Episode #159: Interview with Daniel Bennett

Join Ed and Ron for their insightful interview with Daniel Bennett, Senior Behavioral Strategist with Ogilvy Change in the UK. He works with Rory Sutherland, who we also interviewed on Episode #9. Daniel shares his insights and experience on how behavioral science and economics can be used in business, enhancing both customer loyalty and profitability. Don't miss this fascinating discussion.

Daniel's Bio

Dan is a Practitioner, Speaker and Writer on the application of Behavioural Science to Marketing. The World's first 'Choice Architect' (until proven otherwise) joining Ogilvy Change in 2012 working on over 50 of the worlds major brands across retail, health and nutrition, organisational change, and society. His proudest achievements have been delivering behavioural interventions that deliver millions of pounds of revenue for some of the world's biggest brands such as Unilever, Nestle, Public Health England, Fox, ITV, the Times, British Airways, Unilever, Adobe, the EU Parliament, Comic Relief and many more. And winning a range of awards from the Creative Circle, Cannes Lion to the Nudge awards. He's been lucky enough to speak to audiences in over 15 countries about the unseen opportunities behavioural science brings. Some highlights have been the Super Yacht congresses, National Security summits, Marketing and Social Media conferences, financial conferences, and academic institutions 

Episode #158: On Healing Leadership

This episode is dedicated to the possibility that the majority of leadership thinking is wrong as it is ultimate based on manipulation - trying to “get someone to do something.” Coming to terms with this idea is difficult and not for everyone because it requires us to examine some of our most deeply held beliefs and either dismiss them or at least think differently about them. If you are interested in hearing a conversation about healing leadership, you are invited to listen to this episode with Ron Baker and Ed Kless. 

This material is based on the work of Howard Hansen and Steve Geske, who have appeared previously on The Soul of Enterprise - Episode # 11.

For more visit the Healing Leaders website. 

Books

• Healing Leadership: A Survival Guide for the Enlightened Leader, by Steven J. Geske and Howard R. Hansen
• A Failure of Nerve: Leadership in the Age of the Quick Fix, by Edwin H. Friedman
• Leadership BS: Fixing Workplaces and Careers One Truth at a Time, by Jeffrey Pfeffer, Professor of Organizational Behavior at Stanford Graduate School of Business

Ron's Notes on Leadership BS

Most conventional wisdom on leadership offers more hope than reality; wishes rather than data; beliefs instead of science; and is filled with fables, not facts.

He calls it “lay preaching,” like religion it offers a false sense of control.

Leaders fail with unacceptable frequency, and the leadership industry has failed in its 40-year history to improve the human condition.

Most people look for an “inspiring leadership course,” yet how manymedical schools advertise as “inspiring?” Inspiration does not produce change.

 Leadership industry obsessively focused on the normative—what leaders should do and how things out to be—whiling ignoring what is true, and what is going on, and why.

 Pfeffer debunks the five Leadership Attributes

1. Modesty—this is rare among most leaders; most are narcissists
2. Authenticity—not true to themselves, rather true to what the situation calls for (in sports, “play through the pain”). Anthony Weiner was authentic! Nelson Mandela, Martin Luther King, Jr. inauthentic? Who cares? True to which self? We are constantly changing.
3. Truthfulness—leaders frequently lie and face few consequences
4. Trustworthiness—notable mostly by its absence.
5. Concern for welfare of others—Officers eat after enlisted men. Yet CEOs earn 330x the pay of average worker, receive severance packages when they screw up, which is certainly not taking care of others first.

It is more helpful to understand why and how people who don’t have the above attributes reached such powerful positions.

His recommendations for improving leadership

1. Measure and hold people accountable—what gets inspected gets affected (he admits that measuring the wrong things is worse than measuring nothing; e.g., student evaluations ≠ learning)
2. Acknowledge the different interests of leaders and their companies (align career success with organizational success)
3. Use more scientific methods and worry about credentials

Did You Pray?

The Book That Started It All

Healing Leadership: A Survival Guide for the Enlightened Leader (Volume 1)

$27.50

By Steven J. Geske, Howard R. Hansen

Episode #157: Memorable Mentors - Henry Hazlitt

Henry Hazlitt (1894-1993) was one of the greatest economic journalists of the 20th century. He is the author of Economics in One Lesson, among twenty other books; was a chief editorial writer for the New York Times; and wrote weekly for Newsweek. He was a founding board member of the Foundation for Economic Education, where he served in an editorial capacity at The Freeman. We discussed the nine chapters included in the FEE’s free book, "The Essential Henry Hazlit," the last of five books in this Memorable Mentor series.

1. The Lesson (Economics in One Lesson, 1952)

“Economics is haunted by more fallacies than any other study known to man.” As Thomas Sowell says: It’s not the economics that’s complicated, it’s the fallacies. Why is economics bedeviled by these fallacies?

1. Not in physics, mathematics, or medicine do you find self interested individuals
2. Economists who only look at the immediate effects of a policy

 2. The Early History of FEE (The Freeman, March 1984)

 Leonard Read was the General Manager of the Los Angeles Chamber of Commerce. In 1947 he organized a conference in Vevey, Switzerland, with 43 libertarian writers, which was the beginning of Mont Perelin Society.

FEE opened March 16, 1946, Irvington, New York. In mid-1954 FEE took over The Freeman publication, one of Ron’s favorite (now available only online).

FEE published Roofs or Ceilings, by Milton Friedman and George Stigler, and Planned Chaos by Ludwig von Mises. Neither publication had a direct effect on legislation but even Adam Smith’s book, The Wealth of Nations, took time to influence policy.

