Episode #151 Preview: Memorable Mentors - Leonard Read

Leonard Edward Read (September 26, 1898 – May 14, 1983) was the founder of the Foundation for Economic Education (FEE), which was one of the first modern libertarian institutions of its kind in the United States. He wrote 29 books and numerous essays, including the well-known "I, Pencil" (1958). Read and Henry Hazlitt founded the Foundation for Economic Education in 1946. In 1950, Read joined the board of directors for the newly founded periodical The Freeman, a free market magazine that was a forerunner of the conservative National Review, to which Read was also a contributor. Read received an Honorary Doctoral Degree at Universidad Francisco Marroquín in 1976. He continued to work with FEE until his death in 1983. Join Ed and Ron as they discuss FEE’s free book, "The Essential Leonard Read."

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 #150: Accountants and Bookkeepers of the Future

Ron and Ed were at Sage Summit 2017 in Toronto and recorded an episode featuring a great panel discussion on the bookkeepers and accountants of the future. While the job description for accounting professionals has largely stayed the same, technologies and laws have come into play to change the way business is done. It is time that accountants alter the way they do business to keep up with the shifting tide. Join our discussion with Dianne Mueller, Rachel Fisch, and Tamar Satov.

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 #149: Free-Rider Friday, June 2017

Ed’s Topics

The VeraSage Symposium and Art of Value Conference

We are excited to announce the Art of Value Conference and VeraSage Symposium being held in Allen, Texas on November 8-12, 2017. You can attend one or the other, or both. Find out more about these two events, the agendas, and register.

Marketing to confuse the competition

Article by Rory Sutherland in Ranconteur, May 25, 2017. Listen to his appearance on The Soul of Enterprise.

Uses the 1980 movie Airplane! as an analogy. Most businesses are run like air traffic control: there’s rules, routines, regulations, standards, metrics, targets; optimize, copy, repeat.

Other parts of a business don’t work this way: marketing is one of them. It can never be standardized. Truly efficient marketing is not marketing at all, it’s merely noise.

Remember, a flower is a weed with a marketing budget

EasyJet’s and British Airways’ approach to safety are similar, but the marketing of their brands are diametrically different.

Rory Sutherland

Rory Sutherland

Grand strategist Edward Luttwak argues against obsession with efficiency.

Strategy demands doing the least efficient thing possible to gain the upper hand over your enemy by confusing them.

In our aspergic age, it’s easier to get fired for being illogical than for being unimaginative. By dressing marketing up as a science, your protected from the CFO, but you’re using statistics as a drunk uses a lamp post: for support, rather than illumination.

Competition or anti-competition

Amazon’s patent that blocks shopping bots while in store.

Amazon Prime exclusive show: The Man in the High Castle was discussed. First two seasons are out, and the show is just excellent!

Say what!

A new phrase for our lexicon: Stylized fact: “A simplified presentation of an empirical finding.”

Russ Roberts’ podcast, Econtalk, on emergent order from June 12, 2017 is excellent. Russ has written a poem, It’s A Wonderful Loaf.

Here’s the money quote from the show, from economist Michael Munger

Fundamental insight: If you and I disagree about the value of something, we can probably agree on a price. So all prices that are agreed on probably result from a disagreement about value.

 Prices reconcile disagreements on value.

Ron’s Topics

“Rules of the road,” The Economist, May 6, 2017

In 2008, an unemployed Los Angeles chef, Roy Choi, started a business, which led to a reality TV show, a hit movie (Chef), and jump-started a $1.2B industry: Food trucks.

Portland, Oregon has had them for decades, over 500. But Chicago, with over 7,000 restaurants and 144 breweries, has only 70 food trucks. The regulations in Chicago are onerous:

  • Food trucks can’t be within 200 feet of an eatery
  • They can’t park for longer than two hours
  • They are required to carry GPS or face heavy fines

New York and Boston are little better, with a 15-year waiting list to get a license, or $25,000 to rent one on the black market.

One of trucks in Portland’s is named: Kim Jong Grillin’.

Brick and mortar - Amazon 

Amazon Just Invented the Bookstore,” Foundation for Economic Education, M.G. Siegler, June 8, 2017

Amazon Books, opened in New York City and looks like a Borders.

The pricing is innovative: you pay the online price if you’re an Amazon Prime member, or the jacket price if you’re not.

More on the suckiness of Performance Reviews 

Performance Reviews Suck, Here’s What We Do Instead,” Matt Rissell, Forbes, May 26, 2017

The co-founder and CEO of TSheets, Matt Rissell, wrote:

Your typical performance review is an inaccurate representation of how your employees are performing, and more often than not, they're a giant waste of time for you and your team. Let's call them what they really are: a massive distraction and worst of all, a demotivator.

It surveyed employees and found they hated annual performance appraisals, rankings, but wanted more feedback. Here’s what they do instead

  1. Hold consistent one-on-ones with your employees
  2. Ask employees how they think they’re doing
  3. Make it go both ways (how you doing as a leader)
  4. Don’t tie feedback to compensation
  5. Encourage employees to be proactive

I would only add that the first paragraph above also applies to keeping timesheets in professional firms. 

The Adaptive Capacity Model for Supermarkets

 Surge pricing comes to the supermarket,” Tim Adams, The Guardian, June 4, 2017

In 1861 Philadelphia shopkeeper John Wanamaker introduced price tags, with the slogan, “If everyone was equal before God, then everyone would be equal before price.”

Before this, haggling was common. The fixed price changed the relationship (business model) between the store and the customer and led to price wars, loss leaders, promotions, etc.

It’s said that Facebook has over 100 data points on every user. Orbitz was charging Mac users 20-30% more to book a trip, and Uber allegedly looks at a user’s battery life to help determine price.

French, German, and Scandinavia retailers are changing prices 90,000 times per day.

Dynamic pricing in Britain, at Spar stores, for bread created a 2.5% uplift to profit, while waste dropped 30%.

This puts under threat Oscar Wilde’s famous quip: The cynic knows the price of everything, and the value of nothing.

Today, the price may be changing. Pricing the customer continues.

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.

Happy Independence Day!

Today marks not only the 241th Independence Day in the United States, but also the third anniversary of The Soul of Enterprise!

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 #148: Interview with Mike Michalowicz

Biography

By his 35th birthday Mike Michalowicz (pronounced mi-‘kal-o-wits) had founded and sold two multi-million dollar companies. Confident that he had the formula to success, he became an angel investor…and proceeded to lose his entire fortune. Then he started all over again, driven to find better ways to grow healthy, strong companies.

Among other innovative strategies, Mike created the “Profit First Formula”, a way for businesses to ensure profitability from their very next deposit forward. Mike is now running his third million dollar venture, is a former small business columnist for The Wall Street Journal; is the former MSNBC business make-over expert; is a popular keynote speaker on innovative entrepreneurial topics; and is the author of Profit FirstSurgeThe Pumpkin Plan and The Toilet Paper Entrepreneur, which BusinessWeek deemed “the entrepreneur’s cult classic.”

From the Profit First Professionals Website: Everyone on the planet knew it. It was a cold, hard fact. The world was flat. Until it wasn’t. That’s when everything changed. Society is addicted to axioms: beliefs that have become so entrenched in our global culture that they are never challenged. These axioms are simply considered to be true, because everyone says it is. Then one day, someone calls bullshit. Sales – Expenses = Profit is one of those axioms. For centuries entrepreneurs have followed the “profit comes last” formula off the proverbial financial cliff. Now everything has changed… In his globally acclaimed, paradigm shifting book, Profit First, business author Mike Michalowicz explains why the Sales – Expenses = Profit formula actually prohibits profitability and keeps the vast majority of businesses, throughout the world, struggling to survive check-by-check. Michalowicz teaches us to a new formula: Sales – Profit = Expenses. This seemingly subtle change, empowers you to grow your profitability immediately and permanently. Join Ed and Ron for this dynamic interview with Mike.

Questions/Topics We Discussed with Mike

The first edition of Profit First came out in 2014? Revised and Expanded edition came out earlier this year, 2017.

Your life’s purpose is to eradicate entrepreneurial poverty. Explain.

The Small Business Administration reports there are 28 million small business (< $25m in revenue):

  • 125 million businesses globally
  • 8/10 business fail; #1 reason: lack of profitability
  • 50% fail in first 5 years

GAAP: Sales – Expenses = Profit

This equation doesn’t make human sense because it goes against human nature. Explain.

Primacy Effect: we focus on what comes first, so the Profit First formula changes the equation:

Profit First: Sales – Profit = Expenses

GAAP does not model cash.

Profit First works because it doesn’t try to fix you. It’s designed to work with who you are already. Profit not an event; it’s a habit!

This revised equation requires you to reverse engineer your business:

  • Are all expenses necessary? Who knows? Most are too busy chasing sales
  • It’s the same with pricing:
  • Customer > Value > Price > Cost > Product/Service
  • Reminds me of Henry Ford: “No one knows what a cost should be.”
  • There’s a difference between being Frugal vs. Cheap

Shouldn’t some of these businesses fail? Isn’t that the market saying this business is not a good idea?

If we can increase the probability of success of small businesses, society would be better off, which is why you’re so passionate about this topic, isn’t it?

