Loser

There aren’t at lot of events that make someone like me want to make the “L” sign on our foreheads and start yelling “Loser!” at someone who has managed to create his or her own Epic Fail in a business context. Part of it, of course, is simply due to the fact that I am a mature adult with two Master’s degrees in Business and a better-than-average experience with things that can go wrong through no fault of one’s own. Some of it is because I am a student of business failures, and I’m aware of how fine a line there is between a “moderate success,” a “fail” and an “EPIC FAIL.” And some of it is just because I’m the type to view another person’s misfortunes and think “There but for the grace of God go I,” rather than “Neener Neener Neener!” None of which keeps me from wanting to call the guy who renounced his U.S. Citizenship to avoid paying taxes on the money he made on the Facebook IPO a loser – and a complete idiot with no grasp of strategy – however…

In case you missed it during the original events, you can pick up the story on the Forbes web page. A man named Eduardo Saverin bought a large amount of stock in Facebook during the initial public offering, and then moved out of the country and renounced his U.S. Citizenship in order to avoid paying the capital gains tax he was sure would arise as the stock price continued to soar. He had to pay taxes on the $2.4 billion his shares were worth on that day, but he’d be immune to any additional gains. Unfortunately, he failed to take into account what would happen if the stock didn’t continue to rise – as, in fact, it didn’t. As of this writing, Saverin’s shares of Facebook are now worth about $1.2 billion, or about half what they were on the day he renounced his citizenship. But, since he’s no longer a citizen, he can’t take advantage of the tax implications of the loss…

Yes, that’s right: his stock is now worth $1.2 billion, but he is going to have to pay taxes on $2.4 billion. Best guess, according to Forbes, is that this will cost him around $180 million – in addition to the loss of half of his stock value in the first place, of course…

Now, I don’t pretend to know much about finance or tax law, let alone karma, but it seems relatively straightforward to me that if you’re going to play games with the tax laws in order to screw the United States government out of money you owe them, you should probably at least consider what will happen to your clever stunt – and your personal fortune – if the market doesn’t do what you expected it to do. Especially in a case like this one, where nearly all of the company’s assets are intangibles – not even defined things, like patents and copyrights, but nebulous things like market position and goodwill. Because if the market does not rise, you’ve renounced your citizenship and accepted all of the issues that will come with that decision for nothing – and if it drops, you’re losing money fast…

Previously in this space I’ve noted that right or wrong, a stock price is based on what people will pay for it, not on what the security is actually worth, or even on what they think it is worth. And in the case of a company that owns no property, has no tangible or intellectual assets, and is counting on driving its stock price up based almost entirely on hype it doesn’t take much to change people’s opinions. I’m not saying that attempting these sorts of shenanigans with tax laws and citizenship will automatically make you a loser; I’m saying that just as in any other human activity, you need to plan for the possibility that you’re not quite as clever as you think you are…

Slow Learners

By now, most people in North America – if not in the Free World – have heard about United Airlines breaking guitars, outsourcing their customer service call centers to India, putting minors on the wrong airplane and similar stunts that get them mocked, flamed and reported on the evening news. Most of the errors themselves are nothing of consequence; any organization run by human is going to foul up sometimes, and even an error rate of .0001% is going to result in several dozen cases each week when the company handles several million transactions a day. And while the screw-ups have been bad for the company’s image – and therefore generally bad for business – none of them have really be catastrophic. Or at least, none of them had been until the airline lost an unaccompanied minor last month…

You can pick up the original AP story from the CBC News website if you want to, but the basic idea is that a family was sending their 10-year-old daughter from San Francisco to Traverse City, Michigan to attend summer camp. They paid the usual $99 “unaccompanied minor” fee to the airline, and in return United agreed to make sure the girl made it through the transfer at O’Hare. Unfortunately, this didn’t happen. When the girl arrived in Chicago there was no one to meet her, and no one from United seemed to know anything about the situation. She asked to use the telephone to call her parents and tell them what had happened, but the airline people told her to sit down and wait, and they would handle it. Unfortunately, none of them actually did anything…

When the child failed to turn up in Traverse City the camp called the parents, who were understandably upset by this and started trying to get some word out of United. Her mother called the company’s main customer service line, which connected her with the call center in India, where (after a twenty-minute or so wait) a representative told her that her daughter had, in fact, arrived in Traverse City. On being told this was incorrect, the call center put her on hold for another ten minutes, and then repeated the (incorrect) reply that her daughter had arrived in Traverse City as promised. Meanwhile, the girl’s father called United’s frequent flyer number (he had paid for the tickets using frequent flyer miles) and got them to connect him with a customer service representative in Chicago, who told him that the third-party company that handles unaccompanied minor services for United in Chicago had “forgotten” to pick up his daughter, and the airline had no idea where she was now…

