The Business Sensei

Growing Wheat in Siberia

Quoted in the Toilet Paper Entrepreneur

I was just quoted in “91 Ways to Get Out of the Box.”

(I’m number 14).

Here’s what I wrote (and he used all of it!):

Four Keys To Creativity

How To Get Out Of The Box: If you’re stuck…

Pick up a book, take a class, listen to a CD, but learn something new. Doesn’t matter what it is, or whether it’s connected to your field. Look for the unexpected connections.

Experiment and make mistakes. Explore. Try something unexpected.

Take breaks. Stop and reflect on what you’re doing. The eureka moment comes when least expected.

Be patient. Getting out of the box takes time!

The value of screwing up

I was interviewed recently on Motivational Minds radio on the value of making mistakes in creating an innovative organization. Check it out!

If It Ain’t Broke…

There are a great many ways to complete the phrase, “If it ain’t broke…” The classic, of course, is “don’t fix it,” but I’ve found that “then it doesn’t have enough features,” is also pretty popular. While some other popular endings include “then you haven’t hit it hard enough,” “clearly it’s unbreakable,” and “don’t upgrade it,” for the most part, they’re variations of the first two.

Read the rest at Enterprise Management Quarterly.

Mercky Research

Not long ago, an article in the New York Times discussed how Merck created what appeared to be an independent, peer-reviewed journal, and then used that journal to convince doctors to prescribe Merck products.

What is particularly amazing about this story is that Merck is the same company that 20 years ago created a cure for River Blindess, even though they knew that the people most in need of that cure would never be able to pay for it. At the time, the cost to the company was estimated at $200,000,000. Then CEO Roy Vagelos said that he felt that there was really no other choice: he was living up to Merck’s ideals of “health before wealth” and “do good and good will follow.”

As things worked out, the long-term benefits to the company, in terms of prestige, being able to attract top-notch researchers, and access to emerging markets, were immense. Merck did good, and good did indeed follow for the company and its shareholders. It just wasn’t obvious at the time that things were going to work out that way.

So what happened?  How did a company that lived up to its ideals as Merck did come to be the same company that used rather questionable practices to convince doctors to use its products?

Now I have no particular contacts or channels into the brains of the people at Merck, so what follows is purely supposition based on observing similar patterns of behavior in sports and business.

It’s well known in sports that athletes who are solely focused on winning do less well than those who are focused on personal excellence and skill mastery as well as winning. Indeed, a total focus on the outcomes and not the process can lead to a number of problems, including depression, burnout, and reduced enjoyment in the activities. Failure, instead of being a learning experience or an opportunity to evaluate and adjust, becomes something to avoid at all costs.

Ways of avoiding failure might involve only facing easy opponents, or it might involve cheating in various ways. Fear of failure is a very powerful force; the most successful athletes are those who master the art of learning how, and when, to not care if they win or lose.

When a business becomes totally focused on making money, it falls into a trap similar to that of the athlete. Milton Friedman to the contrary, a business cannot be solely about making money. Rather, a business is about producing innovative, or at least useful, products and services. These products and services must, in some demonstrable fashion, provide value to people. Money is how the business knows it’s succeeding.

Like sports, however, when the focus becomes too short-term and too outcome oriented, it becomes increasingly easy to justify behaviors that make money now instead of behaviors that maintain the product pipeline. It’s really no different from the athlete who sacrifices long-term health or career for a victory today. Living up to ones ideals is easy when things are going well; it’s when things get difficult that the real test comes.

Being a successful athlete, at any level, takes a great deal of work and dedication. There are always people who are looking for short-cuts. Being a successful company takes work and dedication as well; staying successful is, arguably, even harder. Over the years, very few have managed it. The tendency to take short-cuts is always there. It’s the businesses that stick to their ideals and are not captured by the fear of failure that last the longest and are most likely to survive the inevitable tough times.

Just as in sports, it’s all about learning how, and when, to not care.

Growing Wheat in Siberia

Once upon a time, the late and unlamented Soviet Union decided to grow wheat in Siberia. Their logic was simple: by growing wheat in the inhospitable conditions of Siberia, the wheat would become stronger. The wheat, however, was indifferent to Soviet philosophy. Despite speeches, threats, and promises from the government, the wheat stubbornly refused to grow. 

A belief about how the world should work was trumped by the way the world does work.

To bring this a little closer to home, I worked with one high technology company that decided to create a set of coding standards for its software development team. While not an unusual occurrence in software companies, in this case, the manager in charge wrote up a fifty (that’s right, 50) page standards document. Naturally, everyone was overjoyed and memorized everything; at least, that’s what the manager thought. In fact, no one read more than a page or two and most of the engineers ignored even that.

Another company was trying to manage information: design decisions, notes from discussions, and so forth. They had the very good idea that they could manage all their accumulated wisdom as a Wiki. Unfortunately, the Wiki swiftly ballooned into an unmanageable morass of data in which no one could actually find anything useful. The problem wasn’t so much getting people to remember to update the Wiki; it was organizing the information in a manner useful to everyone who needed to use it, and in convincing people to take the time to keep it organized.