When do you suggest you start Profit First in your business, from day one?

You’re working a lot with accountants now, right? And do accountants have this same challenge in their businesses?

Do you notice a difference between CPAs and bookkeepers (e.g., bookkeepers are more proactive and CPAs are more reactive)?

In how many languages have your books been translated?

You recommend five checking accounts: Income/Profit/Owners Comp/Tax/Opex + 2 no-temptation accounts. What’s the logic and mechanics of all these accounts?

Explain TAPs: Target Allocation Percentages.

You equate PF with the Granny Shot in basketball. Explain.

You talk about the eight Mistakes business owners make with Profit First:

  1. Going it alone
  2. Too much too soon
  3. Grow first and profit later (#1 objection; not substitutes, complements)
  4. Cutting the wrong costs
  5. Plowing back and reinvesting
  6. Raiding the tax account (stealing)
  7. Adding complexity
  8. Skipping the bank accounts

Do you ever bring the Profit First business owners together, not just the accountants who consult on the system?

Have you found any banks willing to work with you?

Other than succumbing to the lies of GAAP, what are other issues facing small businesses?

What’s the #1 issue/problem facing the accounting profession?

Are you optimistic or pessimistic with respect to Artificial Intelligence?

Mike’s Books and Websites

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 #147: Changing Your Mind

There’s a crucial principle for coming to know the truth, according to philosopher Amélie Oksenberg Rorty, namely, “Our ability to engage in continuous conversation, testing one another, discovering our hidden presuppositions, changing our minds because we have listened to the voices of our fellows. Lunatics also change their minds, but their minds change with the tides of the moon and not because they have listened, really listened, to their friends’ questions and objections.”

I read this line from Rorty in Deirdre McCloskey’s paper, “Economic Liberty as Anti-Flourishing: Marx and Especially His Followers,” published by the American Enterprise Institute.

I opened my session at Scaling New Heights 2017 in Orlando, Florida last week with this quote, and asked the audience if they have ever changed their mind on a significant issue?

What was the process you went through? How long did it take? Everyone has changed his or her mind on something. If you’re not changing your mind, you’re not using it.

As Nobel laureate economist Paul A. Samuelson wrote, “I’m willing to be occasionally wrong. But what I hate most in life is to stay wrong.”

Partial list of stuff about which we changed our minds 

  • In high school Ron was all for the Chrysler bail out (1979)
  • Offering three options for pricing the customer, supported by insights from behavioral economics and customer psychology
  • Hourly billing
  • Timesheets
  • Measurements and “what you can measure, you can manage.”
  • Generally Accepted Accounting Principles (not a theory, and useless with respect to intellectual capital)
  • Myers-Briggs and other personality profiles
  • Abortion, each of us in a slight different direction

Also, reading George Gilder’s book, Wealth and Poverty, back in 1982 made Ron change his mind on:

  • Keynesian economics
  • Milton Friedman and monetary economics
  • Ayn Rand and Objectivism [her last public talk bashed Gilder and his concept that capitalism was really based on altruism]
  • The importance of the entrepreneur for a dynamic economy

Thoughts on changing your mind

Changing your mind does support that notion that knowledge is only ignorance postponed.

Are people who won’t change their mind dangerous?

Ron is currently reading Pixar founder Ed Catmull’s book: Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration.

Catmull worked with Steve Jobs for over 25 years, and said Jobs would change his mind, and that the reputation he has acquired after his death is often not justified.

We all suffer from confirmation bias, articulated in the 1960s by Peter Wason, a British psychologist, that is: We give lesser weight to data that contradicts what we think is true.

But our mental models are not reality, they are tools. They should be our servant, not our master.

Philosopher Arthur Schopenhauer wrote: All truth passes through three stages:

  • First, it is ridiculed.
  • Second, it is violently opposed.
  • Third, it is accepted as being self-evident.

Ron would add: Fourth, I told you it was a good idea all along!

Listener Shout Out

Mark Gandy, Free Agent CFO, Loves The Soul of Enterprise Podcast so much he wrote this blog post.

Thank you so much, Mark. This means more to us than we can express in mere words. Definitely an HSD - High Satisfaction Day!

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 #146: Accounting Innovation: It's not an oxymoron - Part 2

Ron and Ed were at Sage Summit 2017 in Atlanta and recorded an episode (Part two) featuring a great panel discussion on the premise that accounting and innovation are not opposites (i.e. not an oxymoron). While the job description for accounting professionals has largely stayed the same, technologies and laws have come into play to change the way business is done. It is time that accountants alter the way they do business to keep up with the shifting tide.

Panelist biographies

  • Jodie Padar is CEO and Principal of the New Vision CPA Group, a public accounting firm based in the Chicago area. Jody joined her father’s firm a decade ago, bringing her expertise in the areas of taxation, QuickBooks, and small business accounting. As one of the profession’s emerging thought leaders, Jody has transitioned New Vision to New Firm status—adopting advanced technologies and best practices that support web-based client services. This allows Jody to manage her firm at peak efficiency with transparency at the heart of all engagements. Jody and her team provide financial insight and practical strategies to their clients in real-time, not just at tax season.
  • Gail Perry is the editor-in-chief of CPA Practice Advisor. She also speaks at many accounting events, trade shows, and webinars. She is the author of over 30 books (including Mint.com For Dummies and QuickBooks 2014 On Demand), and she maintains a small tax practice. Gail is a graduate of Indiana University where she earned a bachelors degree in journalism. She returned to school to study accounting at Illinois State University, earned her CPA, and worked for Deloitte in the firm's Chicago tax department. She has taught college-level accounting principles and personal finance, and was on staff for 10 years at the Indiana CPA Society as a computer applications instructor. Gail was the publisher and editor-in-chief of AccountingWEB before joining the CPA Practice Advisor team.
  • Gary Boomer, Visionary & Strategist of Boomer Consulting, Inc., is recognized in the accounting profession as the leading authority on technology and firm management. He consults and speaks around the globe on several topics including strategic and technology planning; mindset, skillsets and toolsets for the future; change management and developing a training and learning culture. He also acts as a planning facilitator and coach to some of the accounting profession's top firms.
  • Tom Hood has been executive director and CEO of the Maryland Association of CPAs since January 1997. Armed with a passion for the profession and the drive to move it forward, he manages a staff of more than 30, works closely with the Executive Committee and Board of Directors and oversees the work of numerous committees to promote and protect the CPA brand in Maryland.
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 #145: VeraSage Fellow Adrian Simmons, CPA, On Value

Adrian's Biography

Adrian enjoys the creativity behind helping each entrepreneur envision what motivates them, and being a part of bringing that to life. He is deeply convinced about the dynamism of the small business economy, and it’s ability to create value in the lives of owners, customers, team members, and communities — a value that matters not just for the short-term, but for the long-term.

Adrian graduated from Loyola University Maryland in 1999 with a bachelor’s degree in accounting, and then went on to complete his MBA with a concentration in finance in 2000. He began his career as an auditor for one of the Big Four public accounting firms, and transitioned to working with small business owners with his father in 2002, eventually purchasing the firm in 2014. He both speaks at conferences and writes pieces for the accounting profession, is a Practicing Fellow with the VeraSage Institute, and is happy to call Laurel his lifelong home.

In the final analysis, I find nothing as intellectually satisfying as the history of ideas.
Great theories, in economics as in other subjects, are path-dependent . . . ; that is, it is not possible to explain their occurrence without considering the corpus of received ideas which led to the development of that particular new theory. . . .
without the history of economics, economic theories just drop from the sky; you have to take them on faith. The moment you wish to judge a theory, you have to ask how they came to be produced in the first place and that is a question that can only be answered by the history of ideas. —Mark Blaug, Not Only an Economist

 

This interview with Adrian was inspired by a book he’s been reading: An Austrian Perspective on the History of Economic Thought Before Adam Smith (Vol I), and Classical Economics (Vol II), by Murray N. Rothbard.

Ron’s Questions

What got you interested in wanting to study the history of the theory of value?

What struck you about the early portions of Rothbard’s book?

The Greeks were attuned to the concept of scarcity, which makes us talk about tradeoffs, not solutions. The word “Economics,” is from the Greek oikonomia, meaning “household management.”

Democritus (a contemporary of Socrates) [c.460-c.370BC], had three important ideas:

  1. founder of subjective theory of value!
  2. rudimentary notion of time preference (prefer a good today rather than tomorrow) “it is not sure whether the young man will ever attain old age; hence, the good on hand is superior to the one still to come.”
  3. advocated private property (thou shall not steal)

Did that strike you?

Rothbard points out that leaving out religious thought from the history of economics would disastrously skew our understanding of how these ideas came about. After all, the early economists called themselves “moral philosophers,” not economists. You can’t separate ethics and morality from economics, can you?

Business is about humans, perhaps we should have anthropologists on our teams. Ed Kless says, “Business ain’t science.” The history of the theory of value is long, and includes many errors. Why do you think cost-plus pricing is so endemic in the business world, even though it’s a flawed theory?

Accountants have foisted that idea that debits equal credits. But exchanges take place because of the inequality of the items being traded, and because we don’t book the customers’ profit from the exchange, in the real world debits don’t equal credits!

