Episode #95 Preview - Free-rider Friday - May 2016

he last Friday of every month Ed and Ron will do “Free-Rider Friday.” Most of our shows are “topic” driven, where we dive deep into one subject. Free-Rider Fridays are designed to be “event” driven, whatever issues are in the news that we (or you) find worthy of commentary. In economics, free riding means reaping the benefits from the actions of others and consequently refusing to bear the full costs of those actions. This means Ed and Ron will free ride off of the news, and each other, with no advanced knowledge of the events either will bring up. If you’d like to call-in during the live show, the listener line is: 866-472-5790. You can also participate on Twitter at #ASKTSOE, @asktsoe, or email us at asktsoe@verasage.com.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #94 - Creating Customer Choices

A story

Parent A: “We are leaving 2 minutes

Parent B: “Would you rather leave now, or in 2 minutes?”

Humans are predisposed to idea of choices.

Why do car wash establishments have more sophisticated pricing than professional knowledge firms?

How you price more important than how much you price.

Sell insurance for things people don’t want, e.g., concierge medicine, dentists, termites, etc.

Sell Access-Level Agreements (Assurance) for things people want, e.g., hairstylists, lawyers (accessibility retainers), CPAs, IT firms—keep systems running.

Ed’s Sage white paper: Creating Access-Level Agreements. Download here.

Items to use to build pricing fences:

  • Response time
  • Meetings
  • IRS Representation

“No Plan Level” puts a price on individual items, e.g., $500 per meeting, etc.

Black Card Level is by invitation only, and if your firm’s highest level of exclusivity.

The Seven Ts Model

  1. Timing
  2. Terms
  3. Technology
  4. Talent
  5. Tailoring
  6. Transference
  7. Travel (out-of-pocket expenses)

Ad Agencies can use these additional fences

  • Key elements of program
  • Degree of customization
  • Number of elements
  • Number of revisions
  • Degree of client help/involvement
  • Data archiving

Example

CS3 Technology SERV Access Plan.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #94 Preview - Creating and Pricing Customers Choices

How you charge is often more important than how much you charge. And one fact is irrefutable: Customers love choice. What we’re willing to pay for something is insanely dependent upon what we compare it to. Offering three choices to the customer puts your product in context. It’s why most businesses offer three of everything: small, medium, large, coach, business, and first-class, Tall, Grande, Venti, etc. This is a ubiquitous strategy because it comports with how human beings make choices and buy things. Ed and Ron will discuss a model called “the six Ts” for helping businesses create value-pricing choices, as well as the behavioral economics effects of anchoring and framing to help increase your organization’s profitability with better pricing.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #93 - Best Business Books - May 2016

Hermann Simon is the founder of pricing consulting firm Simon-Kucher & Partners in 1985, together with two of his doctoral students. With 30 offices in all major countries and revenue in excess of $250 million, his firm today is a global leader in price consulting.

Excerpts

“I confess that there may not always be a level playing field between the seller and the consumer. generally I think that the game is fair. The reason lies in one word: value. Customer satisfaction is the only way to maximize long-term profits.”

“Some people see 'profit' as the ugly side of capitalism. 'Maximize profit' is an inflammatory phrase which can send shivers down these people’s spines. The simple truth is that profit is the cost of survival. Making a sustainable profit is a matter of ‘to be or not to be.’ And price, whether you like it or not, is the most effective way to generate higher profits.”

“But I am not a fan of short-term profit maximization. My mission is to support companies in optimizing their prices to achieve sustainable long-term profitability.”

“Never run a business in which you have no influence on the prices you charge.”

“We received further support and inspiration Peter Drucker. ‘I am impressed by your emphasis on pricing,’ he told me during a visit to his home in Claremont, California, adding that it is the ‘most neglected area of marketing.'"

“Pricing intrigued Drucker from an economics and also from an ethical perspective. He understood profit to be the ‘cost of survival’ and sufficiently high prices to be a ‘means for survival.’

“Before his death in 2005, he provided a testimonial for Manage for Profit, Not for Market Share, a book which I co-wrote with two colleagues: ‘Market share and profitability have to be balanced and profitability has often been neglected. This book is therefore a greatly needed correction.’”

“Pricing is always a reflection of how people divide up value. We are constantly making decisions about whether something is worth our money, or trying to convince others to part with their money. That is the essence of pricing.”

“Managers tend to have fear of prices, especially when they need to increase them. Managers will keep their hands off the pricing lever if they have doubt, turning their attention to something more tangible and more certain: cost management.”

“Most important aspect of pricing. I answer with one word: ‘value.’ Only the subjective (perceived) value of the customer matters. The objective value of the product or other measures of value, such as the Marxian theory that value is defined by the human labor time invested, do not matter intrinsically. They matter only to the degree that the customer thinks they matter and is willing to a pay a price in return.”

“In Latin the word pretium means both price and value. Literally speaking, price and value are one and the same.”

“Behavioral economics does not yet offer a complete, unified theory. Test results which support behavioral economics have begun to face increasingly critical challenges. Most of the findings come from laboratory settings, should serve as a warning against throwing the idea of the ‘rational human’ completely overboard. Human beings are not as rational as classical economics claims, nor are they as irrational as some behavioral economists claim. This means that you should take both of these research traditions into account, but proceed with caution.”

Richard Wagoner, the former CEO of General Motors , said: “Fixed costs are extremely high in our industry. We realized that in a crisis we fare better with low prices than by reducing volume . After all, in contrast to some competitors, we still make money with this strategy.”

“Former Porsche CEO Wendelin Wiedeking represented the exact opposite end of the spectrum with this statement: “We have a policy of keeping prices stable to protect our brand and to prevent a drop in prices for used cars. When demand goes down, we reduce production volume but don’t lower our prices.” We always want to produce one car less than the market demands.”

“In a war, the atomic bomb and price are subject to the same limitation: both can only be used once. Overcapacity is the most frequent trigger for a price war.”

“Pricing belongs on the CEO ’s desk.”

“A 2012 study, which included 2,713 managers from over 50 countries and a large cross section of industries found for companies with strong CEO involvement: The pricing power was 35% higher.

"The success rate for implementing price increases was 18% higher. 26% more achieved higher margins after the price increases, which means that they were not just passing on higher costs to their customers. 30% had a special pricing department, which in turn had an additional positive effect on profits.”

One Disagreement

When Hermann writes: “Tighter antitrust regulation contributes to better price competition. It is one of the rare examples of government intervention which actually allows pricing mechanisms in markets to function more freely.”

I think this is highly contestable, based on the evidence of the damage that anti-trust laws have on enterprise, including the uncertainty the laws create.

Honorary Mention

Two other Simon-Kucher partners just published Monetizing Innovation: How Smart Companies Design the Product Around the Price, by Madhavan Ramanujam, Georg Tacke, 2016.

