Still Hard to Believe

I was reading an article in Barron’s this week about how companies are using the increases in revenue from the recent changes in the corporate income tax laws to buy back their own stocks, and provide larger rewards to shareholders in record amounts, and wondering how anyone watching this could possibly be surprised by it. I realize that this blog is starting to sound more and more like The Grumpy Old Man blog and less like a business blog, but the fact is that I’ve generally been in a bad mood since roughly 1977, I’m certainly not young anymore, and I’m absolutely a male human being of adult age for all that I don’t behave that way. And this latest reaction by business to our changing financial climate is the sort of thing that could have been predicted by a particularly dim six-year-old – or anybody else with no grasp of how money works…

It’s important to remember, I think, that stock shares aren’t just representative of an ownership position in the company; they are also sold by the company to raise money. Buying them back does cost money; potentially a lot of money. But as a result, the remaining stockholders effectively end up owning a larger share of the company, because the repurchased shares are now owned by the company, which is to say, by them. Even in the case of an overvalued stock, the share price is likely to rise because the shares themselves are now actually worth more than they were before. Naturally, this will make the stockholders happy, which will in turn make them more likely to retain (continue employing) the current board and management team, who can in term continue to collect their (sometimes ridiculously) large salaries…

This isn’t really a difficult concept. In fact, it’s somewhat simpler than a normal stock price increase. Most of the time, when the market price of a stock rises, it is because the people buying it believe that the company is or shortly will be worth more than the total value of the stock price indicates. This may have no connection to reality whatsoever, particularly in the cases where investors are speculating about things that haven’t happened yet. This is one of the factors that makes picking stocks that will increase in value so maddening; in addition to all of the economic, financial, political, and social factors involved, you’re also trying to predict buying decisions that may be completely irrational. Even people who are very good at picking stocks are only correct a relatively small percentage of the time…

From where I’m sitting, the question here is really why anybody would expect the companies who were in a position to do this to do anything else. The people responsible for the changes in the tax codes keep insisting that businesses will use the extra funds made available by the lower tax rates to expand their operations and create additional new jobs, but why should they? If any of those corporations want to use their own money to expand they probably could, but their stronger stock position means (among other things) that they can borrow money at a much better rate, and they can use the repurchased stock shares as collateral if they need to. And if a company is already profitable, and they have just become considerably more profitable, why would they or their ownership group want to mess with a good thing?

Now, I would be the first to admit that finance can be intimidating if you’ve never studied it. But this isn’t really a question of finance, or even of economics. Anybody who can grasp the idea of making the people who own your company happy being a good way to keep your job can understand why repurchase programs would happen, and anybody who can imagine that a time when people who are clearly driven by political advantage over any practical concern are making irresponsible changes to both our tax codes and our international trade status would make people cautious about expanding their operations can understand why these companies aren’t, in fact, expanding their operations…

I’ve heard a lot of people insisting that finance and/or money is too complicated for them to understand over the years – and I’ve annoyed a number of them by replying that the subject is entirely within their abilities, and refusing to learn about it means turning control of every part of our civilization that runs on money over to people who have no particular reason to act in the public interest. Let’s hope that somebody starts paying attention – to the economy, if not to me – before things get any worse…

Down Four Lanes of Highway

I think we were all expecting to see some of the companies impacted by the developing trade war start moving production outside of the US. Whether or not the new tariffs on steel and aluminum will actually help the U.S. companies that produce those materials remains in dispute, but the retaliation coming from the EU, Canada and China does not – and those counter-punches are going to hurt. For example, Harley-Davidson is facing an estimated increase of $2,200 per unit it exports to Europe – which is an increase from 6% to 31% if that helps. Company and industry sources both claim that Harley-Davidson was already considering moving more production off shore, but this gave the idea greater appeal. It’s a predictable response to a difficult situation. Unless you’re the President of the United States, apparently…

Both the BBC and CNBC are reporting on the move, and both of them are citing a tweet from our President saying that he is surprised and disappointed that Harley-Davidson is “surrendering” instead of waiting for the supposed benefits of this trade war to help make up the difference. How, exactly, a trade policy that protects US steel and aluminum manufacturers from foreign competition will help a company that makes motorcycles is a little tenuous. Granted, American metals companies could lower their own prices if they had less “unfair” foreign competition, but in general, companies lower their prices as a result of greater competition, not less of it. And even if our domestic producers were somehow inclined to lower their costs, there is no reason to believe that they will – or that it would be enough to offset the tariffs being placed on motorcycles by the EU and other to follow…

A much bigger question, at least from where I’m sitting, is why anybody would find either of these developments surprising in the first place. Random, arbitrary, and inexplicably high tariffs are going to provoke retaliation, just like any other hostile action. Make them high enough, arbitrary enough, and combine them with enough ignorant and belligerent rhetoric, and people are likely to see such measures as economic warfare – because that’s exactly what it is. And while I will concede that there are some conditions under which tariffs (and other sanctions) are justifiable, or even sensible – a trade war is still a better idea than an actual war, in almost every possible case – suddenly declaring a trade war on countries that have been your stable trading partners for decades makes about as much sense as attacking them without warning any other way…

I realize that this post is drifting away from business and towards politics, which I would prefer the blog not do, but by the same token this is very much a matter of strategy, and in this case, applying the wrong ones. As a matter of international business or economics this move makes no strategic sense for anybody except a handful of American metals companies, and we should note that if there is an economic crisis because of this trade war their business will not prosper either. The only category under which this qualifies as an actual strategy is in the case of appealing to a reactionary political base, or rewarding owners of newly-protected companies who happen to be current or potential campaign contributors. Which is really the point…

To put it simply, I don’t comment (much) on politics because having business interests attempt to direct national policy is a colossally bad idea – and that is what is happening here. I do not have any evidence that would prove that members of our current administration are allowing their own business interests, or those of their political supporters, to direct our national policy towards a potentially disastrous trade that can’t possibly do anyone on either side any good, and may ultimately be bad even for the handful of companies supposedly being protected under such a policy. I just can’t fathom any other explanation…

This won’t end well. It never does…

Unsent

I’ve been writing fiction for almost as long as I’ve known how to write, and I’ve had most of the same ambitions most writers do. Since I work mostly in Science Fiction and Fantasy, I’ve dreamed about winning the genre’s Triple Crown: the Hugo, the Nebula, and the Campbell. If you care, you already know what they’re for. But as a young man I took a degree in English Literature, and thus also dreamed about being the writer who would take the genre mainstream, and win the National Book Award, the Pulitzer Prize, and the Nobel Prize in Literature. In all honesty, though, what I really wanted to do was write a letter…

Dear Mr. Ellison,

As a long-time reader, I’m well aware of your feelings about fan letters, and fans in general, so I will keep this brief. As I’m sure you recall, in 1986 you traveled to Riverside, California, to accept the J. Lloyd Eaton Award for your achievements as an editor. While there, you were kind enough to put up with the sycophantic babblings of a truly graceless undergraduate admirer.

Needless to say, perhaps, that young man was me.

I was one of the only people present without either a doctorate or at least the beginnings of one, and when the awards dinner started I had no one to eat dinner with. I was looking for an out-of-the-way spot where no one would notice me when you entered with your party and asked if I would like to join you.

As Alan Dean Foster has written of a similar invitation, “Did I? Are bears Catholic?”

It was about half way through dinner when you stopped in mid-story and asked me if I was enjoying myself. I was probably grinning like an idiot at the time, but I certainly didn’t care. When I assured you that I was indeed, you smiled kindly, and replied “You’re a good kid, Max. You’ve got a good soul.” Then, without missing a beat, you went back to telling us a story about something that happened at a con event in New York several years earlier. I was laughing so hard by the end that I almost fell out of my chair.

