Coaching Tip: The Leadership Blog

The Power of Friendship

This is a story of friendship, and the principles behind the story, taken from the book, "The Ultimate Gift" by Jim Stovall (ISBN: 1434799906).  Friends Gus and Red were getting started in the cattle business in Texas.  These two friends had ranches several miles apart but they and several other ranchers all shared the same range. 

Each spring, all the ranchers would have what they call a roundup, which involved collecting and branding all of the new calves which had been born since the last roundup.  The young calves simply follow their mothers wherever they go, so as the cattle are collected, representatives from each ranch are present to brand each new calf with the same brand as its mother's.

Gus was concerned that Red wasn't going to make it as a rancher.  So, during the roundup one year, Gus simply branded about thirty of the calves that should have been his own with Red's brand.  But at the end of the roundup, when Gus performed his tally, he found that instead of being thirty calves short, as he thought he should, he actually had almost fifty more than he started with.

Gus was confused about that incident until many years later, while he and Red were on a fishing trip. Red told Gus that when they got started, he had been worried about Gus making it in the business and had actually branded a bunch of his calves with Gus' brand.

This friendship story illustrates the Law of Love which is a principle behind the power of relationships.  We are predisposed to trust and cooperate with others.

Research on empathy, compassion, and altruism shows that when we encounter the pain or suffering of another, we are wired not only to feel their distress but also to reach out to help relieve it. Relationships between people or institutions are based on exchange in which all parties have a mutual understanding of their rights and obligations.   

Genius is developed, not born

Exceptional intellectual and creative power is developed over time by minds that are focused on paying attention to an opportunity waiting to be explained.

In the nineteen-sixties, the sociologist Robert K. Merton wrote a famous essay on scientific discovery in which he raised the question of what the existence of multiples tells us about genius.  No one is a partner to more multiples, he pointed out, than a genius, and he came to the conclusion that our romantic notion of the genius must be wrong.  A scientific genius is not a person who does what no one else can do; he or she is someone who does what it takes many others to do.  The genius is not a unique source of insight; he or she is merely an efficient source of insight.

Ideas aren't precious.  They are everywhere, which suggests that maybe the extraordinary process that we thought was necessary for invention---genius, obsession, serendipity, epiphany---isn't necessary at all. 

Business Cycles & GE

As you know, 'good times' don't last forever....yet, people want to believe they do.  Like the turkey, who believes good times are commonplace until the third week of November, most people expect the good times to roll on.  And so, they only see what they are looking for.

If you understand that there are business cycles, you look for the unexpected and when it surfaces, you see it long before others do.

The CEO of the General Electric Company (GE) didn't anticipate a dip in profits during the first quarter---probably because he anticipated business continuing as usual.  GE stunned Wall Street last month when it reported first-quarter results below expectations, a stumble it blamed partly on the credit crisis.

Now, GE recognizes that the Recreational Vehicle (RV) and Watercraft industries lead the economy during the downside of a business cycle.  Traditionally, these recreational industries have led the stock market, housing starts and other early warning indicators because they are the largest discretionary purchases made by the consumer. 

That is why the GE consumer-finance unit plans to stop providing loans for the purchase of recreational vehicles (RVs) and most watercraft.  "It's a challenging time for RV and Marine financing," said Cristy Williams, a spokeswoman for GE Money.  "We just didn't see the returns that we wanted to see."  GE has said it would reduce its exposure to some of the more-volatile areas of the financial-services sector.  The company is expected to sell as much as $50 billion in consumer and weaker-performing commercial-financing assets this year.

Successful Tech Entrepreneurs

There is a myth that the successful tech entrepreneur is a Bill Gates-like 20-something college dropout who strikes cyber gold in his garage.  Nothing could be further from the truth.

According to a recent survey by the Kauffman Foundation, the average tech company founder is pushing middle age at 39-years-old...and...nearly five times as many founders were over 45 (24%) as were younger than 25 (5%) when their companies got off the ground.  The survey asked questions of 652 U.S.-born executives at tech companies started from 1995 to 2005 with revenues of at least $1 million.

To gain the business experience and personal confidence of going out on their own, on average, these entrepreneurs had 16.4 years between when they finished school and started their companies.  Forty percent had a master's degree or a doctorate.  Although more likely to have received a techie degree than the general population, only 37% graduated from computer-science or engineering programs.

