History of American Business Blog

Biting Off More Than I Can Chew

OK, so one final blog entry for the class and I will do my best to make it outrageous!  I’ve been reading a couple of author’s recommended to me by another professor.  First, a couple of books by Peter Turchin called “War and Peace and War” and “Historical Dynamics”.  Turchin is sort of a quantitative World Historian attempting to understand why civilizations rise and fall.  He uses Khaldun’s concept of asabiya, solidarity or cohesion, as an indicator of civilizations ability to expand / contract or collapse.  He provides several cases in support of his analysis and argues that having metacultural frontiers helps in the formation of asabiya. 

 

The second author is Joseph Tainter, “The Collapse of Complex Societies”.  Tainter is an archaeologist who puts forward an economically-based theory of social complexity, arguing that early investments in simple advances yield significant returns, but the more complex a society the more we get into a domain of diminishing returns.  An example would be education.  The most valuable education results from early education.  It is most broadly usable, etc.  As we become more specialized it takes more and more investment to achieve probably marginal at best societal returns.

 

So what does this have to do with American business?  As I read these books I thought about how businesses, or corporations as the form in which most businesses are presented, go through the cycle of birth, life, and death.  In my own experience the new company has strong asabiya, reason to live and cohesion.  In my two cases having a large, obnoxious and legally aggressive opponent allowed the creation of an “enemy” (or us and them) which contributed to a focused attack into the business sphere.  As the enemy was defeated and the companies grew, it became harder and harder to maintain that cohesion.  As territory was won, leaders grew more reluctant to take on aggressive strategies, resulting in a defensive posture that often led to loss of territory.  Like how I am using a military metaphor for businesses? ;-)  What is interesting about this entrenchment is that when you are being defensive, anything lost is never regained.  There is no offensive capability.  In the case of my two businesses we never completely went on the defensive, but it is a tough fight to remind people to keep on attacking even when things seem to be going well.

 

Secondly, as the companies grew we found significant inefficiencies (not nearly as inefficient as our competitors and certainly nowhere near close as to other large companies I have worked in) that dragged things down a bit. Luckily, we still retained a comparative advantage over our opposition.

 

So the questions I ask myself regularly – Can a business maintain asabiya and the aggressiveness necessary to continue to grow?  Does it need enemies?  When we get too dominant, say in the case of Ford Motor, do we by definition exceed our levels of efficiency and, without the cohesion (or asabiya) that drove us early on, are we doomed to collapse or at least cycle through massive losses before identifying and prosecuting a new enemy?

My Own Private Idaho

After such a spirited discussion regarding corporations and those who run them / profit from them I drove home (30 minutes back to Arlington) and was thinking about a comment made by Mike O'Malley in class one evening.  Someone asked a question as to his view on some topic and he replied "Well, you must understand my personal narrative".  Mike is very quotable sometimes.  ;-)

So I began to think of my narrative as relates to these issues and came up with several stories regarding interactions with corporate executives, both at the small, medium and mega-corp level.  Now, I don't think all corporate execs are bad or even evil or even amoral.  In fact, I would be hard pressed to find more than one or two that would be Cowperwood's.  My basically positive view of life (believe it or not I do have a pretty positive outlook generally) allows me to see some good even in people that have worked long and hard to destroy me and the people I work with.  After all, it's just business.  But one story still stands out, for some pretty obvious reasons.

Many years ago I worked for a medium size defense firm here in DC.  I won't say the name of the company but its name is really close to C@CI.  I was a Director, a mid-level line manager.  After several years of frustration a friend and I decided to start our own company, with our business goal being to make enough money to pay our bills but to have the freedom to not work for bozos. 

My partner and I had made all the plans to quit and start up on July 1.  My wife had been sick for some time and in late June she was severally injured and in a coma (I remember the date because she was in ICU next to John Wayne Bobbitt.)  My partner and I decided to resign anyway, we had started down the path and couldn't turn back.  The President of the division of C@CI that I worked for (he was employee number 2 and the largest stockholder of the company at the time) called me on 2 July. 

The conversation was interesting.  Now, this guy wasn't a bad person, just a really confused (I think) person.  Simply put he said "Wayne, this is a really tough time for you."  I replied, "I guess that this should tell you how bad things are here that I would feel it necessary to quit under these circumstances."  He replied "Starting a business is really hard."  My response - "Joe, I'll tell you what is hard.  Holding your wife's hand on your 9th anniversary while a doctor tells you she is brain dead.  That's hard.  Business ain't shit."  He hung up the phone.  My partner looked at me and said "He'll never forgive you.  This company is the proudest achievement of his life."  He never did. 