“Choose the right pricing and revenue models, because how you charge is often more important than how much you charge.”

“A bad monetization model can be worse than a bad price.” 

“72% of new products/services miss revenue/profit goals.”

Drucker’s Lost Art of Management: Peter Drucker’s Timeless Vision for Building Effective Organizations, by Joseph A. Maciariello and Karen E. Linkletter, 2011.

Maciariello is a professor of management, Karen is a historian.

Drukcer called management a “liberal art,” linking it to the humanities.

He called himself a social ecologist—creates and maintains a society of functioning organizations, anticipates discontinuities, provides for both continuity and change.

“Management is a practice rather than a science or a profession, though containing elements of both.”

Management’s only hope to be a moral force for right and good   is to ally itself with the liberal arts. The early business schools recognized that…they required education in the liberal arts.

This book sets out to explain what he meant—he didn’t define it clearly.

Management cannot be concerned solely with results and   performance

Management: “The art of getting things accomplished throug people”

Four topics putting management as a liberal art into practice:

1.    Federalism (Federalist Papers, USA’s lasting contribution to Western thought)

2.   The human dimension (natural rights theory; dignity)

3.   Leadership (responsibility, not rank or privilege) “assuming responsibility for getting the right things done.” Integrity of character is its essence. Also, succession.

4.   Social ecology

Organizations must provide: status, function, sense of community and purpose.

Liberal education instilled standards of conduct and character, knowledge, and mastery of a body of texts, a respect for societal values and standards, and an appreciation for knowledge and truth. It can be defined by what it’s not: vocational training.

In 1959, Ford and Carnegie foundation report: Higher Education for Business, concluded:

Business education lacked any cohesive curriculum, failed instill sense of professionalism and accountability, suffered a   serious absence of academic quality and content. 

E’ffing Debate!

Effectiveness is not a “batting average,” the number of successes over the number of attempts. Rather, effectiveness is a “slugging average,” actual contribution to the mission of the organization over potential contribution.

Ed’s Books

The Future of Management, by Gary Hamel, 2007. I know Ron profiled this a while back, but I wanted to have my say on it as well. 

Hamel's Innovation Stack

Some great questions

What's the "tomorrow problem" that you need to start working on today?

What is the frustrating "either/or" you'd like to turn into an "and"?

What is the espoused ideal you'd like to turn into an embedded capability?

What's the "can't do" that needs to become a "can do"?

Quotes

"If you wring all the slack out of a company, you'll wring out all the innovation as well."

"If you can't find enough people to work on your project, maybe it's not a good idea."

"At Gore, tasks can't be assigned, they can only be accepted."

From David Weinberger, "Our biggest undertaking as a species [the Internet] is working out splendidly, but only because we forgot to apply the theory that has guided us ever since the pyramids were built."

Follow-up book by Gary Hamel: What Matters Now: How to Win in a World of Relentless Change, Ferocious Competition, and Unstoppable Innovation, 2012.

Sterling’s Gold: Wit and Wisdom of an Ad Man, by Roger Sterling, 2010.

Quotes (as only Roger Sterling, aka John Slattery, can deliver them)

"I'll tell you what brilliance in advertising is: ninety-nine cents. Somebody thought of that."

"I don't know if anyone ever told you that half the time this business comes down to: 'I don't like that guy.'"

"It probably didn't help things that our billings crept up for no apparent reason. Eventually an accountant is going to read the mail."

"I'm being punished for making my job look easy."

"Big talent attracts big clients."

"4:30? Close enough."

"I told him to be himself. That was pretty mean, I guess."

"Mona had a dream once where I hit the dog with the car. She was mad at me all day, and I never hit the dog. We don't even have a dog."

"Believe me, somewhere in this business, this has happened before."

Book Recommendations from TSOE Listeners

Special thanks to Caleb and Lauri for the following book suggestions.

Caleb L. Jenkins (@CalebLJenkins): It’s Not Your Business: Kingdom-Centered Business in a Self-Centered World, by Gary Miller, 2015.

Lauri Jutila (@ljuti): Effective Apology: Mending Fences, Building Bridges, and Restoring Trust, by John Kador, 2009.

The Business of Belief: How the World’s Best Marketers,   Designers, Salespeople, Coaches, Fundraisers, Educators, Entrepreneurs and Other Leaders Get Us to Believe, by Tom Asacker, 2013.

The Prime Solution: Close the Value Gap, Increase Margins, and Win the Complex Sale, by Jeff Thull, 2016.

Infinite Possibility: Creating Customer Value on the Digital Frontier, by B. Joseph Pine and Kim C. Korn, 2011.

Other resources

Ed's session on strategy at Accountex in the UK.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #93 Preview - Best Business Books - May 2016

Thousands of business books are published each year. Some are worthless, others have merit, fewer still have lasting value, but a handful possess the ability to transform your business (and possibly, your life). Yet with today’s busy and demanding schedules, do you feel you don’t devote enough time to reading and absorbing new ideas? Then this show is for you. Ed and Ron will explore the best business books ever written, summarizing their favorite all-time business books. If you want to share your favorite business books, tweet us at #ASKTSOE.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #92 - Interview with Colonel Rick Searfoss, Astronaut and Space Shuttle Commander

About Colonel Richard A. Searfoss

Expert speaker, consultant, and author of LIFTOFF: An Astronaut Commander’s Countdown for Purpose-Powered Leadership, Rick Searfoss speaks with authority and expertise born of exercising leadership in the most dynamic, challenging, and dangerous of settings. Coupling that real-world experience with a powerful and exciting stage presence, he has for over a decade been inspiring and enlightening audiences worldwide.  His speaking mission: “to share the leadership, execution excellence, teamwork, and innovation lessons of human space flight to empower organizations to achieve out-of-this-world results!” Colonel Searfoss is one of only a handful of people out of many thousands of hopefuls ever selected to be an astronaut. He piloted two space flights and commanded a third, the most complex space life sciences mission ever flown, STS-90 on space shuttle Columbia. Prior to becoming an astronaut Rick was a fighter pilot and test pilot in the U.S. Air Force, with over 6100 hours flying time in 84 different types of aircraft.  A distinguished graduate of the U.S. Air Force Fighter Weapons (Top Gun) School and the U.S. Naval Test Pilot School, he’s also held executive level positions in the aerospace industry. 

In addition to piloting two space flights, and commanding a third, he consults and is a test pilot on leading-edge aerospace projects, including serving as the Chief Judge for the $10 million Ansari X Prize for the first private reusable human spacecraft and test flying the world’s only liquid-fueled experimental rocket plane. Rick completed a bachelor of science degree in aeronautical engineering from the USAF Academy, a master of science degree in aeronautics from the California Institute of Technology on a National Science Foundation Fellowship, and USAF Squadron Officer School, Air Command and Staff College, and Air War College. His numerous awards include the Tactical Air Command F-111 Instructor Pilot of the Year, Air Force Meritorious Service Medal, Defense Superior Service Medal, NASA Exceptional Service Medal, NASA Outstanding Leadership Medal, Distinguished Flying Cross, and the Legion of Merit.

