Episode #176: Free-rider Friday - January 2018

Ron’s Topics

“This Fancy Restaurant Just Introduced Surge Pricing,” Money, January 11, 2018, Richard Vines/Bloomberg

One of London’s leading restaurants: Bob Bob Ricard, where each table has a call-button for Champagne, has introduced surge pricing. The same menu will now offer:

• 25% lower prices during off-peak times (Monday Lunch)

• 15% off mid-peak (Tues/Sun dinner)

• Sat dinner is full price

The Fairness effect is being handled well: It is not changing the menu, it’s just establishing that certain days will cost less, thereby offering a discount off standard rather than a surcharge for peak times.

We wonder if same size parties will end up spending more at off-peak times, given this discount?

The surge pricing does not apply to wine and champagne.

“Not great, again,” The Economist, January 6, 2018

According to a Center for Disease Control report dated December 21, 2017, life expectancy in the USA fell in 2016 for the second year in a row. The last time this happened was 1962-63. For a three year decline, you have to go back to the Spanish flu pandemic a century ago.

Life expectancy is now 78.6 years, down from 78.9 in 2014 (two years lower than the average in OECD countries), and 78.7 in 2015.

One cause is the epidemic of addiction to opioids, which claimed 63,000 lives in 2016.

The leading cause of death remain heart disease and cancer, which have leveled off, and even declined a little.

The category known as “unintentional injuries”, which includes overdoses, has moved from third to fourth place from 2015.  Six percent of deaths in 2016 were individuals in the prime of their lives, ages 25-34.

Preliminary data for 2017 indicate these deaths will continue to rise.

The Economist then blames president Trump for not appointing a drug tsar appointed, and not spending more money.

Good news: the number of deaths in 2017 on regularly scheduled passenger jets: 0, a decline from 2,429 in 1972 and 761 in 2014.

“Look, Ma, No Driver,” CSAA

Last November, CSAA and Keolis launched a level 4 autonomous minibus in Las Vegas that navigates a three-block circuit in a downtown neighborhood.

“Home runs,” The Economist, December 23, 2017: Parcels are delivered an average of 1.5 times in the Nordic region due to worries over “porch-piracy.” Forty percent  avoid online purchases.

Now, wirelessly connected locks, security cameras, and an App ($199) allow delivery people to enter residences to drop off packages.

Amazon is testing this system in 37 American cities, WalMart also, and even Sears for appliance repairs. 

“Beyond bitcoin,” The Economist, January 13, 2018

Dogecoin was launched in 2013 as a joke, and as of January 7 had $2 billion in circulation. Others, such as UFOcoin, Putincoin, Sexcoin, Insanecoin ($7m) have also been launched.

Around 40 coins have a market value exceeding $1 billion.

On January 9th Kodak launched a coin that allows photographers to charge for their work.

Telegram, a messaging service with 180 million users, will launch Gram to pay for range of services from online storage to virtual private networks.

Reportedly, Facebook is looking into creating a digital coin. Would Bitcoin’s days be numbered?

“Taming the titans,” The Economist, January 20, 2018

Google, Facebook, Amazon, Apple are all BAAD: Too big, anti-competitive, addictive, destructive to democracy.

Anti-competitive - Facebook and Google control 80% of news referral traffic; Google has an 80% market share in search, while Amazon controls 40% of online commerce. They all have a huge advantage due to network effects.

Addictive - Teens who use social media extensively are less happy than peers. Depression and suicides have risen. Apple CEO Tim Cook told his nephew to lay off social media.

Damaging democracy - People now get their news in filter bubbles, strengthening confirmation bias, and fake news is on the rise.

Proposed actions - “Hipster antitrust.”

1. Break them up!

2. Utility regulation - Mark Zuckerberg, you’ll rue the day you referred to Facebook as a utility, as ubiquitous as electricity. It’s hard to regulate prices when they are $0, so more likely regulators would cap profits.

3. Prevent new acquisitions

4. Data portability and interoperability. Customer data binds users to you and data gives them a huge competitive advantage. Let customers move their data elsewhere, and force companies to share the data with other firms.

Like sexual harassment scandals, M for monopolist, is today’s scarlet letter.

Content liability—your blanket protection won’t last. Germany can now impose fines if extremist content is not taken down within 24 hours.