Coming, as it did, more than two years after the fan atrocities you described in Xenogenesis, this was a remarkable act of kindness that has stayed with me over the years since. I have met a number of my literal and literary heroes in my travels, and entirely too many of them have eventually proven to have feet of clay. It remains an honor to have met someone just as brilliant, abrasive, combative, and irascible as his reputation would suggest, who is also kind, generous, and patient. A great spirit, if you will.

Enclosed please find a copy of my first novel. Ellison’s law may state that “90% of everything is crap,” but if you get the chance, I hope you will enjoy the 10% that (hopefully) makes up for the rest.

Sincerely,

Max P. Belin

As of today, this is one ambition I will have to abandon. Although I did meet Harlan again on two later occasions (and he remembered me from Riverside both times!), I still have not managed to publish a novel, and I never wanted to just send him a fan letter. I don’t send fan letters, and he didn’t read them, and for many of the same reasons. But it seemed to me as though telling the story, even if it is just a tiny moment in his story (an hour or so in 84 years of an eventful life), would probably mean more than anything else I could do on the occasion of his passing…

Here's to you, Harlan. Wherever you are...

 

What Color Are Your Skies?

There are times when I will read an article online and wonder about the tone of surprise and wonder the author is taking. I don’t mean the “product reviews” that say nice things about products made by companies that advertise heavily on that channel, or travel articles that encourage people to spend money on services provided by companies that do (or might someday) advertise on that channel. Both of those are common (if sleazy) practices that go back to the time of 1970s sitcoms, and it would actually be much more alarming if they didn’t happen. As American humorist Dave Barry points out, what travel site is going to publish an article titled “Uruguay: Don’t Bother” in the first place?

On the other side of the issue, you have people who write in breathless tones about people being rude to servers in restaurants, or flight attendants, as if no one is ever rude, arrogant, or snotty in public just because they are horrible excuses for human beings and the service workers can’t fire back. When that happens, I have to wonder if these writers have ever been to a public venue, let alone worked in a service occupation. I had a similar reaction to the Business Insider article about the top complaints that workers at Trader Joe’s markets have about the customers who patronize their locations. Have they ever been to a supermarket?

Granted that I have spent time in retail, but I’d imagine that everyone has discovered trash left on a shelf or in a shopping cart at least once, and most likely everybody has seen some really gross examples from time to time. A pet peeve of mine was finding frozen products dumped in non-refrigerated parts of the store – it’s generally disgusting, and always a cause of “shrink” (product stolen or destroyed by the public). Mercifully, I never worked in a store with a meat section; finding an ice cream bar that had been left out and was now a bulging wrapper full of rancid liquid was revolting enough. We also didn’t do product samples, but the idea that people would abuse such offers and attempt to graze on them for lunch can’t be that surprising, either…

Anyone who honestly thinks that members of the public aren’t going to be randomly horrible to service and retail employees, however, is either living in a dream world or has no idea how much their local service and retail workers would like to bury them head-first in a dumpster full of cat droppings. Let me recommend, once again, the compilation site of funny and stupid customer behaviors known as Not Always Right.com, where you can find thousands of specific examples of this principle in action. Although I must say that, after having worked in Academia for the last ten years, their affiliate site Not Always Learning.com is just as on-the-money, and possibly even more distressing…

Why does he tell us this? I hear some of you thinking. I don’t imagine that any of my readers (assuming I have readers) are planning careers in retail or service companies and are naïve enough to be unaware of these conditions. And while anyone can have an off day (and do things they would normally find repugnant), anyone who makes a habit of behaving that way is unlikely to recognize themselves in any of these stories or care if they do. I’m calling out writers who have never worked down at the sharp end for a day in their lives for their naivety, for assuming that these stories from the retail and service sectors are somehow alien or exotic. We can’t sentence everyone to work one of these jobs sometime in their lives, nor would I wish that on anyone. But with the service economy growing more important every year I think it may be time for everyone to start thinking of life in retail as being more than the question “Paper or plastic?”

Did You Have a Point?

A few days ago I ran across yet another article making fun of the USDA grading system for beef – you know, the kind of thing where they think it’s somehow clever to say things about “Utility” grade beef. I’d be the first to admit that grades like “Utility” or “Commercial” don’t sound all that appealing, while things like “Cutter” and “Canner” make you wonder if they are used for prison food or passed along to whoever makes dog food or hotdogs. I even made jokes like that, back when I was in my early 20s and food safety wasn’t something you could just look up on the Internet (because you couldn’t look anything up on the Internet yet). But today, all this does is obscure a serious business issue with silly wordplay…

I’m not going to link to the article, but if you’d care to see the actual beef grades used by the USDA you can find the link to the official web page here. There are three things you actually need to know about the system, even if you’re just a casual consumer. First, the USDA rating system has nothing to do with food safety. If whatever you are buying (or eating) has a USDA rating in the first place, it has already been inspected and is safe to eat. Second, the eight ratings are based on a variety of measures that should result in better flavor from a piece of beef when you cook it on a grill or a griddle – amount of fat marbling, age and size of the animal it came from, and so on. There’s no way to be sure of how any given cut of beef will actually taste; these are just industry standard estimates. And third, the rating system is a voluntary program…

The upshot is that the only cuts you are going to see in the supermarket, or in a quality restaurant, are going to be from the top three grades: Prime, Choice, and Select. The other five are just as safe to eat (or not; ask your cardiologist about that), but are not going to broil up into something people will pay $12 for at Applebee’s, $20 for at Outback, or $40 for at an actual steakhouse. On the other hand, if you grind them into hamburger, soak them in marinade, braise them in some strong sauce, or slice them up and package them as part of a canned soup or stew (along with the appropriate seasonings) they’ll taste just fine. Or, at least, no worse than those foods usually do…

Where all of this stops being an amusing Internet story (or perhaps a sophomoric joke) is that food safety really isn’t funny, and the rise in international trade is making the whole issue that much more complicated. Consider, if you will, that the US has banned importation of beef from several countries because of the threat of BSE/Mad Cow disease, while several other countries have banned importation of American beef because USDA supervision does not comply with their own national standards for food safety. In the last few years we’ve seen food recalls on everything from romaine lettuce to strawberries to breakfast cereals, for everything from e coli contamination to metal shavings, and who’s even mentioned the whole “Pink Slime” and ammonia controversy yet?

Now, I’m not saying there’s anything wrong with silly Internet articles making fun of the official terminology for something we’d all prefer to ignore. Heaven only knows, if we outlawed silly wordplay on the Internet half of these posts would just be the word “NO!” written over and over again in progressively larger and more elaborate fonts. But the official USDA terminology isn’t really any funnier than most of our Federal regulations. And I don’t know about anyone else, but I’d hate to live in a place where the USDA inspectors weren’t doing their jobs…

At the very least, I’d have to stop going out to lunch…

Born to Fail

It must have been twenty years since I last heard about the short-lived Coke product called Tab Clear, and probably longer since I’ve seen any. Most people knew of the product, if they became aware of it at all, as one of the wave of clear beverage products that appeared, briefly, in the early 1990s, along with Zima, Crystal Pepsi, and a number of others. What was not widely recognized at the time, but has since been confirmed, was that the Coca-Cola Company had never intended for Tab Clear to become a viable brand, and had accordingly spent almost no funds to test, launch, advertise or promote the new line extension. On the contrary; Coke wanted Tab Clear to fail spectacularly enough to take a competitor’s product with it…

I found the story on the Mental Floss site last week, and it immediately took me back to my first time in graduate school, when one of my MBA classes discussed what was then known about the product and the category. Pepsi had been the first company to try to take over the clear cola market, or create it if there wasn’t one, with Crystal Pepsi. The development and launch of the product had been a major expense for the company, but Pepsi was expecting to appropriate enough market share from various Coke products to recover the cost and then gain on the competition in overall sales. Coke might decide to create their own clear cola, or even reverse-engineer Crystal Pepsi and knock off their own version, but either way Pepsi would gain the coveted “first mover” position in the “clear cola” segment – if there was going to be one…