3. Understanding “Austrian” Economics (commissioned by the Silver and Gold Report, 1981)

 Three prominent Austrian economists are discussed: Carl Menger (1840-1921), Friedrich von Wieser (1851-1926), and Eugen von Bohm-Bawerk (1851-1914).

Menger (and Stanley Jevons and Leon Walras) came up with marginal utility (Wieser coined the term), between 1871-1874.

Goods have no inherent value; they only have value because they help to satisfy some human want or need.

There are goods of the first order (consumption), the goods of the second order (machinery, labor, etc.) used to produce first order goods.

What a good has cost cannot determine its value. What it will cost determines how much gets made. Whether you mined a diamond or found one on street is irrelevant to its value.

Money is not a measure of value—it’s a measure of transactions at an agreed upon price.

After these three economists passed on, economics went to the mathematics of general equilibrium, which Austrians don’t believe. Balance is for tires and ballerinas, after all. Equilibrium doesn’t exist in capitalism because it is in constant dynamic disequilibrium. Austrians speak of a market process, not market equilibrium.

4. The Problem of Poverty (The Freeman, June 1971)

The history of poverty is the history of mankind. The Encyclopedia Britannica identifies 31 major famines from ancient times to 1960.

Thomas Robert Malthus (1798), author of Essay on the Principles of Population as it affects the Future Improvement of Society, was a pessimist who influenced Ricardo and even Darwin.

Hazlitt writes that this essay led British journalist Thomas Carlyle to coin economics as “The Dismal Science.” But this is not true (Hazlitt is wrong).

Carlyle was a racist who believed in slavery. The economists of his day, all of them from Adam Smith to David Ricardo, were against slavery. Hence, Carlyle’s epithet for economics.

Malthus posited his theories just as the Industrial Revolution was about to falsify them.

The population of England and Wales in 1700 was 5.5 million; in 1750, 6.5 million; in 1801 9 million (1st census); and by 1831 it was 14 million [due mostly to a continuous fall in the death rate, not an increase in birth rates].

Not one Famine since end of 18th century fell in a single country in the industrialized Western world.

5. False Remedies for Poverty (The Freeman, Feb 1971)

 Hazlitt identifies the chief evil from the left’s perspective is inequality, not poverty. There are several remedies proposed.

Land reform, guaranteed income, which destroys incentives at both ends of economic scale.

Unions and strikes, overtime rules that obliged employers to hire additional workers (more dues-paying members). Minimum wage laws, but we can’t mandate productivity. As Thomas Sowell points out: The real minimum wage is always zero. Price and Wage Controls. And outright socialism.

None work.

6. On Appeasing Envy (The Freeman, March 1972)

“Your levelers wish to level down as far as themselves; but they cannot bear leveling up to themselves.” Samuel Johnson

Justice Holmes: “I have no respect for the passion for equality, which seems to me merely idealizing envy.”

Helmut Schoeck wrote Envy, 1966.

Societies engage in redistribution to prevent a supposed actual revolution. But this is the opposite of the truth. Appeasing envy provokes more of it. We should never try to buy off a revolution.

7. Planning vs. The Free Market (The Freeman, December 1962, originally a lecture at the 1962 Mont Pelerin Society)

The question is not having a plan or no plan? The question is: whose plan?

Planning always involves compulsion.

8. Can We Keep Free Enterprise?

Coming Apart: The State of White America, 1960-2010

$11.06

By Charles Murray

No defense of capitalism will ever be generally accepted. Hazlitt identified give main impulses inherent in human nature to explain why this is true:

1. Genuine compassion
2. Impatience for a cure
3. Envy (graduated income tax)
4. Propensity to think only of the intended or immediate results, overlook secondary and long-term results
5. Propensity to compare any actual state of affairs, and its inevitable defects, with some hypothetical ideal

“Each of us is as free to practice what he preaches as to preach what we practices.”

Yet, as Charles Murray writes in his book, Coming Apart, the upper class is not preaching what it practices.

9. The Lesson Restated (Economics in One Lesson, 1952)

 The Forgotten Man of William Graham Sumner, essay in 1883:

Their law always proposes to determine what C shall do for X or, in the better          case, what A, B and C shall do for X…What I want to do is to look up C…I call      him the Forgotten man…He is the man who never is thought of.

Amity Shales book The Forgotten Man is an excellent history on The Great Depression.

The forces of self interest exceed forces of altruism. This is because our sphere of altruism is smaller.

We interact with many more people when we purchase goods and services in the market than we do in personal and social institutions. We couldn’t rely on altruism alone for food, automobiles, and the many other items we purchase in the free market.

Changes in tastes and preferences cause harm too, just like technology. If we increase sobriety, we reduce bartenders. If we increase male chastity, we decrease the world’s oldest profession.

Other Resources Mentioned

• “12 Venn Diagrams that Show the Intellectual Inconsistency of the Left,” by Mark J. Perry.
• To manage your Kindle highlights, check out: www.clippings.io
• Rules for Living, by Henry Hazlitt, making the utilitarian case for ethics.

Episode #156: Free-rider Friday - August 2017

Ron’s Topics

“The Myth of Technological Unemployment,” Deirdre N. McCloskey, July 11, 2017, Reason

Lot’s of economists think we’ll lose jobs due to technology:

• Robert Gordon, The Rise and Fall of American Growth
• Tyler Cowan, Average Is Over
• John Maynard Keynes and David Ricardo believed it, too

They were all wrong.