Ed’s Topics

Alexander C.R. Hammond, “The Ice Box Cometh”

• In 1919, a refrigerator cost $11,000 in today's money

• Tasks that needed servants or, later on, expensive equipment, are now cheap for all

• Most people have a cheap fridge three times the size of the earliest models

“Stop Calling it an Opioid Crisis,” CATO, January 9, 2018

The "crisis" talk is cause some people in very serious pain to avoid any and all opioids for fear of getting addicted. While that is possible, proper usage makes it unlikely. 

The Greatest Showman movie, on P.T. Barnum

Ed gives it a thumbs up and recommends people see it and look for the entrepreneurial angle. 

See TSOE Episode #55 where we profiled P.T. Barnum

“Paying More at the Pump Will Not Fix California’s Roads if Politicians Keep Raiding the Gas-Tax Fund,” William F. Shugart II, Kristian Fors, January 5, 2018, Independent Institute

By July, Californians will be paying 65.7 cents per gallon in tax alone. Worse still the money, which is supposed to go to fix the roads, isn't.

Tax reform has done what the $15 minimum wage could not. See our TSOE Episode #88: Do Corporations Pay Taxes?

Partial list of companies raising the base wage to $15 per hour are:

• American Savings Bank, 1,100 employees

• Americollect, 250 employees

• Aquesta Financial Holdings, 95 employees

• Associated Bank

• Bank of Hawaii, 2,074 employees

• Bank of James

• Bank of the Ozarks, 2,300 employees

• Central Pacific Bank, 850 employees

• Comerica Bank, 4,500 “non-officer” employees

• First Hawaiian Bank, 2,264 employees

• HarborOne Bank, 600 employees

• INB Bank, 200 employees

• Regions Financial Corp.

• SunTrust Banks, 24,000 employees

• Territorial Savings Bank, 247 employees

Episode #174: Best Business Books for 2017

“I think we ought to read only the kind of books that wound and stab us. If the book we are reading doesn’t wake us up with a blow on the head, what are we reading it for.” --Franz Kafka

Ron and Ed’s Best Business Books Read in 2017

Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins, Garry Kasparov

• “Deep Blue was intelligent the way your programmable alarm clock is intelligent. Not that losing to a $10 million alarm clock made me feel any better.”

• “It was a human achievement, after all, so while a human lost the match, humans also won.”

• “Being remembered as the first world champion to lose a match to a computer cannot be worse than being remembered as the first world champion to run away from a computer.”

The Grid: The Decision-Making Tool for Every Business (Including Yours), Matt Watkinson

• “Essentially, all models are wrong, but some are useful.” --George E. P. Box, mathematician

• A good model that illustrates that organizations are interdependent, and you can’t change or optimize one aspect of a firm without changing—sometimes for the worse—other areas.

Fifty Inventions That Shaped the Modern Economy, Tim Harford

"The Luddites didn’t smash machine looms because they wrongly feared that machines would make England poorer. They smashed the looms because they rightly feared that machines would make them poorer."

The Gramophone

"The top 1 percent of musical artists take more than five times more money from concerts than the bottom 95 percent put together."

The Welfare State (and passports)

"These two massive government endeavors—the welfare state and passport control—go hand in hand, but often in a clunky way. We need to design our welfare states to fit snugly with our border controls, but we usually don’t. "

Passports were designed more to keep people IN by not allowing them out!

The Dynamo

"Until around 1910, plenty of entrepreneurs looked at the old steam-engine system, and the new electrical drive system, and opted for good old-fashioned steam. Why? The answer was that to take advantage of electricity, factory owners had to think in a very different way."

"What explained the difference? Why did computers help some companies but not others? It was a puzzle. Brynjolfsson and Hitt revealed their solution: What mattered, they argued, was whether the companies had also been willing to reorganize as they installed the new computers, taking advantage of their potential."

Double Entry Bookkeeping

"Someone would be charged to take care of a particular part of the estate and would give a verbal “account” of how things were going and what expenses had been incurred. This account would be heard by witnesses—the “auditors,” literally “those who hear.” In English the very language of accountancy harks back to a purely oral tradition.

