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“Strawberry Picker Buys $720,000 Home”
Remember Michael Lewis? As a young man, he got a job with Salomon Brothers, then a leading investment bank. When he quit, in 1989, he sat down and wrote a stunning book, Liar’s Poker, about what he saw and learned there. Liar’s Poker anticipates much of what has happened since July 2007.
I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous—which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance. When I sat down to write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future. Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.
Guess what. The book was a bestseller. But we still did not really believe him.
Michael Lewis is back. Writing in Portfolio.com, an on-line magazine, he has written a powerful essay titled “The end of Wall Street’s boom.” It is must reading. Tom Friedman quotes it in his column in the New York Times published today in the International Herald Tribune.
Here is what Lewis writes about Long Beach Financial, owned by the mortgage bank Washington Mutual (now bankrupt, of course).
Long Beach Financial specialized in asking homeowners with bad credit and no proof of income to put up no money down and defer interest payments for as long as possible. In Bakersfield, CA., a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a home for $720,000.
A very large number of people knew this debacle, this destructive innovation, was going on. But huge bonuses kept them quiet. And now we have the $300 b. bailout of Citicorp. Friedman calls the senior Citicorp executives “some of America’s best-paid bankers…who were overrated dopes who had no idea what they were selling, or greedy cynics who did now and turned a blind eye.”
Citicorp had to be bailed out or risk what Friedman calls “a systemic crash.”
“These are the wages of our sins,” Friedman says. These are the wages of destructive innovation.
Can a 72-year-old innovation save the world?
Of course. Here is how.
In 1936 John Maynard Keynes, a Cambridge economics don, published his book The General Theory of Employment, Interest and Money, Keynes wrote the following ridiculous proposal to battle the ravages of the Great Depression:
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez faire to dig the notes up again… there need be no more unemployment. . . . It would indeed be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”
What did Keynes have in mind?
Speaking to the Israel MIT Enterprise Forum on Nov. 20, Prof. Lester Thurow recalled Keynes’ prescription and urged governments everywhere to “flood the system with money.” This was Keynes’ innovative idea. When panic reigns and demand shrinks, governments must fill the gap, in any possible way, even through the “bury banknotes” scheme. Anything to get money and liquidity and demand into the system.
Keynes has for years been discredited, as free-market capitalist ideology reigned and government intervention was regarded as destructive. Now the same persons who preached this theory are now massively bailing out failed banks and insurance companies and, soon, automobile companies.
Memo to old ideas: Never despair. You are like old clothes. If you wait long enough, soon you will come back into fashion.
[Eric Schmidt, CEO of Google, was interviewed by strategy guru Gary Hamel at the Management Lab Summit (which Hamel founded) on May 29, 2008 in Half Moon Bay, CA. You can find that interview on YouTube by doing a Google search on the above sentence. It is quite long, an hour, but fascinating and revealing].
One of those obvious truths that needs constant restating is this:
To have an innovative organization, you need to hire – and keep – innovative people.
But how? Eric Schmidt reveals how in this remarkable one-hour interview.
Here is a brief abstract of the wisdom he conveys.
Culture defines an organization’s innovation. Google’s culture is a bit like a university. This could be fatal for many organizations. Who wants to have a business like a university? But Google makes it work. It hires people who love new ideas. Google has a Top 100 list of new ideas to work on. We call it that, even though there are more than 250 projects on the list! (How many companies are working on 250 new ideas??? S.M.).
Your talented people are your key stakeholders. Not your shareholders. When Google went public, the founders kept Class A (voting) shares. They now control the company’s destiny, even if they do not have a majority of the shares or anywhere near it. This will make the company ‘built to last’ rather than short-run myopic.
We have a clear unique value proposition. Here it is. It has four parts.
1. End user happiness with search
2. End user happiness with advertising
3. Network of partners based on (1) and (2)
4. Grow and build the business based on (1) (2) and (3).
I much admire Rupert Murdoch. He has a sense for what his readers want to read in the newspaper. Murdoch is praised as a shrewd businessman, but I think the key is, is intimacy with his readers.
When people leave Google (and the retention rate is very high), we find out: What do they want to do at Google that they cannot do and are therefore leaving? And why is this so, and can it be changed or fixed?
Marissa Mayer is Google’s VP for search products. She has an uncanny ability to sense what people want, like Murdoch. Marissa helped create StreetView (street level view of your house). What good is it? Eventually it can be used for sophisticated devices to help you find your destination (such as an autopiloted car). Marissa is working on a database that will combine, integrate and organize your medical records. And she has a strong ability to sense which projects will succeed and which will not. And she is also an amazing talent finder.
