Order of Magnitude CEOs

Earthquakes, Hurricanes, Grand Slams, and Mortality (A most memorable week gets me thinking about a Steve Jobs’ speech about what's really important)

When I woke up this past Tuesday morning and headed into Manhattan, little did I know that this week is the kind of week that I will remember for the rest of my life.

On Tuesday, almost simultaneously I noticed a tweet from a good friend of mine in Northern Virginia just as I got a call from my wife about the largest Earthquake in Virginia in over 100 years (we have plenty of family in the Earthquake area). 

On Wednesday evening, as I was catching up on the day’s emails I got word along with everybody else that Steve Jobs, one of the greatest entrepreneurs in U.S. history, was resigning as CEO of Apple due to his health.

On Thursday, the New York Yankees became the first team in all of baseball history, to hit three grand slams in one game.

And, on Friday, I found myself preparing for Hurricane Irene, one of the largest Hurricanes to ever hit the New York City area.

On Saturday, today, these events got me thinking about what is really important as I await Hurricane Irene with my family.

I thought back to a Thursday afternoon conversation with Tom, a successful business owner, who reminded me of Steve Job’s 2005 Stanford commencement address.

On the train home that night, I pulled up the transcript of the speech on my phone.

And as I write this blog, I am just finishing watching this 15 minute speech which I had not done in a few years.

The speech has three great stories and a number of memorable quotes that will resonate with any ambitious owner.

If you haven’t done so recently, watch the speech now and think about what is important in your business and personal life.

Steve Jobs. 2005 Stanford Commencement Address

This week and this speech are the perfect backdrop to understanding how the daily tactical items relate (or do not relate at all) to what is truly important in your business.

As Steve Jobs says towards the end of the speech “Don’t Settle.”

You owe it your employees, clients, and family. But, most of all, you owe it to yourself.

Be Safe!!

Are you Prepared to Avoid Big Problems and to take Advantage of Big Opportunities like the NYSE or are you Running on a Treadmill towards Nowhere?

 

I took this picture on Broad Street about a block from the New York Stock Exchange (NYSE) last week.  As anybody who has been in this area knows, the security around the perimeter of the NYSE is very tight, especially for vehicles.  As far as I can tell, T&M together with the NYSE has put in an elaborate system, complete with vehicle roadblocks to prevent anything potentially dangerous, like explosives, from getting anywhere near the exchange.  The NYSE has invested heavily in preventing a big problem.

On the flip side, last month, the NYSE decided to merge with The Deutsch Boerse after years of conversation, mainly due to a major change their executives noticed in the value of an exchange marketplace. In their view a trading platform for US equities has become a commodity, and value creation for an exchange is now about being global across a number of different products with a value chain setup to drive transaction costs lower.  Sure, there are plenty of people in the United States concerned about selling a US icon to a “bunch of foreigners”, but NYSE executives realized not making any move, could have been the weakest move of all for one of their key stakeholders, their shareholders.

On a much smaller scale, a business owner I know recently completed an acquisition of another firm in a strategic city which significantly increased her firm’s market share in this city where previously they had trouble gaining traction. Having already formed a friendly relationship with the other owner several years ago, as well as having developed the staff and processes to evaluate and consummate acquisitions, she was able to get this long-term value creating deal done ahead of her competitors that were not thinking big.

Unfortunately, another business owner I know exclaimed to me recently that he has been “running on a treadmill since the mid-1990s”.  He has a great product and excellent customer service but he is in a crowded space with no sales team other than himself and essentially no marketing. He makes a “living” that enables him to take care of his family, but he acknowledges that’s it, essentially he is an employee of the business he owns.  As innovation and value is created in his industry, this passionate and motivated business owner is forced to watch from the sideline as he is not prepared to make a big move nor setup to avoid a big problem. 

To take advantage of business impacting opportunities and prevent business impacting threats, it all starts with what I learned as a Boy Scout “Be Prepared.”

Why You Should Care How Many Pay Phones are in Manhattan

 

Years back, circa 1993-1994, when I was interviewing with a management consulting firm, think McKinsey, but I am sure that wasn’t the one, I got asked “How many pay phones are there in Manhattan.”  The bubble in my head thought, “How the heck should I know and why does it matter.”  Of course, that is not how I responded.  Instead, I started thinking through my response aloud, so the interviewer could hear.  “Ok, if there are roughly 200 streets running North-South and on average there are about 10 avenues running East-West, that makes 2,000 intersections.  If there is a pay phone on average at every other intersection, then there are 1,000 pay phones in Manhattan.  Of course, the interviewer didn’t really care at all about the actual answer, but was more interested in my thought process.  She cared that I described a logical way to figure it out .