He was in a Volkwagen commercial, consulted on the Tom Cruise Sci-Fi movie, Oblivion. He also consulted and had a cameo appearance on the movie Green Lantern.

Colonel Rick Searfoss was the 301st person to go into space (out of 500), and the third from New Hampshire. His initial training began in 1990, 2yrs after the Challenger tragedy. He piloted STS-58 (Space Transportation System), Columbia and STS-76, Columbia, and was Commander of STS-90, Columbia. He’s flown 39 days in space, and as a test pilot has flown 84 different types of aircraft.

You can learn more about Rick at: www.Ricksearfoss.comwww.liftofftoleadership.com and www.astronautspeaker.com.

Questions from Segment 1

You were in a Volkswagen commercial. What was that like?

 

What’s the difference between a Pilot and a Commander on the Space Shuttle?

You’re a test pilot who’s flown 84 different types of aircraft. Did you fly any when you thought, “This is really not a good idea”?

Segment 2

Your book is Liftoff: An Astronaut Commander’s Countdown for Purpose-Powered Leadership, published in 2016, which is the first business book authored by an astronaut.

What was your primary motivation for writing the book?

You were inspired by Dr. Stephen Covey to write the book?

How do you distinguish between management and leadership?

I love your definition. “At its core: leadership simply influencing others for good,” and how it’s rooted in trust.

There’s a military saying: “The soldier is entitled to competent command.”

You have a model, the 4P Leadership Performance Balance based on 12 Key principles within four categories: Purpose, People, Perspective, and Program. We love how you start with Purpose. Why?

You write, “All airspeed and no direction just gets you lost!”

You’re 12th Principal is: Choose the Hard! When JFK issued his challenge to land a man on the moon, and return safely, by end of decade, our experience in space consisted of four flights, six orbits, and barely 10 people-hours.

The lesson for business is all profits are derived from risk.

Ed and I think After Action Reviews are the best learning tool ever devised. You write:

Mistakes are forgivable. Hiding them is not. The only way to enable learning from mistakes is to present them for dissection and correction.

The debriefing for a Space Shuttle flight was two weeks long, 8-10 hour days? The flight’s not over until after the debriefing.

Very few business use AARs. Why do you think?

Segment 3

You were Commander on STS-90 (Neurolab), which was the fourth longest STS mission. What was that like?

How well do you sleep in space?

What have you been doing since you left NASA?

Are you in favor of civilians in space?

Who do you think will make it to Mars first?

Segment 4

When you landed the Space Shuttle, you turned off AutoLand. What’s your view of autonomous cars and aviation? Will we ever completely replace the human involvement?

You paint a poignant picture in the book that during the pre-Launch preparations, you took five minutes to just pause and take in the enormity of the upcoming Mission. I know you did this as a Pilot on two prior Missions, but what was it like to do it as the Commander?

You flew F-111s in the Air Force during the early 1980s, during the Cold War, stationed in England. Then you ended up working with Russian Cosmonauts at the Mir Space after docking Atlantis. What was it like to work with former enemies?

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #92 Preview - Interview with Commander Rick Searfoss

Ed and Ron are honored to be able to interview Colonel Rick Searfoss, Astronaut and Space Shuttle Commander. In addition to piloting two space flights, and commanding a third, he consults and is a test pilot on leading-edge aerospace projects, including serving as the Chief Judge for the $10 million Ansari X Prize for the first private reusable human spacecraft and test flying the world’s only liquid-fueled experimental rocket plane. Rick completed a bachelor of science degree in aeronautical engineering from the USAF Academy, a master of science degree in aeronautics from the California Institute of Technology on a National Science Foundation Fellowship, and USAF Squadron Officer School, Air Command and Staff College, and Air War College. His numerous awards include Tactical Air Command F-111 Instructor Pilot of the Year, Air Force Meritorious Service Medal, Defense Superior Service Medal, NASA Exceptional Service Medal, NASA Outstanding Leadership Medal, Distinguished Flying Cross.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #91 - Free-rider Friday - April 2016

Ron’s Topics

Scott Lincicome in an international-trade attorney, adjunct scholar at Cato Institute, and visiting lecturer at Duke. 

A recent study labor economists: “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade,” by David H. Autor, David Dorn, Gordon H. Hanson, NBER Working Paper No. 21906 was issued in January 2016.

Findings

  • Recent surge in Chinese imports inflicted pronounced harms on the and labor-force participation of US workers in local markets.
  • On the podcast EconTalk, Russ Roberts interviewed David Autor.
  • US manufacturing jobs declined from 17.2 million in Dec 2000 to 12.3 million last year.
  • Is this proof of needed protectionism?

Reality

  • No evidence imports are primary driver of US manufacturing job losses
  • Manufacturing slowly and steadily shedding jobs since late 1940s, long before NAFTA or China
  • USA is second largest manufacturer, 17.2% global output, 3rd largest exporter
  • USA is world’s top destination for Foreign Direct Investment $384 billion in 2015, more than double 2nd place Hong Kong, and nearly triple China
  • Job losses mostly result of productivity gains and deep recessions, not trade,
  • The paper says import competition only explains 25% of job loss between 1990-2007
  • Free trade benefits by $2800-$5,000 additional income average American, $7100-12,900 average household. Benefits mostly middle, poor, some 90%
  • More than ½ of all imports are inputs and capital goods consumed by other manufacturers
  • Tariffs are a hidden tax that benefits mostly labor unions. Obama’s 35% tarrif on China tires equated to $900,000 per job saved
  • Global value chains are incredibly complex. Almost 40% of all US exports involved in GVC; 34% of US exports contain inputs from China, Canada and Mexico
  • Gordon Hason: “The problem is not trade liberalization…the problem is that labor-market adjustment too slow”
  • Civilian labor-force-participation rate lowest at 62.5% since late 1970s
  • Traded goods arbitrarily exclude services—legal , accounting, advertising, travel, telecom, insurance,  32% of US exports ($28 billion surplus with China 2014), $233 billion with world
  • $30.5 billion (2015) trade surplus with Hong Kong, not counted as trade with China

Why less fluidity in the labor markets?

  • Americans less likely to move where jobs are
  • 60% Americans have less than $1,000 in savings (US tax policy has no tax-free savings, like Canada
  • Health care, education cost are rising above inflation
  • Tax code: education expenses deductible only for existing job, not new skills
  • Employment protection laws erode employment-at-will doctrine
  • Occupational laws limit opportunities for poor middle class to start businesses
  • Minimum wage laws
  • Employer provided health insurance creates job “lock-in”
  • Extended unemployment benefits subsidizes non-work
  • Social Security Disability Insurance—becomes permanent, very few reenter labor force. SSDI doubled from 1990-2014, from 2.3% to 5.1%
  • Trade Adjustment Assistance notorious failure. Breeds misconception that trade is somehow different from other forms of disruption, such as business models, automation, etc.