Walter Reuther, long-ago president of the United Auto Workers, touring a factory with newly installed robots with Ford:

• How are you going to get them to pay union dues, Walter?
• How are you going to get them to buy your cars, Henry?

This is a fallacious argument according to McCloskey because employees of car companies are a trivial share of the car buying public.

The point of an economy is production for consumption, not protection of jobs.

McCloskey writes, “If the nightmare of technological unemployment were true, it would already have happened.”

Each month in the USA, out of 160 million jobs, roughly 1.7 million vanish! That’s over 1%, each month.

In just a few years, at such rate, one-third of the labor force would be standing on street corners. We need flexibility in labor force mobility, not government programs, according to McCloskey.

“Hot Stuff,” The Economist, August 12, 2017

Flying at Mach 5 burns hot—3,000° C, which could take you from Britain to Australia in about two hours. This is above the melting point of most materials.

Two researchers, one at the University of Manchester, England, and one at the Central South University in Changsha, China, have created a novel substance: a ceramic, that contains strong bonds between their atoms: a carbon-carbon composite.

Infused in the composite with a liquid mixture of zirconium, titanium, carbon and boron.

The world’s Air Forces would love it, and so would commercial passengers.

1843, Aug & Sept, 2017, “Turn On, Tune In, Drop By the Office”

Remember Timothy Leary’s “Turn on, tune in and drop out”?

Well, Nathan, age 27, a venture capitalist in San Francisco, ingests 15 micrograms of LSD, every three days. A normal dose to get high is 100 micrograms.

He does it because it makes him feel more productive and creative, calling it “my secret vitamin.”

Americans age 30-34 are the most likely group to have tried LSD, even though drug use has dropped across board; LSD risen a little.

Researchers have traced the development of the personal computer industry through the 1960s counter culture.

One research center in Menlo Park (Xerox PARC?), observed 350+ scientists, engineers and architects, in experiments with psychedelics—how it affected their work.

Tim Ferris, an angel investor, says “billionaires I know, almost without exception, use hallucinogens on a regular basis.”

Steve Jobs: “Taking LSD was a profound experience, one of the most important things in my life.” He use to joke that Microsoft would be a more original company if Bill Gates had dropped acid.

Today, groups of friends rent a place in the countryside, take LSD or Mushrooms and go for a hike: a “hike-a-delic.”

Popular among technologically aware individuals because they are interested in science, nutrition, and their own brain chemistry.

It can also reduce social awkwardness!

Data on the number of people doing this is non-existent, but a group on Reddit has 16,000 members, up from 2,000 a year ago (most use 10 micrograms every 3 days).

LSD is not thought to be addictive.

Since there is a lack of medical research on microdosing, it’s touted as a panacea for depression, menstrual pain, migraines, impotence, etc.

Yet compared to America’s opioid epidemic, and 3.5 million children prescribed drugs for attention disorders, LSD doesn’t seem as threatening as it once was.

“The New Old,” The Economist, Special Report, July 8, 2017

During the 1940s, society coined the label “teenagers,” which was recognized to be a big market for goods and services.

Today, we need a new name for those 65 and older, but who are not yet elderly (by 2100, the 65+ group compared to working age folks ratio will triple).

In 1950, 65+ were 5% of the world’s population; in 2015 it’s 8%; and by 2050 it’s projected to be 16%. The share in OECD countries, is 16% in 2015 to 25% by 2050.

Today, in the rich world, 90%  of people will celebrate their 65th birthday!

The UN estimates between 2010-2050, the 85+ group will grow two times as fast as the 65+ group, and sixteen times everyone else labeling it a silver time bomb, or grey tsunami.

Doomsayers predict economic stagnation, asset-market meltdown, dearth of innovation, public spending increases, etc.

The Economist Report argues the opposite: this can be a boon if societies turn them into more active participants.

The financial industry needs to update its life-cycle models.

The so-called gig (or sharing) economy seems to help the 65+ group participate in the economy:

• ¼ of Uber drivers are 50+
• ¼ of those who work in the sharing economy are over 55 (according to PWC)
• Wahve (Work at Home Vintage Experts)
• Airbnb, the 60+ are the fastest growing group and have the highest ratings
• The 65+ group does a lot of unpaid work, volunteering 3.3 billion hours in 2016
• They may be slower at jobs, but they make fewer mistakes

According to the Kauffman Foundation, the  55-65 age group are 65% more likely to startup new companies than are 20-34 olds.

The 50+ age group have 70% of the disposable income in America. Global spending by the 60+ is projected to be $15 trillion by 2020, two times the 2010 amount, much of it on leisure.

So-called “Silver splits” are soaring: the 60+ are divorcing at twice the rate from 1990, and in Briton it’s three times the rate. 25% of Match.com users are between 53-72, growing faster than any other group.

Long-term care: 47 million people worldwide suffer from dementia, which could grow to 132 million by 2050 without a medical breakthrough.

Proposed new labels fro the 65+ group:

• Geriactives
• Pre-tired
• Sunsetters
• Nightcappers
• Nyppies (Not Yet Past It)
• Owls (Older, Working Less, Still earning)
• Hopskis (Healthy Old People Spending Kids’ Inheritance)
• Indy: I’m Not Dead Yet?

Life stages are social constructs, triggering deep changes in attitudes.

Rock stars used to rely on royalties but due to the digital revolution they are back on tour.

Lloyd’s has “Non-appearance products.” For example, Disney had it on Carrie Fisher, who died at 60 before completing Star Wars, resulting in a $50 million claim.

Keith Richards of the Rolling Stones, 73, has his hands insured for $1.6 milliion.