At the time of the question, pay phones were very much needed as less than 10% of the population had a cell phone in 1993-1994.  Cell phones were still extremely bulky, although not Gordon Gecko from “Wall Street” bulky.  In addition, the cost per minute was extremely high so it was still not a mainstream device.  The decline of the pay phone was still not on the horizon.  But it was possible to start seeing the direction the industry was heading.

Thinking back on the question, although powerful, could have been even more powerful by asking about the future of pay phones.  A great follow-up question at the time would have been, “How many pay phones do you think there will be in Manhattan in 2010 and what are the implications?” 

This enhancement to the question requires the ability to understand the marketplace, and the rate of change in the marketplace.  It is this change in the marketplace and how quickly it occurs that creates losers from previous winners and winners from firms that did not previously exist.

Getting back to this “follow-up question”, extrapolating from the “Wall Street” era cell phone (1987) to 1994 and then roughly doubling the timeframe, would I have had the background and thought process, not to mention the guts, to say “trending to zero.”  Pay phones have been in steady decline just not to zero, although phone booths in Manhattan have not been as lucky as they are down to four.   

What is trending towards zero or on a similar downward trajectory as the pay phone/phone booth today?  In consumer retail, any concept that can be digitized-- music, books, video rentals are trending towards zero.  In technology, shrink-wrapped or packaged software that the business owns is following this same downward trajectory.  With basically infinite web content and ever increasing bandwidth, the majority of publishers continue to have trouble building a valuable cpm based web advertising model.

Of course, none of this is new, but all could have been predicted back in 1999 as easily as the disappearing pay phone business model could have been predicted in the early 1990’s.

On the flip side, what trends are happening now that generate opportunity for your business?  For instance, just last week I spoke with Edward Dalton, an owner of Noon Dalton, which provides Virtual Assistants for American small businesses.  The trends Edward and his partners saw about a year ago is that the success of outsourcing for the enterprise combined with the new tools for small businesses such as Skype for desktop sharing, Google Voice, Evernote, Dropbox, and CRM’s like Salesforce.com now make it possible for certain tasks to be done just as easily from anywhere in the world.  A small business owner in New York can now take advantage of currency arbitrage for administrative tasks and software development as easily as a Fortune 100 bank. 

In addition, the consumer retail trends expressed above will have profound structural implications for the retail commercial real estate market as more retail concepts start to struggle down the road (even though VitaminShoppe recently posted great earnings on same store sales, I would not recommend opening one of their retail locations and would instead be timing my exit). 

Take a step back on a consistent basis to understand the trends in both the broader marketplace and in your industry to see how you can take advantage of the changes occurring now and that will occur.  Understanding how underlying change and the rate of change impacts your business is a valuable skill that can enable you to seek out new emerging/growth opportunities while your competitors are left standing still. 

Who Are You Hanging Out With? Go For The Dynasty, Not The Championship

Over the past month three individual executives from the world of sports has each received attention for declaring the most exciting and valuable of team accomplishments, building a dynasty.

1.  The Beginning of the Journey: Mikhail Prokhorov, New Jersey Nets Owner

Back in June, I heard a radio interview with the new New Jersey Nets owner.  During his interview, he was asked about his goal for the Nets.  He did not talk about signing a particular player nor winning a championship or championships.  Instead he talked about building a global brand, moving the Nets from New Jersey to Brooklyn, and his long-term ambition of building a dynasty. 

 2.  The Middle of the Journey: Pat Riley, Miami Heat President

There has been more than enough talk about all aspects of LeBron James’ decision so I will stay out of that.  What cannot be disputed is his decision to go with the Miami Heat is based on his fundamental belief that the opportunity to play with two perennial All Stars with a team assembled by Pat Riley is his best chance to win not just a championship or multiple championships but to be part of a dynasty led by Pat Riley.  Pat Riley is a seven-time National Basketball Association World Champion as a player and a coach.

3.  The End of the Journey: George Steinbrenner, New York Yankees Owner

George Steinbrenner rebuilt The New York Yankees into a dynasty.  The seven championships during just his 37 years as owner of the Yankees is more than any other Major League Baseball team’s total championships except for the St. Louis Cardinals.  In addition to the excitement of winning championships, Steinbrenner increased the value of the Yankees from around $10 million to around $1.5 billion, that’s over 2 Orders of Magnitude.