Do you have a specific metaphor to explain the win-win nature of voluntary exchanges?

What’s your response to the argument that “value pricing is hard”?

What is the number issue facing the CPA profession in your opinion?

Ed’s Questions

The three laws of thought: Law of identity; Law of non-contradiction; and the Law of the excluded middle.

You would think most people in business today could grasp these laws, but how often do our customers in business ask for things that are contradictory, and why don’t we professionals call them out on it? Any thoughts on that?

The notion of causality is part of natural law. The confusion between causality and correlation is endemic, however (wet streets don’t cause rain). Do you see this misunderstanding in the business world or among your customers?

Economists, media, commentators, etc., all seem to miss the vital role of the entrepreneur in the economy. Comment on that for us.

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 #144: Free-rider Friday - May 2017

Ed’s Topics

BitCoin Update

Bitcoin has been gaining value, having doubled its market cap since April 1, 2017. However it has been extrememly volatile. It “opened” today (Friday, May 26 at $2357, hit a high of $2639, and a low of $2067. Talk about your rollercoaster ride.

Two articles for you:

  1. Three reasons why this time is different for bitcoin from CNBC
  2. What is behind the BitCoin bonanza? from BK Capital Management

Tom Seaver’s Winery

Bill Maddon, sport's columnist for the New York Daily News wrote a piece that combined two of Ed's great loves: the New York Mets and wine. Hall of Fame pitcher Tom Seaver posited that the reason for so many pitching injuries in baseball has to do with too much weigh training. He said he never lifted weights, preferring instead to focus on his legs. In addition, his winery now produces an award winning cabaret, GTS Cabarnet. (Sorry Greg LaFollette, I hope the wine part kept you interested.)

Ron heard an interview on the May 20, 2017 Larry Kudlow radio show with the author of Dinner with DiMaggio, Dr. Rock Positano.

Mark Zuckerberg Advocates Universal Basic Income

Another silicone valley CEO come out in favor of the UBI. Listen to our show on this topic. Ron and Ed agree that as "welfare" programs go, it is the least bad way to implement such programs. 

The Americans TV Show

Ed and Ron are both big fans. Here's the first season trailer. 

Ron’s Topics

Generational Astrology Follow-Up

Our show on the hokum of generations at work  has created quite a stir.

Clemson University’s chief diversity officer, Lee Gill says, “Expecting people to be on time is racist.” University of California, Hasting College of the Law added a “Chill Zone” in its library with mats for naps and beanbag chairs.

The University of Michigan Law School embedded a psychologist in a room with bubbles and play dough to counsel students stressed after president Donald Trump’s election.

University of Arkansas at Little Rock professor of law, Joshua M. Silverstein says, “Every American law school should eliminate C grades, and make the average grade B.”

In a New York Times op-ed, New York University provost Ulrich Baer wrote: “The idea of freedom of speech does not mean a blanket permission to say anything anybody thinks.”

I wish I would have said what Frank Martin did on the generations. Profound!

Ed thinks it is the "adults" who have gone crazy. He shared his thoughts on this interview with Peter Gray on the End of Play.

RIP Economist William Baumol (February 26, 1922 – May 4, 2017)

Creator of the “Cost disease.”

Actors compete in the same national labor market as factory workers.

Hence, as productivity increases lift factory worker’s wages, arts organizations must pay their staff more to keep them from quitting and working in factories.

Productivity gains are not matched in the arts: performing a symphony by Bethoven took the same time and number of musicians in the 20th as the 19th century.

Therefore, technological progress in some industries will raise wages in low-productivity sectors—such as health care, education, and government.

Wage increases are a side-effect of productivity gains elsewhere in the economy, which makes the economy richer overall.

As machines become better, human productivity converges toward zero, and spending will go towards services for which it’s crucial productivity not grow, providing jobs for everyone.

The economy will be characterized by both technological abundance and cost disease. Embrace the contradictions!

A better pill from China,” The Economist, March 18, 2017

On our January 25, 2016 episode #76: Lessons from the Trading Game, I made a modification at the end of the game: Ask the audience if they’d trade their “gift” for a cure for cancer.

Oh, and it comes from China so this will explode the trade deficit. Well, now it seems this scenario is possible.

The Shanghai laboratories of Chi-Med, a biotech firm, isgetting positive results in late-stage trails of its drug for colorectal cancer, Fruquintinib.

This is the very first drug designed and developed entirely in China.

If other countries purchase this drug, adding to their country’s trade deficit, does it really matter? Does the trade deficit have anything to do with standard of living?

Teaching Robots Right From Wrong,” 1843, June/July 2017

Robear is strong enough to lift frail patients from bed; so it can crush them, too.

There’s essentially three approaches to teaching ethics to AI/robots, all embryonic and at various stages of testing.

GoodAI, a company that specializes in educating AI says it’s not about pre-programming robots to follow prescribed rules in every possible situation. Robots are like kids, a blank slate

  1. Good AI trains them to apply knowledge to situations they’ve never encountered by watching how others behave. Ron Arkin, a roboethicist at Georgia Tech believes robot soldiers are superior to humans since they can’t rape, pillage, or burn down a village. But how does a robot soldier decide whether to strike a high level target while he’s  breaking bread with civilians? Or decide whether to support five low-ranking recruits, or one high-ranking officer on opposite sides of a conflict zone?
  2. Arkin’s approach is called the “ethical adapter,” which attempts to simulate human emotions, rather than human behavior, and learn from its mistakes. Can a robot experience guilt? He thinks they can be programmed to do so. Of course one problem with this approach is it requires the robot to do something wrong first.
  3. The third approach is to use stories. Robots might be like kids but do we have 20 years? Load in thousands of different protagonists dilemmas, then the machine can average out the responses and do what a majority of people would do in that circumstance.

We’re never going to have a perfect self-driving car, but the goal should be to be no worse than humans.

I’d say at least 50% better than humans.

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 #143: Accounting Innovation - it's not an oxymoron

Ron and Ed were at Sage Summit 2017 in Atlanta and recorded an episode (or two) featuring a great panel discussion on the premise that accounting and innovation are not opposites (i.e. not an oxymoron). While the job description for accounting professionals has largely stayed the same, technologies and laws have come into play to change the way business is done. It is time that accountants alter the way they do business to keep up with the shifting tide.

Panelist biographies

  • Jodie Padar is CEO and Principal of the New Vision CPA Group, a public accounting firm based in the Chicago area. Jody joined her father’s firm a decade ago, bringing her expertise in the areas of taxation, QuickBooks, and small business accounting. As one of the profession’s emerging thought leaders, Jody has transitioned New Vision to New Firm status—adopting advanced technologies and best practices that support web-based client services. This allows Jody to manage her firm at peak efficiency with transparency at the heart of all engagements. Jody and her team provide financial insight and practical strategies to their clients in real-time, not just at tax season.
  • Gail Perry is the editor-in-chief of CPA Practice Advisor. She also speaks at many accounting events, trade shows, and webinars. She is the author of over 30 books (including Mint.com For Dummies and QuickBooks 2014 On Demand), and she maintains a small tax practice. Gail is a graduate of Indiana University where she earned a bachelors degree in journalism. She returned to school to study accounting at Illinois State University, earned her CPA, and worked for Deloitte in the firm's Chicago tax department. She has taught college-level accounting principles and personal finance, and was on staff for 10 years at the Indiana CPA Society as a computer applications instructor. Gail was the publisher and editor-in-chief of AccountingWEB before joining the CPA Practice Advisor team.
  • Gary Boomer, Visionary & Strategist of Boomer Consulting, Inc., is recognized in the accounting profession as the leading authority on technology and firm management. He consults and speaks around the globe on several topics including strategic and technology planning; mindset, skillsets and toolsets for the future; change management and developing a training and learning culture. He also acts as a planning facilitator and coach to some of the accounting profession's top firms.
  • Tom Hood has been executive director and CEO of the Maryland Association of CPAs since January 1997. Armed with a passion for the profession and the drive to move it forward, he manages a staff of more than 30, works closely with the Executive Committee and Board of Directors and oversees the work of numerous committees to promote and protect the CPA brand in Maryland.
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 #142: In What Year Were You Born?: Generational Astrology

See if the following story is consistent with so much that has been written about Generation X, Y, and Z in the recent past by countless “generational consultants:"

  • "They get restless after a little while in one place,” said an employer. “For the last few years I haven’t counted on keeping the ordinary fellows more than six months. I just let them go and take the next one who is always dropping in."
  • "Madam, I assure you I could just cross the street tomorrow and be paid as much as you give me.” Selfish, satisfied, and capricious, these young people newly emancipated into economic freedom are seldom idle; they work, but they are marking time on the spot they have reached, for they do not perceive any options desirable enough to lead them beyond those they are now enjoying.

An enormous amount of ink has been spilled on this topic, usually along with the different characteristics of the Baby Boomers and Generation X, Y, and Z.

One reason for this increased attention is there are simply more generations interacting in the workforce today than in the past. One reason is life expectancy.

The average knowledge worker today will outlive their employer, with an average active work life of approximately fifty years compared to the average organizational life of thirty.