Instead, what the Coca-Cola people actually did was create a clear version of their legacy Tab cola. With the rise of Diet Pepsi over the previous decade, the Tab brand had become increasingly redundant, and any risk the company might incur from changing its formulation (e.g. alienating any remaining Tab customers) was less significant than the threat of losing share to Crystal Pepsi. What made the move so interesting was that Crystal Pepsi wasn’t a diet beverage, but since Tab was, consumers became confused and started expecting both products to be low-calorie. I have no evidence to suggest that Coca-Cola intentionally made Tab Clear taste bad (and neither do the people at Mental Floss, apparently), but they knew it couldn’t stand up to a full-sugar cola on taste alone – and with the products becoming conflated in the public’s imagination, anyone who was appalled by Tab Clear would also assume that Crystal Pepsi tasted terrible…

None of this was apparent in 1992-1993, of course, but even then people tended to place orders for “any generic diet cola” by just saying “Diet Coke.” Over the years since it has become increasingly clear that except for unusually brand loyal consumers the two products are, if not exactly interchangeable, then at least acceptable substitutes for each other, but the Coca-Cola people seem to have picked up on this phenomenon before anyone else did. I would suggest that the company’s experience with the New Coke debacle in 1985 may have given them some insights about the difference between perception and actual flavor, given that some of the most vocal opponents of the “new” formula were unable to distinguish it from the original Coke in repeated blind taste tests…

In the event, the strategy worked perfectly. People who had never tried either beverage became convinced that all clear cola products were terrible, and attempts to debunk these (baseless) opinions were no more effective than the ones regarding New Coke had been. Pepsi was never able to develop a large enough market for Crystal Pepsi, and they ended up withdrawing the product two years later without recovering most of the development costs. I’m not aware of any exact parallel cases in history, but I call the Tab Clear story to your attention anyway because it demonstrates two of the principles I try to teach my own students. First, always assume that your competition, whoever and whatever they may be, are as smart and as capable as you are – and that they will be watching you just as closely as you are watching them. And second, remember that no matter how bad the strategic picture seems to be, things can always get worse…

The Ethics of Expectations Revisited

In my July 2014 post “The Ethics of Expectations” I was writing about the rash of people complaining about, and ultimately suing over, for-profit programs in the culinary arts that ended up costing them tens of thousands of dollars to take, but would only qualify them for $8 to $10 per hour starting jobs. At the time I wasn’t really aware of for-profit schools offering law degrees; it’s not a part of the field to which I pay a lot of attention, and there are already a huge number of law programs available through traditional institutions anyway. Last week’s article about the fallout from the Charlotte School of Law fiasco (and my post on the subject) seem to have re-opened the issue, and I thought a follow-up might be in order…

There is a common perception in some of the States, particularly those with a particularly difficult Bar exam, that provided you can pass the Bar no one will care where you got your law degree. In California, for example, where fewer than half of the people who sit for the exam each year will pass it (and stories about people taking five or six tries to pass are common), it’s difficult to imagine that anyone who did pass would have trouble finding work. Maybe it won’t be the most glamourous (or high-paying) job, but surely there will be something you can do with your new credentials. Unfortunately, this wasn’t true even before the market became glutted with lawyers in the 1990s, and it is even less so now…

Despite the old joke about the person who graduates last in his or her class from medical school still being called “Doctor,” unless you plan to hang out a single and go into practice by yourself the school from which you received your degree will still matter. In a field where there will generally be more applicants than available jobs, such as in legal practice, you will very rapidly encounter situations where a managing partner has a choice between multiple candidates with identical credentials except for the quality of the school that conferred their degrees. At that point priority will probably go to the candidate from the best school, or at least from one that does not have a “horrible” reputation…

At that point, we have to question whether allowing anyone who wants to enter your law program, regardless of their odds of passing the Bar or getting a job afterwards, is any less fraudulent than promising people that they can become a celebrity chef with nothing more than a few months of school and a significant amount of debt. I’m not going to address the shenanigans the Charlotte School of Law (and others) have been pulling with fake scholarships and gaming the student loan system, because that absolutely is fraud, but the question of how bad a student can be before you have an ethical responsibility to tell them to do something else with their money and ambitions is still valid…

The problem becomes even murkier because there really are people who don’t do well on standardized exams like the LSAT, or even in regular classes, who really can excel when actually doing the job. When we include possibilities such as regulatory agencies and corporate positions that require law degrees but do not actually involve legal practice, things become even more convoluted, and when you consider that there are also people who have completed fully accredited law school programs and passed their state Bar who are still failures in practice, the question becomes hard to resolve even in the abstract. So I have to ask:

Do we, as business people or as teachers, have an ethical responsibility to exclude students from educational programs in which we sincerely believe they have no realistic chance of achieving any eventual success? Granted that as decent, caring human beings we don’t want to strand anyone with a huge debt that they can’t repay and no viable job opportunities, do we have any right to tell someone that their commitment and hard work will get them nowhere? Does our answer change if our own employment (and survival) depend on keeping students in school, or at least not driving away paying customers? I’m not suggesting that we have an obligation to keep anyone in a program that we know is beyond their abilities just so that our employers can continue to collect their tuition, but things are rarely that cut-and-dried in the classroom. How do we decide when it would be kinder to cut someone loose than string them along, and where do we draw the line?

It’s worth thinking about…

Are You Kidding Me?

Back in 2015 I brought you the story of what came out after the Ashley Madison data breach – a relatively small event, compared with the outrages at Target or Equifax, to take only two examples. What was really amazing about the Ashley Madison story wasn’t the data breach itself, but rather the revelation that nearly all of the active accounts on the site were owned by men, and many of the allegedly “female” members were members of the Ashley Madison staff, ‘bots being used to simulate active accounts, scammers pretending to be women, or (in a few cases) all of the above. At the time, I remarked that this was the perfect crime, in the sense that the men who had been effectively defrauded by the site would be extremely unlikely to complain to the authorities, since that would involve admitting to looking for an extramarital affair (if not actually having one)…

I doubted this would be the end of the company, or the story, however. The “Post-Truth” era was, mercifully, still years in the future, but it was already hard to imagine that anyone who was really desperate enough for illicit sex to risk offering their credit card information to an online company for that purpose would be deterred by the fact that somewhere between 70% and 95% of the “women” on the site didn’t really exist. While the data breach might scare off some of the saner or less desperate prospects, thus interfering with future sales, the company’s losses in the affair were only a $1.6 million fine and possibly the loss of a handful of men whose partners genuinely didn’t realize they were looking for something on the side. That would, however, still level tens of millions, if not hundreds of millions, of sleazy men who are bad at math thinking that despite the 35-to-one odds of actually finding a real women on Ashley Madison, they might be the one to get lucky…

This week brought a new wrinkle in the case, however. The USA Today site published a story about a report issued by Ashley Madison, listing the cities in which the largest number of new accounts have been started over the last year. The first thing that caught my eye was the lack of raw data; there are twenty cities listed in the linked article, but no indication of what size the client base in each of them might be. Does this mean that Dallas has 10,000 more cheaters than Chicago, or only 10? Or are there really only a dozen or so active accounts in each one, and is the company trying to convince people in those cities that someone will/might actually be available to sleep with them if they sign up? But then it gets worse…

The article goes on to say that Ashley Madison now has over 54 million accounts, up from the 36 million or so they had three years ago, and that the accounting firm of Ernst & Young now reviews their accounts list to verify that all of the accounts are for real. This isn’t impossible, of course; E&Y does perform that kind of audit, and some of their customers do have account lists of that size or even larger. The problem here is, even if they can verify that the accounts are active, how can they verify the existence of 54 million distinct customers – or, indeed, any particular number of customers – without completely violating the privacy of all of those people? And, one assumes, whatever confidentiality agreement Ashley Madison has with its customers…