In the end it is simple. Do the best brains in the world want to work for your company? Why? Or why not? If the answer is yes, then you will have the best brains, the best ideas, the best innovation, and the best management. If the answer is no, you must find out, why?
Innovation, in the end, is about finding top talent and keeping it. We especially look for people who are good at doing things (implementing the ideas they have).
HR – Human Resources, or Hopeless Recycling (of tired old ideas)
Great innovators find dark corners, where the light of innovation rarely reaches. One of those dark corners is what is known as Human Resources, the function in companies that manages and develops talent. It is, in many cases, the dark side of the moon. HR managers are among the first to be fired in a downturn, even though managing people, talent and morale is perhaps the most crucial area of management in hard times.
In my experience, HR executives rise in the ranks through the silo of organizational development, and rarely acquire the business acumen and strategic insights that make them a true part of the senior management team. I advise all my HR friends to do many horizontal moves and deployments, to gain understanding of the business, not just the people.
What might be an innovation in HR?
1. Drop the name, forever and ever, of HR. Call yourselves Human Capital. Because people are indeed human capital, and are more important for most organizations than physical and financial capital. And capital, incidentally, depreciates, and needs reinvestment and modernizing. An HC department will from first principles build an investment program, and will prove, based on Return on Investment, that the investment is justified and pays high return. An HC department will invest in its people. An HR department is often viewed simply as the place where green slips and redundancy notices are formulated and managed.
2. Reframe your hiring procedure. Hiring is among the most crucial decisions made by the organization, even at low levels. In this procedure, prospective new hires are subjected to questionnaires, tests and interviews, some more relevant and thorough than others.
Why not reframe this procedure? Why not first ask the application to interview the company? Is this a good company? Does it suit my needs? My passion? Will I learn and grow. Ask your applicants to interview you! I believe you will learn far more from their questions, than you may learn from your own.
“Go Forth…and Find Your Authentic Identity”
Each year, Jews read a chapter of the Five Books of Moses, in synagogue, completing the cycle over 52 weeks. This week we read the third chapter, known as Lech Lecha, which means “Go Forth.” This is what G-d tells Abraham. Leave your country, and go forth. “And I will make you a great nation, and I will bless you, and make your name great; and so you shall be a blessing.” Abraham gathers up his household and obeys, leaving the green pastures of Haran for an uncertain future.
Biblical commentators say “Go forth” means “Go forth and find your authentic identity, and then become it!.” So even though he is 75 years old, Abraham sets out to find his true self, and when he does, he will become the founder of the most powerful innovation in history – the notion that there is only one G-d, along with the ethical principles that accompany that idea. He will be revered, not only as the forefather of the Jewish religion but Christianity and Islam as well.
There is a useful message in this chapter. Innovators travel very great distances in their quest for relevant novelty. But the greatest distance they must travel is within themselves. Like Abraham, we must find and define our authentic inner selves, before finding and defining how we will change the world and discovering how we will, like Abraham, be “a blessing.”
Sometimes, this inner journey is long. As Nietzsche counseled, “Become yourself!.” But how can we become ourselves, if we do not yet know who we are? And unless, like Abraham, we begin this journey, and go forth, we will never arrive.
If Abraham could undertake it, at age 75, what about those who are only 25?
Go forth, my friends, go forth. There is no time to waste.
“And I will make you a great nation, and I will bless you, and make your name great; and so you shall be a blessing.”
Life is hard for you these days?
Try these two situations on for size. Then, rethink the adjective “hard.”
Bram Cohen has Asperger’s Disease. (Some may have read the wonderful book, The Curious Incident of the Dog That Died in the Night, about a boy with Asperger’s who solves a mystery, using his skill at making lists). Some psychologists view Asperger’s as a mild form of autism. According to Susan Berfield, writing in her blog in Business Week, Asperger’s is:
a condition that keeps him rooted in the world of objects and patterns, puzzles and computers, but leaves him floating, disoriented, in the everyday swirl of human interactions.
According to Berfield, Cohen had an unhappy childhood. “I was picked on a lot,” he says. “There was something obviously wrong with me. But it wasn’t acknowledged until I was much older that something had always been off-kilter. Were I to have to redo high school, I would just drop out immediately.” He attended the State University of New York at Buffalo for one miserable year and then left.