So what, a century later, did the much-lauded Luca Pacioli add to the discipline of bookkeeping? Quite simply, in 1494, he wrote the book.10 And what a book it was: Summa de arithmetica, geometria, proportioni et proportionalita was an enormous survey of everything that was known about mathematics—615 large and densely typeset pages. Amid this colossal textbook, Pacioli included twenty-seven pages that are regarded by many as the most influential work in the history of capitalism. It was the first description of double-entry bookkeeping to be set out clearly, in detail, and with plenty of examples."

Microslices: The Death Of Consulting And What It Means For Executives, John M. Dillard

John M. Dillard started his career at the Central Intelligence Agency (CIA) and has dedicated every working hour since to helping organizations, private and public, uncover secrets to stay ahead of future threats— whether those threats are competitive, operational, or security related. His 15-year career in management consulting has benefited everyone from large players such as Deloitte Consulting to smaller companies such as the one he cofounded, Big Sky Associates. His consulting experience runs the gamut: from commercial strategy to government security operations and large scale IT, from banking administrative flows to analyzing operations at the 9/ 11 recovery site at New York City’s Ground Zero.

• Huge proponent if value-led pricing. Mentions Alan Weiss.

• Mentions “knowledge workers” ten times!

• Ed started creating a list of sentences that could have been written by Ron Baker, but I stopped after I the first dozen of so.

• The new model is a shift away from David Maister’s Trusted Advisor model.

Microslices Defined: The accelerating specialization, compression, and automation of consulting activities. Fully realized it will be the dominant business model of professional services.

Makes major points about big data and data science:

• Collecting lots of data is mostly useless without the ability to design techniques, predictive analytics, machine learning tools, and visualization techniques that provide insight into what it means.

• Data science and technology are not the same thing. Technology enables advanced data science, but data science is not hardware. In some cases, data science is enabled by software, but data science will not be performed by the IT guy in your company.

• Data scientists are not another flavor of computer scientist or technology consultant.

• Data science is just as concerned with masterful inquiry as it is with technical mastery. The art of asking incredible questions, testing hypotheses, validating results, and using the scientific method is at the heart of data science.

• Data science is more about creating the right questions to ask the data than about the technology of how to access the data.

Why is it important:

• First, data science facilitates faster delivery of professional services.

• Second, data science allows deeper specialization of professional service providers.

• Finally, data science is going to provide the basis for the automation of consulting tasks.

From Dillard's Company Manefesto

1. Time and value are not equivalent. We will provide maximum value in as little time as possible. The old model of charging on the basis of time is broken. We will never take longer than necessary to deliver a result. 

2. Work is something you do, not a place you go. Our work culture rejects “presentee-ism” (a belief system based on people being physically present) in favor of presenting killer results. 

3. Do unto ourselves as we would have our clients do unto us. Big Sky’s relationship with its employees should mirror our relationship with our clients. In other words, we expect our clients to respect us and focus on results, so we should do the same to each other. 

4. Greatness isn’t for everyone. Some executives really want to pay to see someone sitting in a cube at their facility, no matter how good or bad the work is. Some executives really want to pay to direct the details of how the work is done instead of for a specific result, which requires them to be charged by the hour. We believe that we should prove that our way is better—but that requires clients who accept proof.

Other good ideas:

• "Professional services executives, like executives in previously disrupted industries, make claims that they are “different,” that their model is based on trust, or that their hundred-year-old brand is impregnable. In law, consulting, accounting, and similar businesses that have traditionally been dominated by brand and reputation, executives may claim that too many functions could never be commoditized. They are wrong."

• Every company is becoming a tech company; some just haven’t realized it yet.

• "In my own company, we have moved away from enterprise systems that “do everything” to a collection of connected, niche products like Slack (for communications), Google Drive (for storage), Hubspot (for marketing), Asana (for project management), and Harvest (for expenses). Professional services is evolving in a similar pattern. Instead of hiring a behemoth firm to do everything, you’ll have a “user interface layer” that may be a firm or a tool. And the specialized work—from organizational structure analysis, to strategy, to pricing, to demand forecasting, to process optimization—will be completed by a network of niche specialists delivering together."

• "By using the term “millennial attitude” I am not referring to a specific age range but about cultural norms typified by an age range."

• "Don’t ask general counsel for permission. They’re good people, really. But they are heavily incentivized to insulate you from new ideas."

There are risks and costs to a program of actions. But they are far less than the long range risks and costs of comfortable inaction. —John F. Kennedy

Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration, Ed Catmull

• “What makes Pixar special is that we acknowledge we will always have problems, many of them hidden from our view…we work hard to uncover these problems, even if doing so means making ourselves uncomfortable.”