In both of these cases, beliefs about how people should do their work were trumped by the way people actually do work. Like Soviet wheat, it can be remarkably difficult to motivate or threaten people into doing something that they really do not want to do. Unlike wheat, people can be forced. It’s merely a question of how much time and energy you want to spend: pushing people takes a great deal of effort and tends to result in significant amounts of anger and frustration for all parties involved. Not, in other words, a conducive atmosphere for creating a strong, collaborative team.

Of course, sometimes it is necessary to have people do things they don’t want to do. Code does need to be commented, information needs to be documented, and so forth. Fortunately, unlike wheat, people can be convinced. Instead of pushing them, the key is to get them to pull. How do you do that? Here are some tips:

• Involve those who will be affected by the outcome in the process of solving the problem. Nothing gets buy-in like giving people the opportunity to develop the solution.
• Identify the actual problem. The company with the 50 page style guide needed code that could be maintained over time and easily read by someone other than the writer, and they needed the process to not interfere with actually getting work done. That can be accomplished with a one page style guide. Instead, they were trying to win the World’s Most Beautiful Code Contest. That may be prestigious in certain obscure circles, but it doesn’t sell product.
• Ask yourself how you’ll know when you have a workable solution. This may seem counter-intuitive since you don’t have a solution yet, but it helps to figure out what success looks like. That way, you’ll know it when you get there.
• Brainstorm possible solutions.
• Do not evaluate any solution until the end of the brainstorming process. Off-the-wall ideas frequently trigger creative solutions.
• For each solution, ask yourself if it will actually get you to the outcome you want. Focus on the idea, not the person who came up with it.
  • Take the time to honestly assess what might go wrong.
  • Recognize that “oh, we’ll figure that out later,” is often a warning of trouble ahead. Make sure there is a way past potential roadblocks.
• Test your solution before you commit to it, or at least look for examples of similar solutions being successfully implemented.
• If more than one solution has survived to this point, pick one and implement it. Be willing to abandon it and pick another if it becomes obvious that it won’t work. You can’t foresee everything that can go wrong.
• Be willing to reformulate the problem if the solution doesn’t work.
• Give people as much autonomy as possible in implementing the solution. When possible, allow them to develop their own implementations. The company with the Wiki could have used email and encouraged each person to maintain their own records in whatever form was most individually useful. Instead of trying to figure out how to maintain a central repository, perhaps what they should have done was to present different ways of organizing the information and allow each person to pick the one most useful to them.

This may seem like a lot of steps, and there certainly is effort involved. The Soviet Union decided it was easier to yell at the wheat. Given the amount of wheat they imported, it’s clear which method is cheaper in the long run.

Good luck!

Published  at FreudTV.com

Killing the Goose

Despite claims to the contrary, lack of regulation does not cause people to commit crimes or engage in foolish actions. Nor is the presence of regulation a guarantee that people won’t violate the law or do something stupid: remember Long Term Capital Management for a perfect example of the latter. Just as no lock can keep out a thief who is determined to rob your house, regulation will not stop someone who is determined to cheat: remember Enron? How about Bernie Madoff? Regulation will, however, provide the grounds to prosecute those who do cheat. Attempting to prevent all forms of cheating merely overburdens the system.

So, if this is true, why do we have the toxic financial mess that has shaped the news for the past several months? After all, didn’t that come because of a lack of regulation on Wall Street? Well, not exactly. While better regulation might well have prevented things from getting as bad as they have, the lack of regulation is not the cause, in much the same way that the lack of a safety belt does not cause an accident; however, the use of safety belts reduces the harm caused by an accident.

What then is the cause? Sure, we’ve all heard the news about subprime loans and toxic mortgages. But those instruments had to come from somewhere. Wall Street tycoons? It’s easy to think of Wall Street as being dominated by wealthy investors who are making millions by selling bad loans, but even that’s not true. The vast majority of people on Wall Street are people just like everyone else: working men and women whose job it is to make money. Quite simply, just like any other employee in any other company, folks on Wall Street go to work each day and worry about paying the bills, taking care of their families, and doing their jobs.

Here’s the problem: what do you do when you are told to make money and the financial markets aren’t offering up opportunities? You can’t go to your manager or your investors and say, “Sorry.” That’s not what they want to hear, and if your goal in life is to keep your job, you are not likely to go there. Instead, you get creative. Just like any employee in any job, you look for an innovative solution to your problem.

Now the fact is most people are not evil. Most people will not knowingly and deliberately break the law. If there are clear regulations telling people not to go somewhere, they usually won’t go there. But if there are no regulations, or if the existing regulations are honored in the breach, that’s a different story. It’s not that people will set out to cause harm or do stupid things, it’s that focused on the short-term needs of solving their particular problems, they are easily blinded to the larger ramifications of their actions. Regulations, optimally, map out the territory: they define the box in which people should work. They prevent you from falling off a cliff and taking everyone else along with you.