To prove his point he threatened litigation and legal blackmail for over a year, forcing us to team so his firm wouldn't lose contracts, etc.  Luckily, my wife wasn't brain dead, although she never recovered.  And our business was a success and we drove them out of the market we were in.  Revenge can be sweet!!

So yes, I do have a bit of an agenda.  And this guy wasn't nearly as bad as some folks I worked for in a much larger firm about a decade later, who I can't discuss due to legal agreements. (But you will note that I work for a firm of which I am a founder, started after leaving unmentioned firm, and we've done quite well.  So being right can actually work in this world, even when faced off against a multi-billion dollar firm.)  But I have always thought that if your job is one of the ten most important things in your life, you need a new life.  And most of the execs I have met need new lives.

History as Fiction – Fiction as History

OK, I promise this isn’t a post about objectivity / subjectivity, that I won’t go on discussing that all history is fiction, and, in fact, other than in this sentence I promise not to mention Foucault, or any other of the folks that spend a lot of time arguing over the meaning of the word “is”.  This is not a post-modern screed, primarily because I consider a large part of that discussion to be most appropriate to sitting around with far too much alcohol and no real substance to discuss.

Discussions in class last week suggested that Dreiser’s “Financier” was a much more difficult read than Liss’s “Whiskey Rebels”.  I disagree.  While the style is a bit anachronistic, Dreiser is doing social commentary on the world he lived in.  Not dissimilar to Sinclair’s “Jungle”.  Of course, we read it as a period piece, perhaps as a way to understand some of the turn-of-the-century populist views of capitalists.  In this sense we read Dreiser as history, as a window into how a person of that time viewed the world he lived in.  Putting myself in the period, the style works.  A more modern style would have defeated the purpose of using this book as an image of the worst of the capitalist bogey-men, as seen through early 20^th century eyes. Dreiser is fiction as history, using the art of the time to understand the time.

Liss, on the other hand, seeks to take us back to the origins of the country, creating a story that is similar to the standard historical fiction methods popular on any Barnes & Noble book shelf, sliding historical characters in and out of the fictional characters lives, etc.  As social commentary it can be said that Liss is commenting on a 21^st century view of what is important from that period. Liss is history as fiction similar to Michener, Uris, et al.  The primary difference being that Michener and Uris, at least early Michener and Uris, were much better writers.

So what is the difference between the two?  Well, personally I somewhat despise history as fiction.  It leads to confusion and can create serious issues regarding what we can reasonably consider to be known about an event. 

For example, a famous scene in the movie Jaws occurs when the three protagonists (OK, the shark is clearly a fourth, but it isn’t on the boat at the time of the scene I am describing) are in the galley of the boat, drinking, trading stories about the origin of body scars, etc.  The scene ends with The Salty Dog recounting his experience on the Tennessee, a ship sunk in World War II.  His story recounts a large number of deaths, most by shark attack.  A few years ago a documentary was made of the Tennessee and shown on the History Channel, documenting how most of the crew was actually rescued and those that died mostly died of exposure, not shark attacks.  The phones rang off the hook as people called in to tell them how wrong they had the story of the Tennessee, that a huge number of folks died from shark attacks, etc.  This is an example of history as fiction, an intentionally skewed account of an event for dramatic purpose.  Sometimes fun, certainly useful for dramatic, or even humorous, objectives, but most certainly bound to blur the line between what facts we may know and facts we certainly know do not exist.

So I promised not to get into a debate over the subtler points of my argument.  So I won’t.  For entertainment value, neither book was terribly engaging. For historical value, Dreiser remains well known, and its value is recognized by the fact that it remains in print almost a century after it was written.  I would suggest that in 20 years we will be hard pressed to find Whiskey Rebels available in even the most derelict used book store.

 

DoD Procurement Esoterica

Now for something closer to my heart.  I recently heard a radio commentator summarize conservative attacks on health care as "Not a critique of whether the Government can provide effective health care but whether it can provide effective anything".  This has been a standard trope in several ways in the defense world I work in.  For example, outsourcing to contractors of many jobs previously held by civil servants.  The argument being that contractors provide the service more effectively and the evils of the civil service system keep poor workers from being removed.  Basically a critique that suggests private corporations are better suppliers of almost anything.  A couple of examples of interesting services done by contractors -

If you apply for a security clearance the investigator is a contractor. (I would have thought this wss a pretty important government service that should be held close?)

If you submit a proposal most, if not all, of the evaluation and processing work may be done by private contractors. (Again, wouldn't you think competition issues may suggest possible conflicts of interest?)