More to the point, perhaps, how does any auditor, no matter how discrete, manage to determine how many people are actually using their Ashley Madison accounts, even if those people really do exist and are actually paying for their accounts? Assuming, of course, that anyone out there is going to believe a word the company says after the revelations of 2015. It would be nice to believe that there aren’t 54 million people out there who are capable of affording the cost of their Ashley Madison accounts and computer-literate enough to sign up for one who are also gullible enough to believe that this time the company is telling the whole truth – in effect, that the company is once again lying through its teeth…

But then I look at some of the other things that people in this country have been claiming to believe this week, and I have to wonder…

Borrowing a Vacation

I’m still not sure how I feel about the article in Market Watch about new services that are offering to allow people to finance vacations. That’s fair, I suppose, because I’m also somewhat ambivalent about the business transactions they’re talking about. Paying for things on credit – charging airline tickets and hotel fees on your credit card, for example, and paying them off once you get home – is a fairly normal part of travel these days. In fact, post-9/11 it can be almost impossible to purchase a plane ticket, rent a car or even reserve a hotel room without a credit card. Credit card interest being problematic isn’t news either; unless you are going to pay off all of your bills in full as soon as you get them, the interest can very quickly become a bigger problem than the things you purchased in the first place. But throwing a new form of consumer lending into the mixture just makes the whole subject even more confusing – and I don’t think the linked article is helping as much as they think it is…

The attraction of financing a vacation – assuming that you have the option of paying for it in some other fashion – is said to be that there are no hidden charges or fees involved; you know exactly what you are going to pay upfront. It is also apparently possible, depending on where you want to travel (and, presumably, your credit score) to obtain lower interest than you can usually get from a credit card company, which could be a major savings. The reason for all of the qualifiers in this post is that they also occur in the article. All of these conditions appear to vary depending on who is traveling, who is paying, what terms they want, how long they will need to pay off the trip, and what level of credit card interest they already have…

Confusing things even further is the fact that the Market Watch reporters bring up the idea of low-interest introductory rates, special deals, loyalty club and credit card rewards programs, and other limited opportunities that can, but won’t necessarily, reduce the cost of the vacation and/or the cost of the financing enough to completely change the financial implications of the situation. Some of these may be practical – financing anything at a special deal of 12% makes more sense than using a credit card to do the same thing at 28% interest – but not all of them are. In particular, applying for a credit card solely because you want to purchase something expensive during the three months you have a trial low interest rate is asinine unless you can pay off the entire trip in those three months. And if you can do that, you’d almost certainly be better off taking the trip three months later and just paying it off as soon as you get back…

The point I’m getting at here is that it isn’t clear from the article whether these programs are actually lower-cost consumer lending options or are just programs that make money on people who are unable to understand their credit card agreements or on people who are bad at math. All of the examples of other ways to finance your vacation that appear in the text struck me as one-off, specialized, unlikely, counter-productive, or just ways you could try to game the system that will almost certainly turn out for the worse. It’s possible that you could get a better interest rate from a company that just makes vacation loans than you could get from your credit card company, but if your credit is sufficiently good to do that you could probably just get a better credit card rate or a short-term bank loan that would do the same things for much less; that’s how consumer credit works…

Electricity in the Air

Some time ago I was reading through the Smithsonian’s Air & Space magazine when I found a small blurb about NASA testing an all-electric airplane. The design wasn’t quite ready yet; there were still issues with the weight and storage limitations of the batteries, which gave the experimental craft a small payload and a very short range, but apparently they were working on the concepts involved. On the plus side, the electric airplane had many of the same advantages than an all-electric car would have had: zero emissions, low engine noise, and the ability to charge directly from renewable energy sources rather than guzzling fossil fuels. I remarked at the time that we were going to need this technology, and more likely sooner rather than later, so I was very interested to see a story on the Reuters site this week about Norwegian authorities testing a two-seat all-electric aircraft…

You can pick up the original story – including some cool video footage of the plane in operation – here if you’d like. Apparently the craft is built by a company called Pipistrel, in Slovenia, and so far hasn’t got either the power or range for more than a few test flights, but both the officials and Alister Doyle at Reuters agree that the concept, at least, has potential. For the moment, the problem is all about energy density. For all of the problems for which they are (justifiably) famous, fossil fuels do have the advantage of containing/storing a relatively large amount of energy in a relatively small mass and volume. Battery technology has improved a great deal in recent years, but a bank of batteries big enough to propel an airplane of any size is still too heavy to get off the ground, and even if it could take off it couldn’t stay up for long…

Project teams at NASA, and apparently several other agencies and companies around the world, are working on smaller, lighter, more-efficient battery designs and also trying to come up with lighter airframes. There has also been some additional work on solar panels; NASA has flown at least one experimental drone that is basically a wing made out of solar cells with a series of small electric motors driving propellers along the leading edge. Called Pathfinder, and built by the same company that build the original Gossamer Penguin solar-powered aircraft, the most recent version can stay in the air for up to 15 hours (depending on day length and other conditions) and may be able to reach altitudes as high as 100,000 feet…

Why does he tell us this? I hear some of you wondering. After all, this is a business blog, and I have no credentials as an aerospace engineer, or even an electromechanical engineer. Because the folks in Norway are talking about introducing an entire fleet of electric-powered aircraft by 2040, with commercial flights potentially starting much sooner. I’ve been speculating for some time that the key technology of this century, or at least the one that will impact consumer products and services the most directly, isn’t going to be electronics or software applications, but rather battery technology. Not because there is any indication that these new energy storage methods are under development, or that I would understand them if they were, but because the demand for such products is growing…

I’m not saying that battery-powered airplanes are going to appear any time soon; unlike the advances we’ve gotten used to seeing in processing power, memory storage, or software sophistication, battery technology will require advances in our understanding of energy density and transmission efficiency, and can’t just be tweaked by hackers in a basement in Menlo Park, or thrown together using stock parts by two rogue geniuses in a garage in Palo Alto. I can’t even tell you where or when the technical breakthroughs are going to happen; as previously noted, none of my degrees are in engineering. But ignoring the potential of this technology over the next few decades would be very much like ignoring the potential of microprocessors, packet-switching software, or microwave telecommunications back in the 1960s…

The Ethics of Loitering

There has been a lot of ink over the past few weeks about the Starbucks incident where some overanxious store employee called the police because a couple of people were waiting for an associate to arrive before they purchased anything. Once again, I don’t think there is any controversy in this particular case; the employee appears to have acted because the people waiting in their store happened to be African-American, while ignoring the fact that many of their customers who aren’t people of color do this all the time. Starbucks responded by closing all of their stores to retrain the staff, and issuing orders to let anyone hang around the store for as long as they want to whether they order anything or not – which makes me wonder how many more of these incidents have happened recently. But regardless of what happened in this specific case, I thought that the company’s response brings up a larger question…

One could argue that as a place of public accommodation, Starbucks has an obligation to extend service to anyone who isn’t actively violating any laws, and that one of the services they offer is a place in which to sit and enjoy your coffee. One could also argue that chasing away people who may be about to place an order is bad for business, and chasing away people because one of the employees has an unreasonable fear of one or more specific demographic groups is bad for the entire company’s reputation and brand image. In that sense, the company’s response and the new standing orders make perfect sense. Anyone who has ever worked in a food service, customer service, or other “public facing” job already knows that there is another side to the story, however…

Sadly, there are people in any society who will abuse anything any product, service, or resource to which they can gain access. If the personnel in a Starbucks store are not allowed to ask anyone to leave for any reason, we can almost guarantee that someone will make inappropriate use of their premises, more likely sooner than later. That might mean relatively harmless things like people using the seating area for an office they don’t pay rent on, or helping themselves to condiments and paper products without buying anything, or it could mean serious problems like homeless people using the store to sleep in, drug users shooting up in the restrooms, or stalkers spending all day watching one or more employees before trying to follow them home…