So then is the cause of the problem people just doing their jobs and the financial meltdown all a tragic “oops?” No again. The problem is that the cause is not what we have but what we don’t have.

Each bull market, each economic boom, is carried forward by some form of leadership. In the 1950, it was the electronics boom. In the 1960s, it was companies like IBM and Polaroid. In the 1990s, Cisco, Intel, Microsoft, Amazon.com, Yahoo, etc. Technology leadership leads to a flowering of innovation, and a flowering of innovation leads to technology leadership.  Improvements in technology lead to greater productivity and a stronger economy.

What about the bull market that ran from 2003-2007? Volumes have already been written about how little “boom” this economic boom packed. Although we did see some technological innovation during this period, for example Google, Taser, the iPod, and GPS (a technology with its roots in government spending – we’ll come back to that), for most part what we had was a commodities boom. The problem with commodities is that they don’t fundamentally change the world in the ways that technology does. They don’t leave behind a world of greater productivity or improved communications.

Now, there are many reasons cited for the commodities bubble of the past few years: China, OPEC, developing countries, etc. Let me suggest a different, and more basic, reason: there wasn’t anything else. The small amount of innovative technology we saw during that period was hardly enough to drive an economy or a stock market. But people still needed to make money; investment had to go somewhere, and it went to commodities and mortgages.  What happened to the innovation?

Over the past hundred years, almost every economic boom and bull market had its roots in government spending on either innovation or infrastructure. Without providing an exhaustive list, a few highlights include: railroads at the start of the twentieth century: government investment in land and track; automobiles in the 1920s: government investment in transportation technology during WWI; electronics in the 1950s: government investment in radar and military technology in WWII combined with the development of the transistor; mainframe computers in the 1960s: investment in computer technology as part of the space program; biotech in the late 1980s: government research grants in life sciences; and, of course, the Internet, which started life as ARPANet: another government program.

Quite simply, the government investments that formed the seed of so many prior booms didn’t exist: the money wasn’t there. The argument is often, and loudly, made that low taxes are a boon to the economy because people get to keep more of what they earn and this stimulates growth. While there is a nugget of truth in this, in that if taxes are too high to being with, then lowering them will have the touted benefits. However, it is also a fact that the economy grew more under Bill Clinton than under George W. Bush. Was this despite the higher taxes during the Clinton presidency, or because of them? The traditional answer is the former; the truth, I believe, is closer to the latter.

If taxes are taken too low, then something has to give. Typically, what gets cut is basic research. Even the wars in Iraq and Afganistan are not producing remarkable new breakthroughs in technology; at least, if they are, those breakthroughs haven’t become commercial yet. For the most part, it seems as if these wars are being fought with refinements of existing technology or off-the-shelf equipment.

Some level of taxes, therefore, provides the fuel for investment in innovation and infrastructure that generates the next economic boom and bull market. This is a rather different perspective on taxes than what is traditionally said. When taxes are being funneled into the economy, they lead to growth. Taxes are an investment. Now, I don’t have exact numbers on this, but when taxes are reinvested, the money we pay in taxes is returned fivefold in our 401Ks. When taxes are cut to the bone and there is no money to invest in the future, the money we save is taken tenfold from our 401Ks. Now, again, the exact numbers are open to debate; however, I will venture to guess that most of us have lost far more in our 401Ks and IRA accounts this year than we gained in the previous two years, and far more than whatever we may have saved in taxes over that same time period.

Unfortunately, when the economy is booming, people tend to assume that it will never end: just look at any bull market in history for an example of that behavior! All markets are driven by fear and greed, and the latter dominates at the height of a boom. People start thinking about all the money they are paying in taxes; they start to see that as money being taken away, not as the price we have to pay to keep the boom going. Like fear, greed causes behavior that people would never imagine that they could possibly engage in… until they do.

Regulation provides the framework and the controls to keep the economic engine operating within tolerance. Just as a governor on an engine keeps it from redlining or stalling, regulations on economic behavior help to prevent the type of meltdown we are now experiencing. Like an engine, the governor causes a small amount of overhead; there is some loss of power. That loss is the price we pay to avoid catastrophic failure. However, regulations alone can’t do prevent all forms of failure; we need an ample supply of legitimate and economically safe ways of making money to prevent widespread fraud and abuse. On the other hand, we can’t entirely do without regulation because no matter how good things are, there will always be Enrons and WorldComs. Fear and greed both lead to illogical behavior; it’s vital to have the fences in place so that the economy won’t run off the cliff in a panic or fall victim to excessive greed.

Once we’ve prevented the economy from crashing, or at least made it less likely, we can get the engine running at capacity. Taxes feed innovation which feeds the economy: taxes are, in short, an investment in our own future. It’s time to recognize that investments are more than just something we put into a 401K and forget about. Regulation, taxes, and innovation: they are all connected. Mishandle one, you break the others.