Underwriters are ready to accept their clients’ lifestyle and work hazards, arguing that where there’s risk, there is reward—if the price is right.”

They do have exclusions for pre-existing conditions, alcohol abuse, failing livers, etc.

Ed’s Topics

The Brave Browser

Ron asked Ed to take a look at this browser based on blockchain technology. It is okay, but not ready for primetime. Plug ins do not work. 

Nine words or phrases that predict where you grew up

Ed ran through them with Ron and predicted eight of nine correctly. 

EconTalk episode with linguist John McWhorter

Fascinating conversation about how language is never static. Give it a listen and see if you change your mind about some of your pet peeves. 

The Confusing Way Mexicans Tell Time

Understanding this word takes not a fluency in the language but rather a fluency in Mexican culture.

Reminder

The VeraSage Symposium and Art of Value Conference are coming up in November. For more information visit - http://thesoulofenterprise.com/verasage 

Episode #155: Free-Rider Friday - July 2017

Ed’s Topics

New York Urban Planning in 1898

Ohio in 1895 Theory of History: in 1895, there were two automobiles in the entire state of Ohio. They collided.

In 1898, in New York City, there was the first ever urban planning meeting. The topic: Horse manure. The conclusion: All cities will be gone in 50 years, certainly 100 because the manure pile wold be too great. All (100 percent) of the experts agreed!

Why is milk in the back of the store?

Russ Robert’s article on this topic.

Bitcoin’s Jump

Last Friday, Bitcoin broke $3,500 and $3,600 while we were on the air. Now it is over $4,000. When can we call this "real!"

GOP Healthcare Failure

Coyote Blog proposal. 

Up to 10% of Adjusted Gross Income, you pay, after that Single Payer

Ron’s Topics

“Fuel of the Future,” The Economist, May 6, 2017

Oil refinery and data centers much in common: crucial feed stocks to world economy.

By 2025, data every year will reach 180 zettabytes (180 followed by 21 zeros). It would take 450 million years to pump through a broadband connection.

Oracle: Data will be the ultimate externality; we will generate them whatever we do.

Google: Information allows it to target ads better; use for AI, and cognitive services.

Tesla possesses 1.3 billion miles worth of driving data, far more than Alphabet’s Waymo (its self-driving car division).

Flows of data are not a commodity; each stream is different (lack of fungibility):

• Unlike oil, it’s a non-rival asset
• Easily used for other purposes than agreed
• Adds confusion over who owns it (e.g., with driverless car who owns the         data: sensor makers, owner, passenger, auto manufacturer?)

We are only starting to develop pricing methodologies. When Caesars Entertainment filed bankruptcy in 2015, its most valuable asset: data on 45m customers.

Will the future bring personal data account that can be bought, sold, and managed personally?

Google’s chief economist, Hal Varian says data exhibit decreasing returns to scale, collecting more doesn’t add anything. What matters is the quality of the algorithms, and the talent that develops them. “Google’s success is about recipes, not ingredients.”

3 Policy problems:

1. Antitrust (broke-up Standard Oil; will Google suffer the same fate?)
2. Privacy
3. Social equality

The Economist, Free exchange, “How to be wrong,” June 10, 2017

We did episode #147, Changing Your Mind on June 16, 2017.

Real trouble leads to a refusal to grapple with contrary evidence.

Beliefs are like other economic goods. We spend time and resources building them, they become part of our identity (Endowment effect—we value that which we own or possess, sometimes called the IKEA effect).

People engage in three “motivating reasoning” to manage such challenges:

1. Strategic ignorance, avoid information that contradicts your beliefs
2. Reality denial, troubling evidence is rationalized away
3. Self-signaling, believer creates his own tools to interpret the facts in the way he wants (e.g., an unhealthy person goes for a run everyday which proves he’s well)

“It is rarely in the interest of those in the right to pretend that they are never wrong.”

The Economist, “Not so Froogle,” July 1, 2017

Margrethe Vestager, the EU’s competition commissioner has fined Google 2.4 billion Euros ($2.7 billion), a record antitrust penalty in Europe and the USA, for abusing it’s monopoly.

One business owner complained. NPR’s Planet Money podcast, Google Is Big. Is That Bad? discussed this issue.

In 2002 Google launched price-comparing shopping, called Froogle, later renamed Google Shopping. It was found to systemically favor Google’s own results.

Supposedly, Google has a 90% market share in Europe. Of course, that’s because the EU doesn’t count other sites as search engines for shopping, such as Amazon, eBay, etc.

Competition is just a click away. Compare the convenience of shopping on the Internet with that of driving around comparing prices.

One EU commissioner said, “We need these super-platforms to adhere to a principle of neutrality.” But competition isn’t neutral; there’s no such thing as “perfect competition,” which is the outdated model antitrust regulators use.

Economist Thomas Hazlitt’s new book, Political Spectrum, argues that net neutrality would have meant no iPhone.

EU has fined many USA tech companies: Intel, Microsoft (3 times), and Facebook. This is a form of blackmail, from unaccountable bureaucrats who are economically illiterate.

George Gilder is currently working on a new book, Life After Google (available in June 2018). Here’s a talk he gave at the Blockstack Summit 2017, where he argues that Google’s business model is not sustainable.

Charlie Gard, RIP, July 28, 2017, 11 months old

Parents: Connie Yates and Chris Gard wanted to try experimental treatment in USA for their infant son’s rare genetic condition, encephalomyopathic mitochondrial DNA depletion syndrome (MDDS). There are 16 known cases worldwide

The British government refused the parents to take their son to USA. Staff at the Great Ormond Street Hospital received death threats, which shows there’s at least some resistance in the UK who understand liberty.