So what does it take to go for the dynasty and not the championship, it means changing who you hang out with:

Great Teachers (Coaches):  Who is helping the individuals on your team perform?  There is a reason why players like Kobe Bryant, Derek Jeter, and LeBron James want to play for people like Phil Jackson, Joe Torre and Pat Riley.  Each has the skill to win multiple championships (Jackson with the Bulls and now with the Lakers, Torre with the Yankees and Riley first with the Lakers and now going for it again with the Heat).  If you do not declare and communicate a big vision of where you can take your firm most likely you will have difficulty recruiting and retaining employees that are best suited to enable you to fulfill your declaration.

Great Colleagues (Your Team):  Who else is on your team?  As a fan you can be upset with LeBron James decision to go to the Miami Heat but you can’t deny he is associating himself with some of the best players in the game.  Your team matters.  A few ex-players have been deriding James’ decision including Charles Barkley and Reggie Miller, who together have won a combined 0 championships.  The Yankees current starting lineup  is currently a blend of free agents (“experienced hires”) and players brought up via their farm system (“recent grad hires”) with players like Derek Jeter, Jose Posada, Mariano Rivera, Andy Petitte and Robinson Cano.  Top performers that make a difference in your business can be trained from the ground up or brought in from the outside.  The key, is to consistently seek out both new and experienced hires that improve the performance of your current staff and are excited to take part in the journey with you.

The Already Accomplished (The Greats):  Who do you know that already has had success, that has gone where you want to take your team?  For instance, Jim Irsay, owner of the Indianapolis Colts considers George Steinbrenner a mentor, with a relationship that started back in the early 1980’s, on building a sports organization committed to winning.  Pat Riley, has himself served as mentor to coaches, including four current NBA coaches - Marc Iavaroni, Byron Scott, Erik Spoelstra, and Stan Van Gundy.  Developing meaningful relationships with business owners and others who have accomplishments that you admire serves as an important catalyst for moving your organization forward, seek them out.

Of the three sports business executives who sought to build a dynasty, Prokhorov is at the very beginning of the journey, Riley is in the middle of the journey and Steinbrenner arrived at his destination.   Will Prokhorov win a championship or championships, let alone build a dynasty, I don’t know.  Will Riley add to his previous successes and build a dynasty, if you are a Knick fan like me, hopefully not.  I do know each man is more likely to win championships, build team value and excite those around them by hanging out with the three types of people necessary to build a dynasty.  As a business owner, going just for short-term profit (or a single championship) is good but not as valuable nor as exciting for you and those around you as building a long-term exciting and valuable organization – the dynasty – go for it!

Build A Winning Organization One Personnel Move At A Time

As a New Yorker, I couldn’t help but be excited that the Celtics had eliminated LeBron James and the Cleveland Cavaliers in six games.  In most years, I would be rooting for LeBron and the Cavaliers or to be more precise, against the Celtics.  This year was different as everybody who follows basketball even from afar knows, LeBron James gets to decide where to play next and either build a legacy as a champion like his idol, Michael Jordan, or end up as a great player with no team championships like Allen Iverson.

About a month back I had conversations with two business owners who let go valued staff members, who are on their own personal journey of building winning organizations and cultures which reminded me of LeBron’s situation on which team to join.

A good friend of mine, Rich, who runs a 20 person professional service business had just let go a long time staff member who I have personally known for the last few years.  “So you finally got rid of her”, I asked.  “What do you mean?” Rich replied.  “You have been talking for the past six months or so for how you want to have a more valuable offer to your clients and you are the first one to say that she just doesn’t fit the mold anymore in terms of what your clients (and other employees) expect from your firm.” 

Coincidentally, I had a similar conversation with a retailer, Mitch, who runs twelve stores, who also just fired an employee – this time a star performer.  Mitch’s business is all about the number of visitors to his stores per week.  He religiously tracks the number of new visitors and repeat visitors to each of his stores.   “Jeff, I just fired, my #2 performer in one of my mid performing stores.”  Mitch said.  “Why”, I asked.   “Well, he posted great numbers and clients asked for him but he just did not care about his fellow employees and about the business itself.   He just was in it for himself and it was impacting the rest of the employees at this location and at some point I felt it would impact the clients as well.”

I checked in with both owners last week and remarkably both were more excited than I had ever seen them.