Ed’s Topics

Dee Gordon of the Miami Marlins was suspended for 80 games for testing positive for PEDs (performance enhancing drugs). Ed posited the idea of eliminating the regulation against PED use in favor of a reputation based model. His idea would allow for PED use, but require, as a condition for employment, twice yearly testing in addition to random tests as well. The results would be reported and displayed on jumbotron screens along with other statistics. Follow the debate on this topic on Ed's Facebook page

Story on IBM’s Watson from Kidscreen: Watson teams up with Sesame Street to educate in pre-schools.

Presidential Race” www.Predictit.org, has Clinton at .64¢ and Trump at .35¢ for general election. Also, Iowa Electronic Markets.

Historian Rick Brookhiser: “The Presidency is not an entry-level political job, unless you’ve won a world war.” (Ike, Ulysses Grant)

Milton Friedman: “The point is not to elect the right people to do the right things. The point is to design the system so that the wrong people do the right things.”

Jean-Claude Juncker, primer minister of Luxembourg: “We all know what to do; we just don’t know how to get re-elected after we’ve done it.”

Here is the 1984 SNL video starring Billy Crystal that Ed mentioned.

 

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #91 Preview - Free-rider Friday - April 2016

he last Friday of every month Ed and Ron will do “Free-Rider Friday.” Most of our shows are “topic” driven, where we dive deep into one subject. Free-Rider Fridays are designed to be “event” driven, whatever issues are in the news that we (or you) find worthy of commentary. In economics, free riding means reaping the benefits from the actions of others and consequently refusing to bear the full costs of those actions. This means Ed and Ron will free ride off of the news, and each other, with no advanced knowledge of the events either will bring up. If you’d like to call-in during the live show, the listener line is: 866-472-5790. You can also participate on Twitter at #ASKTSOE, @asktsoe, or email us at asktsoe@verasage.com.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #90 - Interview with Dr. Mark Miller

Mark’s Biography

Dr. Mark A. Miller, PE is a native-born resident of Texas. After graduating with a BS in Engineering from Harvey Mudd College, Mark began a career in the oil and gas industry as a petroleum engineer. Later receiving a PhD from Stanford University, he went on to teach petroleum engineering at The University of Texas at Austin for 18 years. After leaving UT, Mark established a worldwide petroleum engineering consulting practice and was a founder and CEO/CTO of a small company that provided software to the oil and gas industry. He is currently semi-retired and does occasional consulting.

Mark is married and has two sons and two grandsons living in Austin. 

Dr. Miller's background includes extensive knowledge and expertise in oil and gas. As an experienced PhD petroleum engineer and former UT petroleum engineering faculty member.

Mark is the author of Oil & Gas and the Texas Railroad Commission: Lessons for Regulating a Free Society, 2015.

Segment 1

In each segment below both the questions and answers are abbreviated and paraphrased for the purpose of the show notes. They are NOT direct quotes. 

Ed: What does a petroleum engineer do?

Mark: The PE is involved in the “upstream” part of the business, which starts at the reservoir and ends at the pipeline. It’s the production phase, not refining, transportation, or distribution. PE’s don’t get involved to much in exploration, which is what geologist and geophysicists do.

Ed: What did you teach at t.u. (Sorry, University of Texas)?

Mark: Reservoir engineering, how fluid flows inside of a reservoir, and forecasting. My subspecialty. It’s both an art and a science (e.g., reservoir modeling).

The field of geophysics is one of the most computer intensive studies. Most Cray computers were owned by oil companies for geophysical modeling.

Ed: Why did you leave teaching?

Mark: Getting itchy to get back out where the action was, at age 50. Got into consulting and started an oil and gas software company to help companies develop computer models to optimize their capital investment.

Segment 2

Ron: Is Peak Oil a myth or a reality?

Mark: A little of both. The idea behind it was developed by M. King Hubbert, a Shell geoscientist. He did not foresee new resource discoveries or new technology that allowed us to produce more. Texas peaked around 1972 near 10 million barrels a day, down to 3 million, but it went back up to 10 million.

Ron: Is fracking a technological revolution subject to Moore’s Law, where costs will continue to decrease?

Mark: Absolutely. Fracking boom started in 2012, wells would pay out in 6 months. Now that oil prices are going down, so are the costs. Efficiency is up, measured by capital spend vs. oil out of the ground.

Ron: Is fracking safe?

Mark: Fracking is absolutely safe. There are issues to be dealt with, but we have long experience how to deal with those issues.

Ron: The process of fracking, injection of wastewater, has found to be correlative, though not causative, to earthquakes and seismic activity.

Mark: It’s not the process of fracking, per se, it’s the injection of large volumes of wastewater near faults can cause earthquakes. They have been small with little damage, and no loss of life. Any damage can be covered by having companies post bonds or purchase private insurance.

Ron: You write in your book that as of 2012, 87% of the world’s energy is based on fossil fuels. The other 13% is mostly nuclear, hydroelectric, and 2% non-hydro renewable. Is green energy economically viable for a modern economy?

Mark: Not totally. Green energy is so subsidize we don’t know if it’s economically viable. We can move gradually, but it cannot take over completely.

Ron: I know you’re a proponent of Natural Gas. What are your views on nuclear energy?

Mark: I’ve always been pro-nuclear. We can figure out a way to deal with the waste. It’s the obvious solution if you are concerned with climate change, since it emits no C02.

Segment 3

Ed: Why would an oil and gas guy want to be the commissioner of railroads.

Mark: What Texans don’t know (fewer than 5% of Texas voters) that the Railroad Commission has nothing to do with railroads. It’s the regulatory agency for oil and gas.

Ed: What’s the reason for not changing the name of the commission?

Mark: Many, but they are all bad, such as the federal government has delegated certain authority and if we change the name we could lose that authority. Or it simply costs too much to change the stationary. Or it’s not a good time for the RRC to go through a big change when the industry is in dire straits. All excuses for bad government to continue.

Ed: Can you explain the difference between mineral rights and surface rights?

Mark: I wish we never allowed surface rights to be separated from mineral rights. You could own surface land while someone else owns the mineral rights, which theoretically goes to the center of the earth.

In Texas, by statute and precedent, mineral rights trump surface rights. You cannot stop a company from coming on to your property and develop. Some companies provide compensation, but they don’t have to, and you can’t stop them.

It’s the only industrial activity in Texas that has an absolute right to be conducted anywhere it wants to be. You can’t put a stockyard in the middle of Dallas, but they can’t stop you from drilling for oil and gas.

Ed: What about groundwater contamination and fracking?