The Parents raised £1.4 million from crowdfunding.

On April 11, the British High Court judge ruled that Charlie’s doctors to turn off life-support. Parents appealed to the Court of Appeals, the Supreme Court, the European Court of Human Rights, and lost at all three.

Two Congressman introduced legislation to expedite Charlie’s trip to USA.

On July 24th, Dr. Michio Hirano, at Columbia University, who was to carry out the experimental treatment. When he saw the scans of Charlie’s brain, he was no longer willing to provide the treatment.

In the UK, adults can consent to experimental treatment, but courts can overrule in cases of children. In the USA, courts are reluctant to go against the parent’s wishes.

This can mean doctors performing treatments they believe go against the best interests of the patient.

In Texas, the futile care law says that if doctors feel the treatment would be of no benefit the parents can appeal before an ethics committee. If the committee agrees, the parents can seek another doctor within a specified time limit.

Fortunately, only 10% of cases involve severely ill babies—hardest of all.

Charles Krauthammer wrote a column and offered this: Two truths must guide any decision cases such as these:

1. The parents must be sovereign
2. The parents are sometimes wrong

He believes the parents were wrong in this case. However, he would have allowed the parents take the child to USA. Since there are no definitive answers, so must we fall back on sentimentally, on love.

What’s the best for the child: The best guide is a loving parent, their motive is most pure.

Is death is in the child’s best interest? Dr. House: “Yeah, I’m trying to save her life, I’m morally bankrupt.”

National Review editors wrote: “Horrifying precedent: In the UK and, by extrapolation, throughout Europe, every child belongs, finally, to the state.”

John C, CPA, TSOE Listener Question, 8/2/17

Gentlemen,

I really struggle when I get the response that my price is too expensive.  I don’t get it all that often, which tells me my pricing is okay I think, but I wanted to see what your best responses would be to that response/question.

Thanks guys and keep up the good work!

John E. C, CPA, CGMA – Principal

Ron’s Answers

1. We’re not the cheapest CPA firm in town, during the value conversation
2. Reiterate value (value conversation is critical, excellent questioning)
3. Reiterate your value guarantee, fixed price, change request policy, no surprises, unlimited access
4. Often times, price isn’t wrong—the customer is
5. Also, often they don’t understand the value, not so much questioning the price

Ed's Answers

1. "Sounds about right."
2. As the President of Snap-on Tools once said, "I would rather explain my high price once, then apologize for skimping on quality later. 

Other Resources

Ron’s recent post on LinkedIn: “Why Timesheets Focus Firm Leaders on the Wrong Things.”

Episode #154: Innovation at the AICPA and CPA.com

About Greg LaFollette, CPA, CITP, CGMA

Greg is one of the most recognized and respected voices on technology within the accounting profession. He is also a sought-after speaker at trade shows and conferences. Prior to joining CPA.com, Greg was a consultant to public accounting firms and to technology vendors with a focus on the accounting profession. Additionally, he was the Executive Editor of TheTechGap — the country’s first blog specifically created for the tax and accounting profession and for vendors who seek to serve that community, and Senior Manager of Tax and Technology Consulting with the Top 25 firm of Eide Bailly, LLP.

Earlier in his career, Greg served as the Executive Editor of The CPA Practice Advisor (formerly The CPA Technology Advisor), VP of Product Strategy at Thomson Reuters Creative Solutions, and founding partner at LaFollette, Jansa, Brandt & Co., LLP in Sioux Falls, SD. He served on the AICPA’s CITP Credential Committee (Chair), the National Accreditation Commission (ad hoc via the Credential CITP Committee), and the Top Technologies Task Force, the TECH+ Planning Committee. He serves on the Technology Advisory Board of the Journal of Accountancy where his column, “What’s Your App-Titude,” is printed monthly.

He appears on Accounting Today’s list of the Top 100 Most Influential People in Accounting, the CPA Practice Advisor’s Top 25 Thought-Leaders, and was inducted into the Accounting Technology Hall of Fame in 2011. Greg completed his professional training at Augustana University (SD) and is a CPA, a CITP, a CGMA,, and a member of the AICPA Information Technology Division. He is a graduate and former staff lecturer at the AICPA’s National Tax Institute. He and his wife Kaye have one grown daughter and choose to live in their hometown of Sioux Falls, SD where he chairs the City’s Board of Ethics and is a volunteer’s as a high school speech coach.

About Mark S. Brooks

Mark is the Senior Manager, Innovation with the Association of International Certified Professional Accountants where he co-founded and now leads the organization's first ever Startup Accelerator, a particular model of corporate venture capital designed to accelerate R&D and growth into adjacent markets by investing in and partnering with startups within the global accounting ecosystem.

He has helped the AICPA increase revenue, organization learning, and enhanced collaboration with 13 state-level partners by exercising significant cross-functional leadership in piloting 5 new business models in emerging markets; resulting in 1,800+ new student members and new sources of revenue in <1 year.

Mark has had a role in enhancing the internal culture of innovation by developing and executing an innovation tournament, an innovation training program for staff in 9 countries, dedicated innovation spaces, and other high impact cultural initiatives that have engaged over 70% of global employees and significantly improved the internal culture (recognized with award from the CEO for these accomplishments).

As a skilled consultant, Mark routinely collaborates with senior executive leadership and 50+ global internal teams to identify and exploit adjacent market opportunities and develop go-to-market plans, resulting in strategic insights and revenue growth. He plan is to  develop a platform for idea sharing within the Accounting profession; awarded $10k innovation grant to implement from the American Society of Association Executives.