This translates into the average worker today having many more jobs—and even careers—than those of their ancestors a century ago.

Differences exist, but what is the cause and does it matter

It may be an interesting academic and historical exercise to create lists of the differences between the Baby Boomers and Generation X, Y, and Z, but knowing the nature and nurture traits between the generations does not necessarily assist a company in attracting or inspiring its knowledge workers.

All of this “generational astrology” has all the explanatory power of asking people their signs—it is an incredibly weak theory. And, it is nothing new. Plato complained that the young people of his day “disrespect their elders and ignore the law.”

A more robust explanation for today’s workers—no matter when they were born—is the fact that they are knowledge workers, who are far wealthier than their parents—they grew up in what economist Brink Lindsey calls “The Age of Abundance.”

Wealth provides more options, from extending education, traveling the world, living with parents longer, or simply delaying gainful employment.

John Adams, America’s second president wrote: “I must study politics and war that my sons may have liberty to study mathematics and philosophy and they in turn must study those subjects so that their children can study painting, poetry, music, architecture, statuary, tapestry, and porcelain.”

In an intellectual capital economy there is a far greater range of talents that can be rewarded. America’s best-paid chef, Wolfgang Puck, earned $16 million in 2005 while Takeru “Tsunami” Kobayashi earned more than $200,000 a year for holding the title of the world’s hot-dog eating champion.

It is not the year they were born in, it is their age (that's different)

Another crucial difference in today’s workers is they own more of the means of production in their heads than ever before, which gives them enormous market power in the economy. They understand this fundamental fact better than their predecessors.

When I entered the CPA profession, I believed I was a service worker; today’s students understand they are knowledge workers.

Organizations can lament the fact that Generation X, Y, and Z are not as loyal as their parents, but the fact of the matter is loyalty is a two-way street; it must be earned. No business deserves any loyalty, either from its customers or its associates, until it does something to earn it.

Loyalty is not dead in the business world, but a reason to be loyal may be. The real question is, does the organization deserve the loyalty of its workers? 

In tribute to Mark Twain’s quip that history may not repeat itself but it does rhyme, the story above is from 1907. I suppose one generation has always had issues with the next, but it is hardly any reason to treat human beings different. To believe otherwise is to take astrology seriously.

Additional resources

Monty Python Four Yorkshiremen

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 #141: Memorable Mentors - Freidrich Hayek

Friedrich Hayek (1899-1992) was one of the most prodigious classical liberal scholars of the 20th century. He won the 1974 Nobel Prize in economics, published 130 articles and twenty-five books on topics ranging from technical economics to theoretical psychology, from political philosophy to legal anthropology, and from the philosophy of science to the history of ideas.

The focus of our conversation was around the essays published in the free eBook entitled The Essential F.A. Hayek, published by The Foundation for Economic Education, and available for free.

The book contains six chapters.

The Case for Freedom

If we knew our wants/desires, there would be little case for liberty. Liberty is essential to leave room for the unforeseeable and unpredictable

Freedom for the sake of only producing future beneficial effects is not freedom. Freedom is frequently abused, but on balance the good outweighs the bad.

Freedom used by one out of one million could be more important to society than the freedom we all use.

We can’t plan the advance of knowledge—the mind can’t see its own advance. We are dependent on the vagaries of individual genius and circumstance. Freedom in action is as important as freedom of thought.

The use of reason aims at control and predictability, but the process of the advance of reason rests on freedom and the unpredictability of human action.

The Use of Knowledge in Society

The economic problem is not how we allocate “given resources.” Rather, it is that the utilization of knowledge is not given to any one person.

Hayek believed mathematics obscured this issue rather than shed light on it. He wrote:

The various ways in which knowledge on which people base their plans is communicated to them is the crucial problem for any theory explaining economic process.

Scientific knowledge is not the sum total of all knowledge. The knowledge of the particular circumstances of time and place is often just as important, even though not scientific.

Central planning, or statistical information cannot take into account circumstances of time and place.

Millions of people, who couldn’t be identified, move in right direction just by price signals. Hayek called this a “marvel.” We take it for granted, but if it had been the result of human design, it would be the greatest triumph of the human mind.

The Pretense of Knowledge

This was Hayek’s 1974 Nobel speech, where he said, “As a profession we have made a mess of things.”

Economics has tried to imitate physics—“scientistic attitude.”

Our theories are formulated in such terms that they refer only to measurable magnitudes, yet the actions of millions cannot be measured.

“I confess that I prefer true but imperfect knowledge, even if it leaves much undetermined and unpredictable, to a pretense of exact knowledge that is likely to be false.”

In other words, Hayek rather be approximately right than precisely wrong.

He thought that economists needed to cultivate growth by providing the appropriate environment, like a gardener.

Intellectuals and Socialism

Hayek defined an intellectual as a “Professional secondhand dealer in ideas.”

Socialism was never a working class movement, rather it was a construction of theorists, intellectuals.

The philosopher has grater influence over intellectuals than any other scholar or scientist.

Socialists have the courage to indulge in Utopian thought, it’s a source of strength traditional liberalism lacks. No one marches in the streets for capitalism. We must appeal to the imagination.

The Moral Element in Free Enterprise

A free society lacking a moral foundation would be very unpleasant, but it is still better than an un-free and immoral society.

The value of services as determined by the market does not convey moral merit. This is probably the chief source of dissatisfaction with the free enterprise system. It’s why we see continuous calls for “distributive justice.”

Hayek thought this a great merit, since no one would be dependent on their fellow humans to like them personally.

We don’t know in advance if a brilliant idea is the result of years of hard work or luck, so we must allow a man to get the gain even if luck was the cause.

It’s argued that a free market system is more materialistic. It might be, but it also leaves us free to choose other paths.

The way to prevent this is not to have the material means placed under a single direction.

Look at North Korea, Cuba, USSR, or any other communist/socialist country: they are some of the most materialistic societies you’ll ever see.

Free enterprise deals with means, not ends.

Why I Am Not a Conservative

Tug of war between conservative and progressives only affect the speed, not direction of developments.

Conservatives have a fear of change, and use the power of government to prevent or slow change. They have a fondness for authority and lack of understanding of economic forces, are frequently protectionists, a hostility to internationalism, and a strident nationalism.

Conservatives have a distrust of theory, and have a lack of imagination except where experience has already been proven.

Hayek didn’t like the term “libertarian.” Whiggism, historically, is the correct term for ideas he believed.

Whig principles guided James Madison, Thomas Jefferson, and the signers of the Declaration of Independence, and the members of the Constitutional Convention.

Indeed, Washington’s soldiers were clad in the traditional “blue and buff” colors of the Whigs.

Conservative author and National Review editor Jonah Goldberg counters the arguments in Hayek’s essay, offering the conservatives rejoined.

“Conservative” means different things in different cultures—Saudi Arabia, Russia, France, even the UK.

True conservatism demands comfort with contradiction. Notice Hayek doesn’t call himself a libertarian—he rejected the label. He described himself as an “Old Whig.” So did Edmund Burke.

Hayek did say the USA was the one place in the world where you could call yourself a conservative and be a lover of liberty, because conservatives want to defend the those institutions that preserve it. In other words, American conservatism is simply classical liberalism, which ideas inspired the likes of John Locke, Edmund Burke, and Adam Smith.

William F. Buckley, Jr., no shrinking violet when it came to political philosophy, contributed a chapter to the book What Is Conservatism?

The title of that chapter is “Notes towards an Empirical Definition of Conservatism; Reluctantly and Apologetically Given by WFB.”

Conservatism isn’t a single thing. It’s a bundle of principles married to a prudential and humble appreciation of the complexity of life and the sanctity of successful human institutions.

Yuval Levin, another National Review author, defined it thus: “To my mind, conservatism is gratitude for what is good and what works, and strive to build on it, while liberals tend to begin from outrage at what is bad and broken and seek to uproot it.”

Liberty above all else undermines the development of character and citizenship, which Hayek understood.

Conservatives love people for what they are, not what they could be.

Other Resources

The Essential Hayek, by Donald Boudreaux, available for free on Kindle.

Liberal Fascism, Jonah Goldberg.

The World’s Smallest Political Quiz: The Nolan Chart.

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 #140: Free-rider Friday - April 2017

Ed’s Topics

Bitcoin

Reaches high of $1,300, surpassing gold. Market cap is over $21 billion.

United Airlines

Possible new slogans:

  • “Not enough seating, prepare for a beating”
  •  “Drag and Drop”
  • “We put the hospital in hospitality”
  • “Board as a doctor, leave as a patient”
  • “Our prices can't be beaten, but our passengers can” 
  • “We have First Class, Business Class and No Class” 
  • “We treat you like we treat your luggage” 
  • “We beat the customer, not the competition” 
  • “And you thought leg room was an issue” 
  • “Where voluntary is mandatory” 
  • “Fight or flight - We decide” 
  • “Now offering one free carry off” 
  • “Beating random customers since 2017” 
  • “If our staff needs a seat, we’ll drag you out by your feet” 
  • “A bloody good airline”

Air travel is not a right, but a privilege, governed by “The contract of carriage,” which is the same for all airlines.