After miserable experiences working with startup companies, Bram headed for Silicon Valley. There he started BitTorrent. Here is the main idea:
Cohen sought an efficient way to share huge amounts of digital data. Napster and other peer-to-peer programs already allowed people to pass smaller music files from one computer to another. But big files would clog the system. The elegance of Cohen’s solution is that as more people join a network, data move faster rather than slower. His software breaks files into pieces and scatters them on users’ hard drives. When someone requests a movie, the software gathers the pieces from the nearest computers on the network and assembles them only once they reach their destination. This allows a file to download much more quickly.
BitTorrent has run into difficulties. Bram is no longer CEO. But the mere fact it exists and survives, and the fact a person with Asperger’s launched it successfully, are inspirational. It is hard enough to start a company. But starting one with Asperger’s? And, you say your life is hard?
One of the most popular recent YouTube downloads is one without any spoken words at all. I often show it to my students. It is about a young man with cerebral palsy, confined to a wheelchair, and his loving father, who had heart disease.
“Dad,” he said (few except his father can understand his speech), “I want to run a marathon with you.”
Marathon? But – how?
The father began to train, running and pushing his son in his wheelchair. His fitness grew. Eventually, they ran a 42-km. marathon.
His son was ecstatic; his face lit up at the finish line. And soon they did another one.
Then… “Dad!” he said. “I want to do an Iron Man triathlon!”
Triathlon? Wait. That includes a 120 km. bike ride and a 4 km. swim, then a full marathon. Intense activity for 8-10 full hours. But how?
His father swam, towing him in a rubber dinghy. His father biked, with his son in a seat in front of the handlebars. And his father ran the marathon, pushing his son in the wheel chair. They crossed the finish line to the amazed cheers of the crowd.
If you search “Iron Man” on YouTube, you’ll see them in this 6 minute video.
We learn again that there is nothing the human spirit cannot overcome, there is nothing too ‘hard’ to overcome, if the will is strong enough.
Intel, like all companies that manage their human capital well, initiates a PDP (Personal Development Plan) for their employees, annually. The PDP states the employee’s personal goals for the year and how they are to be achieved, and, in addition, how the company will help with this, in terms of training, courses and other development programs.
Whether or not you work for Intel, every reader needs his or her own PDP. It is absolutely VDI (Very Damned Important). Recently, I have been asking my students to write such a PDP, stating first their own personal dream or passion, and then their PDP for achieving it, developing the skills, talents, allies and resources necessary to attain their dream.
Some students have a clear ‘road map’ in their mind. Others have only a vague idea, and writing the PDP clarifies it. Others have never even allowed themselves to pose the question, What is my dream? Whatever the case, the PDP is vital. And of course, it is subject to change, as we move along the paths of the roadmap, learn and grow.
So, here are the two key questions that comprise the PDP.
* State clearly your personal life’s dream or passion. How will you change the world?
* What will it take in terms of personal skills, competencies, resources and teammates to achieve your dream?
* What is the roadmap (the step-by-step procedures) that will get you from here, where you are now, to there (where you dream you will be one day)?
Nietzsche once said, “Become yourself.” Reading that, I wondered for years, what does he mean?
Today, I know. He means, dream, search for your dream, search for ways to make it come true, and in doing so, truly find out who you are and what you want.
This is how we can use our PDP, which is VDI, to truly become ourselves.
Can you become an entrepreneur and start your business, and fulfill your dream, in an age when the world is tumbling down the slippery slope of recession, when banks refuse to lend to huge stable long-time customers (let alone small businesses), when the VC pipeline is dry because those who invest in VC’s have stopped…?
The answer is yes, of course. This is precisely the best time of all to start a business and become independent, because so few people are even thinking of doing this, and because it is very hard to find a promising job with learning potential, as companies downsize and lay workers off.
Bootstrap! Self-fund your business by financing it with cash flow and with your own savings. It may take you longer, but you will retain control and there are huge advantages to that.
Here are the 12 rules of bootstrapping, by Guy Kawasaki, legendary Apple co-founder and successful venture capitalist. Follow them carefully and, above all, do not give up your dream just because the world is temporarily screwed up. Kawasaki says:
I could build a case that too much money is worse than too little for most organizations—not that I wouldn’t like to run a Super Bowl commercial someday. Until that day comes, the key to success is bootstrapping. The term comes from the German legend of Baron Münchhausen pulling himself out of the sea by pulling on his own bootstraps.
