After Apple removed all Google Voice apps from the App Store, GV Mobile has reemerged as an app for jailbroken iPhones on Cydia. To find it just search for “GV” in Cydia. It’s even gone from being $2.99 in iTunes to free on Cydia.
Believe it or not, there’s some interesting research coming out of business schools these days. This paper by Dan Ariely at Duke et al suggests that high performance-based incentives can stifle creativity and, yes, common sense.
If you’re looking for the Netflix case from Stanford’s GSB, here it is on Stanford’s own server in a folder called—gasp!—”restricted.”
If you’re looking for this HBS article in which CEO Robert Nardelli sets up Home Depot for disaster, Frances Frei has posted a copy of it in her online directory, even though it says “Do not copy or post” all over it. I would like to think that Frei, a well-known HBS professor, is posting articles to wage her own protest against the outrageous prices that Harvard Business Publishing charges for these things. However, that’s probably giving her too much credit. So sad, too bad.
From a conversation with one of the top East Coast VCs, these are the things you must receive in a term sheet if you’re on the VC side:
The absence of any one of those terms should be a deal-breaker, but if you have those, you should be able to get close the deal.
If you’re looking for Jim Collins’s article on which he based Good to Great, it’s right here. What struck me most while reading this is how rare true humility is in leaders—humility of the sort that might produce public statements like “We have no idea what we’re doing,” or “We’ll probably run this business into the ground”—and what an awful writer Jim Collins is. Business writing is often full of clichés, but his is especially bad in this regard.
If anyone is looking for this article by Ronald Heifetz and Marty Linsky, it’s available here on the University of Illinois’s website.
FedEx’s founding is well known in business school: Fred Smith wrote an undergraduate paper at Yale about the opportunity for a national overnight delivery service and received a C. He started the company, anyway, and it failed miserably before it became successful. In fact, even when it had its IPO, FedEx delivered a negative return to some of its earlier investors. What isn’t widely known is that the company was once in such trouble that its management team decided to take a trip to Vegas and bet its investors’ cash. Fortunately, for FedEx, they won. (A textbook used to contain this anecdote, which Fred Smith often told employees, but FedEx’s PR department seems to have erased it from the public record.)
Part of the problem with many term sheets is that they encourage failing companies to undertake negative NPV projects with high variance, or the possibility but not the likelihood of large returns. This tendency results from the liquidation preference in most term sheets that require investors to be repaid their investments before management can realize any value from its share of the company. If the company’s value has fallen below the level of those investments, the management team really has nothing to lose (except its investors’ cash). I can’t think of a better example to illustrate this tendency than FedEx’s side business at the roulette table in Vegas.
In today’s New York Times, Andrew Ross Sorkin maintains that A.I.G. should pay out its $165 million in bonuses because its contracts obligate it to do so and because it needs to retain its executives to extract the company from the mess it’s in. Both of those reasons are stupid. First of all, the government has enforced the breaking of several mortgage contracts to stem the tide of foreclosures. Contracts are broken all the time in bankruptcy, and A.I.G., without taxpayer support, would have ended up where? Yes, that’s right: in bankruptcy. Extreme times call for extreme measures, and I think the unprecedented government equity stake in A.I.G. makes rescinding the bonuses possible without setting us down some slippery slope to the point at which all contracts are meaningless.
As for Sorkin’s point about retaining talent, haven’t these people already done enough damage? And aren’t financial professionals readily available right now? The argument seems less than sound to me.
But here’s the real case for paying out the bonuses: They’re really not that much. We’re talking about a bonus pool that is like one fifth of one percent of all the money that the government had put into A.I.G. It’s like the value of C.C. Sabathia’s contract. In other words, as symbolic as these bonuses might be, they really don’t make much of a difference. Now, what is a bigger problem and worth fighting over is the fact that A.I.G. is paying out 100% of its obligations to the banks with whom it holds contracts. We’re talking about tens of billions of dollars flowing from taxpayers through the government, through A.I.G., and on to the banks without anyone, as the MBAs say, taking a haircut. Even shaving off one percent here would save far more than the total bonus pool that everyone’s raising a fuss over. Now, haircuts, my friends, are valuable enough to raise hell over.
One of my professors recently called Barbarians at the Gate (about KKR’s LBO of RJR Nabisco) the best business book ever written. I haven’t read enough good business books to make such a claim, but I did start reading Barbarians recently, and it’s a page-turner. So, at least it has that going. The prose is not great, but it’s good for the poor standards set by other business books. If the number of acronyms in that parenthetical didn’t scare you off, you can download a PDF copy of Barbarians at the Gate because some idiot, who doesn’t understand the concept or law of copyright, uploaded it to a file sharing site.