Large systems manufacturers also have groups that provide technical services in analytical organizations assigned to evaluate and budget for those system. (Can you say conflict of interest again?)

Recently the new administration issued new directives regarding this, and other bizarre practices resulting from the "The government can do nothing well" stream of "thought".

Attached are links to two articles that cover new changes that are either policy or legislatively moving forward.

http://www.fcw.com/Articles/2009/10/19/WEEK-DOD-authorization-acquisition-changes.aspx has several proposed changes.  An excerpt of interest -

Of particular concern is the relationship between agencies and contractors. Lawmakers say contractors are being allowed too far into the inner workings of agencies and coming too close to inherently governmental functions.  Of particular concern is the relationship between agencies and contractors. Lawmakers say contractors are being allowed too far into the inner workings of agencies and coming too close to inherently governmental functions.

Companies are selling services more than commodities, and the analytical and advisory services they sell put contractors next to agencies’ decision-makers, according to Congress.

As a result, lawmakers are mandating a review of those services. In particular, they want to know whether regulations and official guidance are keeping contractors in check.

They also want DOD’s annual budget justifications to include information on the types of services the department intends to outsource and how many contractor employees are needed to do the work. DOD officials will then need to justify why those services are necessary, according to the report.

Seems to make sense to me.  Shocking that it is even an issue!

The second article (http://www.ombwatch.org/node/10316) gives details on an interesting contracting form called "Cost Plus Award Fee".  Somewhat esoteric but here is the basic idea -

Used to outsource for products or services where the government cannot objectively measure contractor performance, award fee contracts are supposed to motivate a contractor to increase quality and control costs. If the contractor does not deliver, the government pays only the base fee and withholds any award fees that the two parties agreed upon during the negotiation of the contract. According to a series of GAO investigations, however, federal agencies have long supplied contractors with award fees for subpar work.

So we base fee on the quality of work, yet don't take into account the quality of the work?  Little accountability top to bottom.  And we wonder why we spend more than the rest of the world combined on defense??

The Tao of Steve

We could say that this blog is a combination of popular culture and business.  After this weeks discussion on marketing, sales and branding I thought about my time in marketing, business development and sales.  I've been part of two successful start ups in the defense technology services business and have also been a Sr. VP of Business Development for a huge defense firm.  The difference is amazing.

My company has a mantra that is borrowed from a movie called "The Tao of Steve".  For those who haven't seen this flick it is a low budget romantic comedy about a grungy, overweight loser who has amazing success with women.  He codified his approach as "The Tao of Steve", which consists of three rules.

1) Suppress your desire

2) Be excellent in her presence

3) Be unavailable

The second rule is the core of the BD approach I have always succeeded with.  Be excellent in their presence.  Simple, perhaps elitist, but effective.  Always exceeding not only expectations of customers but of everyone you engage.

This is compared with my gig in Big Defense.  What a disaster.  I summarize the approach as "We are at least as good and might be a little cheaper, but we'll claim to be exceedingly skilled and cost effective".  I never figured out how to sell that and resigned within a few months.  The marketing strategy simply consisted of identifying whatever big targets were somewhere in the vicinity of the expertise of the company and trying to win it.  BTW - This group, during the few years after I departed shrank about 10-15% per year, and wound up being absorbed into another unit after 3 or 4 years.

So what is the point?  Not sure.  I think the Tao of Steve can be applied in a business (not just as a business development strategy) by changing it just a bit

1) Don't go directly for the sale.  The point is to do good work.  If you do, good things happen.

2) Be excellent in everything, always.

3) Being unavailable is best translated as "make sure you get paid for the high quality service you are providing".  Too many service companies get into trouble by underbidding because they need the work, or are trying to justify a strategic win, etc.  It almost always is a bad choice.

This may not work for all companies or even for large companies that have a hard time distinguishing themselves from anyone else, but it sure works in the world I've lived in for 20 years.

Another mantra is our core mission statement - Have fun, Do good work, Make good money.  Simple, and to the point!

OK, Economists, Have at it!!

So perhaps this is going back to an old theme, but yet more evidence that the US economy is pretty broken.  

http://finance.yahoo.com/banking-budgeting/article/107980/countries-with-the-biggest-gaps-between-rich-and-poor

The US ranks third in terms of most unequal distribution of wealth, based on Gini index.  This again indicates that the rich get richer, the poor get poorer.  Combine this with the recent news that wages are at their lowest level in 18 years, and that pretty much everyone in the country is trying to figure out how to actually generate jobs in an economy that has no significant industry (outside of some small specialty pockets) and we have a mess on our hands.  The destruction of the American middle class has long term economic impacts that may be irrecoverable.