If a flight is overbooked, Department of Transportation rules say for involuntary removals:

  1. The airline must ask for volunteers
  2. They must spell out your rights
  3. They must rebook you, and pay if significantly delayed ($1350 maximum if more than 2 hours delayed, 4 hours for international)
  4. Must cut a check on-site if you ask
  5. If you voluntarily give up your seat, you’re on your own

If they bump you for any other reason (weather, flight cancelled, change to a smaller plane, weight-and-balance issues, etc.) these protections don’t apply.

Supersonic Jets?

Boom Technology wants to take you from New York to London in three hours.

“Liquid gold,” The Economist, March 25, 2017

Water brand Svalbardi sells for $99!

The bottled water industry has grown for 9% per year, for years, reaching a market of $147 billion. “Premiumisation” brands are the fastest growing (defined as priced at greater than $1.30 a litre). Flavored water is 4% of the volume, and 15% of  the revenue.

Bottled water consumption surpassed sugary soft drinks in the USA in 2016.

Big Tooth

NPR Podcast, Planet Money: The Economy Explained: Episode 759: What’s It Worth To You? March 17, 2017

In the Obama White House there was a Council of Economic Advisors meeting, and they were all waiting for Jack Lew, the US Treasury Secretary to arrive.

One of the economists, Betsy Stevenon, asked the other economists: What’s the tooth fairy paying these days?

Turns out that Delta Dental has conducted a poll for the last 20 years, and $4.66 is the average paid out for a lost tooth. (Ed is cheap. His kids get $10 for the first tooth and $1 thereafter, an average of $1.46 a tooth.)

The astounding thing is that the growth has been over 10% per year!

Economists use “Income Elasticity of Demand” to explain spending. In other words, if you earn 10% more income, do you spend 10% more on each category of spending?

The theory is parents love to splurge on their kids, especially if they are only children.

Facile Externalities?

Friction Lovers,” The Economist, April 1, 2017

Too much of a good thing can be bad, like travel leading to congestion.

Academic economists in Scandinavian countries term this situation a “Facile externality”: where less efficiency would actually be more efficient.

They claim that innovations which eliminate too much hassle for consumers could inflict a net harm on society.

Jerry Seinfeld: “I love Amazon 1-click ordering. Because if it takes two clicks, I don’t even want it anymore.”

The foregone benefits of hassle (slygge in Danish):

  • Frictionlessness encourages bad habits
  • Dominoes zero-click pizza buying, open app and in 10 seconds it orders your pizza
  • Three out of five Britons say spend they more with the wave of plastic than cash

IKEA effect: people place extra value when devote own labor.

Market can’t solve this problem on it’s own, according to Danilov P. Rossi of DONUT, the UN’s Don’t Nudge—Tell office.

Only government can properly defend the cause of inefficiency.

The Economist magazine will lead by example. From now on a paper knife will be needed in which to separate the pages of your copy.

Isn’t this just a version of the labor theory of value?

Robot or Human Competition for Jobs?

In Defense of Robots,” by Robert D. Atkinson, National Review, April 17, 2017

Atkinson is president of the Information Technology and Innovation Foundation.

There was a time in America when nearly all sectors—journalists, businesses, academics, etc.—advocated technologically powered productivity growth. Think Walt Disney.

Even socialists. Jack London said:

“Let us not destroy these wonderful machines that produce efficiently and cheaply. Let us control them. Let us profit by their efficiency and cheapness. Let us run them by ourselves. That, gentlemen, is socialism.”

Now theirs an inordinate fear of robots taking most of our jobs, leading Atkinson to coin this phenomenon Robophobia.

The three noteworthy studies predicting job losses:

  1. Oxford: 47% jobs eliminated 20 years
  2. McKinsey Global Institute: 45% jobs loss
  3. PWC: 38% job losses by 2030

Atkinson demolishes these studies for faulty methodology.

It’s predicted, for example, that Long-haul truckers stand to lose 3.8 million jobs. But are these “great jobs”? Truckers have a seven times higher injury rate, and rank in the top five in suicide rates, earning an average annual income of $40,260, which is 17% below the national median.

Autonomous vehicles could save more than $1 trillion, and tens-of-thousands of lives. Do these benefits outweighs the costs imposed on truck drivers? Some good switch to becoming a truck mechanic, who make on average 15% more than drivers.

A lot of these fears suffer from the lump-of-labor fallacy, the idea that there are only so many jobs in the economy.

But there has always been a negative, not positive, relationship between productivity growth and unemployment. In other words, higher productivity growth meant lower unemployment.

Atkinson is against the Universal Basic Income, which he believes will lead to the very thing robophobes warn us technology will bring about: large-scale unemployment. He advocates tax-deferred Lifelong Learning Accounts, similar to the 401(k) retirement accounts.

Economist Donald Boudreaux recently wrote “Robots Substitute for Jobs, Not Human Creativity,” April 26, 2017, on the Foundation for Economic Education website.

He argues what’s more human-like than humans? From the 1950s, the USA workforce increased 160%, from 62 million to 160 million.

Yet the unemployment rate in 1950 was 5.3%; today it’s 4.5%. The labor force participation is 63% today but was 59.2% in 1950.

Believing robots take jobs is based on an incorrect presumption: that the number of productive tasks we can perform for each other is limited.

Boudreaux believes that number is practically unlimited.

So do we. As Ed added, "If your job gets taken over by a robot, it probably sucks!"

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 #139: More VeraSage Laws

Our first show on VeraSage Laws, was Episode #53 on July 24, 2015. In that show, we discussed the five VeraSage Laws:

  1. Baker’s Law: Bad customers drive out good customers
  2. Kless’ First Law - He who liveth by the discount, shall ye also perish by the discount.
  3. Kless’ Second Law - All measurements are judgments in disguise.
  4. Baker’s Axiom: Ideas are always and everywhere more important than their execution.
  5. VeraSage adoption of the Second Law of medicine—Prescription before diagnosis is malpractice.

Five More VeraSage Laws

Drucker’s Law of Inversion: Marketing and selling are not complementary, but adversarial. The book by William A. Cohen, A Class with Drucker, Peter Drucker’s first Ph.D. student, is the first place Ron read this thought from Drucker.

William’s Axiom: The default purpose of marketing is not to increase sales, but profits.

Ike’s First Law of Project Management: Plans are worthless, planning is essential.

Bowman’s Law: Hourly billing requires a calculator. Value Pricing requires courage.

Morris’ Postualte: What if Disney entered your industry? 

 

 

 

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 #139 Preview: More VeraSage Laws

Over the years, many fellows at VeraSage Institute have coined various "laws," such as Baker's Law: Bad customers drive out good customers. In this episode, Ed and Ron will explore more famous, and infamous, VeraSage Laws.

Here is a link to the previous show if you want to listen. 

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 #138: Das Intellectual Kapital

“The philosophers have only interpreted the world invarious ways. The point however is to change it.” –Inscription on Karl Marx’s tomb

“We were among the last to understand that in the age of information science the most valuable asset is knowledge, springing from human imagination and creativity. We will paying for our mistake for many years to come.” –Mikhail Gorbachev

Intellectual Capital: knowledge that can be converted into profits.

  1. Human (80% of the developed world’s wealth, according to The World Bank)
  2. Structural
  3. Social (relationship)

At the societal level, knowledge can grow even when profits decline.

There’s no such thing as a natural resource—except the mind of man.

According to George Gilder, from his book Knowledge and Power:

  • Wealth = Knowledge
  • Learning = Growth

You could add to the middle of that syllogism: Entrepreneurship = Learning.

The following is an excerpt from Ron Baker’s book, Measure What Matters to Customers: Using Key Predictive Indicators.

Human Capital

In a few hundred years, when the history of our time is written from a long-term perspective, it is likely that the most important event those historians will see is not technology, not the Internet, not e-commerce. It is an unprecedented change in the human condition. For the first time—literally—substantial and rapidly growing numbers of people have choices. For the first time, they will have to manage themselves.

And society is totally unprepared for it. —Peter Drucker, “Managing Knowledge Means Managing Oneself,” 2000

The term human capital was first used by Nobel Prize–winning economist Theodore W. Schultz in a 1961 article in American Economic Review.

Human capital is like the dark matter of the cosmos: we know it’s out there but we can’t measure it. Once again, Peter Drucker was at the forefront of thought when he coined both the terms knowledge society and knowledge worker, in 1961, and later expanded on this new phenomenon in his 1968 book, The Age of Discontinuity.

Today, knowledge workers themselves own the firm’s means of production—in their heads.

Knowledge Workers Are Volunteers

In today’s capitalist society, labor trumps capital as the chief source of all wealth. Your team members don’t just contribute work, but also knowledge to the firm—they are knowledge workers in the purest sense.

Knowledge workers own the means of production.

In a factory, the worker serves the system; in a knowledge environment, the system should serve the worker.

Knowledge work can only be designed by the knowledge worker, not for them. Unlike work on an assembly line, knowledge work is not defined by quantity but by quality.

It is also not defined by its costs, but by its results.

Thinking in terms of human capital investors lends dignity and respect to the value of each person. The word “human” comes from the Latin Hominem, for man, and the word “capital” from the Latin caput, meaning head.