Some time ago, business schools started making business ethics a required class. It goes by different names at different schools—perhaps, yours calls it Leadership and Responsibility, or Professional Responsibility, or Professional Ethics. Several schools instituted this requirement after the Enron and Worldcom scandals at the beginning of this decade. I’m not going to analyze the effectiveness of these additions, but I would like you, dear reader, to remember the current state of the economy and the MBAs who are partly responsible for getting it there. It’s a bit late for them to start applying the concepts they learned in that ethics class, don’t you think?
Given the results, I would like to suggest that schools replace the ethics requirement with something that might actually help MBAs: a writing requirement. In no academic environment have I ever met people who are worse writers than MBA students. And I’m not talking about the Russian finance wizard who just scored high enough on his TOEFL to get admitted. I’m talking about homegrown, American, English-speaking near-illiterates. How is possible to reach 27, 28, 29 and not know what makes a complete sentence? Or the difference between affect and effect? Or to think that bullet points somehow make an essay? You think that writing in bullet points displays your great skill at bottom-lining issues? No, it displays the fact that you don’t know how to write a single sentence in this language. And your use of the phrase “bottom-line” as a verb—well, you’re going to lose some points for that too. Where the hell did this whole he/she thing come from? Have you ever seen the Wall Street Journal publish a story that contained “he/she”? No, you haven’t. (Have you ever seen this/that in any reputable source? Have you ever seen it in the New York Post? Again, the answer is No.) The Journal is all you read, so I’m really not sure where you’re getting it from. If anyone knows the answer to this, please tell me. The gender wars and political correctness are over, people, and, anyway, we’ve more or less settled on “they” as an acceptable, genderless, single, personal pronoun if you must go that route. So, to you administrators who set curriculums, I give you the following in the format your students understand:
One of my friends asked me to recommend an external hard drive today, and it reminded me of a case I read about the hard drive manufacturer MiniScribe. It appears in Jim Collins’ book, Managing the Small to Mid-Sized Company, as case 17 about a company called R3. Collins changed the names of the company and the people involved, but his veil is thin.
MiniScribe was founded in the late 1980 and went public a few years later. It grew rapidly and then crashed before being rescued by the San Francisco investment bank Hambrecht & Quist, which installed Q.T. Wiles as the company’s CEO. The company recovered briefly, but Wiles continued setting ambitious goals for earnings growth, which the company met with the help of some accounting fraud. The most outlandish fraud involved hiring overnight workers to prepare packages filled with bricks, which conveniently weighted about the same as MiniScribe’s hard drives. The day workers would arrive and find the new shipments prepared to go out and book the orders. After booking the sales and shipping the orders, MiniScribe would later recall the “hard drives” with serial numbers matching the brick shipments. The practice came to be known as “shipping bricks.” See this Wall Street Journal article for further reading on the scam.
So, Kevin Garnett is out injured for the next three weeks, and what do the Celtics do? They sign Stephon Marbury. To go from the most valuable player in the NBA in terms of win shares to a player who probably has a negative win share value, who cost his previous team on and off the court, just seems absurd to me. I’m not a Celtics fan, and, in fact, I don’t like them much at all, but what the hell are they thinking here?
The traditional signs of a roll-up opportunity are found in industries with high fragmentation, similar products, weak management, good profitability, high fixed costs, and the chance of realizing economies of scale through centralized efficiencies. However, favorable industry characteristics are just one factor that should go into the decision to pursue a roll-up strategy. The other factor concerns the larger economic climate. The best time for a roll-up is when you have the following:
The last time we had such conditions for a sustained period of time was in the early 1990s. So, unless you want to wait another 20 years, I suggest that now is the time to get rolling. Perhaps, we’ll see a return of poof IPOs, even without Lehman Brothers underwriting them.
Last night I sat around a conference table with a group of graduate students to hear one of the world’s top entrepreneurs answer questions. I hate to reduce anything to a series of key points, morals, take-aways, or bullets because it just discounts so much, so much personality and character, but I’m going to do it, anyway. So. Here:
McKinsey receives praise for many different practices, but none have been mentioned as frequently, by professors and students during my first year of business school, as the way in which it handles its clients. I’m not talking about how it chooses its clients, but how it maintains relationships with them. If you’re a McKinsey client and you want a point of contact at the firm, forget it. Your point of contact is the Firm (capitalization McKinsey’s), not the partner who brought in your business, not your engagement manager. Now, the first problem here is that McKinsey refers to itself pretentiously, arrogantly, and moronically as the Firm in its communications, but I digress.