“I feel so much better now”, Rich, the professional service owner exclaimed, “I had no idea the extent she (the let go employee) was an anchor on my firm.  She was where I have been, the company I used to have when I first started as opposed to where I want my company to be.  Since we last spoke I added a staff member and a fantastic client that represents the future and firing her gave me the extra edge I needed to make both moves happen.”   Rich and I talked more and we agreed that although she was a loyal employee, firing her was the most visible move he had ever made to himself and those around him including current staff, clients, and investors in creating a culture built with purpose and based on performance.

As for Mitch the retailer who let go the high performer.  “As I expected Jeff, shortly after I gave the ok for my store manager to fire my employee, he called me up asking if I wanted to reconsider as he knew his numbers were solid.  Of course I did not change my mind and I am glad I held firm.  The great part is my same store sales were up 9% over last month since I fired my supposedly “star performer” compared to an average of 3% growth in my other stores.” “Do you think it is related to the move of getting rid of her”, I asked half knowing Mitch’s response.  “Of course, the rest of the staff respected the move and the signal I was sending about what was valued in the organization.  In fact, the story made its way to other stores and I expect it will have a positive impact on my other stores as well in the months ahead.  In addition, my original concern that some clients would leave did not materialize.  It confirmed what I have been working towards --  my company, my brand, my process, what I am in the process of building -  is more important than one talented individual or even one valuable client.  I knew I was headed in the right direction of building a valuable business through a team oriented approach.  This one move has been the clearest proof that I am on the right path.”

I expect LeBron James as he ponders his next move will consider joining an organization with a management team that values the building of the team to win championships and not just coddling him so he racks up individual statistics and fills seats in the stands.  That is, if he wants truly be a great teammate and champion like his idol and NCAA champion, 2 time Olympic gold medalist and 6 time NBA champion , Michael Jordan. 

(Are you listening New York Knicks management -- Jim Dolan, Donnie Walsh, and Mike D’Antoni?)

 

If Even Steve Jobs and Sony Can’t Fight Biology, Please Don’t Try It Yourself

We all know the story.  From the time Apple was founded until Steve Jobs left, Apple was relevant and valuable.  Jobs left Apple, founded Pixar (sold to Disney) and founded NeXT which Apple bought mainly to get Jobs back as CEO.  In between those years Apple became less relevant and less valuable.  Jobs came back in the late 1990’s and now Apple stands at #4 in company value due to innovations in the last 10 years, most spectacularly, the iPod/iTunes combination followed a few years later by the iPhone/AppStore combination.  I predict what undid Apple/Jobs in the 1980’s and 1990’s will again be their undoing this decade.

In the 1980’s Apple had the best personal computer due in large part to tight integration of their hardware and software.  The other approach, led by Microsoft and Intel, created open standard software that enabled any hardware manufacturer to make a computer with a large community of industry leading applications including of course, Microsoft Office.

Now, Apple has the best MP3 player due in large part due to the tight integration between the hardware (iPod) and the software (iTunes) as well as the best application driven cell phone or “AppPhone” due in large part to tight integration between its hardware (iPhone) and software (AppStore). The other approach, led by Google, created open standard software that enables any cell phone manufacturer to make an AppPhone with a large community of industry leading applications.

Apple’s strategy both times has led to short-term monopoly-esqe pricing, profits and devoted followers. Unfortunately for Apple, in the long-run history has repeatedly shown us that the majority of consumers, businesses, and developers tend to go with the products having the largest open community.  Today, Apple has a large lead in developers and applications built specifically for the iPhone.  Unfortunately for Apple, Google is the new Microsoft which will lead to an increasing number of manufacturers and developers using the Android platform as the basis for their business model and the mass market of end users will naturally follow as innovation will occur more swiftly in the open market than in the closed “iPhone” market.

How does this relate to your business?  The more your business is structurally designed to help others with their own business model and needs, the more these businesses will naturally make moves in your best interest.  Correspondingly, the more your business is structurally designed to limit others from partaking in the success of your offer, the less likely these businesses will make moves that are in your interest.  The exception is when the entity has no choice.  Sony has been the king of going down this fruitless path multiple times, first with Betamax, and more recently with their proprietary media sticks for their cameras.  Now it’s Apple’s turn, which has enjoyed a near monopoly run in the AppPhone market  until Google finally brought legitimate choice to the market.  It’s nothing personal Steve and it’s nothing new, it’s been around for thousands of years. it’s self preservation -- it’s just biology at work.