Is The US Living In A Ponziconomy?

Several days ago on a trans-Pacific flight I read two interesting articles in the same newspaper.  One was an analysis of the most recent jobs and unemployment report from the US, in which most analysts were puzzled by the lack of real job creation and economic growth.  The other article was about yet another IPO filing for a hot up and coming Social Media technology company, this one in the social gaming space.  The company, Zynga, is growing rapidly, is profitable, and generates almost $1B  of annual revenue from the sale of “Virtual Goods” in games embedded in Facebook.  I am an avid user of Facebook, but I must admit I’ve never played Farmville or any of the other Zynga games, I have no idea what virtual goods I would buy, how much they would cost, nor what redeeming benefit they would have for my life.  So I am probably unqualified to comment.  But I just worry that too much of the focus and excitement in the US technology and innovation media is on companies which will not create much lasting economic value.  But let’s face it, a virtual cow in Farmville is even less meaningful than a tulip bulb, and I struggle to come to grips with how a company making virtual goods can support a $20B valuation with any intellectual honesty.

I am a manufacturing guy by background.  I have run factories and now I run a real business, making real products that solve real problems for real people.  Of course I am in it to make money for my company and hopefully money for myself.  But by operating non-virtual assets, I am also able to see the much broader economic benefit that my business provides.  In addition to the personal salaries earned by over one thousand employees at my six manufacturing operations in US and Europe, there are the employees’ incomes, the company incomes, and the reinvestments of my suppliers, my suppliers’ suppliers, my logistics partners, etc.  Manufacturing of “Non-Virtual Products” creates lasting value in our economies.  Additionally, where there is value creation, there is inevitably taxation, which helps to solve  the major budget crises which the US is facing right now.

On the other hand, a technology based social media or smart phone app start-up has a much smaller trickle down impact on the economy.  As Thomas Friedman recently noted, the number of employees is typically much smaller and the resulting supply chain impact is minimal.  Sure, the local Starbuck’s, web hosting company, Pizza takeout joint and foosball table distributor get some lift from a new tech startup, but the overall stimulus to the economy is much smaller.  And while it may be much harder to quantify, I do not dispute that many successful tech companies offer products or services which create value for their users via increased productivity, group buying, etc.  But I really struggle to find much meaningful tangible, lasting economic value creation in a producer of virtual goods.  Many, many hot tech startups have been invested, exited and subsequently evaporated in the prior Web 2.0 and current Social Media technology inflatable balloons.  For many of these companies, the net aggregate cash flows once the music stopped and the dust settled flowed from users and customers into the pockets of founders and VC’s.  Don’t get me wrong, I’m all for people getting rich from their work, I’ve been trying unsuccessfully to do it for almost 30 years.  But it feels a little bit like a Ponzi scheme and I do not think it’s a sufficiently robust way to drive true lasting economic recovery.

The US remains one of the most innovative countries in the world.  We have great research and key technologies which can create real value for society in such industries as alternative energy, green chemistry, advanced materials, high efficiency transportation, smart grid power distribution, pharmaceuticals, water purification, etc.  Each of these industries could be a real starting point for sustained economic vitality and renewed competitiveness for the US.  Regional hubs and corridors for key technologies could fuel synergy and innovation.  Real technologies could evolve into real production plants which employed real employees and supported real supplier ecosystems.  Rest assured, we would still need founders, management teams and VC’s who would earn well-deserved wealth, but in a non-Ponziconomy, they wouldn’t be the only ones.

For Inspiration, Take The Road Less Traveled

Last week, I attended some meetings up at the Homestead Resort, in the Allegheny mountains of Virginia.  (It’s a great venue, by the way, with a real historic Jeffersonian flair and a beautiful backdrop). I drove up from my office in Greensboro, NC, taking a lovely scenic drive over rural Virginia highways.  As usual, I let Google Android Navigation guide me on the journey, which appeared to be a relatively straightforward shot, primarily on Virginia Highway 220 for most of the way.

As I neared my destination, Google Navigation decided that it was better for me to leave familiar Highway 220 and take this route over the mountain instead.  ”No problem” I thought, Google Nav had never done me wrong.  The road quickly degraded into a roughly paved, un-marked road, marked only as Route 606.  Ominous signs indicated “No Vehicles over 25ft, Buses and Trucks strongly discouraged” and “Not recommended for GPS Navigation”.  The last one threw me somewhat; was the route  somehow underground or underwater?  Anyway,  I forged on and figured I would just turn back if it somehow became impassible.   (I drive a BMW M3, not the Magic Schoolbus, so I figured I could probably make it).