Back to the point, you may think, Well, that’s interesting. But everyone who mentions this aspect of its business universally praises the practice because it prevents consultants from leaving McKinsey and taking clients with them. This issue exists in several businesses: the lawyer who leaves the large firm to start her own boutique, the editor who brings her writers with her to a new publishing house, the agent who takes his star client out of his firm.
And so that McKinsey considers this a problem it has solved seems to me a bit troubling. After all, aren’t people and relationships the core of all business? In every company I’ve worked for, it’s been people I’ve worked with—co-workers, clients, writers—who made the experiences worth my while. Perhaps, instead of eliminating personal relationships with clients, you should value them and the people who create and maintain them accordingly. Then you would reduce the risk of losing your clients, but—oh! wait!—that wouldn’t maximize profitability, would it? Take your eyes off the margins and you lose, boys.
I don’t have a problem with the whole notion of making personal sacrifice for the good of the company, team, country, et cetera, but there’s something utterly dehumanizing about removing the importance of personal relationships and individual value from doing business. Is this any shock, though, in a society that prizes conformity and a firm that has a strong up or out policy and hires the smartest, most insecure graduates for a relatively low hourly fee of around $14? Perhaps, it’s good for business and I’m proving myself an idiot, and maybe it’s good for business but it’s not good and my choosing good over good for business (or even recognizing the distinction) is what makes me an idiot. And while I might not be able to take my clients with me when I leave my next company, at least I’ll be able to take my idiocy.
A statement one of my professors made in class this week pretty much sums up the core of business school and, perhaps, why I’m entirely unfit for it: “I don’t have a problem, nor should you, in profiting from the death and misery of others.” Adorno would have had fun in business school; he would have thought its entire purpose is to teach schadenfreude.
By far, the YouTube video I watched the most last year was the hilarious Wall Street showdown between bankers and consultants starring Amit Chatwani of Leveraged Sell-Out and produced by Portal A. Like most satires, it works because it has some truth to it: most overwhelmingly that bankers beat consultants, always. Always.
Banking and consulting are probably the two most common industries that MBAs enter upon graduation. However, people treat them quite differently. To get at the core of this argument, I’ll use an analogy. Bankers are like Barry Bonds and consultants are like Alex Rodriguez. Yes, that’s right, the $250 million player is a consultant. The other day, I was having a conversation with a friend about those players and we both agreed that we liked Bonds and can’t stand Rodriguez. And the reason is that Bonds is consistent. He won’t talk to the press, he’s not going to be nice to you, and he doesn’t apologize for it or try to mollify the fans or the press in any way. It’s his intense focus on being the best hitter in the game that drove him to spurn everyone else. The man needs to focus, damnit. He presents himself fully, he is who he is and if you don’t like that, well then, piss off.
Rodriguez, the heir to Bonds as the game’s greatest player, is the complete opposite. He wanted so desperately to be liked, to live up to his contract that he took performance enhancing drugs. And then again, he wanted so much to be liked that he scripted his apologies when a Sports Illustrated reporter found him out. Rodriguez is insincere. Bonds, while you may not like him, is entirely sincere and consistent. You think he’s a liar? That’s fine, he’ll go on being a liar.
And so, A-Rod is a consultant. He’s the guy who says that he’s going to do good, that he really wants to make businesses run better. That he wants to learn from the brightest. That he wants to help people.
Consultants know how many post offices there are in the United States. Or, rather, they know how to come up with the answer to the question, “How many post offices are there in the United States?” Well, there were three post offices in my hometown, which had a population of 80,000 people. That means there’s one post office for every 26,666 people in the country. There are 300 million people living in the United States. So, there are 11,250 post offices in the country. The only problem here is that the answer is wrong. Consultants know how to get wrong answers. That’s what they know.
And then what happens? You pay some McKinsey or BCG guy $250 million because you think he’s going to fix your business and bring in a championship, and he completely messes up your chemistry, leaves you out of the post season, and, oh yeah, did I mention that you’re paying him millions for this. For what? For some PowerPoint slides and Excel charts and some re-branding and re-organization and frameworks. But, you know, he really tried to help the team; he’s just not a member of it. Louis Menand recently called the management consultant “the personification of the sellout” in the New Yorker.
Bankers, on the other hand, have nothing to sell out. They make no pretenses about saving the world. Their whole business is about making money—there’s no way around that fact. They’ll go down with an economic crisis (or a steroid scandal). And they don’t try to hide it between superficial business speak because bankers are Barry Bonds.
A PDF of this HBR article by Kevin Lane Keller is available to download here.