I heard a discussion of a Value Added Tax recently.  VATs are used throughout Europe.  What is interesting is that they are a way of imposing a tariff without calling it such.  Idea is that we have a tax on all end use items.  Items for export are not taxed.  So anything sold in the country automatically has a significant subsidy, in the case of Europe 15%.  This provides a mechanism for protectionism that we do not currently use.

Similarly the idea of a nationalized health care system, which distributes the cost of health care across all persons and not simply focused on those who actually have jobs, is an economic advantage to industry that we again have failed to take advantage of.

The concept of absolute free trade is really interesting, and makes for a wonderful philosophy, but it implies that all economic activity moves to the places that are most efficient, i.e., least expensive.  This ignores any kind of domestic interest (nationalism?).  It suggests that if people want to work they should move to where the jobs are, i.e., China, Singapore, etc.  Which is, of course, silly.

So the challenge becomes, how do we defeat the "free trade" trope?  And it is simply a literary device, since there is only theory, and no empirical reasoning, behind it.  

So as we see the different legislation moving forward, slowly, I wonder whether we will ever reject the silliness that laissez faire economics, backed by simple and easy to sell, but ultimately destructive economic religion, will be rejected and we may actually THINK about economics rather than develop a theory then religiously apply it?

“And now for something completely different…”

Being a used and rare book dealer and collector I have a rule that when I go to a used book shop I like I will ALWAYS buy at least one book.  Although this weekends visit wasn’t to a used book shop, I did visit a decent enough new book shop, independently owned and operated (a true rarity these days), so I still apply my rule.  Friday evening I bought a trade-paper copy of Larry McMurtry’s autobiographical work “Books”, his story of his time as a used book dealer (something he did long before he became an accomplished author (Lonesome Dove being his most famous work).  His shop, Booked Up, was in Georgetown for 32 years, being moved to his hometown of Archer, Texas in 1998.

From an historical point of view this is an interesting book (I am about 75% finished with it as of this writing).  McMurtry gives some interesting insights into some DC personalities, as well as a lot of interesting literary references, etc.  For example, in Chapter 54 he recounts dealing with Alice Roosevelt Longworth, daughter of TR, and Joanna Sturm, her granddaughter. 

“One day Joanna Sturm walked into the bookshop and asked if we’d like to buy any more of Granny’s books.  Of course we would, we said.  It seems – I have no idea if this is true – that Joanna wanted to buy a BMW motorcycle, cost about $7,500. We happily gave her that amount and I spent a happy day rummaging under stairwells and in closets, until I had a carful more of Mrs. Longworth’s books.”

So other than an odd reference to selling books what does this have to do with business and / or economics?  McMurtry talks about his planned move to Archer in the mid-90s.  “Our need for enough stock to fill a book town coincided with the beginnings of a downturn in the fortunes of American booksellers generally.”  This points to an interesting shift in the business of books, used and rare books in this case but the book business in general, that has been taking place over the past 15 years or so.  Perhaps no business has been so radically impacted by the rise of the internet as the used book business.  

For those of us who are avid book people (I am betting I am not the only book person in our little history class) it is obvious that the used book store is almost extinct.  20 years ago there were maybe 20 used book shops in Georgetown alone.  Now I am aware of perhaps 2, those being open irregular hours at best.  Northern Virginia, once home to several decent used shops, now has, to my knowledge, one in McLean, run by a retired CIA person who seems more interested in having something interesting to do in his retirement than really making a living at it.

Similar stories are true throughout the country.  Even classic shops, such as Heritage in Hollywood, are now closed.  (As an aside, there are 3 decent used book shops in the downtown mall of Charlottesville, a truly rare concentration these days).  This has been a result of several factors, increased gentrification of areas that would support such shops resulting in vastly increased rents being one.  But the more important factor has been the rise of e-commerce.  I know I purchased my books for this class from Amazon, which recently purchased the largest on-line used book site (www.abe.com, Advanced Book Exchange from Vancouver, BC).  Listing on ABE is almost trivial and requires only a handful of items to make it worthwhile.  