Despite a narrow 1.5 lane road with no marking, no guard rails and switchbacks galore, I ended up being so happy that I took the road less traveled.  The views were staggering, green lush mountain forest as far as the eye could see, and I had the road to myself, only passing one other car on the whole route.  I was able to drive much “more aggressively” than normally recommended in Virgina, the land of illegal radar detectors.  The adrenalin from the switchbacks and the fragrance of a moist spring forest really inspired me.

Routine and convention dull our psyche and our innovative capability.  Your mind has a tendency to just check out if you are executing a routine task or driving a familiar itinerary that you can do in your sleep.   The next time you have a chance, don’t drive to work via the same route you always take.  Take a detour, roll down the windows and really take in your surroundings.  Notice all the things you never noticed before. Tomorrow when you get up, don’t go to your normal daily staple of websites / blogs, StumbleUpon randomly or wander around on Tumblr to see something new and inspiring.  Walk to lunch, instead of driving, and take it all in.

Innovation is all about recycling and synergizing other inputs and ideas from your environment.  The more chances you have to charge your RAM with fresh inputs and stimuli, the better chance you will have to come up with something creative.

Take the road less traveled.  I guarantee you, you will be more motivated and innovative once you get to your destination.

Roadkill

All of us have had the unpleasant experience of coming across roadkill.  Although I’ve never seen empirical evidence, I’m pretty sure that most of these victims never intended to end up the way we found them.  Most of these unfortunate endings happened because of a desire to move beyond their previously inhabited core space into a new and adjacent space, and a lack of understanding of the potential risks inherent in this shift.  They had a desire to move, evolve and grow, but did not consider the consequences fully enough.

Potential mistakes they made which might have led  up to such tragic endings:

• Totally ignored the potential risks: They never considered it, frankly never understood it, never saw it coming, and most likely died an immediate and unexpected death.
• Understood the risks but poorly timed their transition: They were aware of the risks in shifting to the new space, and probably even studied the transition area for some time before crossing the road.  But due to some combination of bad data, incorrect analysis and bad luck, they happened to time their move at precisely the wrong moment.
• Failed to move decisively: They noticed an oncoming car, then quickly backed away from their plan and reversed direction, then re-initiated again, vacillating quickly with almost squirrel-like indecision.  They failed to plan their move and commit to it fully.  He who hesitates is lost.
• Detected an oncoming threat, but failed to act quickly enough: Many of these players planned their move carefully and were aware of the potential risks.  When making their shift, unfortunately, their acknowledged worst case scenario materialized.  Rather than acting promptly at the earliest identification of the risk, they stood fixated, like the proverbial “Deer In The Headlights”. (Pun intended.)

Don’t get me wrong, there is often a  strong imperative to get to the other side of the road for any number of reasons.  Just because there is risk, does not mean that the transition might not be required or desirable.  But a strong analysis of risks, potential scenarios and a well-timed plan, executed decisively, will help ensure that your business does not die an untimely death.

Don’t let your business become roadkill!!

(Image courtesy of deepwarren under Creative Commons License.)

Battle of the Shanzai Kombinis

See the full gallery on Posterous

Came across these two Shanzai Convenience stores on opposing sides of a busy Nanhui intersection yesterday. I wonder which one dupes more customers?  Both of these Japanese chains have huge presences in China;  Lawson’s has over 300 stores in Shanghai alone, and Family Mart has nearly 400 outlets in Shanghai.  With such a huge investment, I wonder how much they appreciate their brand equity getting hijacked and dilluted by these knock-off branches?

Posted via email from jeffreyjdavis’s posterous

Hierarchy of Visual Understanding

via informationisbeautiful.net

Although this pyramid is simple, the concepts presented as raw data progresses to information to  knowledge and ultimately wisdom kind of clicked with me.    In a data rich, yet information starved environment,  having decision support teams with these types of skills and design sensibilities allows us to be better business leaders.

Do your business systems feed you data, or information which enables knowledge, and sound decision-making?  Can organization and design of information visualization help you get to the crux of the issue quicker?

From the always lovely Information Is Beautiful Blog

How Do Colors Affect Purchases?

This very cool infographic (Originally hosted at blog.kissmetrics.com) details the many unsuspected ways that color can impact emotion and hence buying behavior.   We all know that we tend to have a “connection” with various colors and that brands have connections with colors (John Deere Green,  Coke Red) , but we probably don’t think very often about how marketers use these color affinities to shape our purchase intent.

I used to work a lot with color back in the GE ColorXpress days, and trust me there are entire groups like the Color Association that do nothing but plan and forecast color trends in industry.  It’s really quite fascinating.  So if you somehow feel “drawn” to a product for no explainable reason, think about the role that colors may have in your decisions.