Source: The Wall Street Journal, May 6, 2008

Microsoft dodges $48 billion bullet

Microsoft's pursuit of Yahoo ended on Saturday.  The $48 billion bid, came after Microsoft had invested untold billions of dollars over the years into unprofitable and undermanaged online services, while Google and a host of smaller players found a windfall in online advertising.

The software giant's share of Internet search queries was a mere 9.4% in March, while Google Inc. had a 59.8% share and Yahoo a 21.3% share.  Buying Yahoo was supposed to help reverse struggling Microsoft's online services by adding size--in particular, a mass of consumers and advertisers--to what Microsoft already had.

In a letter to Microsoft employees Saturday, CEO Steve Ballmer pledged to "pursue partnerships and investments" to expand Microsoft's scale in online services while investing in the engineering behind the services.  Microsoft's next course of action will likely be to try to form a competitive advantage through tie-ups with other Internet companies that could pull more consumers and advertisers to its Internet services.

As Google continues to leverage its huge marketshare advantage by increasing advertisers' costs, Microsoft has an opportunity to become the umbrella for a stable of many specialty search engines...at a much lower cost-per-click (CPC) price than Google offers.

Here is why specialty search engines are the next best thing:

BOOMER SEARCH ENGINE: www.cRANKy.com got its name because the creators say that many older users get cranky when they use more traditional search engines. Launched January of 2007, this site is run by the same folks who launched www.Eons.com. 

In the age of Google, being special increasingly requires standing out from the crowd online.  Some of the "un-Googleables" say being crowded out of search results actually carries a professional and financial price.  That's because people increasingly rely on search engines to find things they want to read, music they want to hear, people and companies they want to do business with. 

CEO and HR Priorities

Has your chief executive officer (CEO) crafted a leadership style that centers on authenticity; that means constantly communicating with employees about the company's important issues?  Does your CEO try to get across what s/he's like as a person, what s/he values (like spotless ethics, emotional maturity), and the vision s/he has for the organization?  Rather than avoid the animosities, communication breakdowns, and jealous flare-ups on the CEO's executive team--as well as his or her own defects--does the CEO confront them head on?

If the answer to all the above questions is "yes," then your CEO has gotten over the CEO Disease by working with a personal leadership coach to become more self-aware and able to allow his or her leadership perceptions to evolve.

There is an old Yiddish proverb that applies to every organizational leader: "The fish always sinks at the head."   The leader with CEO Disease doesn't know the smell that he or she is spreading throughout the organization.  The personally coached CEO discovers what smell he or she is spreading across the corporate culture and works to make it a productive and positive scent.

Companies Stash the Cash

Entrepreneurs are using cash as a safety net.  With the economy struggling, business leaders are glad they've been hoarding cash.  Over the past 20 years, the cash levels of companies with less than $19 million in sales rose to more than 35% of assets from 15%.  For the largest companies, the level has doubled to more than 10%.

Kathleen Kahle, associate professor of finance at the Eller School of Management at the University of Arizona in Tucson, AZ, and two other professors studied 13,000 firms of all sizes, finding that all were clinging to cash.  Reserves grew particularly fast in the late 1990s and early 2000s, following the bursting of the technology bubble and the September 11 attacks.  Being confident you can make payroll and have reduced or no loans or debt is a good thing in today's economic climate.

Small companies are typically less diversified than large companies, and therefore less equipped to handle political and economic storms.  "The concern is that it is not clear what the firms will do with the money," says Amy Dittmar, an assistant professor at the University of Michigan here in Ann Arbor.

Source: BusinessWeek SmallBiz, May 2008

Useful Advertising

In an age when widgets--small, Web-based programs--are all the rage, companies are increasingly creating online tools that offer to help their customers.

You will start seeing a lot more of: messages that, in and of themselves, provide a service.  Nick Law, chief creative officer of the agency R/GA, has been doing this kind of thing for years, most notably with Nike+, a site that helps runners track their performance.  Appearing useful is of particular interest to marketers keen to place ads on mobile phones, a tricky prospect since the potential annoyance factor is so high.

Companies are even wrapping ads around community outreach.  Eager to reinvigorate its image as a basketball brand, Converse last fall began organizing games for Miami's inner-city youth.  Kids got to try out new shoes and meet Miami Heat guard Dwyane Wade, who signed autographs and refereed.  Converse also created an application on Facebook that allows people to sign up friends to play an online basketball game.  Converse says it now has more than 40,000 people to add to its database of potential customers, as well as information on where they live.