Within 2 years, he became a routinely sought after thought leader with 20+ accepted invitations to speak at conferences, publish magazine articles and blog posts, and ad-hoc consulting requests. Mark drives high performance and high caliber output of millennial direct reports through focused professional development and coaching.

Ron’s Questions for Mark and Greg

What does innovation mean to you?

Grade the profession A-F on innovation, in the past 50 years, or even shorter, the last 25 years.

Are there are any other programs or initiatives in the works to foster innovation in the profession?

What is the number one issue facing the CPA profession?

• Greg answered: Change management
• Mark answered: Sustaining its relevancy

Ed’s Questions for Mark and Greg 

What is happening with the AICPA and CPA.com Startup Accelerator?

Is this going to be Shark Tank type of program, with Greg playing Mark Cuban?

Greg: In your capacity as a thought leader to the profession, what are your thoughts on the Sage acquisition of Intacct?

Are we ready almost ready to call Bitcoin (not just blockchain) a technology of the future?

Have you heard anything about the results of H&R Block and its relationship with IBM’s Watson to help file tax returns?

Other Resources 

• Press release on the Startup Accelerator
• Startup Accelerator information

Free-rider Friday cancelled

Due to localized flooding at the VoiceAmerica studio, our Free-rider Friday show scheduled for broadcast later today has been cancelled. We are hopeful that next week's show will go on as planned.  

Thanks for listening. 

Episode #153: Accountants and Bookkeepers of the Future - Part 2

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.

Listen to Part One here - http://thesoulofenterprise.com/toronto1

Tamar Satov is the managing editor at CPA Magazine, and is an award-winning journalist specializing in business, parenting and personal finance. Her work has appeared in Canadian Living, Today’s Parent, Report on Business Magazine, Canadian Business and Vancouver magazine. She also contributes to CPA Canada’s financial literacy blog, sharing advice and anecdotes on her efforts to raise a money-smart kid.

Rachel Fisch is the National Bookkeeping Lead for Deloitte Canada and has over 20 years of experience in roles from Bookkeeper to Controller for growing businesses. She is in demand as a dynamic speaker and thought leader from local to International conferences and events. Rachel is passionate about supporting the bookkeeping and accounting community through her own experience and expertise, including the 1,500 member (and growing) Facebook Group QB-HQ. She continues to be an advocate of the highest level for cloud-based accounting and the app ecosystem, creating seamless workflow solutions for clients of all sizes across Canada. Rachel lives with her very patient husband and two amazing daughters near Toronto.

Dianne Mueller is the founder and president of the Institute of Professional Bookkeepers in Canada and Soma Small Business Solutions. For over 12 years she and her team have been helping small business entrepreneurs keep their financial position up front and central in their business. Established in 1997 and located on the Sunshine Coast of British Columbia, Soma provides professional outsourced bookkeeping, with full cycle accounting and payroll services. Soma has earned a reputation as a reliable and very knowledgeable source of bookkeeping help.

Episode #152: The Psychology of How and Why People Buy

VeraSage Symposium and Art of Value Conference

http://artofvalue.com/conference/

This Idea Is Not New

There is never a good sale for Neiman-Marcus unless it’s a good buy for the customer. —Herbert Marcus, advice to his son Stanley, 1926

It is a deceptively simple question: What are we getting paid for? Yet many businesses arrogantly assume they know what their customers want and believe they have been giving them exactly that for years.

This is a myopic vision, and potentially harmful, because there now exists a plethora of information available on why people buy, how they buy, and the decision process they go through, which businesses ignore at their peril.

In fact, there are least six theories of what people buy that we regularly discuss on this show:

1. Simon Sinek—People buy “why” you do, not “what” and “how” you do
2. Theodore Levitt: People buy expectations
3. Joseph Pine and James Gilmore: people buy experiences and transformations
4. Michael LeBoeuf: people buy good feelings and solutions to problems
5. Clayton Christensen: People hire a product to do a job
6. Kevin Kelly: Generative Value will be more important in our increasinbly technological future.

Economist Thorstein Veblen [1857–1929] posited many theories in his book The Theory of the Leisure Class (first published in 1899), which Maital has drawn upon for some of the above motivations of why people buy.

Veblen referred to a “barbarian culture,” citing that trophies such as property or slaves were signs of successful aggression.

In today’s culture, luxuries are the major signal of status and class, which Veblen reasoned were purchased for two reasons: to show others you are a member of the class above and to distinguish yourself from those below.

A better theory is posited by Michael LeBoeuf, Ph.D., in his book How to Win Customers and Keep Them for Life: Revised and Updated for the Digital Age. He suggests that customers have the following motivations for these various purchases:

• Don’t sell me clothes. Sell me a sharp appearance style, and attractiveness.
• Don’t sell me insurance. Sell me peace of mind and a great future for my family and me.
• Don’t sell me a house. Sell me comfort, contentment, a good investment, and pride of ownership [and a piece of the American Dream]

Successful salespeople do not necessarily ignore features in the products they are selling, but they almost always add “which means” to the end of every explanation of their product or service offering.

For example, “This car has a V-8 engine, which means it will last longer because it doesn’t have to work as hard as a smaller engine.”

Advertising giant Leo Burnett used to say, “Don’t tell me how good you make it; tell me how good it makes me when I use it.”