Any of these latter cases is going to be virtually as bad for business as the conditions that precipitated the company’s policy change, with the added issues of OSHA violations and hostile and offensive working environment suits being a near-certainty. No one, least of all me, is going to suggest that any company should tolerate open or even implied bigotry among its employees, but anyone who doesn’t realize how much harder these measures have made an already difficult job category has never worked a public-facing job in a tough neighborhood. All of which leads me to the question:

Do we, as businesspeople, have an obligation to accept loitering, trespassing, or other inappropriate use of our facilities because a non-zero number of visitors will be offended by anything other than free and unlimited usage of the property? Realistically, some people are going to take offense no matter how carefully we attempt to meet all of their needs and no matter how hard we try to make them feel welcome. By the same token, some of our employees are going to have some discriminatory beliefs no matter how hard we try to screen them out, or how carefully we attempt to train them to keep those opinions to themselves during business hours. Where do we draw the line between trying to never offend anybody (which is impossible) and trying to maintain a perfectly clean, safe, professional working and eating/drinking environment (which is also impossible)?

It’s worth thinking about…

Once Bitten

I’ve been avoiding the whole cryptocurrency issue for a while now, partly because I think there’s already enough chatter about it flying around, and partly because I’ll admit I don’t completely understand the stuff. The basic idea is simple enough – you buy something in the hope that its perceived value will rise and you will be able to resell the thing for more than what you paid for it. It’s the principle behind the (mostly apocryphal) story of the Dutch Tulip Bulb crisis, or the Beany Baby fiasco in our own time. As long as the price of whatever it is keeps rising it will remain possible for each dealer in turn to resell the things at progressively higher prices, regardless of what actual value (if any) the thing might have. The problem is, these conditions won’t continue forever…

If cryptocurrencies have any intrinsic value, no one has been able to explain to me what it might be so far, not that it really matters in cases like these. Certainly, the Beany Babies were never worth more than a few cents worth of fabric and filling, plus the labor to design them, name them, make them, ship them, inventory them, and sell them. Every time one of these artificial markets finally pops – generally because somebody finally asks “Why are we paying $10,000 for a stuffed animal worth $9.99 retail?” – the people who end up losing the most were the last ones to buy whatever commodities were involved. It is understandable that anyone with items still in their possession would want to keep the market going, at least until they could unload whatever they had left; where the situation becomes completely revolting is when someone is manipulating the market to drive the spot price higher…

Unfortunately, it seems as though that is exactly what happened during 2017’s Bitcoin boom. According to a CNBC story posted yesterday, Dr. John Griffin at the University of Texas investigated the rise of Bitcoin and discovered that some party or parties (currently unidentified) were using other cryptocurrencies to stabilize the Bitcoin market during the boom, in much the same way that fraudsters have artificially inflated stock prices by placing artificial buy orders – the classic “pump and dump” scheme. The difference in this case is that since cryptocurrencies are not connected to any real-world property, there’s no way to prove that they are over-valued the way there would be with a stock issue – and since they aren’t regulated by anybody, there is no authority you could complain to if somebody was manipulating the market…

The CNBC article goes on to say that the price of Bitcoin has been plummeting over the last few months, losing around three-quarters of the value it had at the peak – which means that someone who bought a Bitcoin at $20,000 has now lost close to $14,000 on the deal, assuming they can sell it now. Of course, the more people dump these things onto the market the more the price will drop, and the cycle will continue. We’ve all seen cases of stocks dropping from hundreds of dollars per share to a few cents per share, and people who held onto them for just a few hours too long and lost everything; this is the same idea, except that in this case there is no SEC you can complain to. Or, more accurately, there is – but they can’t do anything about it…

The lack of regulation and oversight was one of the original selling points behind cryptocurrencies – the government can’t tell you what to do with them, the Federal Reserve can’t interfere with their interest rates, and there were no issues with national economies imploding or currency conversion rates. But even if cryptocurrencies themselves really are foolproof and incorruptible (which still remains to be seen), the market for them would of necessity respond to the laws of supply and demand, just like any other free market – and that means it is susceptible to manipulation, just like any other commodity, equity, debt or currency…

I’m not saying that any of the people you may know who made money on Bitcoin during its rise and fall are crooks, even if they made very large amounts of money, and even if they aren’t able to explain to you how the whole thing works or how they did it. I’m just pointing out that, unless evidence to the contrary surfaces, it would appear that this latest form of get-rich-quick scheme has turned out the way most of them do…

Something's Fishy

I probably shouldn’t have found the story out of New York regarding a seafood company’s claims of using “local” fish failing to pass the “sniff test” as amusing as I did. After all, mislabeling any food product is a crime, and misrepresenting the source of seafood products is a Federal offense. That doesn’t even consider the fact that telling people you purchase your fish from “traditional fishing communities” in their area, when you actually outsource the fishing to providers on the other side of the world, is considered fraud in most jurisdictions in the United States. It’s just that in this case, in addition to the usual schadenfreude of someone using purple prose to describe something they don’t (and can’t) actually supply, there’s something funny about a company insisting that they have “locally” sourced species of fish that are not found within 3,000 miles of where you live…

You can pick up the New York Post story if you’d like to see more of the company’s rather florid marketing language, but the basic idea is that a company calling itself “Sea to Table” has been claiming to have caught fish that are native to the Central Pacific and Indian Oceans in Long Island Sound, to have harvested Red Abalone (which have been a protected species for decades now) on the wrong coast of North America, and to have just had boats arrive with a new catch when satellite imagery demonstrates that they didn’t have anybody at sea that day. To me the question isn’t even whether the “farm to table” movement has finally jumped the shark (so to speak) as how it took them this long to get caught…

Now, I want to emphasize that this story isn’t about an atrocity; no one is claiming that the company sold anything that was past its sell-by date or otherwise unsafe to eat. I’m also not saying that there is anything with importing fish from where the species your customers want to purchase actually live, or that there is anything wrong with farm-raised shellfish or crustaceans. I do believe that basing your business model on the concept of offering a higher-quality product than you can actually provide is not a particularly smart or ethical idea, and doing so in flowery language playing up what good and responsible people you are is just asking for trouble…

I’m also not willing to state that anyone who cooks, processes, or re-sells seafood should also be required to hold credentials as an ichthyologist; if I’m paying someone to make my dinner I’m really more concerned with the dish tasting good (and being safe to eat, of course) than I am in knowing the exact species names of the fishes involved. And frankly, I think blaming the company for the working conditions and pay scales of the companies from whom they have been buying the outsourced fish, as the Post article also does, isn’t really fair. A small company operating in Brooklyn does not have the resources of a firm like Nike or Apple, and can’t very well travel the world assuring that both the fish and the fishermen involved with their products are being ethically treated. Although, again, it would probably be better not to brag about how much you love and respect fishing communities and fishermen, just in case…

Enough Already!