Mark: It has to be dealt with. You can contaminate water, which is immoral and illegal. But we’ve been dealing with this issue for a long time. There is not widespread problems in this area, according to the EPA.

Ed: You are against subsidies for green energy. Are you also in favor of removing subsidies for the oil and gas industry?

Mark: Absolutely. Some are not really subsidies, but more like standard deductions (like depreciation in manufacturing). They are relatively small, but they still should be gotten rid of.

Ed: Is the notion of energy independence for the United States a good idea?

Mark: It’s a silly idea. We’ve talked about it since I started in 1972 and the world hasn’t collapsed. Why should we not be engaged in the worldwide market, like we are for everything else? Why not steel and sugar independence? Why is energy unique?

Ed: Yeah, should we be wine, cheese or coffee independent?

Segment 4

Ron: Has the Texas Railroad Commission (est. 1891) been “captured” by the oil and gas industry, even though it is directly accountable to voters who elect the commissioners?

Mark: They will tell you they are captured. They openly avow their dual roll of both champions of the oil and gas industry and regulators of the oil and gas industry. Railroad commissioners will talk about “our industry.” People complain about it, but won’t vote them out.

Ron: In your book, you distinguish between Command-and-Control (CAC) and Retribution-and-Restitution (RAR) regulatory paradigms. Can you explain the difference?

Mark: There is a role for regulation, almost a quasi-judicial role. CAC regulations are like stipulating that studs must be 18” apart. RAR regulations would say you have to build a good house, and if you don’t you’ll pay any damages. This would allow for experimentation and innovation.

Ron: Yes, you point that CAC regulations allows companies to say, “I followed the rules,” even if they built a crappy house. You also point to the BP Oil spill in Gulf Mexico 2010 as a good example of RAR regulations. We think reputation is far more effective than regulation.

Mark: It’s a good example. The industry was really pissed off at BP. Companies are now operating much more safely now.

Ron: Texas has a Sunset Advisory Committee every 10 years. Do you think the RRC should be allowed to close?

Mark: I don’t think it should be done away with it. Changes need to be made, there is an important role to play to protect competing rights, such as surface and mineral rights. We need to transform and streamline the commission, not do away with it.

1 Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #90 Preview - Interview with Mark Miller

Dr. Mark Miller

Dr. Mark Miller

There is no doubt that human reliance on fossil fuels has been incredible beneficial for mankind. That said, controversy swirls about this continued reliance on them and their impact on the environment. On this week's episode, Ron Baker and Ed Kless will interview a true expert in this field, Dr. Mark Miller. 

Mark has enjoyed a long and varied career in the oil and gas industry – petroleum engineer, University of Texas faculty member, worldwide petroleum engineering consultant, and small business owner. He is currently retired and does occasional consulting. Mark is also the 2016 Libertarian Party nominee for Texas Railroad Commissioner, which as you might guess has nothing to do with railroads. 

He is the author of the recent book, Oil & Gas and the Texas Railroad Commission: Lessons for Regulating a Free Society

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #89 - Do Corporations Pay Taxes? Economic Puzzles and Paradoxes

hand.jpg

Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich and poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

–Justice Learned Hand

The Incidence of Taxation

It is well known that corporations, buildings, automobiles, goods and services don’t pay taxes; only people pay taxes (who else is there?).

There are two fundamental principles of tax-incidence in any economy:

  1. Inelastic agents bear the burden of taxation. Elastic agents tend to escape the burden of taxation.
  2. Burden of taxation eventually falls upon Individuals.

Economists don’t look at who’s legally responsible to pay the tax, they look at who bears the burden. Most Americans are familiar enough with withholdings to know instinctively that you can bear the burden of taxes without ever writing a check to the government.

Corporate taxes fall on three major groups of stakeholders: Shareholders, Workers, and/or customers.

If businesses can pass along taxes in their prices, they will. However, only those businesses with more relative inelastic demand curves can achieve this. The consensus seems to be that workers bear the largest burden, then shareholders.

Kevin A. Hassett, Director of Economic Policy Studies and StateFarm James Q. Wilson Chair at the American Enterprise Institute (AEI), testified before the House Ways and Means Committee on February 2, 1016, discussing tax reforms. Hassett believes that over 90% of corporate tax burden falls on workers.

Also, check out Aparna Marthur’s article, from AEI, The bad and the bad of US corporate income taxes.

For a contrarian view that corporate taxes fall on shareholders, not workers, see the blog post from the Tax Justice Network: Corporate tax: the great incidence hoax.

Listener Questions

From Bryce:

Ron and Ed,
I've listened to several episodes of your show now where you guys attack the idea of professional licenses (for doctors, lawyers, etc.) because they impede innovation and decrease competition.
And you've slowly gotten me to agree with you.
Then the other day was talking about the immigration debate with a friend and realized something. Is requiring citizenship or a visa to the US to work here not the same basic problem as requiring certain professional licenses?
Are the same arguments for tighter immigration policies not the same as those for the "need" for licenses in the professions? Couldn't you then argue that citizenship requirements have the same ill affects on our economy (slowing innovation and decreasing competition)?
Perhaps this is something that's already been discussed. Your thoughts?
Bryce

Two Questions from BJ:

"How is it that no one gets paid on the Starship Enterprise?"

Answer from our friend, Robert Wood:

There isn't money per se in the Federation. You do your job because it's for the greater good. Captain Picard says "The economics of the future is somewhat different. You see, money doesn't exist in the 24th century... The acquisition of wealth is no longer the driving force in our lives. We work to better ourselves and the rest of Humanity." in Star Trek: First Contact (Yes I had to google to find the exact quote) However, there is still money it just seems the Federation doesn't use it. In Star Trek: Voyager, they discuss that the economy of Earth changed in the late 22nd century but didn't explain how. Basically it's a socialist utopia. There is talk at one point of energy credits for using transporters and replicators. But I don't recall Federation credits being explained very well. Theoretically this is a post scarcity economy since these technologies exist. There is currency though. The Ferengi use gold-pressed latinum, whatever that is, which also appears to be the currency for cross cultural trading.

"Is there a term for the double-thank you effect?"

There is now. Ed has coined: Dankenzweite which means "Second thanks" in German.

From Geir:

Hi Ron and Ed,
I'm listening to your podcast about "risk". It's a very interesting topic and you and Ed are discussing this in a brilliant way. Lots of examples and references. Your show notes are very useful also. My list of books to read gets longer and longer after every podcast. Puh! When will I have or take the time to read them? I really don't know!
Could you make a podcast on "witch great thinkers you should follow in years to come". Today, changes happen fast. New business models evolve over night. Where and how can we keep up on knowledge concerning innovation, tech, new business thinking, etc. The Soul of Enterprise is one source. Are there any others to recommend?
Cheers,
Geir

Answers: George Gilder, Deirdre McCloskey, Clayton Christensen, Gary Hamel, Don Tapscott, Daniel and Richard Susskind. Also, follow IBM’s Watson, and the entire Artificial Intelligence/Deep Learning movement.