Here are some useful ad tips:

• Consumers actively seek out services, even if they are veiled ads.  And they spend more time with the brand than they would watching a 30-second spot.
• When consumers sign up for a service, marketers can gather everything from demographic information to product interests to names and addresses--data they can use for a harder sell down the road.
• When the ads work, consumers feel more loyalty to a brand because they feel like it did them a good turn.

Source: BusinessWeek, May 5, 2008

Global Dominance

World leaders are speculating that America's time of global dominance is finished, and that new powers, such as China, India and Russia, are poised to take over.  It's an idea that has had as much currency within the United States as elsewhere.

A World Bank analysis predicts that both China and India "could almost triple their economic output" in the next ten years or so.  By the late twenty-twenties, China could overtake the United States as the world's biggest economy.

There are good reasons for skepticism about such grand forecasts.  Economic statistics in autocracies such as China are notoriously unreliable, and it's worth recalling all those predictions, a few decades ago, of Japan's imminent global domination.  George Soros says that as the U.S. is in danger of a recession, China is in danger of an asset bubble--one that could easily lead to a financial crisis.  But Soros thinks that China in much better situated than the U.S. because they have the power to stimulate domestic consumption (via government spending).

But many are quick to write off America's cultural, political, economic, and military clout because the American economy has to rely on infusions of cash from China, Singapore, and the Gulf states suggests that something important is taking place.  Exactly what is happening, and with what consequences, are matters of dispute.

Is Price a Reflection of Quality?

Pricing has an immediate impact on your business -- positive or negative. That's why it's strategically important.

Unfortunately, common sense pricing is not always common in practice -- due sometimes to lack of knowledge of how to set prices, but much more frequently simply to bad assumptions based on the unquestioned acceptance of prevailing myths and rules-of-thumb.  Pricing determines the profit of your business both directly -- as the result of revenues less costs -- and indirectly -- in its influence on stakeholder (customer, vendor, employee, investor, etc.) perceptions.

Amazon.com has a reputation of frugality that drives innovation that delivers low prices and ease of purchase to its customers....which eliminates the need for comparison shopping at brick and mortar book stores.  For Borders and Barnes & Noble, the online competition is putting immense stress on their brick and mortar stores' business.  After the dot-com bust, Borders transferred its online business to Amazon.com in 2001.  Amazon operated a new Borders website, keeping all the revenue generated aside from a commission paid to Borders.  Today, Amazon.com is recognized as more than an e-tailer of books and CDs--adding downloadable videos and MP3s plus selling other companies the Web services it uses to keep itself humming.

However, if you believe your customers' loyalty is to price alone, you are destined to wind up in a "How long can we go and still add margin dollars?" battle with your competitors.  If your competitors are larger -- or better financed -- or better connected -- the odds are overwhelming that you'll lose.

In making volume pricing decisions, be very careful of over-reliance on your cost details. Most entrepreneurs' cost details represent best estimates (including cost reduction ideas) -- and exclude the extraordinary (never to happen again) mistakes that caused overtime and material waste on the last order.  Be assured that the highest percentage of credit problems, schedule changes and other cost impairments will come from your discounted high volume deals.

Every business must receive an adequate gross profit from each sale to pay for corporate overhead, reasonable wages and the selling expense of telling the market the value of its products and services.  If fact, you must be willing to risk losing orders (regardless of their perceived importance) if the sales revenue can not be obtained at prices that yield a reasonable gross profit. 

The good news is that most people believe that "price is a reflection of quality."

In a study published online, earlier this year in the Proceedings of the National Academy of Sciences, students at the Stanford Graduate School of Business and the California Institute of Technology were placed in an MRI machine and given sips of red wine--including the same one presented twice, with two different price tags: $5 (the actual bottle price) and $45 (a fictional price).

The subjects all said they liked the "expensive" wine better--a preference mirrored by increased activity in their prefrontal cortexes.  When people know a wine is expensive, the pleasure they get from it is enhanced in the area of the brain where such sensations are processed.

The lesson, says Baba Shiv, an associate professor of marketing at Stanford: "There's a temptation among marketers to keep reducing prices.  We're saying be careful before you embark on that strategy."

Believing that lack of profit results only from higher costs fails to recognize the importance of setting and maintaining adequate profit margin pricing.  And if maintaining adequate margin pricing causes you to walk away from some business opportunities, so be it.  The business that you lose due to high prices is the business you can't afford to maintain.

Source: BusinessWeek, April 28, 2008