All capital ultimately springs from the mind. In a strict sense, a company’s knowledge is created only by individuals—albeit some are outside of the firm’s employ—and thus no knowledge can be created without people.

Moreover, the average knowledge worker today will outlive his or her employer, with an average productive work life of approximately 50 years, compared to the average organizational life of 30.

This has tilted the balance of power to the knowledge worker, as Drucker pointed out:

In the knowledge society, the most probable assumption for organizations—and certainly the assumption on which they have to conduct their affairs—is that they need knowledge workers far more than knowledge workers need them.

Yet companies do not seem to understand the worth of their people. They treat them as if they were assets—or equally offensive, resources—rather than as investors of human capital who own their own—hence the firm’s—means of production.

And like most investors, they will go where they can earn a fair economic return—measured in wages, fringe benefits, and other pecuniary rewards—as well as where they are well treated and respected, the psychological return.

Labeling your people as assets is demeaning. Stalin used to say the same thing—and acted on it. People deserve more respect than a phone system or computer.

But labeling employees resources—from the Latin resurgere, “to rise again”—is even worse, as if people were oil or timber to be harvested when you run out.

There is a Chinese proverb that teaches the beginning of wisdom is to call things by their right names.

Your people are actually volunteers, since whether or not they return to work on any given day is completely based on their own volition. Consider volunteer. It’s usually based on a desire to contribute to something larger than themselves. They work hard—some would say harder than at their jobs—for these organizations because they are dedicated to the cause and they have the passion, the desire, and the dream to make a difference in the lives of others. All for zero pay. Why?

I am not suggesting freedom for people “to do their own thing”; that is not freedom, it is license. The flip side of freedom is responsibility. Holding people accountable for the results they achieve, hardly a prescription for anarchy and chaos. When leaders feel they need to tightly control a knowledge worker, they have made a hiring mistake.

There is no better way to demoralize knowledge workers than to have them perform duties that interfere with the tasks they are qualified to do. In all probability, the best way to increase the effectiveness of most knowledge workers is by removing various tasks that distract them from their core specializations. We do not want surgeons piercing ears or nurses spending half of their time completing paperwork (a common complaint).

Far Fewer Knowledge Workers Than We Think

Dan Morris has not let me down. He thinks I’m wrong about most professional firms being filled with knowledge workers; he believes the majority of them are more akin to factory workers in the days of Taylor. Now I know this is a heretical view, but Dan has assembled a very powerful argument to support his assertion. He does not deny professionals have the potential to be knowledge workers. His argument is they are not largely because of the incentives and structures of the firms in which they operate, which function more like sweatshops of yore.

Stephen Covey writes about exactly this in his latest book, The 8th Habit: From Effectiveness to Greatness: “… It’s the leadership beliefs and style of the manager, not the nature of the job or economic era, that defines whether a person is a knowledge worker or not. If he is not perceived as a knowledge worker, that is, if a janitor is not seen as the local expert on janitorial work, then he is a manual worker and not a knowledge worker.”

I do not agree with this definition in its entirety. The major determinant of knowledge workers is that they own the means of production, and they apply knowledge to knowledge to create value. Covey’s requirement of the leadership beliefs and style of management may be necessary conditions, but they are not sufficient, in and of themselves, to define knowledge work.

In the old days, one took their coffee to the office. With Starbucks and knowledge workers, we now take our office to the coffee.

Most professional service firms to measure their team members, they all come from the Industrial Revolution’s command-and-control hierarchies (realization and utilization rates, billable hour quotas, etc).

Dan further supports his argument by stating that leaders of knowledge workers:

  • Don’t impose billable hour quotas.
  • Understand knowledge workers are paid for ideas, not hours, like union employees.
  • Allow at least 15 percent of team member time for innovation and creating better ways to add value to customers. (This certainly destroys productivity under the old metrics.)
  • Understand that judgments and discernment are far more important than measurements in assessing performance.
  • Are focused on outputs, results, and value, not inputs, efforts, activities, and costs.
  • Don’t require timesheets that account for every 10 minutes of their day.
  • Trust their workers to do the right thing for the firm and its customers.
  • Recognize that individuals have value, not jobs.
  • Allow their workers to monetize the value of their output, through stock options or other incentives that share the wealth created by minds, not machines.
  • Conduct AARs and other ways to bank their IC
  • Select workers who are passionate and self-motivated and don’t need constant supervision.

The purchase of Pixar by Disney, on January 24, 2006, for $7.4 billion in Disney stock. Disney will have to respect Pixar’s culture and continue to let it make quality movies at its own pace, in its own way.

Otherwise, if Pixar’s creative talent leaves, “Disney just purchased the most expensive computers ever sold,” according to Lawrence Haverty, a fund manager at Gabelli Asset Management.

It remains to be seen whether Disney can learn from Steve Jobs’ philosophy: “You cannot mandate productivity, you must provide the tools to let people become their best.”

Knowledge workers cannot be told how to do their job, since many understand the job at hand better than their bosses. They cannot be held accountable for results if their methods are micromanaged.

It is obvious executives who are responsible for knowledge workers are going to have to become much more comfortable with intuition, judgment, and discernment over measurements. You simply cannot manage people by numbers.

Knowledge Workers of the World Unite!

It is time for the firms of the future to remove the sword of Damocles—objective measurements hanging over the head of their workers—and unleash them from a theory no longer applicable to the modern intellectual capital economy.

It requires leadership and vision. It requires knowing you are doing the right thing, not just doing things right. It requires focusing the company on the external results it creates for customers and simultaneously building the type of organization people are proud to be a part of and invest their intellectual capital in. It requires an attitude of experimentation, not simply doing things because that is the way it has always been done. It requires less measurement and more trust.

To paraphrase from the last lines in Karl Marx’s The Communist Manifesto: “Knowledge workers of all countries, unite! You have nothing to lose but your timesheets.”

Why Knowledge Grows

We highly recommend the 2015 book by statistical physicist Cesar Hidalgo, Why Information Grows: The Evolution of Order, from Atoms to Economies.

Economists describe the economy by factors of production, such as land, labor, and capital

Natural scientists use: energy, matter, and information. These two visions are not incompatible

Hidalgo writes that information is physical, in that it’s always physically embodied; it’s not a thing; it’s an arrangement of physical things.

He says the act of giving birth is, in essence, time travel: from the ancientness of her mother’s womb (100,000 years ago babies experienced the same environment) to the modernity of 21st century society.

The difference between the worlds not in the physicality of matter but in the way in which matter is arranged.

Hildalgo distinguishes between knowledge and knowhow:

Knowledge involves relationships between entities, which allows us to predict outcomes of events without having to act them out (tobacco use is bad without having to use it ourselves).

Knowhow is the capacity to perform actions, which is tacit (walk, ride a bike, etc.).

Both are highly constrained, as they are each embodied in human beings.

If you crash a car into a wall: the value lost is not in the car’s atoms but in the way they were arranged.

Eating apples: they existed first in the world, then in our heads.

Apple (computers): they existed first in someone’s head, then in the world.

Both embody info, but Apple is crystals of imagination.

Making crystals of imagination requires enormous amount of knowledge and knowhow.

The maximum amount of knowledge and knowhow a human can accumulate Hidalgo’s calls a personbyte.

When products require more personbytes than any one person can possess, teams and organizations are formed, and they’re limited to a firmbyte.

Cesar did an interview with Russ Roberts on EconTalk, which you can listen to here.

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 #137: Earning Our Mouse Ears: Disney’s Approach to Customer Loyalty

In September 1997, Ron attended the Disney Institute’s Professional Development program, The Disney Approach to Customer Loyalty: Creating Service that Keeps Your Customers Coming Back.

He wrote a three-part series of articles on his experience, and what he learned, which can be accessed on his LinkedIn Influencer blog page, at:

For historical information on Disney University, we drew from the book by Doug Lipp, Disney University: How Disney University Develops the World’sMost Engaged, Loyal, and Customer-Centric Employees (2013).

Van France founded Disney University, which is part of the HR division of Disney, in 1962, seven years after opening Disneyland (the Disney Institute was launched in 1986 and open to the public).

Disney U is the “conscience of the organizational culture,” and Van was instrumental in changing the language: On stage/backstage, Costumes (not uniforms), Audience (not crowds), Theme (not amusement) park, good/bad show.

He wrote a memorandum on September 21, 1962 that challenged Disney’s executives and Cast Members to up their games:

Disneyland will never be completed. We’ve certainly lived up to that promise.
But what about the people who operate it? Are we growing with the show or just getting older?
The trouble with people is that we get hardening of the  mental arteries, cirrhosis of the enthusiasm, and arthritis of the imagination, along with chronic and sometimes acute allergies to supervision, subordinates, the whole darned system.
Is it possible that what we have gained through experience, we have lost through habit, and that what we have gained through organization, we have lost in enthusiasm?

He believed “training is not a car wash” that you simply process employees through.

Ed and I prefer the word “education” instead of “training,” mostly because animals are trained while human beings are educated.

Our late colleague, Paul O’Byrne, used to drive the distinction between these two words home by using a question that you’ll never forget: Would you rather your 13-year-old daughter receive sex training or sex education?