Check out our interview with Deirdre McCloskey, George Gilder, and Daniel Susskind.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #89 Preview - Do Corporations Pay Taxes? Economic Puzzles and Paradoxes

Economic Puzzles and Paradoxes: Do corporations pay taxes? Join Ed and Ron for a fascinating look at this and other everyday economic questions in this new series: Economic Puzzles and Paradoxes. This episode will focus on taxes, in celebration of April 15th. We will strive to follow the wisdom of the great economist Frederic Bastiat: “There is only one difference between a bad economist and a good one: 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.”

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #88 - Risk is NOT a four-letter word

One of Ron’s favorite business books, Against the Gods: The Remarkable Story of Risk, Peter L. Bernstein, 1996. Some notes from the book:

  • A revolutionary idea that defines the boundary between modern times and past is the mastery of risk. Until man crossed that boundary the future equaled the past.
  • Without risk management, no bridges would be built, homes would still be heated by fireplaces, there would be no power grids, we’d still have polio but no airplanes, and space travel would still be a distant dream.
  • Soviets tried to administer risk and uncertainty out of existence through government planning, choking off dynamism and economic progress.
  • Gambling is paying to take a risk, but there’s no learning or knowledge gained, unlike entrepreneurial risk-taking.
  • Without risk life has no mystery.
  • Ben Franklin established the first fire-insurance company, First American, in 1752.
  • Essence of risk management: maximizing areas where we have some control over outcomes while minimizing areas where we have no control.
  • Chance is only the measure of our ignorance.
  • Economist Frank Knight distinguished between uncertainty (nonmeasurable) and risk (measurable).
  • Once we realize life isn’t up to the spin of the wheel, we are free    souls. Our decisions matter. We can change the world.
  • Risk can be calculated when: 1) low uncertainty; 2) few alternatives; and 3) high amounts of data to make estimates.

Another highly recommended book is Risk Savvy: How to Make Good Decisions, byGerd Gigerenzer, 2014. Points made by the book:

  • We have a risk-illiterate society.
  • 9/11 low-probability events (dread risk). To convince his wife to fly after 9/11, not drive, Gigerenzer says, "If reason conflicts with a strong emotion, don’t try to argue. Enlist a conflicting and stronger emotion."
  • He asked his wife: How many miles would you have to drive by car until the risk of dying was equal to taking a nonstop flight? The answer: 12 miles!
  •  “Many of us smile at old-fashioned fortune-tellers. But when the soothsayers work with computer algorithms rather than tarot cards, we take their predictions seriously and are prepared to pay for them.”
  • A system is not intelligence if it doesn’t make errors.
  • Hospitals (negative error culture, leads to defensive medicine) vs. Aviation (positive error culture). If aviation had the same culture as hospitals, there would be two plane crashes per day.
  • Defensive decision making: Choose an inferior option B to protect itself in case something goes wrong. (procedure over performance).
  • Always ask the doctor what they’d do if was them, their son or mother, etc.
  • Logic is good for known risks, intuition is better for uncertainty. Heuristics can work in a complex world!
  • Satisfice (satisfy + suffice) is when you select the first good enough option.

  • Risk-seeking vs. risk-adverse person classification is misleading.

Ed's Thoughts on Risk

Without a doubt the most misunderstood, yet vitally important area of project management in the market place is risk. Consultants are wary of talking about risk with their prospects and customers. The irony here is that the reason why they are hired is risk

All projects have risk. They are the elephant in the room that no one will talk about for fear of losing the customer.

Risk, simply, is an uncertain event that if it occurs, will have a positive or negative impact on the project. Risk has two primary components: probability of occurrence (usually expressed as a percentage) and impact of the risk (usually expressed in dollars). Please note that risks, while often perceived as negative, can be positive.

Classifications of risk. Three common ways of classifying risk are effect-based, source-based, and level of uncertainty.

  • Effect-based risk classification refers to part of the triangle of truth that the risk might affect, meaning timeline, cost, quality, and scope.
  • Source-based risk classification refers to which function or type of activity is associated with the risk.
  • Levels of uncertainty classification refers to how much is known about the risk. These include: knowns, known-unknowns, and unknown-unknowns. It is the progression of risks from un- known-unknowns to knowns that is important.

Risk tolerance. The level of risk a project manager or key stakeholder is willing to take is called risk tolerance. The three basic types of risk tolerance behaviors are:

  • Risk seekers who prefer uncertain outcome and are willing to possibly pay a penalty to take a high risk if the potential payback is high enough
  • Risk neutrals whose tolerance is proportional to the amount of money at stake
  • Risk averters who are unlikely to take any risk that is high regardless of the potential payoff

It is most important to identify the risk tolerance of the executive sponsor of projects.

One should try to avoid politicians logic in assessing risks.

 

Actuary Axioms

No such thing as a bad risk, only bad premiums.

There is no actuarial model for pricing risk by the hour.

Ed mentioned Donald Rumsfeld's infamous video of him trying to explain the effect-based classifications of risk.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #88 Preview - Risk is NOT a four-letter word

In Italian, the word risk derives from risicare, which means “to dare,” which implies a choice, not a fate. Risk is an economic positive. It is where profits come from. There are five responses when confronted with risk: avoid it, reduce it, transfer it, accept it, or increase it. In the final analysis, a business cannot eliminate risk. Attempting to avoid risk and uncertainty, as with cost-plus pricing or hourly billing, is a self-imposed ceiling on a firm’s earnings. Ed and Ron will discuss the importance of risk from the perspective of individuals, entrepreneurs, project management, society, enterprise, and government.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #87: Interview with Rabbi Daniel Lapin

 

Ed and I were honored to interview Rabbi Daniel Lapin for the second time (our first guest to make an appearance twice). Ron has been a big fan of the Rabbi, listening to his radio show, and reading his books, for over a decade.

We only had the Rabbi on for about 30 minutes, so we ran without commercials for the first half of the show.

We covered the following topics with him:

  • His 2/6/16 Podcast on The Blaze Radio Network: “There Are No Poor People in America.”
  • His thought experiment about paying $20 to prevent suicides, and the three Biblical punishments (Capital, Restitution, and Lashes), and why Rabbi supports all three.
  • We discussed Father Sirico’s statement: “I value the truth more than my freedom.” Rabbi didn’t agree. This will be discussed more in the future.
  • Does he think taxation is theft? Rabbi, “No, I don’t.”

Biography

Rabbi Daniel Lapin, known world-wide as America's Rabbi, is a noted rabbinic scholar, best-selling author and host of the Rabbi Daniel Lapin Podcast on The Blaze Radio Network. He is one of America’s most eloquent speakers and his ability to extract life principles from the Bible and transmit them in an entertaining manner has brought countless numbers of Jews and Christians closer to their respective faiths. In 2007 Newsweek magazine included him in its list of America’s fifty most influential rabbis. 