If I ever decide to relaunch my blog about non-business topics that I still feel are deplorable enough to reflect a possible end of our civilization as we know it, which I called “Racing to the Bottom,” I think I could do an entire series on the state of education in American, and in particular about how the for-profit schools really aren’t helping. To be fair, I could also do posts about the way the nasty anti-intellectual streak that has be present in the United States since the beginning is eroding both the quality of education and the importance placed on improving it, on grade inflation, on entitlement and cheating, and on the ways in which appointing someone Secretary of Education on the basis of how much money they contribute to your party’s candidate is almost as idiotic as confirming someone as Secretary of Education for the same reason. But even in the present context, I still think the situation at the Charlotte School of Law is unusually loathsome…

You can pick up the Washington Post article if you want to, but when you start reading into the details of the case things just get worse and worse. The Charlotte School of Law, despite the name, is a private institution operated by a for-profit company that chose to open a facility in Charlotte, NC, mostly because it was the largest city in the US that did not have a functional law school. They then started admitting students with no realistic chance of passing law school classes, even less chance of passing the Bar exam, and no possibly way of paying for the program except for massive student loans – although we should probably acknowledge that some real law schools have also been guilty of that last point…

Some of the tactic described in the Post article are unusually disgusting even in the for-profit college industry, such as offering students “scholarships” that they would only get to keep if they maintained a grade point average higher than they would be allowed to get on the curve. The Charlotte School of Law also had some more common frauds in its arsenal, such as hiring unqualified instructors, providing substandard (or completely useless) course content, and spending more money paying administrative salaries and management fees (not to mention dividends for their ownership body) than they did on instruction. All of which was made that much worse by the nature of their curriculum – and the requirements needed to practice law…

If a for-profit school offers you substandard training in the Humanities, or even in some of the less-regulated skilled trades, there isn’t going to be much impact. As I noted in a previous post some years ago, line cooks aren’t going to make executive chef money to start regardless of what school they attended, and not really understanding George Elliot’s Middlemarch might not even be a problem to you if you did pursue a career in English Literature. Unfortunately, in most jurisdictions in the US, if you want to practice law you are going to have to pass the Bar exam for that state (or district), and if you can’t it won’t matter where you got your law degree. Even worse, in some ways, is that even if you do pass the Bar, getting a job when your law degree is from a school with a horrible reputation may not be possible anyway…

What really takes the prize in the Charlotte School of Law story, in my opinion, is that once their academic failure rate and the failure rate their graduates experienced in trying to pass the Bar came out, and their accrediting body began investigating the school, the leadership made no effort to warn their students of the possibility that their program might lose its accreditation, the Department of Education might cancel their student loans, and that they might all be out on the street with tens (or hundreds) of thousands of dollars in student loan debt and no law degrees. Which is, of course, exactly what happened to them. The school’s leadership claims that they were under no legal obligation to warn the students until they actually lost their accreditation, and the Department of Education moves were beyond their control anyway – all of which is true, of course, but doesn’t make those lies of omission any less despicable…

I could make some comments about how the students attending the Charlotte School of Law should have known better, and maybe I will in a later post. Certainly, if being told that you have what it takes to be a lawyer, despite not having any existing academic credentials and not being able to pass the LSAT, doesn’t send up any red flags you are definitely far too trusting. If people telling you that you can complete a law degree program provided that you give them very large amounts of money and stop worrying about ever paying it back doesn’t clue you in, you’re probably not paranoid enough to be a lawyer in the first place. But just because someone is naïve, trusting, or gullible is no reason for the rest of us to allow something like this to happen to them…

Food Snark

I wasn’t planning to do a follow-up on yesterday’s post about IHOP – or, as they have temporarily re-branded themselves, IHOB for International House of Burgers. I figured that mocking them for the promotion – not so much because it was ill-advised as much as it was pointless and probably redundant – would be a fun post to write, and hopefully read, and that everyone else would lose interest in the story as quickly as I did. A generation ago, or even a decade ago, that would probably have been the case, but in the world of social media nothing ever goes away quietly…

Not surprisingly, Business Insider ran a short piece on Tuesday recounting some of the replies that competing hamburger chains had tweeted, which is a valuable service for those of us not currently on Twitter, by the way. Wendy’s already has a reputation for snarky tweets, so you would probably have been expecting them to comment. Their reply was “Can't wait to try a burger from the place that decided pancakes were too hard,” which I feel shows the proper spirit. Red Robin, another likely competitor I had mentioned in yesterday’s post tweeted that “We’re as serious about pancakes as @IHOb is about burgers,” which is probably also what you’d expect. Seeing A&W Restaurants get into it by tweeting a version of their logo turned upside-down and adding “We don’t know what it means either,” was a bit more unexpected, because I hadn’t realized that the restaurants division of A&W was still in business…

IHOP appears to have been expecting the tweet storm, as well, since their response “We don't want any beef with you, we just want to share our beef with the world," seems a little too rehearsed to be natural. Their CEO was later quoted as saying that “If we have other people in the world of burgers commenting on our burgers, it can only help,” which also suggests that they had anticipated the reaction from the industry. I personally thought that Waffle House had the best reply, though; asked by one of their fans (in a tweet) “Please stay waffle house don’t become burger house!” the company’s own Twitter account replied “No worries here...”

We’ve discussed the question of whether all publicity is good publicity, or whether being publically mocked – regardless of the platform on which that is happening – is worth the lost business from people who will decide that your original move was bone-headed enough to motivate them to avoid your company. In this case, I really doubt whether IHOP is actually going to lose business over the IHOB strategy; they’re an iconic part of American life, and anybody who wants cheap breakfast food at all hours of the day or night (and doesn’t have a Waffle House nearby) will probably continue going there…

Whether or not their new burger offerings gain traction, or whether people start visiting the restaurants during the off-peak lunch and dinner shifts in which they were trying to pick up ground remains to be seen, however…

It's a Stunt

Over the weekend, the International House of Pancakes, or IHOP, as they are often called, announced a temporary change in their name to IHOB, without any indication of what that was supposed to mean. Today we learned that the “B” stands for “Burgers,” and the temporary measure is part of the launch of their new line of burgers. There’s been the amount of chatter you would probably expect out there in cyberspace, or at least in the comments sections of the various articles about this promotion, with some customers claiming that the last thing they want to smell in the morning while at breakfast would be burgers cooking, while others applaud the “free” publicity the stunt is generating. Personally, I’m disappointed…

You can pick up some of the articles about this promotion here or here, if you have a mind to. My personal disappointment stems from the fact that IHOP has already got a number of burgers on their menu, including two of the ones they are pushing for this new promotion. I haven’t been in to an IHOP location to see if they’ve really added anything new, but I’ve been eating one of the products mentioned by name in the Market Watch article for years now – pretty much any time we go to IHOP at a non-breakfast time of the day and I don’t feel like eating chicken and waffles…

Now, I would be the first to admit that it is difficult for an established brand like IHOP to change its public image after this many years. At least three generations of customers (possibly five by now) have associated the company’s restaurants with breakfast foods served more or less 24/7, with a smattering of other menu items for people who may not want to eat pancakes at three in the afternoon. This ignores the fact that the IHOP menu is made up of at least as many non-breakfast items as the more traditional faire with which it is associated, or that the company’s biggest advantage is probably the same reliable uniformity that supports most other national chain restaurants, rather than pancakes, waffles, and bizarrely-named breakfast specials. I’m skeptical about the current promotion, however…

It isn’t difficult to figure out that a restaurant chain most closely associated with breakfast foods would want to promote its non-breakfast options in an attempt to increase customer traffic at the other times of the day. In fact, IHOP has been running television spot (and in earlier times radio and print media ads as well) for as long as I can remember, without any noticeable change to its customer demographics or peak operations times. I couldn’t tell you for sure without auditing their books – and nearly all of the IHOP locations are franchised, so even that might not help – but it would appear that the company is going to need more than advertising stunts to change these stats…

What, exactly, the company could do to draw more customers for lunch and dinner shifts isn’t clear from the articles, or from my observations as a long-time customer, for that matter. Without bar facilities available they can’t really expect to take on Chili’s, TGI Fridays, Red Robin, or the other players in that segment, and with kitchen operations (mostly) limited to frying things or toasting things it’s difficult to see what other segments they could move into. They can’t attempt to implement greater differentiation without massive upgrades to their facilities and equipment, and if they attempt to go low cost they run the risk of bumping into McDonald’s and Burger King on the low end, or losing market share to Denny’s and Waffle House in their current segment, or possibly both…

It should be interesting to see whether this promotion will lead IHOP into a major change in menu, marketing, or operational strategy – or whether it’s just another marketing stunt that no one will remember by this fall…

Protection or Aggression?

