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.
We’ve known since October that we won’t have Wall Street jobs, but the really crushing blow hit today: We’ll never have Swiss bank accounts in which to stash those paychecks from Goldman Sachs. UBS agreed to turn over a partial list of its American account holders to the Justice Department and pay a penalty of $780 million for defrauding the IRS. I never thought I would be nostalgic for Swiss bank accounts, but now I am. When I was a kid, I had this idea that you went to Switzerland for ski vacations with a suitcase full of cash that you dropped off at the bank once a year. The things that might have been are rough, real rough.
According to a professor, “The best way to fire people is on Christmas Eve…by throwing them out the window. It’s very satisfying.”
Aswath Damodaran is the man when it comes to this stuff, and he’s posted a primer on his website.
Seeking Alpha has a post about Apple’s business, in general, which contains this nugget about their accounting practices when it comes to iPhone sales:
Unlike other cell-phone manufacturers that book 100% of the revenue from each phone sold within the quarter the sale occurs, Apple amortizes the revenue over eight [8] quarters, 2 years! Apple’s thesis is to match iPhone revenue with the standard 2 year service contract. This accounting is very conservative, as mentioned, but think about it: iPhone sales reported within any quarter actually represent only 1/8 (12.5%) of the total sales. This means there exists an increasing chunk of revenues yet to report. If accounted for under GAAP, Apple’s revenues and earnings from the iPhone would be higher, much higher…
Make of it what you will, but we could be seeing some monster earnings numbers from Apple later this year and into next.
I first heard of the Tragedy of the Commons in my high school economics class. The classic example of this concept is an open field where animals, say sheep, are free to graze. Because it’s free, all the shepherds bring their sheep to the common plot of land and, consequently, leave it completely destroyed and useless by overusing it. Their rational behavior of using the free land harms others and, ultimately, themselves. Ideally, to maximize the total use of the land, there should be a limit on how many sheep can graze on it. To limit the degradation of public (often environmental) resources, governments impose all sorts of restrictions, taxes, licensing requirements, and the like. The moral of the story here is that if you have a free common resource, people will abuse it to the point at which it provides next to no value to everyone.
Now, several people, most famously Lawrence Lessig, have compared the Internet to a commons, often in the name of fighting proposed restrictions like net neutrality. But, is it really possible to have a commons without a tragedy? At least when it comes to the Internet, I’m not sure. Imagine that the Internet is that pasture of land I just mentioned, and every time a site goes up, it is consuming precious resources and making the whole Internet less valuable. Is that not exactly what’s happened? Not only is there more crap—more useless crap—online than ever before, but the Internet has become less valuable to site owners. That is, there’s so much ad inventory out there, that it’s pretty much impossible to monetize a site with ad revenue these days. And it’s only getting worse right now. So, before you start that website, just remember that you are overfishing our oceans and destroying our pastures and polluting our air and creating acid rain and ruining our eyes and bankrupting the valuable websites that you love. So, please, please, I beg you: Stop.
Earlier this week, I wrote about Twitter’s inability to articulate a value proposition to its potential users and my disagreement with the marketers who believe that inability is a fatal flaw. Well, I guess that raising a $35 million C round with a post-money valuation of $225-$250 million isn’t the sort of thing that’s possible when you can’t communicate a value proposition. Wait, hold on. That’s what Twitter just did, raising $21 million from Benchmark and $14 million from IVP. If it was 1988, I would tell the marketers that they just got ‘moted. Oh. Shit.
In a recent class, the professor announced that what he was teaching would allow us to “make more money than you ever thought possible, destroy your personal life, seek refuge in academia, and sit in your office and cry every day. Wait, that’s what happened to me.”
Students and academics have employed statistical analysis to prove or disprove authorship in several cases, with Shakespeare’s possible works being a common mark. However, in this case, a literary critic refuted the claim, by a statistician, that Shakespeare authored “A Funeral Elegy.” Score one for subjectivity!
For some additional reading on the subject, click here.
During my study of game theory in business school, the professor gave an example of a game in which the equilibrium should produce independent, randomized choices by all players: penalty kicks in soccer. Strikers should kick the ball to a random location in the goal and goalies should dive in a random direction.
If you simplify the game, you could say that there are three locations in the goal—left, center, and right—and each player should choose them with equal probabilities of one third. However, while strikers do this, goalies don’t. Goalies are more likely to dive right or left than to stay put in the middle. Call it the negative consequences of having a bias to action, or think of it like playing rock-paper-scissors and always picking rock.
Here’s what I would do I had a second-rate application on my hands: market it as a niche product specifically for the education market, set a high price tag, hire some people with educational sales experience and sell the hell out of it. Most schools don’t like dealing with technology and love out of the box solutions that will suggest to students that they’re wired, they get it, they are educating in the 21st century, dammit! And they’ll pay a lot to make those statements, either by selling out their students to the branding of a product like Google Docs or by paying an insane amount of money for awful applications like Blackboard. Unless you’ve been a student or professor during the past few years, you’re probably not familiar with this software. Consider yourself lucky. However, somehow schools pay tens of thousands of dollar each to license it. Blackboard contains the functionality of a website circa 1998, but it’s scalable and doesn’t require schools or faculty to know much of anything about the web. IT managers should be fired for purchasing it.
From case studies I’ve read, both Southwest Airlines and Northwest Security Services will frown upon you with your MBA. Do you think the no-MBA hiring policy will become more widespread after the havoc that MBAs have wreaked on our economy? Do you know of other companies with such policies? PayPal used to have a no-former-consultants policy. Comment away!
Group work is a staple of an MBA’s life. Conference rooms designated as “group study rooms” are often booked weeks in advance from 7 in the morning until 12 at night. The rules for qualifying as a “group” are posted in and outside of each room.
Okay, so that last point isn’t really posted, but that doesn’t mean it’s not true. And the reason it’s true is because groups are likely to debate meaningless points ad infinitum, as the Latin phrase goes. You would think that these people have nothing better to do than to discuss whether they need to include, in a case report about eBay, the fact that Beanie Baby sales were popular among the site’s early users. Yes or no. Mention it or don’t. I don’t care, but I do care that this is a waste of your time, which should be more valuable, and my time, which is more valuable. I like playing on teams well enough, but this is like playing on a basketball team where no one will shoot the ball. So, if you’re visiting a business school and in the part of the tour where they take you to the “group study room” area, just remember that the future MBAs in those soundproof rooms are not debating high strategy, global politics, economic theory, or even the best way to run a business. They’re arguing about Beanie Babies.