Before immigrating to the United States in 1973, Rabbi Daniel Lapin studied Torah, physics, economics and mathematics in Johannesburg, London and Jerusalem. He quickly became persuaded that God continues to smile on the United States of America and he became a naturalized citizen on what he describes as the proudest day of his life.

Rabbi Daniel Lapin was the founding rabbi of Pacific Jewish Center, a now legendary Orthodox synagogue in Venice, California. He implanted the community’s mission of demonstrating the relevance of traditional Faith to modern life.

Pacific Jewish Center, synagogue in Venice, CA, est. 1978 with Michael Medved, served as rabbi for 15 years

Books 

America’s Real War: An Orthodox Rabbi Insists that Judeo-Christian Values are Vital for Our Nation’s Survival (1999)

Buried Treasure: Secrets for Living from the Lord’s Language (2001)

Thou Shall Prosper: Ten Commandments for Making Money (2009)

Business Secrets from the Bible: Spiritual Success Strategies for Financial Abundance (2014)

Other Resources and Readings

Ron’s review of Thou Shall Prosper

Rabbi Lapin’s website: www.youneedarabbi.com and www.rabbidaniellapin.com, where you can subscribe to his weekly Thought Tools column, which contain Biblical principles on family, finance, faith, marriage, and relationships.

Rabbi Lapin’s Podcast on The Blaze Radio Network

Ed mentioned the article, A Plea for Culinary Modernism:  Why We Should Love New, Fast, Processed Food (pdf).  Gastronomica I (February 2001), 36-44.

Ed’s blog post on his grandfather, who used to sit on the porch and say, “I wonder what the poor people are doing?”

 

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #87 Preview - Interview with Rabbi Daniel Lapin

“The more things change, the more you must depend upon those things that never change” is a theme that Rabbi Daniel Lapin injects into his presentations.

RabbiDanielLapin.jpg

Ed and Ron are honored to have the opportunity to interview Rabbi Lapin a second time, the first being on our November 14, 2014 show. Rabbi Lapin is one of America’s most eloquent speakers and his ability to extract life principles from the Bible and transmit them in an entertaining manner has brought countless numbers of Jews and Christians closer to their respective faiths. In 2007 Newsweek magazine included him in its list of America’s fifty most influential rabbis. He is the author of several books, including America's Real War, Buried Treasure, Thou Shall Prosper, and Business Secrets from the Bible.

You won't want to miss this interview with America's Rabbi!

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #86: Free-rider Friday - March 2016

Ron’s Topics

Netflix Reinvented HR

Article from HBR Jan-Feb 2014, “How Netflix Reinvented HR.”

Reed Hastings, CEO, 5 tenets to approaching talent:

Hire, Reward, and Tolerate Only Fully Formed Adults—don’t hire the problem 3% in the first place

Tell the Truth about performance—Building a bureaucracy and elaborate rituals around measuring performance usually doesn’t improve it. 360 feedback went from anonymous to signed, then to face-to-face

Managers own the job of creating great teams—no performance bonuses. Market-based pay. Let employee select % of equity, no vesting (no golden handcuffs)

Leaders own the job of creating the company culture

Good talent managers think like businesspeople and innovators first, and like HR people last: I’ve never seen an HR initiative that improves morale!

“There’s no reason the HR team can’t be innovative too.” Ron’s question: is this asking for a barking cat?

And from the Feb 20, 2016 The Economist, Schumpeter columnist in “The measure of a man,” argues that the death of performance appraisals is greatly exaggerated.

Kevin Murphy at Colorado State Univ: “Performance reviews are “an expensive and complex way of making people unhappy.”

IBM, Accenture, Adobe, Deloitte, GE, Microsoft and Netflix have all scrapped annual performance appraisals.

Uber for Trucking

From The Economist, March 5, 2016, “The appy trucker.”

The top 5 airlines in the USA account for 90% of the industry’s revenues. In contrast, the top 5 logistic firms account for 20%. Trucking is much more fragmented (much lower barriers to entry).

Trucking is a $700B per year industry in the USA, projected to grow at 3% per year for the next decade. Yet trucks drive empty 50B miles per year, 28% of the total (25% in Europe). This is incredibly inefficient.

Brokers charge 45% to arrange a haul, but the process is really inefficient. Startup Apps like Cargomatic, in Los Angeles, lists jobs, pings nearby drivers, and arranges payment. So does Transfix out of New York, which charges a 10% commission.

Amazon is working “On My Way,” whereby anyone can get paid for delivering packages.

Economist Russ Robersts, on his EconTalk podcast, recently interviewed Marina Krakovsky, author of The Middleman Economy, where she lays 6 value-added roles that middleman play:

  • Concierge
  • Insulator
  • Enforcer
  • Risk-bearer
  • The Bridge
  • The Certifier

Marina claims that the middleman, far from being disintermediated by the internet, have grown, and that we are all, in a sense, a middleman. Examples of web-based middlemen:

  • OpenTable
  • Powersellers on eBay are 4% of sellers and 50% of sales
  • Craig’s List sellers
  • CarLotz, flat fee, takes car on consignment, connects buyers and sellers

The End of Moore’s Law?

From The Economist, March 12, 2016, Technology Quarterly, “After Moore’s Law.”

Moore’s Law has had a glorious 50 Years: “Computer power doubles every two years at the same cost.”

Peter Lee, VP, Microsoft Research: “The number of people predicting the death of Moore’s law doubles every two years.”

In 1971, the Intel 4004 had 2,300 tiny transistors, each the size of a red blood cell, which could be counted by a kid with a decent microscope.

Today’s Intel’s Skylake has 1.75B transistors (size: 100 atoms across), at 400,000 times the power. If cars and skyscrapers improved at same rate, cars would be capable of traveling at 1/10th the speed of light, and the tallest building would reach ½ way to Moon.

Three ways computers will continue to become more powerful, but in different and varied ways:

  • More clever software (AlphaGo, Watson, Deep learning, AI, etc.)
  • The cloud—30% growth last yr, projected to remain until 2018
  • Specialized chips for particular jobs

The industry is at an “inflection point”: It needs a replacement for silicon, such as:

  • Silicon-germanium alloy
  • Graphene
  • Electronic blood: provide energy and regulate the temperature

HP, Google, IBM, Microsoft are all entering chip-design business. There will be new tradeoffs on the three key metrics of power, performance, and cost.

Remember: computer firms are not, fundamentally, in it to make ever-smaller transistors. They’re in it to produce useful products, and to make money.” Amd consumers don’t care about Moore’s Law.

Google’s AlphaGo Beats World’s Best Go Player

From The Economist, March 12, 2016, “Showdown.”

Google’s AlphaGo AI beats Lee Sedol 4-1 in Go Series, from The Verge.
(Ed)itors note: Go and Othello are NOT the same game. 