Again, Michael LeBoeuf distilled his summation of customer statements and posited the following overall theory to explain what people really buy:

Despite all of the untold millions of products and services for sale in today’s marketplace, customers will exchange their hard-earned money for only two things:

• Good feelings
• Solutions to problems

This is a good theory; it has a certain utilitarian streak to it––that is, the idea that individuals spend their time (and money) pursuing pleasure and avoiding pain.

It is the old marketing axiom that says you really do not buy drill bits, you buy the hole it makes. Understanding that simple fact could help a company (such as Black & Decker) get into the laser beam business, since they, too, put holes in things.

It also explains why so many people purchase lottery tickets; they are really buying a low-cost dream.

Rogaine does not sell hair (it cannot legally make that claim, since it does not work 100 percent of the time); but it does sell hope, and its advertising reflects this motivation.

Callaway Golf founder Ely Callaway, who introduced the Big Bertha in 1991, priced at $240 to $300, while its competitor Taylor Made was selling for $150, said “We sell the physical and emotional experience of hitting a satisfying golf shot, not increasing your distance by eight yards or that your handicap will fall.”

Focusing on the total customer experience––solving the problem and creating the good feelings––demonstrates not just competency, but distinction.

But the utilitarian view posited by LeBoeuf does not help a firm custom tailor its service offering to its various customers.

Theodore Levitt’s theory of what customers really buy: expectations. Levitt was a marketing professor at Harvard Business School, and once the editor of Harvard Business Review. His expectations theory is useful because it forces the company to focus on the utility the customer is trying to maximize.

By ascertaining customer expectations, the company has the ability to manage––to a certain degree––those expectations. Southwest Airlines is a master at managing customer expectations. Customers understand very well that it is a no-frills airline, with no assigned seats (although this is expected to change), no food, no first class, and so on.

Because expectations are dynamic, not static, it is also imperative to continuously ask customers what they expect. A company should never rest on its laurels and assume it knows exactly what the customer is up to.

When General Electric asked this question for its jet engines, it came to the same conclusion Caterpillar did, and it innovated the “Power by the Hour” program for its aircraft engines, whereby it would be responsible for maintaining the engines and price for the serviceable usage the airline received.

Charles Revson, who launched the Revlon cosmetics empire, introduced color-coordinated nail polish and lipstick during the Great Depression.

His competitors acted as if the product was a commodity, but Revson knew better. He believed nail enamel was not just a concoction of chemicals, or a beauty aid, but a fashion accessory, and he believed women should use different shades to suit different outfits, moods, and occasions. This, of course, greatly expanded the market, as women now purchased multiple nail colors, and matching lipstick expanded the market again.

Indeed, he understood better than his competitors what he was really selling. His famous saying, “When it leaves the factory, it’s lipstick. But when it crosses the counter in the department store, it’s hope,” reflects the wisdom of a company in touch with its customers’ expectations.

Disney is another company that has mastered surveying and listening to their customers. In the Disney tradition, they have their own term for the art and science of knowing and understanding customers: guestology.

At the Disney University course on customer loyalty, they teach that the most significant factor that determines whether a family will return to a particular resort hotel comes down to one item (and this Disney executives were shocked to learn, according to the instructors): the swimming pool.

Focusing on the customer’s individual expectations forces the firm to individualize its service delivery to that particular customer’s wants and needs. No two customers should be treated equally. Customers want to be treated individually, or better yet, specially.

There’s No Such Thing as a “Market”

Stanley Marcus led the store through the difficult Great Depression. After he sold his interest in the business, he became an author and consultant and his teachings hold many excellent lessons for the willing student. One point he was especially fond of making was there was no such thing as a market, only customers:

I am unaware of any store, or any business school, for that matter, that conducts a course or a series of lectures on “The Care and Treatment of Customers.” I am referring to “customers” and not “consumers,” for never in my retail experience have I ever seen a “consumer” enter a store. I’ve seen lots of “customers,” for that’s what they call themselves.

This was a particular sore subject for Stanley Marcus, who had this to say with respect to lost sales opportunities due to not paying attention to customers:

Americans used to be known as the world’s best salesman. Recently, it has become difficult in most stores to encounter that quality of salesmanship, if indeed you can even find a salesperson. A few years back, I made up my mind I would not buy anything I did not urgently need unless a salesperson was convincingly persuasive. As a result of this self-imposed discipline, I have saved $46,734.

The store used to have a standing offer of $20,000 for any salesperson who was able to read the mind of the customer. No one ever claimed the prize.

Another concept is that people buy emotionally and justify intellectually.

I live in California, and I understand the best time for earthquake insurance sales is right after one. This is curious, especially from an actuarial point of view. If people were willing to assume the risk prior to a quake, why would they not be willing to assume the risk after one strikes?

People also do not like to admit being sold, but they brag about what they buy. Think of the last time you made a major purchase––a boat, car, or appliance––and talked to a friend, colleague, or spouse and said, “Guess what I was sold today.”

People do not like to feel they are being sold because it makes them feel like they are out of control. The best salesmen in the world actually empower customers to buy and help them envision their future with their product or service. Forget selling, focus on what the customer buys.

The Job to Be Done

Competing Against Luck: The Story of Innovation and Customer Choice

$19.12

By Clayton M. Christensen, Karen Dillon, Taddy Hall, David S. Duncan

In Competing Against Luck: The Story of Innovation and Customer Choice, Clayton Christensen, 2016, posits The Theory of Jobs to Be Done.

Innovation is about progress, not products You’re selling progress, not products.

What are the experiences that customers seek, not just in purchasing, but in using?

Question: What job did you hire that product to do?