Disney’s Park Operation Priorities are as follows:

  1. Safety
  2. Courtesy
  3. Show
  4. Capacity/Efficiency—the first 3 ensure this one is sustainable

Notice that efficiency is last, while the first three all deal with effectiveness.

Van also believed that it was as much about attitude as budgets; money may be tight, but creativity is free; and that budgets are the coward’s way out of any problem.

Van’s Model for educational programs: Make it simple, not simplistic; make it enjoyable; design experiential activities that make it memorable.

Be sure to check out our show (#49) with former Disney Executive Lee Cockerell, who was Executive Vice President of Operations for the Walt Disney World Resort for 10 years.

Other books recommend’s on Disney:

Window on Main Street: 35 Years of Creating Happiness at Disneyland, Van Arsdale France, founder of Disney University

Disney University, Doug Lipp

Think Out of the Box, Mike Vance, former Dean of Disney University

Imagineering Way, The Imagineers

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 #136: Free-Rider Friday - March 2017

Ron’s Topics

“European country imposes ‘social parasite’ tax on the poor,” March 27, 2017, New York Post (originally published in News.com.au).

Belarus, country of 9.5 million, lies between Russia and Poland, has implemented a “social parasite tax on the chronically unemployed (also known as the “spongers” or “freeloaders” tax).

It’s $233 (a month’s average wage in the country), for those “work shy” for longer than six months.

President Alexander Lukashenko issued Presidential Decree number 3, in 2015. Failure to pay could ultimately lead to imprisonment, redolent of the old USSR’s concept of “social parasitism.”

After protests, the president agreed to delay the tax, but not eliminate it. It’s estimated that one million are out of work in the country.

This story reminded me of a Harvard Lampoon story from the 1970s about how unfair the tax system is to the rich, since they cannot deduct their Rolls Royce’s and private jets, but the poor can deduct all the kids they have.

The difference is, this story on Belarus is real.

Counsel of protection: the future of insurance,” The Economist, March 11, 2017

the insurance industry is estimated to be $4.6 trillion worldwide.

New York startup Lemonade is a homeowners and renters insurance company, with an app that makes insurance claims easier, and appeals to the digital generation.

It sold 2,000 policies in the first 100 days, 80% to first-time buyers. It uses AI and machine learning to process claims and underwrite policies.

It further rewards under-claiming, giving a share of the savings to your choice of charity (25% Americans defraud insurance companies).

On policy holder used the app to file a claim for a stolen coat, answered a few questions, and in three seconds the claim was paid.

Two Sigma, a large “quant” hedge fund, is also betting number crunching algorithms can gauge risk and set prices better than humans.

Simplesurance, a German firm, has integrated product-warranty insurance into e-commerce sites.

New kinds of risk-prevention services are being implemented thanks to the Internet of Things, such as sensors on incoming water pipes that can detect minuscule leaks, and prevent larger claims for flood damage.

Insurance companies are enticing policyholders with cutting premiums rather than making money from these additional services.

Volvo and Mercedes have announced they are so confident in their self-driving cars, they will not buy insurance at all!

The wonder drug,” The Economist, March 4, 2017

Digitising the health care industry--$18B of capital has been invested in USA digital startup funding between 2015-2018.

Three groups are fighting over the “heath care value chain”:

  1. Traditional innovators—pharma, hospitals, medical tech companies
  2. Incumbent players—health insurers, big pharma buyers, UK’s NHS
  3. Tech insurgents—Google, Amazon, Apple, creating apps, predictive diagnostics systems, and new devices

Buyers increasingly demand “value-based” reimbursement: If the drug and device doesn’t function, it will not be bought. One analyst says if pharma firms don’t put the patient, rather than drug sales, at the center of strategy, they risk losing relevance.

Also, the point of care will move rapidly into the home where heart condition can be monitored, concussions diagnosed and perhaps even predict the onset of Alzheimer’s, Parkinson’s, menopause, etc.

London-based startup Babylon can schedule an online Dr. appoint for $24, and estimates that 85% of consultations don’t need to be in person.

But government could slow down the diffusion of this technology, as this article makes clear: “Cronyism thwarts telemedicine and other innovations,” by Veronique de Rugy.

High-resolution camera phones are good for diagnosing moles, rash, and even eye exams.

However the California State Board of Optometry launched, with taxpayer money, a PR campaign against one such startup.

Indiana passed a law last year that prevents online eye exams, as did Georgia and South Carolina, while VA is about to do the same.

Also, State Boards in various states prohibit doctors in another state offering telemedicine to its residents.

A Brief History of Blockchain,” Vinay Gupta, Harvard Business Review, February 28, 2017

In just 10 years:

  1. Bitcoin
  2. Blockchain (could be separated)
  3. Smart contract, ethereum
  4. New innovation: “proof of stake” rather than “proof of work” (group with largest total computing power makes decisions).
  5. Blockchain scaling: now every computer processes every transaction, which is slow. New: figure how many computers are necessary to validate each transaction, divide work efficiently: speed can go head-to-head with VISA, and SWIFT in terms of processing payments.

Dubai’s blockchain strategy: issue all government documents on blockchain by 2020, which was designed by Vinay Gupta, the author of this post.

Furry profitable,” The Economist, February 4, 2017

VCA, animal hospital chain has a 42,000-square-foot clinic in Hollywood.

VCA was purchased in January by Mars for $9.1B. Mars is second only to Nestle in pet food, and has been getting stiff competition from Amazon, so they are turning towards animal health.

In the USA, spending in pet clinics was $13.7 billion in 2012, and $16 billion in 2016.

VCA will own 1,900 veterinary clinics in America and Canada, four times as many as National Veterinary Associates, its nearest competitor.

The average vet used to be a generalist, but today there are over 40 specialties.

Technically, in many states, it is illegal for corporations to own veterinary practices, but there are ways to structure ownership to get around this.

And since pets count as property, malpractice risk is not very large.

Ed’s Topics

  1. Ad Agency in UK drops Google - How responsible is Google for links that are associated with other searches?
  2. The Guardian, 3/28, Robots vs. Human Experts, by Richard and Daniel Susskind - The Susskinds reflect on the reaction to their book over a year and half after its publication. (Listen to Daniel Susskind's appearance on our show.)
  3. Japan Times, China’s toilet paper thieves - High tech solution to a low tech problem.
  4. US Obamacare, Congress fails to repeal - The GOP had seven years to think about this and they dropped the ball on the goal line. 
  5. NY Times story stating 39% of colleges have reported declines in international student applications. They attributed this to Trump's election. Tyler Cowan analyzed the story on his blog - One real blooper I cannot let pass
  6. Live action Beauty and the Beast, Dan Sanchez, FEE article, Belle's Tax-funded Fairy Tale. Fun, true, and why libertarians ruin everything. 

BONUS article: How Beauty & the Beast is an example of anarchy done right. 

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 #135: Request for Proposals: Avoiding the Winner’s Curse

“Never forget that your weapon is made by the lowest bidder.” –Law Number 20 of Murphy’s Laws of Combat

Simply put, don't do them

We at VeraSage recommend that you do not do RFPs, because they subsidize dysfunctional buying behavior, often being used as a club to extract concessions from the current provider by customers who have no intention of changing suppliers. 

Or they are used by price sensitive customers you do not want anyway. We also suggest you charge for an RFP. Why not? The customers are asking you to compete, which has value in and of itself. 

If you charged for an RFP, like charging for admission into your firm, it might actually be a process that created some value, rather than merely reciting deliverables.

That said, many firms have to do a certain amount of RFPs. If you do, you should be well versed with what economists call the winner’s curse.

Avoiding the Winner's Curse

In auction markets, economists refer to the dreaded winner’s curse—whereby the winning bidder is often a loser, because obviously all of the other bidders believed the engagement had less value.

In other words, the only request for proposals (RFPs) that buyers will accept are ones you should not make. One of the ways to avoid the winner’s curse is to bid more conservatively when there are more bidders. Thomas Nagle and Reed Holden explain why in their book, The Strategy and Tactics of Pricing:

The more bidders there are, the more likely you will lose money on every job you win, even if on average you estimate costs correctly and both you and your competitors set bids that include a reasonable margin of profit. The reason: The bids you win are not a random sample of the bids you make. You are much more likely to win jobs for which you have underestimated your costs and are unlikely to win those for which you have overestimated your cost.

The only solution to this is, in effect, to formalize the principle of “selective participation.” You do that by adding a “fudge factor” to each bid to reflect an estimate of how much you are likely to have underestimated your costs if you actually win a bid. Needless to say, adding this factor will reduce the number of bids you win, but it will ensure that you won’t ultimately regret having won them.

RFPs have become more commonplace as competitive bidding has replaced negotiation for price buyers. It is as if dysfunctional buying practices have arisen to counter dysfunctional selling practices.

It is important to have some contact with the economic buyer—that is, the person who can actually make the decision to hire you, rather than just the procurement department. You need to find the person who can say “Yes,” not just the ones who can say “No.”

Establishing relationships and having internal advocates in the customer’s enterprise also helps to ensure your value is being considered, not just price.