There has been a lot of ink lately about the tariffs that our current administration is trying to impose on imports of steel, aluminum, and various other commodities that impact the personal wealth of people who donated to their election campaigns. Measures like this are generally referred to as Trade Protectionism, and are generally enacted to protect domestic producers from unfair foreign competition – cases where a foreign company can use cheaper labor, lower raw material costs, looser environmental regulations, or subsidies from their national government to achieve a price level American firms can’t match. In theory, import tariffs protect domestic companies and their employees, but in practice there are a number of issues with such measures that make their use risky, or even counterproductive…

The obvious problem with import tariffs is that other companies can impose them, too. In cases where we need the imports more than they need our exports, their tariffs can be more effective than ours, and the overall effect on our economy will wipe out whatever advantages our import tariffs might have given the “protected” industries. That’s not easy to determine in advance, either. In the case of the oil wars in the 1970s and 1980s, for example, many people assumed that the US could retaliate for the (seemingly) arbitrary price increases for petroleum with similarly punitive raises in the price of food products. Unfortunately, it turned out that we did need oil as much as the OPEC countries needed food – given that we were using petroleum-based fertilizers, petroleum-fueled farm equipment and delivery trucks, and oil-burning ships to export the crops in the first place…

In the current iteration of trade tariffs, it is harder than usual to see these measures as anything other than political, due as much to the fact that there have been no major changes in those industries or pricing structures in recent years as to the countries being targeted by the tariffs. There have been occasional cases of Chinese and Russian companies dumping cheap steel imports on the US market over the last decade, but our domestic steel industry has been declining for much longer than that, and even if those imports were a factor it’s hard to see how erecting tariffs against Canada or any of the other G7 countries would help. Even if those countries weren’t going to retaliate for our random imposition of tariffs, and they’re already doing so, there would still be negative effects within the US to explain away…

Consider, if you will, the case reported in March of this year by Reuters, about the impact of the steel tariff on a company called Novolipetsk Steel PAO, in Mercer County, Pennsylvania. Novolipetsk Steel imports large amounts of bulk steel from the company’s mills in Russia, which it then rolls and processes in plants in the US. The steel tariffs are expected to have a positive effect in the vestigial American steel industry, with a few idle steel mills being put back into operation, but it will have a much larger negative impact on companies like Novolipetsk’s US subsidiaries, wiping out as many as three times the number of jobs created. And that doesn’t even consider the jobs that will be lost in the American industries that actually still export goods…

It would be nice to think that these tariffs were really intended to protect American workers in general, or even that the effects would be a net positive for the country. As noted above, trade protectionism is generally not a viable long-term strategy, but if applied carefully and limited to cases where unfair competition (low-cost product dumping, for example) really is occurring, it can have some positive effects. In most cases, however, actual trade negotiations between countries involved will be more effective and generally more mutually beneficial. In cases where there are no such trade wars in effect, where the country attempting to erect the tariffs can’t begin to supply its own needs for the relevant commodity regardless of import price, or where the administration in power owes significant favors to people who own companies in the relevant industry, however, it’s difficult to see these actions as protecting anything in the public interest…

Start Looking Ahead

I was reading the article from Business Insider about the Boyd’s department store in Philadelphia last week and reflecting that the business model that reporter Mary Hanbury describes may have even greater importance to future business operations, and particularly start-ups, than it does to the present company. If you’re not familiar with it, and I wasn’t until I read the linked article, Boyd’s has been in operation on the same site for the last 80 years, and is currently being managed by the grandson and great-grandson of one of the brothers who originally founded the company. It’s a very upscale retailer that features personalized service, custom tailoring, and a great number of value-added services that may have been common in pre-WWII Philadelphia but are considered a specialty strategy today…

We’ve all heard this story before, of course. Consider any of the more outrageous customer service efforts you may have heard about Nordstrom’s, for example (nearly all of which turn out to be true, as it happens), or more specialized retailers like Tiffany and Co. Boyd’s has features like free valet parking, sales associates and personal shoppers who form lasting relationships with repeat customers, and alterations handled for free (with the cost of purchase) by a 39-person tailoring shop on the premises. The salespeople keep in touch with their customers with hand-written notes and updates on new products for sale – the level of service that people who don’t understand retail think they should always receive, but rarely want to pay for…

In a world where more and more department stores are closing, and the handful still in operation, it may seem amazing that Boyd’s not only maintains its operations but is in fact expanding, hoping to increase its sales to female customers by expanding the women’s clothing department. But where the article extols the virtues of Boyd’s as a throwback to a previous century and suggests things that current members of the industry could learn from their example, what struck me was that the company seems to have happened across the concept that will keep them running regardless of the competition from Amazon (or other online retailers) – and those are the lessons we should be examining…

For all that it can be incredibly difficult to execute correctly, let alone profitably, the basic concept of retail has traditionally been to find something people want to buy and put a large selection of it somewhere that those people already do. Firms following a cost leadership strategy will then attempt to gain an advantage by lowering their operating costs, increasing their profit margin and possibly by lowering their prices, while firms following a differentiation strategy will attempt to find reasonably cost-effective ways to add value for the customer. With massive advantages in overhead costs (they don’t have to build or operate a store) and inventory (they can and do have warehouses and distribution centers all over the world), Amazon can out-perform almost any cost-leadership competitor, and it is getting harder to find anything that will add sufficient value to interest retail customers in shopping in the real world…

But what if we came at the problem from the other direction? Just assume that anything we can buy can be sold online for cheaper, and anything we can make will be duplicated by the competition as soon as they can figure out how we do it; what’s left? Can we offer a unique product, custom-made or custom-tailored? Can we offer a service that isn’t possible for a web retailer? Can we offer a level of quality, either in product or in services, which can only be provided through a relationship business, between employees who know their customers? There was a time when a retail business could succeed simply by being the only place in a local area where a specific set of goods or services was available, but those days are gone; can we out-perform not just the competitor across the street but everyone on the Internet?

I’m not suggesting that any of these concepts will be easy to develop, let alone implement. But the more we consider the retail sector, the clearer it becomes that location, inventory control, and competitive prices are no longer enough. Just as the mercantile businesses of the 1800s were replaced by the national brands of the 1900s, this new century is shaping up to be a time where the competition is always present, and always has massive advantages in terms of volume, purchasing power, and breadth of product line. But if the folks running Boyd’s are anything to go on (and they’ve been right for 80 years so far) then retail isn’t going away any time soon. It’s just evolving into yet another new form…

What Went Wrong?