Mile-High Mega Kites Could Pull Giant, Floating Power Plants

via wired.com

Finally my dream job, commercializing two things I’m passionate about, Wind Energy and Kiteboarding.

Take a huge oceanic catamaran, stick a hydroelectric turbine underneath it, and hitch it to a 6.5 million-square-foot parafoil flying nearly a mile in the air. That’s a Korean research team’s new proposal for generating gigawatts of clean energy.

As the parafoil pulls the boat, seawater would be forced through the turbine, which generates electricity. The 800 megawatts of electricity produced would separate seawater into hydrogen and oxygen by electrolysis, and the hydrogen would then be stored on-board the ships.

I sure hope that 720,000 meter foil is water relaunchable!!!

Read the full story at Wired Science.

Posted via web from jeffreyjdavis’s posterous

First Derivatives: Are You Getting Better, Or What?

IN A NUTSHELL: Regardless of the subject or the metric, you are either getting better or getting worse, you can’t be just “holding your own.”

“Time Changes Everything.” “Everything Changes Over Time.”  Said differently, or more technically, most things which you can measure can be considered as a function of time.  This applies to most personal metrics:

• Your weight,
• Your career progression,
• Your achievement of key goals,
• Your net worth,

as well as to most business metrics:

• Your company’s revenue run rate,
• Your company’s profit run rate,
• The yield of a manufacturing process,
• The quality of your company’s products or services, or
• Your customer’s  satsifaction with your offerings.

As a leader, when you ask people in your company how well you are doing on a certain key metric, they rarely tell you that things are rapidly getting worse.  I’ve found that they also tend to under represent areas where you are doing well.  I’ve found that the most common answers you are likely to hear are mediocre answers such as “it’s stable”, “it’s doing OK”, “so-so” or “we’re holding our own.”

Well, if these answers are similar to the answers you usually get, I have a news flash for you.  Your people are LYING to you! Here’s why.  To get  slightly technical again and take you back to Calc I, the slope of any function F(t) is defined by its  first deriviative, F’(t).  The only points where the function is not either increasing or decreasing are the local maxima or local minima, the points where F’(t) is equal to zero.  Everywhere else, the function is either increasing or decreasing.  Do the math!!

So other than for the occasional brief millisecond, your business has to either be constantly getting better or worse.  If your people can’t tell you with conviction that things are getting better, chances are they are probably getting worse and you need to get on it!! Challenge those First Derivative assertions!!  Keep the velocity positive!!

Risk, Part 3 — Vulnerabilities In Your Team

IN A NUTSHELL: Part 3 of a 3 Part Series: Your people are your most mission-critical resources, where do you have blind spots or weaknesses due to unplanned talent losses? Part 1 of this series can be found here. Part 2 of this series can be found here.

CCL Courtesy of ItsaGreg

We all know that a business doesn’t run without the people that keep it running.  We also know that people aren’t a “fixed asset” in the sense that they aren’t permanent.  They don’t work in one job forever — they get promoted internally, they get recruited away, they get fired, they quit, they get sick, they even die sometimes without clearing it with their manager first.  Given the fact that we know intuitively that people can be a vulnerability, it’s sometimes amazing how much of the firm’s intellectual capital we allow to be concentrated into the brain of one individual, with no clear backup plan.

How many of these people work in your company?  (Names changed to protect the innocent):

• Larry is the technologist who is the only one in your company who understands Technology X, which is core to your overall business model.  He knows it deeper than anyone ever could because he’s worked at the company for 30 years and he invented Technology X 25 years ago.  Larry is either eligible for retirement now or very soon and sticks around primarily because he honestly enjoys the technical challenge.
• Chuck is just like Larry, but was he was unfortunately downsized as part of  a reduction in force back in the 1990′s and has been working as a part-time consultant since that time.   Even though the company laid him off, you keep paying him to come back because he’s the undisputed industry expert in Technology Y.  Chuck is unexplainably loyal to the company that laid him off, but occasionally threatens to “really” retire one day.
• Betty Sue is the administrative clerical person who over time has inherited process ownership of some arcane yet mission critical business process in your operation.  Her domain could be anything from setting up new product codes to processing customer claims to managing product costing to administering the timeclock and payroll databases.  Whatever it is, it’s really boring, yet really important.  It is not uncommon for Betty Sue to be the curator of a legacy DOS batch file or a complex system of interlinked Access databases and Excel files running on a dedicated box off of floppy disks under Windows 95.
• Rod is a new hotshot that joined the company a couple of years ago as his 1st or 2nd job out of college.  Wet behind the ears, but full of energy, he has attacked everything he’s been assigned with a ton of passion, and has voluntarily taken on multiple other projects outside his normal job assignment.  He’s hitting it so hard that you are not even sure of all the areas that he’s improved.  You can see a lot of runway for him in the company.
• Biff is the career sales person who has cultivated key relationship equity with decision makers at several of your key customers after years and years of selling and thousands of rounds of company-paid golf.  His perpetual tan implies that he probably doesn’t really work all that hard, but when you need a favor from the customer he can usually get it and when they have a problem, he can usually do a lot to help it “go away” quickly and painlessly.
• Johnny works in the factory, either as a maintenance technician or as a production employee, as he has ever since high school (25 – 40 years ago).  He is the “Horse Whisperer” for your key process equipment.  He probably has female names for your key equipment and when they are sick, he knows what’s wrong just by listening to the sounds of their voices.