The father asked the CSR in Chicago to go look for his daughter, but was told that the CSR was going off shift and couldn’t help. However, after appealing to the CSR as one parent to another and begging for help, the United people in Chicago were eventually able to find the missing girl and get her to Traverse City just 4 hours late. Her luggage was another matter, however; that didn’t turn up for several days. The family asked the airline to refund the unaccompanied minor fee, but could not get any response to either telephone or written enquiries until the local television station in San Francisco took an interest. Finally this week United released a statement saying they had apologized to the family and were refunding both the fee and the frequent flyer miles. There’s no word on whether a lawsuit is coming, although if there isn’t one the company and its stockholders should all give thanks to whoever looks out for transportation companies...

Now, this really wasn’t an atrocity; there is no indication that United ever actually lost the young passenger, or that she was ever in danger of anything beyond extreme boredom. It is, however, an example of business practices so bad that I can’t even think of a bad metaphor for how bad it is. I can’t imagine why anybody would use a third-party company for this service in the first place, or why the CSR in Chicago would have said they did if they don’t; I also can’t imagine why United didn’t go berserk the moment someone told them that their third-party service had “forgotten” to show up. If anything had happened to the child in our story this could have exploded into a massive lawsuit costing tens of millions to settle and even more to fight, not to mention criminal charges and a possible Federal investigation. As it stands, only the merest chance seems to have saved the company from a fatal disaster of its own making…

And I can’t speak for any of my readers (assuming I have readers), but if I own stock in this flying madhouse, I’m going to sell it before the bottom drops out…

On a Roll

 A while back I brought you the story of a new development in the cola wars: a Coca-Cola invention called a “Freestyle” machine, which can produce any of the company’s 120 or so primary beverage products for you at the touch of a button, or create new ones by mixing together existing flavors. Since most soft drinks are just small volumes of flavorings (and in some cases colorings) added to a large volume of carbonated water it’s possible for a vending machine or a restaurant to offer a customer dozens or hundreds of choices in the space were a more conventional delivery system could only offer a few. After a few years in service it turns out that these gizmos are working out surprisingly well, although there have been some reports of learning curve being a problem – some people have to experience a mixture of Vanilla Coke and iced tea for themselves in order to learn that you should NEVER mix Vanilla Coke with iced tea (or anything else; Vanilla Coke is disgusting). This does lead me to wonder what will happen when they start releasing Freestyle machines with alcoholic options, however…

A story on the Atlanta Journal-Constitution website details some of the user comments about the Freestyle machines in use, and some of the planned developments. I thought the idea of using the Freestyle in a restaurant, where patrons can enter their drink orders at the table and have a server bring it to them, was interesting, although you’d apparently need to do something about people mixing revolting combinations and sending them back because said drinks are revolting. But you can limit that by only putting drinks on the customer interface that somebody might conceivably like, and there might be something you can do with disclaimers or payment up-front as well. I’m not sure about using it to mix drinks with alcohol in them, however…

One of the long-standing problems with trying to do anything clever in a bar concept is that many people go to bars with the intention of getting drunk, and there is literally nothing that drunk people will not think of doing – witness the cases each year where people get drunk and fall off of buildings unless prevented from doing so. Unless you can enforce some policy of people having to pay for whatever weird drink they order you’re going to end up with a lot of wasted alcohol – and unlike the other components in a Freestyle machine, that won’t be cheap to replace. But that problem aside, there’s no reason you couldn’t put several different alcohol tanks into the basic system, making it possible for the machine to create not just simple things like a rum-and-Coke or a vodka-and-tonic, but any combination of liquids that are stable enough to store. Add a bartender to handle complicated drinks and pour beers, and the Freestyle could lower your labor costs and cut the time it takes to fill a drink order. It’s the unattended versions that are going to cause trouble…

With the right plumbing and wiring, you can install a Freestyle machine almost anywhere – that was a key aspect of the original design. That means that with no additional effort you can have a self-contained kiosk almost anywhere that can mix up dozens (or hundreds) of alcoholic beverages at the touch of a button – a robotic bartender, you might say. But the moment you try that – and I think we can safely assume that someone WILL try that – there should be an instant firestorm between people who like the idea of getting a nice drink wherever and whenever they want (“Civil Rights!”) and people who think unrestricted access to alcohol is a menace to society (“Won’t Anyone Think of the Children!”)…

Of course, some countries already have unattended vending machines selling beer and other adult items, and perhaps the Coca-Cola people will start looking at sending some of the prototype machines to those locations. Meanwhile, PepsiCo is already working on a competing version that will also offer coffee products and smoothies, and there’s no telling what “inappropriate” uses somebody will come up with for those…