Every once in a while it’s interesting to drop by the “Autopsy” website and take a look at some of the entries in their collection. The last time I was there the site as just over 100 entries; these days they’re up to 160 and still growing. If you have any interest in how entrepreneurial projects fail – and why they do, even when the idea behind them seems brilliant – you owe it to yourself to take a look at some of the stories here, and the liked articles that explain them. If you’re considering starting up your own business, regardless of your concept or area of interest, I’d have to say that you owe it to yourself, your business partners, your investors, your vendors, your customers, any anyone else who can be even tenuously considered a “stakeholder” in your venture…

Some of the entries in the “Reason for Failure” column are more predictable than others. The site isn’t searchable – it’s just a basic spreadsheet, really – so I can’t give you an exact tally, but the most common problem seems to be poor or insufficient capital at the start of the project. It’s really difficult to estimate the costs or durations of tasks you’ve never done before, and even if you are an experienced entrepreneur there is still a very strong motivation not to borrow (or raise) more money than you will be able to pay back, or allocating too much of your product’s service life to the development phase. I would point out, however, that leftover funds can be invested in any number of useful ways, including paying down the company’s debts – and no one will mind if you launch early, but going too long without generating revenue will kill any company…

Almost as common on the list are variations on the theme of marketing failure. In some cases, it might be because the product is too innovative and the founders underestimated the time and effort needed to create a market for something that has never existed before. In other cases, it might be because there were already too many competitors in the market, or because the number of customers who could possibly want/use the product was just more limited than the output of the firms trying to provide the product. And there is a definite mixture of products that no one could possibly want, products that could not be produced at any price people would be willing to pay, and business models where the cost of acquiring customers was higher than any realistic amount of sales that could be made to those customers…

Product concept failure also comes up a lot – some of the entries just say things like “product failure” or “complex and buggy product,” while others lament “crappy business model,” “focused on engineering first & customers second,” “too much time building it for ourselves & not getting feedback,” and “lack of product-market fit, and everything else in between.” And then there are the entries that don’t offer details (you’d probably have to read the linked article about the project) but which speak to the life of an entrepreneurial start-up, like “We were naive idiots,” “people really didn’t really LIKE anything about our product,” and “technical co-founder quit & pulled the code out from under me.” Some things really are harder than they look, after all…

This isn’t the only place on line that you can find such stories, of course. Just about all of the crowdfunding sites have pages about projects that did not succeed in getting funded, and stories about companies that did get funding but failed anyway. There are also a huge range of business database services that can give you both the narrative details and the financial information about some of these unfortunate stories, if you’re willing to subscribe or if you can get access to a research library that already does. I’m not suggesting that it would be possible to find examples of any type of business venture you were considering launching and review the ones that have already failed, or that doing so would automatically enable you to avoid making the same mistakes. As a business instructor, however, I can tell you that I could put together an entire class on entrepreneurial business failures directly from the Autopsy website and the hotlinks available there – and if they ever let me teach entrepreneurship I might do just that. I’m also suggesting that if there are examples available of companies that tried to do exactly what you are trying to do and failed, and you don’t at least go and look for those examples, you won’t need to be mocked by scruffy bloggers like me in order to feel like an idiot…

Release the Vultures!

By now you’ve probably heard about Toys-R-Us shutting down, either on the news or by seeing someone standing on a street corner holding one of those black-and-yellow “Store Closing” signs. You may also have seen video footage, online or on the news, about long-service employees, in some cases people who have been with the company for 30 or 40 years, being let go with no severance pay. But if you’ve been tempted to blame the failure of the company on Amazon or Wal-Mart, or showrooming, or any of the other scourges of retail businesses these days, I regret to tell you that the answer is much, much, worse – and far sadder…

You can find any number of stories and files online that go into detail about this, but I thought the article on Boing Boing did a good job of summing up the situation. I don’t have much to add to Cory Doctorow’s excellent reporting, but I thought the point ought to be made (again) about who is responsible for this travesty. Basically, what happened to Toys-R-Us was that a cabal of venture capital firms bought it, used the company’s assets to borrow a huge amount of money, took out a reported $200 million for their personal enrichment, and then defaulted on all of the loans. In addition to announcing that they wouldn’t be honoring the loans, the VC firms also revealed that they wouldn’t be keeping any of the commitments them made to their employees…

If you’re wondering how they got away with this, I regret to tell you that as far as I can tell none of the venture capital firms have broken any laws. It’s possible that one or more of their creditors may choose to sue them for defaulting on their loans, but if they’ve worked this out right there should be enough proceeds from the bankruptcy sales to cover most of it, and the lenders can write off whatever is left on their taxes. It’s also possible that the employees might be able to recover something through their own legal efforts, but in any case all of these are civil matters; no one has been charged with a crime – or is likely to be…

This class of financial banditry is sometimes called “Vulture Capital” and the firms involved are referred to as “Vulture Capitalists,” although I have to say I think that the nickname is unfair to actual vultures, who (as previously noted) never bother anything that is still alive. There are no laws to prevent this sort of thing, partly because it would be difficult to prove the difference between somebody doing this in order to extract money and then crash the company and somebody who just borrowed too much money and then failed in their attempt to run the company. You can’t realistically make it a crime to be bad at management (or finance, one assumes), nor would you want to throw people who were actually trying to do the right thing in jail because they overestimated their abilities…

Unfortunately, that means that people like the vultures in this story can abuse the system for their own ends. The other reason no one has been able to establish a standard for distinguishing vulture capitalists from garden-variety incompetents, or implement a law to stop them, is because (as you might expect) a lot of very wealthy people have spent a lot of time and money to prevent it. It might be possible for more progressive political forces to combat this, assuming that there were any and that anyone in the general public cared about this issue before their employer of thirty years was purchased and carved up by vultures. But until such time as the American people start demanding greater accountability, from their political leaders if not from their business leaders, this sort of thing will probably just keep happening…

So the sad truth is, that the people responsible for this travesty, and all of the others like it, are us…

Keep the Contract

The other day I was reading an article about why people steal office supplies from work and reflecting that the author was either missing or deliberately avoiding half of the picture. I’m not disputing that the majority of people make personal use of company equipment or supplies; I’m not even disputing that entirely too many people take supplies home or even sell them. And I’m not in a position to dispute that “shrink” of this type accounts for an average loss of 1.4% of a company’s revenue, although I’d want to take a look at those numbers before I committed to anything. But I’m not sure I agree with the corrective actions the author is recommending…

Writing for the website The Conversation, Professor Yannick Griep of the University of Calgary suggests that people consider (usually minor) benefits and potential (often severe) risks of stealing office supplies, at least for the purpose of “getting even” with their employer for wrongs real or imagined, and instead try to take a more constructive approach to solving the underlying problems. I can’t argue with any of that; even very extensive theft of officer supplies is unlikely to compensate you for any major wrongdoing on the part of your employer, and even very trivial theft may cost you your job, your career, or jail time. What I feel that Professor Griep is avoiding here is the company’s side of the situation…

As the Professor correctly notes in the original article, many employees have some amount of grievance stemming from violation of the implied psychological contract between management and their workers. If representatives of the company promised an applicant that there would be flexible working hours, regular raises, or opportunity for advancement, and what the employee ends up with is a dead-end job with no chance for promotion this side of retirement and a 1% cost-of-living adjustment every other year, then the company has broken that implied contract, and many people will feel that they are no longer obligated to keep up their end of the bargain – e.g. showing up on time, doing the work assigned to them, and not walking off with anything that isn’t bolted to the floor. What I think is unrealistic here is expecting the employees to be the ones to take corrective action…

While it would be facile to suggest that all managers are essentially the villains in a 19^th Century melodrama, it is difficult to deny that most companies do want to get as much work done for as little salary as possible – that’s how expenses work in a free-market economy. The problem occurs when the employees have a different idea of what the implied contract includes than the one from which management is working. Even if you are adhering to the letter of everything you have ever promised an employee, if they feel that they are being treated unfairly they are going to act accordingly – and that may not mean appropriately…

This is not to suggest that a manager couldn’t just wait and see what the employees want to bring to their attention regarding promises they feel you haven’t kept but what I’m getting at here is that they shouldn’t have to. Management is an active process, and a key part of any supervising manager’s job is to know his or her people and their expectations of the job and the company. If your people are underperforming, or if the atmosphere around the office appears to be hostile, or if individuals appear to be disaffected or unsatisfied, it is your job to find out why, and to see what you can do to improve the situation. Or, failing that, explain to your employees why you can’t…

I also don’t want to suggest that thieves aren’t a thing, because they most definitely are. Sooner or later you are going to encounter an employee who has been treated well and given everything you promised them who is stealing from the company because of greed, need, or any of the other common motivations for theft. But given that estimates of the percentage of employees who routinely take office supplies without permission runs from 75% to nearly 100% depending on whom you ask, it is probably worth considering what might be motivating your people to take some petty revenge on your company before you start implementing measures to stop them…