A job is defined as: the progress that a person is trying to make in a particular circumstance (we don’t create jobs, we discover them).

Customer satisfaction metrics: don’t reveal clues as to how to do the job better.

Negative jobs often are the best innovation opportunities, such as CVS prescribing medication with nurse practitioners.

P&G marketed in China that babies who wore Pampers disposable diapers fell asleep 30% faster and slept 30 minutes longer. More sleep led to better cognitive development.

By 2013, China was buying $1.6 billion of Pampers, giving P&G a 30% market share, in a country that hadn’t used disposables just a decade before.

IKEA doesn’t focus on demographics/psychographics, it is structured around jobs to be done.

Purpose Brands—synonymous with the job to be done

• FedEx
• Starbucks
• Google
• Craigslist.org
• Uber
• TurboTax
• Disney
• Mayo Clinic
• OnStar
• Harvard
• Match.com
• OpenTable
• LinkedIn

In 1952, surgical pioneer Dwight Harken observed that patients were surviving increasingly complex surgical procedures, but an alarming number of them were dying in post-op care, even though all hospital processes were being followed. An excellent example of being efficient and completely ineffective.

This observation—which is not quantitative, but qualitative, led to the ICU.

Humans are unpredictable

From 2012-16, according to Breakthrough Innovation Reports, by Nielsen, 20,000 new products were launched.

Only 92 sold more than $50 million in year one and sustained sales in year two.

Not everything that motivates us is a Job to Be Done.

Bottom line: we humans are unpredictable, dreamy, wayward creatures that can’t be neatly fitted into a unifying theory.

Episode #151: Memorable Mentors - Leonard Read

Art of Value and VeraSage Symposium

We are excited to announce the details of these two events. Check out the Agenda and register at: http://artofvalue.com/conference/

Biography

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.

Our discussion is on the free ebook, The Essential Leonard Read, available from the Foundation for Economic Education. It contains 12 chapters, which we discussed as follows.

1. I, Pencil

G.K. Chesterton: “We are perishing for want of wonder, not for want of wonders.”

In our Episode #4: The Economy in Mind, we discussed Leonard Reed’s essay, I, Pencil, and the book The Toaster Project, by Thomas Thwaits.

2. Neither Left nor Right (January 1956)

Libertarians are neither left or right since liberty has no horizontal relationship to authoritarianism.

“Left” and “right” is a semantic graveyard for libertarians.

3. A Break with Prevailing Faith

 The Freeman was “too conservative” for a high school library.

There’s no such thing as a broken commitment. A man has a commitment to his own conscience.

What is man’s earthly purpose: expand one’s own consciousness.

4. Socialism Is Noncreative

Socialism is operative only in wealth situations brought about by modes of production other than its own.

Socializing means and results of productions are two sides of the same coin.

Soviets are alive because they don’t practice 100% socialism (3-5% of land consists of private plots, yet they produce 47% meat, and most of other consumable food).

Ludwig von Mises said, "Production is spiritual…What distinguishes our conditions from those of our ancestors who lived 20 thousand years ago is not something material, but something spiritual. The material changes are the outcome of the spiritual changes.

5. How Socialism Harms the Individual

Does anyone ever benefit by the removal of self-responsibility?

6. How Socialism Harms the Economy

The more interdependent we are on each other, the more trust that is required. “Are we over specialized, and dangerously interdependent? I believe we are.” Much specialization is government forced and artificial (unnatural specialization, whose origin is not in consent). The Moon Project was his example.

7. The Most Important Discovery in Economics

H.G. Wells

Socrates: “This man thinks he knows something when he does not, whereas I, as I do not know anything, do not think I do either.”

Egotist: Hitler, Stalin

H.G. Wells: “A high-brow is a low-brow plus pretentiousness.”

Man is not really knowledgeable, only teachable. Subjective theory of value, greatest discovery in economic science. Labor theory, sentimental, poor, hard-working farmers, set political stage for AG subsidies.

8. The Greatest Computer on Earth

Market enormously complex computer. Computer can’t exercise judgment: GIGO (Guy-go).

9. The Service Motive

Founder of Panasonic. Focused on service, rather than profitability.

10. Why Freedom Works Its Wonders

Because of what we don’t know. If no one can make a pencil, try a Boeing 747, with 4,500,000 parts. And the private sector isn’t capable of delivering the mail?

12. In Pursuit of Excellence

Economic education is not enough! Teaching virtue and morals more important. Kakistocracy—a government by the worst men—or a natural aristocracy founded on virtue and talents? If no one person can make a pencil, can anyone design or draft a good society? US Constitution?

Reason magazine conducted an interview with Leonard Read in April 1975, which you can read here.

Listener Emails

Listener Vair Ellison sent us this hysterical article from The Washington Post, “Forget robots—the goats are coming for our jobs,” in response to our Memorable Mentor show on Frederic Bastiat.

Hector Garcia asks Ron is he still believe that Total Quality Service is still the “final frontier” of business? And thanks, Hector, for the Fortis Cab, from Pine Ridge!

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.

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

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.

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!

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 First, Surge, The 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

Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine

$17.55

By Mike Michalowicz

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

• Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine,  Revised and Expanded, 2017, (2014)
• The Pumpkin Plan
• The Toilet Paper Entrepreneur
• Surge
• Profit First Professionals
• Mike’s Speaking Schedule

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

Wealth and Poverty: A New Edition for the Twenty-First Century

$21.97

By George Gilder

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!

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.

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.

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.

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.

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

Appeal a parking ticket in New York or London

Blog post: We Need Less Generational Nonsense and More Leadership