• “My goal is to create a culture at Pixar that will outlast its founding leading—Steve Jobs, John Lasseter, and me.”

• “We start from the presumption our people are talented and want to contribute. …our company is stifling that talent in myriad unseen ways.”

• If you give a good idea to a mediocre team, they will screw it up. If you give a mediocre idea to a brilliant team, they will either fix it or throw it away and come up with something better.

•  People trump process!

•  [Chefs say: Technique trumps ingredients].

•  “Process and efficiency are not the goals. Making something great is the goal.”

Shoe Dog: A Memoir by the Creator of Nike, Phil Knight

• A shoe dog is someone devoted to making, selling, buying, or designing of shoes.

• His Dad asked him: “Buck, how long do you think you’re going to keep jackassing around with these shoes?” “I don’t know, Dad.”

• “The world is made up of crazy ideas. History is one long processional of crazy ideas. The things I loved most—books, sports, democracy, free enterprise—started as crazy ideas.”

• One point of disagreement: Knight writes that “business is war without bullets.” We couldn’t disagree more with this analogy. Business is not war!

Other Resources Mentioned

Basics of Theory of Constraints, by Dr. Eliyahu M. Goldratt, author of The Goal. He criticizes cost accounting in the lecture, with compelling logic.

Russ Roberts, host of EconTalk, interviews Tim Harford on his book, Fifty Inventions That Shaped the Modern Economy

Episode #173: 2017 - Year in Review

2017 R.I.P.

• Roger Moore

• Adam West

• Glenn Campbell

• Fats Domino

• Jim Nabors

• Erin Moran (Joanie, Happy Days)

• David Cassidy

• Martin Landau

• Mel Tillis

• Tom Petty

• Stephen Furst (Kent Dorfman in Animal House)

• Hugh Hefner

• Chuck Berry

• Roger Ailes

• Joseph Wapner (People’s Court)

• Chuck Barris—The Gong Show

• Don Rickles—check out his autobiography, Rickle’s Book: A Memoir

• Jerry Lewis

• Mary Tyler Moore

• John Anderson (7% of the vote in 1980 presidential election). As a Congressman, he proposed a Constitutional amendment to acknowledge “the law and authority of Jesus Christ.” It went nowhere.

• Charles Manson, 83

• Ron’s dog, Winston, December 22, 2017, R.I.P.

Follow-up to our show: Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays

From The Economist: “Have yourself a dismal Christmas,” December 23, 2017

Listen to the original show: Episode #22

Top 3 TSOE Shows

Favorite Shows, as ranked by our listeners

• 3. Episode #126: Reappraising the Performance Appraisal

• 2. Episode #142: In What Year Were You Born?: Generational Astrology

• 1. Episode #130: Personality Profiles: Helpful or Hokum?

Special mention: Our #1 Ranked Show with guest was Episode #124: Interview with Gary and Jim Boomer.

Ron’s Favorites

• 3. Episode #147: Changing Your Mind

• 2. Episode #171: Interview with Johan Norberg

• 1. Episode #166 : Interview with Chris “Elroy” Stricklin, Colonel (Ret), USAF (Ed guessed it!)

Listener Email—HSD: High Satisfaction Day

Ed and Ron received this HSD email the day after Christmas. The author wishes to remain anonymous, but has given us permission to post. 

It's a bit long, but contains lots of great lessons for anyone who is still hesitant about no timesheets. Much gets written on the impact of technology and how it will change the billable hour model. Much less attention is given to the impact on smart people having to account for every six minutes of their day. I still believe talent is a big reason why timesheets have to go, not just technology.

You can't change a business model unless you also change what is measured--that's a historical fact. Here's the email:

Gentlemen – I hope you both had a wonderful Christmas.

I don’t normally give gifts personally, instead I subcontract that work out to my wife. However, I wanted to send something to the two of you that I know you will appreciate. (This may actually be re-gifting, since you directly played a part).

Effective Jan 1, 2018, our firm will cease tracking time for client work. Although the “6 minute daily diary” it is a tradition that spans the near-40 year history of our firm, it is no more.