Now what would happen if you showed up Monday and one of these people’s chair was empty?  What would happen to your business if a key piece of your talent pool was no longer part of your team, regardless of the reason?  First, let’s address generically your potential backup plans that you (should already) have in place:

• For Larry and Chuck, these are long term knowledge vulnerabilities that you should identify as part of your annual organizational review.  You have to develop understudies for these talents, even if it means carrying somewhat redundant headcount for some period of time.  These are likely to be niche talents;  assume that it will take time to find the right backup, and realize that it may take years to come close to transferring a meaningful portion of the guru’s  knowledge.  Get started yesterday.
• Johhny’s specialist skillset is similar to the above case, but it should be somewhat easier to identify a suitable apprentice and have him or her work along side Johnny for a period of time to learn the key skills.  You are likely to lose some of Johnny’s speed of solution when a backup takes over, but you are less likely to totally shut down your business.  Start a rotational cross-training or apprenticeship program to bring others up to Johnny’s level.
• Biff probably guardedly protects his key influence chips, but you have to have others on your commercial team accompany him on key strategic visits to start to spread your relationship equity around on your team.  Selective forced territory / account rotations, while potentially inconvenient for the customer, can force relationship diversification while Biff is still on the payroll and can come in for support if needed.
• You should consider re-engineering Betty Sue’s work package so that it is more digitized, streamlined or transferable.  Rod may be a great resource to help her pull off the redesign.
• Rod will not be in his job forever, you already know that.  From day 1, you need to challenge him to document his improvements and to develop smooth transition packages for each of his projects so that his improvements can be handed off to his successors and institutionalized in the company after he has moved on and up.

There are several ways that may help you to get a sense that someone could be leaving:

• As always, the best method is to talk openly and frequently to your people.  Ask them flat out: “How’s the job going?” “What are you working on?” “What could we do to make your role more challenging or more satisfying?” You maybe surprised what some pointed open ended questions may uncover, and your people will appreciate the interest, assuming you follow up.
• For people nearing retirement, you should engage in career planning with them to understand their plans and their commitment to help you secure a smooth transition.  It’s a good idea to try to understand what may be going on in their personal lives as well, as spouse or  family health and career issues can often have unplanned impact on your employees.
• It is usually obvious if someone has “checked out” of their job due to lack of interest or assignment scope change. Visible changes in enthusiasm or energy are a good sign that someone may be disengaging from their job.  This is particularly important after any major organization restructuring.  The survivors often harbor discontent which ultimately could impact their desire to work in the company long term.
• If you are connected to your folks on key social networking platforms like LinkedIn, Twitter or Facebook, you may also pick up signs that folks are evaluating other options.  A rapid stockpiling of LinkedIn recommendations or a number of recent network connections to recruiters are tell-tale signs of trouble.  I don’t advocate using these tools to spy on your people, but if they are in your network, remember that that information is there for your consideration.

Ultimately, you need to have a backup person for every key talent in your company.  Ideally, everyone is so satisfied with working for your company that they work until a carefully planned retirement date.  Neither of these dreams happens very often in reality.  Careful planning can help you minimize the potential downsides of the organizational reality.  Please share your experiences with managing these types of risks in your business and any tricks or tips that you have developed.

Risk, Part 2 — Safeguarding Your Daily Business Operations

IN A NUTSHELL: Part 2 of a 3 Part Series: Think analytically about potential weak spots in your ongoing business operations to identify potential vulnerabilities and to proactively develop contingencies. Part 1 of this series can be found here. Part 3 of this series can be found here.

