is 80.7 (world rank of #6), versus 53.2 for the PRC (world rank of 132).  However, the devil may yet be in the details.  Of the ten factors within this analysis, four in China had improved since 2008 and three had diminished.  In contrast, five of the factors for the U.S. had diminished and only one had improved.

 

Personal income tax rates in China range from 5% to 40% – more or less similar to the U.S.  However, Chinese corporate income taxes range between 15% and 25% – significantly lower than combined federal and state business income taxes in this country, which average approximately 40%.

 

Perhaps the most telling factor is that of government size.  The U.S. index was 59.6 versus 88.9 for China (a larger index indicates greater freedom).  Chinese government spending in this analysis was approximately 30% of their GDP, whereas this figure for the U.S. approached 40% – before considering any of the recent stimulus or bailout spending.

 

While the data still show that the U.S. is well ahead of China in overall economic freedom, a steady march of government takeovers and extraconstitutional decrees by unelected czars could precipitously tip the balance.  What then?  Will the PRC offer a bailout for the bankrupt, but “too-big-to-fail” U.S. government?  True liberty must be economic at its core.  The fruits of people’s labor and investments proceed from free individuals’ choices about how to spend their own time and treasure.  This liberty was won with the blood, tears, toil and sweat of many generations.  It is too precious a thing to sacrifice on the altars of political experimentation and what Thomas Paine described as “power by assumption.”

Leadership at Blue Cross and Blue Shield of North Carolina

Yesterday, Robert J. Greczyn, president and CEO of Blue Cross and Blue Shield of North Carolina, addressed the North Carolina State University College of Business on the topic of leadership.  Here are some selected points from his talk.

 

• Hire people who are smarter than you – you already are not the smartest guy in the room
• Small decisions often have large impact – focus on these
• Never take credit for successes – but give credit liberally
• Always take responsibility for things that go wrong
• Mentoring is a responsibility – pass the torch
• Do not fear making decisions – fear indecision
• Mistakes are OK – just focus on why they happened and doing what’s next
• Treat EVERYONE the way you want to be treated – or it will bite you later
• Have a culture of ethics and compliance
• Allow people to make decisions and take risks or good people won’t stay
• Lateral moves often create vertical opportunities – cultivate a broad-based knowledge base
• Be willing to go where others don’t want to – opportunities often lie there
• Know yourself and live your values – you can’t fake it; people will see through a phony
• Don’t transmit your bad day to your people – they will transmit it to your customers
• Shield your people from political turmoil that affects your organization so they can continue to focus on customers

Microgovernment and Economic Liberty

“That government is best which governs least.”  Jefferson, Paine, Thoreau – it doesn’t really matter who coined it.  The principle is sound.  If I may coin my own term here, microgovernment seems to me an attractive idea.  No, I do not mean that a powerful central government should oversee microscopic aspects of our lives.  Rather, the scope of a given aspect of life should drive the scale of appropriate government.  National defense calls for the national government.  Individual freedoms and matters of daily life fall to individuals to manage for themselves.  Microscopic issues call for microgovernment, not macrogovernment.

The United States Constitution begins with certain clear rights of individual humans.  It is the individual humans who are natural, free entities.  Governments, in their various forms, are the inventions of individuals and therefore are artificial.  The Bill of Rights goes on to explicitly limit the scope and authority of the Federal government.  It closes by deferring matters to states and ultimately individuals if they are not explicitly given to the Federal government.  States follow suit with unique constitutions that define their own governments’ roles very specifically.  Authority flows along to smaller entities as matters become more community or individual-oriented.

Associates of the Mercatus Center at George Mason University have examined some aspects of these principles in detail.  Among the more enlightening and contrasting pieces of work on this are the recent report on regulatory budget trends and some missives on sublocal government.  The former is alarming, but the latter in some ways offers a glimmer of hope.  Despite the trend of the last several decades of increasing federal regulation, creative individuals and the general soft matter of society keep finding ways to squeeze between the fingers of a growing government’s often-tightening grip.

While few would deny the potential pitfalls, the idea of voluntary community-based quasi-self-regulation more closely honors individual autonomy and liberty than any formal regulatory program ever could.  It also runs parallel in some ways to the growing trend of local innovation incubators, small business investment groups and voluntary economic development associations.  These smaller scale entities may hold far more promise of driving economic recovery and sustaining long-term growth than any massive federal or even state programs.  This is the case in part because a central government is more effective at influencing very large businesses (e.g. AIG and GM) than a multitude of small associations and businesses, and also because these small groups inherently can maintain a superior grasp of opportunities, resources and challenges specific to their own local areas.

Contrast in Customer Experience

I recently had a customer experience that involved surprisingly ironic contrast. Our company uses a variety of instruments to measure and monitor a number of chemicals and pollution constituents. Our analytical lab uses an ion chromatograph made by a company that is generally considered the leader in their field (what the system measures is not important here. This company makes excellent systems, and I have purchased three of them over the last ten years.