Here is the art of bootstrapping.
- Focus on cash flow, not profitability. The theory is that profits are the key to survival. If you could pay the bills with theories, this would be fine. The reality is that you pay bills with cash, so focus on cash flow.
- Build around boostrapping. If you know you are going to bootstrap, you should start a business with a small up-front capital requirement, short sales cycles, short payment terms, and recurring revenue. It means passing up the big sale that take twelve months to close, deliver, and collect. Cash is not only king, it’s queen and prince too for a bootstrapper. Manage by cash flow, not P&L – you probably should do this anyway, for any business.
- Forecast from the bottom up. Most entrepreneurs do a top-down forecast: “There are 150 million cars in America. It sure seems reasonable that we can get a mere 1% of car owners to install our satellite radio systems. That’s 1.5 million systems in the first year.” The bottom-up forecast goes like this: “We can open up ten installation facilities in the first year. On an average day, they can install ten systems. So our first year sales will be 10 facilities x 10 systems x 240 days = 24,000 satellite radio systems. 24,000 is a long way from the conservative 1.5 million systems in the top-down approach. Guess which number is more likely to happen.
- Ship, then test. I can feel the comments coming in already: How can you recommend shipping stuff that isn’t perfect? Blah blah blah. ”Perfect“ is the enemy of ”good enough.“ When your product or service is ”good enough,“ get it out because cash flows when you start shipping.
- Forget the ”proven“ team. Proven teams are over-rated–especially when most people define proven teams as people who worked for a billion dollar company for the past ten years. Hire young, cheap, and hungry people. People with fast chips, but not necessarily a fully functional instruction set.
- Start as a service business.
- Focus on function, not form. The function is computing, getting from point A to point B, skating, shooting, and knowing the time of day. These functions do not require the expensive form…
- Pick your battles. Bootstrappers pick their battles. They don’t fight on all fronts because they cannot afford to fight on all fronts.
- Understaff. Many entrepreneurs staff up for what could happen, best case. Bootstrappers understaff knowing that all hell might break loose. But this would be, as we say in Silicon Valley, a “high quality problem.” Trust me, every venture capitalist fantasizes about an entrepreneur calling up and asking for additional capital because sales are exploding. Also trust me when I tell you that fantasies are fantasies because they seldom happen.
- Go direct. The optimal number of mouths (or hands) between a bootstrapper and her customer is zero.
- Position against the leader. Don’t have the money to explain your story starting from scratch? Then don’t try. Instead position against the leader.
- Take the “red pill.” This refers to the choice that Neo made in The Matrix. The red pill led to learning the whole truth. The blue pill meant waking up wondering if you had a bad dream. Bootstrappers don’t have the luxury to take the blue pill. They take the red pill–everyday–to find out how deep the rabbit hole really is. And the deepest rabbit hole for a bootstrapper is a simple calculation: Amount of cash divided by cash burn per month because this will tell you how much longer you can live. And as my friend Craig Johnson likes to say, “The leading cause of failure of startups is death, and death happens when you run out of money.” As long as you have money, you’re still in the game.
What is the right way to become an entrepreneurial innovator? Is there a theory?
Here is my ‘take’ on this issue, derived from a case study by U. of Virginia Darden School of Business Asst. Prof. Saras Sarasvathy, titled “The Entrepreneurial Spirit”.
The entrepreneurial process is show below, in the Figure.
• In the upper loop, you transform yourself, by looking inward and defining for yourself your dreams and your passions, and your skills, and how you must change in order to achieve them. And entrepreneurs always must change and adapt if they are to succeed.
• In the bottom loop, you look outward, and examine the business environment, and global social economic and lifestyle trends, along with technology enablers. Successful entrepreneurship always combines the two loops.
Identify key social needs that you feel passionate about and feel you can meet.
Identify competencies, skills and capabilities within yourself, identify flaws and gaps with yourself, and build your personal development path (PDP) to close them, while constantly looking outward to track the global environment.
The key is the PDP. Intel has its employees build one yearly. Pretend you are Intel. Build yourself a PDP. What path shall I seek, that will help me achieve my dream? A key to the PDP: Always choose jobs that offer powerful learning experiences, rather than just paychecks. If you do not learn and grow, continually, it is not worth it. The gain in your human capital value through learning will be far greater, in a learning job, than any salary differential.
The Entrepreneurial Spirit: The Double Loop. Look Outward, Look Inward
Source: S. Sarasvathy, U. of Virginia Darden School