Just a little background – for our area, we are a mid-sized firm. We provide audit, tax and accounting services, and also investment advisory services through a separate LLC. In the past couple years, we’ve had quite a bit of partner and employee turnover, health issues, and the slow-moving retirement of a still-active founder.

It’s been hard to focus on the working “on“ instead of “in” the business. However, I’ve known for a while that we could get to a place of killing the timesheet. Just thought it would take longer. But, last month, I attended QB Connect and sat in on a few of the sessions with Ron and others. On the way back home, I formulated my plan to move from 6 minutes to 15 minute increments for 2018, then end timesheets in 2019. However, once we started discussing the possibility, it became evident that prolonging the agony served no real purpose, other than to appear superficially cautious and thoughtful. (How, exactly, does one say “Honey, I will stay faithfully committed to you until Dec 31, 2018, then we are getting a divorce”???)

We have, for quite some time, been largely a “fixed price” firm, so the revenue piece was not the barrier. 90% of next years’ revenue is already destiny, as the “hourly rate” is not what it charged out. It really came down using it as a management piece. There was still the lingering feeling that timesheets were some indication of employee value. Your podcasts helped change our mindset, dispel that notion, and accelerate the change.

In the last couple weeks as I had conversations with my people, 2 things stood out to me. 

• First, my audit manager, who I’ve worked with for over a dozen years, said “Oh, I’ve always wanted to work in a firm without timesheets”. I was actually worried that this change might make her feel uneasy, but in fact she clicked her heels and did the “no place like home” thing…To be fair, I never asked, but if that was unknown to me, how many partners in firms really know what is going on in the minds of their most experienced people?

• Second, we have an intern that just graduated from college a couple weeks ago and is transitioning to full time. When I talked with her, I realized how little is taught in college about the actual business of a CPA firm. The whole “billable hour” concept is basically non-existent to her. She’s growing into a solid team member, strong values and good work ethic, and I don’t think that it’s overly dramatic to think that avoiding a year of documenting her worth 1/10th of an hour at a time may keep her in the profession. Being part of the value conversation will be something that will accelerate her growth here, or take with her if she decides not to stay with the firm. 

Our challenge, for the upcoming year, is to do the hard work of implementing options in pricing and perfecting our value conversations with clients that have been with us for 10, 20, 30 years. The tax law change is actually perfectly timed, and will help winnow out the clients that don’t really need us, and those that do. To that end, I placed an order on Amazon last night for a few copies of the TSOE book and “Implementing Value Pricing.”

As we head into a tax season: we are down one person from where we would like to be, Congress just went full Mad-Lib with tax code, technology is always solving the last problem but creating another one, and the “pay employees in bitcoin” gambit didn’t go well. Yep, I’ve got 99 problems, but timesheets ain’t one…..my only regret is that it has taken this long.

Thank you for the work you do!

Ask TSOE: Listener Question

Greg LaFollette, two-time guest on TSOE, asks the following: Inquiring minds want to know: Bitcoin Cash or Bitcoin (Core)?

There’s a fantastic debate on the Tom Woods Show: Ep. 1064 The Debate Within Bitcoin: Jameson Lopp vs. Roger Ver on Bitcoin and Bitcoin Cash.

82 Reasons Why 2017 was an Amazing Year

Fantastic article: “2017 Was a Year of Amazing Advances for Humanity,” by Marian L. Tupy, December 26, 2017.

Ed's top five

1. February 18: Smartphones to become pocket doctors after scientists discover camera flash and microphone can be used to diagnose illness.

2. March 3: Terminal cancer patients go into complete remission after groundbreaking gene therapy.

3. April 2: Plastic-eating fungus may solve garbage problem.

4. September 12: U.S. middle-class incomes reached highest-ever level in 2016, Census Bureau says.

5. December 7: Bumper crops boost global cereal supplies in 2017/18.

Biggest Loser and Winner

Ed says: Statisticians/pollsters (losers); and Donald Trump, both winner and loser.

Ron says biggest loser: Mainstream media, Hollywood, the NFL, and universities. Biggest winner: the administration, for achieving:

• Corporate tax reform

• Appointment of justices

• Repeal of Obamacare mandate

• ANWAR drilling

• Keystone Pipeline approved

• Regulations rollbacked

• EPA regulations rollback

• Net Neutrality ended

• Education Title IX rescinded—sex assault cases, due process

• Paris Accord withdrawal

• DOW at 25,000