The difficulty I have found, as the last two have been used/refurbished units, is that this manufacturer’s rate of planned obsolescence is staggering. They seem to have a significant aversion to servicing or selling parts for any units more than a few years old. In fact, just speaking to the technical service department can feel like an inquisition: “we need the serial number to verify that you are requesting the correct part,” “our records for that unit do not show that your company is the owner,” “that unit is obsolete,” etc.

As I just hinted, obsolete in their view means that they simply do not want to provide service. They would rather sell a new $30,000 unit than a $1,500 replacement component. OK – anybody would, but reality does get in the way. The 10-year-old unit works perfectly well (or did until a circuit board quit), and does nearly everything a new unit does.

The planned obsolescence gets more complicated because in the particular generation of this instrument that we own, the company moved from a modular design to an integral one. The difficulty this causes from a service standpoint is that although the instrument had only a single discrete malfunction, that function was no longer controlled by a discrete circuit board; all functions are now on a single motherboard.

We did luck out to some extent: we managed to secure the last known new motherboard for this model, but at an inflated cost. The price of the part was $1100 – reasonable for what it is. However, the company was in a position to squeeze more out of us and did. Although anyone in our lab could have replaced the part, they would only ship the board to their field service representative, and their price for his visit required a minimum of four hours of labor at a very high hourly rate, plus travel costs. This move more than doubled our cost – I am not a happy customer at this point.

Turns from modularity to integration and back are typical in many industries’ business cycles. Charles Fine describes the concept far more eloquently than I can, in his book, Clockspeed: Winning Industry Control in the Age of Temporary Advantage.  My synopsis of the book also offers a snapshot of the idea (http://rmcculloch27603.tripod.com/id14.html).

Here’s the contrasting part. The service rep. was simply outstanding. Not only did he replace the board, but he also spent some of his remaining time digging deeper and finding a few potential problems that we had not anticipated. This will probably save us a number of small headaches and significant service costs in the next few years. On top of that, he left us with a very nice collection of small spare parts that we might otherwise have trouble finding.

So – two thumbs up for the rep; thumbs down for the company. Their current position at least partially explains other companies’ successful entries into the market, and probably has fueled recent growth in the market for used and refurbished analytical equipment. In any event, the next time I’m in the market for one of these systems, I will take a hard look at my options.

Customer Engagement – Home Center Style

Home Depot and Lowes seem to be experimenting with new levels of customer engagement.  Personally, I’m torn on where the line is on that.  I have written at some length about customer experience, and how it is the confluence of environment, execution and service.  I also lauded certain retailers in Customer Experience: Roots and Reasons for their masterful balance of these elements.   Still, it can be tricky to find the right level of interaction.  Many customers prefer to do things themselves; many prefer the experience to approach that of having a personal shopper.   Too much engagement and you annoy the one; too litte and you alienate the other.  Figure out how to gauge the individual customer’s attitude and you strike gold.

One staffer in today’s home improvement shopping trip called me “buddy” – way too familiar.  Several asked if I needed help – I politely said “no thank you.”   I’m generally one of those “I’ll work it out myself” shoppers, and like to get in and out efficiently (huge self-checkout fan).  “Can I help you find something” seems nice.  It’s fairly engaging and helpful if I need it, and easy to disengage otherwise.

Through all of this and in spite of my own embedded shopping habits, one guy had me at hello.  He asked “what’s your project?”  He really surprised me and I felt compelled to answer in in a concrete manner.  It was a deeper level that seemed to suggest that he was not just interested in gathering customer service check marks; not even simply interested in me as a customer.  He wanted on a deeper level to help with my specific need.  Way to go, home center guy!  This reflects an understanding of the principle that you need more than to understand what your customer wants, but what and how they want it.

Economic Liberty

True liberty must be economic in nature.  Property is a pivotal right  in the developed world, and comes from a long line of hard-fought battles in modern civilization.  The right to property amounts to the right to our own money; our own time; our own selves.

The liberty and dignity of the individual are as inherent and natural as the individual himself.   The individual’s rights to choose the nature and enjoy the proceeds of his own efforts are just as inherent.

Government, on the other hand, is an institution invented by individuals and does not have inherent, natural rights.  Government has many good, useful and necessary purposes.  The best of such purposes are explicitly described in Article 1, Section 8 of the United States Constitution.

Within this constitutional scope, free citizens temporarily delegate certain individual liberties by electing representatives within our republican system of government.  This act of delegation necessarily involves placing in trust, a portion of our own inherent rights to the proceeds of our own labors.  However, the natural right to those proceeds is still correclty held by the individual, not the secondary invented entity.

The remaining (majority) share of individuals’ proceeds, freely applied,  has historically been the fuel that has propelled modern economies by bringing innovations, ever-increasing productivity and economic growth (jobs) to society at large.