Another strategy with RFPs is: No surprises. Your potential customer should know everything in your RFP before you submit it. Gaining an understanding of your customer’s expectations, business model—how they make money—and how your company can add value is imperative to increase your odds of a successful RFP, one that won’t suffer from the winner’s curse.

Co-Opetition
$11.71
By Adam M. Brandenburger, Barry J. Nalebuff

Co-opetition by Adam M. Brandenburg and Barry J. Nalebuff also discuss the following eight hidden costs of bidding that are also worth considering:

  1. There are better uses of your time.
  2. When you win the business, you lose money.
  3. The incumbent can retaliate.
  4. Your existing customers will want a better deal.
  5. New customers will use the low price as a benchmark.
  6. Competitors will also use the low price as a benchmark.
  7. It does not help to give your customer’s competitors a better cost position.
  8. Do not destroy your competitor’s glass houses.

Other RFP strategies

  • The RFP is not about your firm, it is about the value you will add to your customer—focus on how they will change, not your firm’s history and processes.
  • What is your competitive differentiation? If you do not have one, do you expect to be successful with this RFP?
  • Always submit options, at various value/price points, with any RFP.
  • What would justify the customer paying a premium price?
  • Are you dealing with the economic buyer? If not, you probably should not waste your time with an RFP.
  • Is the organization using the RFP process as “column fodder”—that is, to beat up its existing firm?
  • How you sell is a sample of how you solve—be creative, innovative, and different.
  • RFPs do not sell, people do.
  • Never submit an RFP to people whose criteria for judging your success are unknown.
  • What does the customer expect from their firm? How will you exceed those expectations?
  • Do not let the RFP be the first time you “test” your price with a customer.
  • Do not be constrained by the customer’s “budget.” As the opening email of this Appendix confirms, budgets are elastic, and if the economic buyer understands the value, the money will be found from somewhere else in the budget.
  • See if you can propose on a greater share of the customer’s business.
  • Consider charging for your RFP to test the customer’s seriousness, providing a full (or partial) credit if your firm is selected.
  • If you win this RFP, what will be the impact on the firm’s self-esteem?
  • If you have a 25 percent market share, you should be losing 3 out of 4 of your RFPs. In other words, do not worry about losing more RFPs than you gain.
  • Once you submit an RFP, you lose all control and leverage, leaving you asking “Have you made a decision yet?” If your RFP is innovative and surprises the customer, you will change the standard operating procedures.
  • Put a deadline on the price. No price should last indefinitely. Three weeks is a good rule of thumb.
  • Copyright all your RFPs so the firm retains the intellectual property rights (especially for advertising agencies).
  • If the customer asks you to match a competitor’s lower priced bid, be sure to understand the scope of work that the lower price is based on.
  • If your RFP is rejected based upon price, ask the economic buyer:
  • Do you not believe the value we discussed is accurate?
  • Do you not believe that we will be able to create that value?
  • Or do you think you will be able to acquire that value from another firm?

Recognizing not all customers are created equal, should be charged the same price, or accepted, or proposed for, in the first place, is essential to avoiding Baker’s Law: Bad Customers Drive Out Good Customers.

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 #134: Second Interview with Father Robert Sirico

Biography

Father Robert Sirico is the president of the Acton Institute, He lectures at colleges, universities, and business organizations throughout the U.S. and abroad.  His writings on religious, political, economic, and social matters are published in a variety of journals, including: the New York Times, the Wall Street Journal. He is also a parish priest in Grand Rapids MichiganIn his recent book Defending the Free Market: The Moral Case for a Free Economy, Rev. Sirico shows how a free economy is not only the best way to meet society's material needs but also the surest protection of human dignity against government encroachment.

Segment One—Ed      

Note: Our first interview can be heard here

Has the bishop in Grand Rapids given you the dispensation to eat corn beef and cabbage today (St. Patrick’s Day)?

Father Sirico is working on an Italian edition of his book, Defending the Free Market, due out this Spring.

I see, based on your twitter page, that you have met the Holy Father. How did that go? Father Sirico gave the Pope a copy of the movie, Poverty, Inc.

Regarding Pope Francis, is it too simplistic to excuse his thoughts on capitalism as just being due to his Weltanschauung of capitalism equaling cronyism?

On Twitter, one person said, "Since [Father Sirico] propagates views opposite to  decades of established Catholic social teaching, however, he ought to be excommunicated.”

Today, I was told in a Catholic Social Teaching Facebook group, when I suggested that federal welfare programs perhaps do more harm than good, he replied, "More harm than good? Wow, not allowing destitute senior citizens and at-risk poor kids starve to death is somehow harmful? We in America are a society, a community, and will be judged on how the weakest among us are treated. And you, sir, get an F.” 

I think this is because many people fail to understand the difference between civil society and government. Your thoughts?

Segment Two and Three—Ron

The entire discussion in these two segments were about Acton Institute’s latest movie, Poverty, Inc.

The movie open with this Machivelli quote: “The reason there will be no change is because the people who stand to lose from change have all the power, and the people who stand to gain from change have no power.”

Why does that describe the “global aid system” today?

It’s hard to compete with free. How can markets develop when shoes, food, etc., are given away for free. When Peggy Noonan asks Ronald Reagan: “What’s wrong with socialism?” Reagan replied, Well, it doesn’t work”

The movie takes on the Christmas song by Band-Aid song (“Feed the World”). It gives the impression that Africa is desolate, that nothing grows there, etc. Yet Africa is rich in oil, diamonds, gold, and other natural resources. The problem is it is disconnected from trade.

Government-to-Government Aid

The movie shows Bill Clinton admitting he was wrong with regard to Haiti by selling rice so the country could supposedly leap past the agriculture stage of development and skip to the industrial stage.

Agricultural subsidies keeps out poor farmers from selling to rich countries, while rich countries produce surpluses which they then sell/give to poor countries, which drives out of business local farmers.

The dignity of work is so important.

The only antidote to poverty is wealth, yet the poverty infrastructure never discusses wealth creation.

NonGovernment Organizations

Someone in the movies discusses a conversation where the person says, Now that you survived the earthquake, I hope you survive the arrival of all the NGOs.

There are over 10,000 NGOs in Haiti!

But when you give someone something for free, continuously, not only do you create dependence, but eventually you create resentment as well.

There’s nothing wrong with disaster relief, but when they stay for 40 years we have a problem.

Foreign Aid (“Official Development Assistance”)

Since Post WWII, the Breton Woods system created the International Montetary Fund and the World Bank, and of course we had the Marshall Plan. Even the Catholic Relief Charities receive 70% of its funding from government.

But not one country has ever developed from aid, not one!

Social Entrepreneurs

Does the founder of TOMS shoes really want people to not have shoes for the rest of lives?

If TOMS shoes is successful within the existing framework, all you are doing is making the existing system more harmful. Doing the wrong thing more efficiently is just creating more harm.

Adoption

The movie shows a couple who were spending $20,000 to adopt a Haitian child whose mother wants him. Approximately 80% of Haitians kids have at least one parent; they are called “poverty orphans.”

Because orphanages are coveted positions: they provide an education, food, shelter, etc.

One mother got a job, and moved from a tent to buying her own two-bedroom home.

Credit

The movie interviews Muhammad Yunus, the microfinance founder. While small and  large companies can get credit, the middle-sized business does not. If they do, it can cost 6-10% per month in interest.

As microfinance failed, or perhaps not lived up to its hyped expectations?

Rule of law

Poor countries lack secure private property rights, functioning courts to adjudicate disputes, and most people are locked out of the formal economy.

The economist Hernando de Soto says in 2/3 of world, there’s no rule of law.

No property rights means for the 60-70 million farmers in Ghana, they might have to buy their land 4-5 times. In Peru, it takes 289 days, working 8 hours per day, to start a business. De Soto documents all of this, and more, in his book: The Mystery of Capital.

Theological Question

Rabbi Daniel Lapin wrote in his book, Business Secrets of the Bible: “The opposite of wealth is evil. If wealth is not being created, then evil is being done.”

Do you agree?

Celebrities (the “Icons of charity”)

Bono admitted that commerce lifts more people out of poverty than aid. However, he insists aid is still needed, unless you are “brain and heart dead extremists.” He also insists that we need to move from paternalism to partnership.

There’s not enough talk about wealth creation.

Ron’s Thoughts on the Movie

1. Wealth is the only known antidote to poverty. We only have the word poor because of the Bible.

2. The road to hell is paved with good intentions.

3. Modified Christopher Hitchens quote: The icons of charity are “not friends of the poor, but friends of poverty.” It’s obvious that who benefits from the existing system are all of the players mentioned above, not the poor they sanctimoniously say they are helping.

Last Segment—Ed

During the end of our last interview, you said you were considering writing a book on economics and the parable of our Lord. Here is one I often use, but I wonder if I perhaps am taking it too far out of context?

Luke 12: 13 Someone in the crowd said to him, “Teacher, tell my brother to divide the family inheritance with me.” 14 But he said to him, “Friend, who set me to be a judge or arbitrator over you?”

What are your thoughts on the difference between empathy (I feel your pain) and compassion (to suffer with)?

Another word we do not hear talked about much today is “maturity.” It certainly isn’t displayed by both sides of the aisle in Washington DC.

What are your thoughts on sanctuary cities?

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.