Ed’s Topics

Lobby for Driverless Cars

From The Huffington Post, Google testifies before Congress to allow driverless cars.

Can Ethereum Restore Online Freedom?

From ReasonTV:

Uber Saves Lives

Ed’s friend had a heart situation, and rather than calling for an ambulance, he called Uber. Hospital said it probably saved his life.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #86 Preview - Free-rider Friday March 2016

The last Friday of every month Ed and Ron will do “Free-Rider Friday.” Most of our shows are “topic” driven, where we dive deep into one subject. Free-Rider Fridays are designed to be “event” driven, whatever issues are in the news that we (or you) find worthy of commentary. In economics, free riding means reaping the benefits from the actions of others and consequently refusing to bear the full costs of those actions. This means Ed and Ron will free ride off of the news, and each other, with no advanced knowledge of the events either will bring up. If you’d like to call-in during the live show, the listener line is: 866-472-5790. You can also participate on Twitter at #ASKTSOE, or email us at asktsoe@verasage.com.

Comment

Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.

Episode #85: Interview with Paul Kennedy: The OBK Story

Paul Kennedy’s Biography

Paul Kennedy and Paul O’Byrne experienced just about every practice management course put on in the UK and are graduates of the Accountants Boot Camp, and many Ron Baker seminars. They implemented many in their firm, O’Byrne and Kennedy, Chartered Accountants.

They are candid about the traumas faced in abandoning timesheets and introducing fixed price agreements for all clients – and why they are so glad they did!

Since meeting Ron Baker in March 2000, Paul and Paul have challenged and argued with Ron’s views until they found it easier to go along with (most of) it. Since then they have preached – and practiced what they preached – the lessons in The Professional’s Guide to Value Pricing and The Firm of the Future. They come with first-hand experience and examples of how the message can be explained in a practice setting and the effects it has within the firm, to clients and prospects, and to fellow professionals. They have a core competency in sacking clients, having disposed of 80% of their clients between 1997 and 1999. Their story of this and trashing timesheets are included in three of Ron’s books, two for the ACCA and Implementing Value Pricing, and in the www.verasage.com website in the Trailblazers case studies.

Their firm now has less than one-third of its growing income from compliance work, and negative lock-up (work in progress and debtors).

Taking the lesson of intellectual capital, in 2003 they created the “GOBS MBA” course. This is a year-long, ten three-hour session course of modules that O’Byrne and Kennedy clients (owner-managers of businesses) should have been taught if only they’d been taught it.

A proud father of two and still a keen soccer player, Paul is married to a fitness instructor and won’t have that slice of cake, thank you. He has enjoyed traveling to New York and New Zealand as well as old Australia speaking on VeraSage matters and has initiated course on accountant to consultant as well as designing the VeraTrak software for a professional firm to operate in a timesheet-free zone.

The OBK Story

Paul explains his history of meeting Paul O’Byrne, and how they worked in the same firm, before going out on their own on October 1, 1987. Sadly, Paul O'Byrne passed away in November 2008.

He then explains the firm’s pivot to Business Advisory services and away from compliance services. Mostly this happened because Paul O’Byrne was “bored” with traditional accounting services.

In 1997, they attended the Results Accountants’ Boot Camp, conducted by Paul Dunn and Ric Payne. They realized they had too many customers—around 500. They first fired their largest (audit) customer.

They ended up firing over 450 customers over 2-3 years, freeing up capacity to move into more business advisory services. They developed a “core competency in firing customers. They did it professionally, keeping their reputation in the community intact.

Firing a customer is similar to breaking up: “It’s not you, it’s me, I’ve changed.” They also found them a replacement firm to make the landing softer. They also ended up selling some customers to another firm.

They also lost some team members due to this pivot. Today, the firm has 8 team members.

They developed many consulting protocols and products, and developed a rigorous customer selection criteria. Paul O’Byrne was no longer bored!

Then they met Ron, in March 2000. They thought he was crazy at first, especially Paul O’Byrne who continuously debated with Ron for three years about the concept of eliminating timesheets.

The firm did immediately implement Value Pricing, OBK says the firm became the “Ron Baker laboratory.” The firm didn’t eliminate timesheets until July 1, 2003, that’s how long it took Ron to convince them.

In fact, Paul Kennedy wrote what Ron considers is one of the most powerful arguments for eliminating timesheets, in his essay on timesheets. You can read the entire essay here

Paul discusses the effect no timesheets has had on his team, and how the firm works. You become obsessed with value. Also, their website says OBK is a “teaching and learning organization.” Ed observes that most firms would not put this on their website, as it makes them vulnerable. Paul answers, “But it’s true, isn’t it, Ed? Why would we be afraid of the truth?”

What makes OBK one of the most innovative accounting firms on the planet?

The OBK MBA. The firm’s internal University offers an MBA to customers and potential customers. This is an intense program, teaching strategy, finance, positioning, pricing, and other facets of executive education, including each student preparing and presenting a case study. Check out the video on the MBA at their website.

VivaTrak. This is the firm’s internal project management program, which they developed internally. It translates the fixed price agreement into milestones, tracking deadlines to the customer, and value earned based on those milestones.

After Action Reviews. The firm diligently does AARs on all work, and Paul says AARs are one of the most transformative processes they have ever implemented. They have also introduced AARs to customers. AARs drive out fear, and develops a culture where people aren’t afraid to admit errors.

Paul points out that AARs can’t just be negative. You have to focus on what went well so you can replicate it.

Renewing Your Vows. “We don’t own these people.” OBK puts every single customer at risk at the end of each contract period. They have a conversation where the first item on the agenda is if they should continue the relationship. Sometimes, the firm wants out; other times, customers want out.

OBK doesn’t want people to stay from apathy. They only want to work with people who they can add tremendous value to. The firm’s success is a direct by-product of how it creates value for other people. Here are some of the questions they ask:

  •             How are we doing?
  •             How is this working for you?
  •             Are you getting value from our work?
  •             What can we do to create more value?
  •             Do you still think we are the right firm for you?

Paul wants his entire team to think they are on the last chance with every customer. This enables them to perform at the highest level, to exceed customer expectations and constantly deliver more value (it’s like a value guarantee on steroids).

This scares most firms to death!

Last Questions for Paul

What’s the number one issue facing the profession?

Lack of focus. We try to be all things to all people, and we need to narrow our focus. We can’t be all things to all people. Paul quotes Zig Ziglar: “You need to move from being a wondering generality to becoming a meaningful specific.” Figure out what you’re good at and stick with it.

What’s your advice to any firm out there that’s thinking about making some of the transitions you have?

Take a holistic view of your business. Become focused. Saying no, turning work away. Be comfortable with other accounting firms doing work for your customers. And get rid of your timesheets, as it detracts focus from what your customers care about.

Other Resources