Most companies rely on a complex network of interwoven systems, processes and business relationships to support their daily operations.  Whether your company is small , somewhat self-contained and relatively simple, or a large complex globally distributed manufacturing operation, you are highly reliant on a number of interlinking pieces which must mesh perfectly for your company to run continuously as designed.  No one is truly self-sufficient in today’s global economy.  Take a look at the number of different accounts in your Accounts Payable ledger if you don’t believe me.  A lot of things have to go 100% right every day for your company to run smoothly.

The economic downturn has had a devastating impact on almost every company.  Many companies are failing or have ceased to exist.  The companies which have survived have almost universally taken drastic actions to reduce costs, reduce employment levels, elminate waste and streamline their operations.  While this is undoubtedly healthy for these firms and for the economy as a whole in the long run, one unavoidable but potentially under-appreciated aspect of this LEANing out is that the risk profile of most companies has increased to some degree.  Typical cost savings strategies such as reducing inventories, lengthening preventative maintenance cycles, lowering general employment levels, reducing delivery frequencies, etc. are all smart cost saving moves, but all have the impact of  increasing the risk level of that company’s ability to execute its mission flawlessly.  Although each individual action may be negligible, if your company relies on 50 other supporting cast member companies / partners to conduct your line of business and they have all increased their likelihood of failure by 1%, your overall “rolled throughput yield likelihood of success” level has decreased by nearly 40% as a result (99%  ^ 50 = 60.5%).

It’s helpful to reassess all the cogs in all of your wheels and to think through the likelihood of a failure in any piece that could cause a business interruption.  A good brainstorm of  “What could possibly go wrong?” around the standard  “5 M’s” of an Ishikawa or Fishbone Diagram may get you started on a list of things to consider:

• Machine: Equipment breakdowns, Inability to get critical spare parts, Drifting machine performance, etc.
• Materials: Lack of supply from key suppliers, Sole source vulnerabilities, Quality issues due to material substitutions, Supplier bankruptcies, etc.
• Man: Key talent defections due to other family or economic issues, Trade secret leakage, Downsizing / job consolidation performance impact, etc.
• Methods: Shortcuts on procedures due to downsizing, Poorly documented crisis mgmt procedures, etc.
• M-vironment / Mother Nature: Interruptions in utilities, Lack of  Logistics / Freight carrier availability, Longer lead times due to capacity reductions, etc.

I don’t think you have to be overly exhaustive in this brainstorm, but you and your team should be able to come up with 30 – 50 things which are potential issues to consider.  Please do not get lulled into the trap that “that could never happen to us”.  For many companies, Fragile is the new normal.

Once you have a laundry list of potential issues, you need to screen them to determine which ones you really need to deal with and plan for.  Although rigorous, the best tool for segregating the critical issues from the less worrisome possibilities is the Failure Modes and Effects Analysis.  A detailed analysis of the use of this tool is far beyond the scope of this post, but you can find a good overview from the American Society for Quality Control.  In essence, with an FMEA you are objectively ranking three critical dimensions of each potential failure mode in your business on a scale of 1 (least risky) to 10 (most risky):

• Severity:  This issue is of only temporary or minor impact (1) ==> This issue could literally shut my business down (10)
• Occurrence:  This issue is highly unlikely (1 in 100,000 chance)  to occur (1) ==> There is a very real chance (>50%) that this could occur (1)
• Detection:  I can certainly detect this immediately if it happens and I have a plan to deal with it (1) ==> I probably will not detect this until it is too late and by the way I do not have a recovery plan (10)

I don’t think you need to be overly picky on these ratings but I would advise applying them as consistently as possible with some measure of team collaboration.  Once you have established ratings for each aspect of each potential failure, multiply them to obtain a composite Risk Prioritization Number (RPN), which will be a number between 1 and 1000.  I recommend that you and your team develop solid plans for any risks with a composite RPN over about 300 and for any issue with a Severity rating of 7 or above.  In general, you will be developing plans to reduce the likelihood of Occurrence or the ability to Detect and Deal with the Issue, as the Severity can only be reduced by redesigning your business model in most cases.  You can find a number of useful Excel templates and guidelines for conducting an FMEA at the FMEA Info Centre.

I urge you to keep this exercise in perspective.  You are assessing business continuity risks, not designing a Lunar Lander Module.  Don’t  get stuck in the weeds as you brainstorm or prioritize.  You don’t need to overdo the precision and complexity of the analysis, but I hope that you will find that open minded brainstorming, objective assessment and then a structured prioritization tool like FMEA may help you proactively implement risk mitigation plans that improve the likelihood that your business continues running “without a hitch”.  Good Luck, and please share your experiences in the comments.