The other role the internet has played is the availability of research resources.  Previous, it was the knowledge of the book dealer that was a jealously guarded resource.  Being able to spot the rare first-edition of some obscure book, priced at $2 on a shelf of random fiction.  Now it is trivial to research most books by a simple search or two on the web (again, ABE is the market maker for used book prices).  There are even scanners available for cell phones that read a barcode then immediately quote a sale price for the book (go to a library sale anytime and you will see folks useing such tools to decide what books to buy at $5 a bag). This method leaves anything without a barcode available to the people who really know what they are doing, hence the ability to spot a rare 1920s childrens book (worth more than 20 bags of picked over barcoded moderns).

So in many ways the elimination of information as an advantage, and the resulting ability for books to be sold without any real overhead (my sister lists and sells our current inventory of 9,000 books from her small home in Grand Rapids, Michigan) has transformed the market in used and rare books.

Of course there are still a handful of high end dealers who don’t have sales persons. They have client managers, who buy for those with more money than time or possibly good sense (Bowman’s in Philadelphia is the outfit I am most familiar with, and who, over the years, I have conducted not a small amount of business with). But the decent shop in the somewhat sketchy neighborhood with the strange little guy hiding behind the desk, buried behind books that have no obvious price or even purpose is near extinct, and that is a tragedy, in my mind.  My solution is to make sure I visit such shops as still exist and make sure I spend at least a few dollars on every visit!

Economics Bestsellers

As a person who occasionally buys books from Amazon, and sometimes economics books, I get emails from Amazon listing certain books they would like me to buy.  It is interesting the titles on the list of supposedly “Best Selling Titles in Economics”.  Here is the list of the titles suggested to me:

 

1) In Fed We Trust: Ben Bernanke's War on the Great Panic by David Wessel

2) Shop Class as Soulcraft: An Inquiry Into the Value of Work by Matthew B. Crawford

3) A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers by Lawrence McDonald

4) Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (P.S.) by Steven D. Levitt

5) Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof

6) Socialnomics: How social media transforms the way we live and do business by Eric Qualman

7) Nickel and Dimed: On (Not) Getting By in America by Barbara Ehrenreich

8) The Road to Serfdom: Text and Documents--The Definitive Edition (The Collected Works of F. A. Hayek) by F. A. Hayek

 

1 & 3 look for retrospective coherence in the recent financial crisis.

2 actually looks somewhat interesting (I’ll need to read the detailed reviews, etc.

4 is 4.  I tried to read it a while back and never was able tog et anywhere with it.

5 also looks pretty interesting (other than the main title) in that it attempts to show how psychology, something economists dread, may impact economic systems.

6 and 7 look like standard pop-volumes that seek to capitalize on the current events, etc.

 

And 8 is interesting.  Hayek, founding light of the Austrian school.  I summarize the Austrian school as “Economics is so complicated doing nothing is the best thing to do.”  Of course the counter argument, “Economics is really complicated so doing something that appears stupid may not be since nobody can understand the consequences of any actions anyway so let’s try something.”  Dave Snowden http://www.cognitive-edge.com/ has argued for many years that the way to behave on the complex space is similar to the way the military operates when they lack knowledge.  If we have some reasonable understanding of a system we use a Sense – Act – Evaluate strategy.  But in the complex space we should Probe – Sense – Evaluate (a slight change to the words Dave uses).  This obviously argues against a do-nothing strategy and suggests that maybe Roosevelt was correct in the way he conducted his economic program during the Great Depression.

 

So should we follow an academic school based in fear of consequences and also based on economic theology (yup, as compared with philosophy) of the Invisible Hand (BTW – I love Chandler’s Visible Hand idea, sort of blasts things out from under the laissez faire folks out there) or should we conduct ourselves in a far more pragmatic manner, seeking to find mechanisms that have some hope of modifying a broken system?

A Mathematician's Apology

OK, I am going to violate course instructions by NOT blogging on a specific economic issue, but more of a bothersome topic I see a little too often.  This morning I was reading “Civilizations”, by historian Felipe Fernandez-Arnesto (FA),  a book for another class I am taking.  So far this is a fun book to read and in the intro FA does not hesitate to offer up some opinions.  For example, “History is a ‘humane’ discipline: it is too far steeped in tears and blood and affectivity and hatred to be anything else.  If it were a ‘science’ – in the old-fashioned sense of the word, a field of study governed laws,in which effects were predictable – I should find it uninviting.”  What got me going was a discussion early in the book of debates over the years on how to define “civilization” and attempts to enumerate them.  The author nails it when he states “Almost every theorist has proposed checklists of criteria which a society has to meet in order to qualify as a civilization.  All these lists are useless.”  

 

It seems that there is some innate drive to mathematize things, categorize, etc.  Is there some sort of romance of mathematics that drives scholars to wish to adapt mathematical-type arguments?  Thinking that a single definition of a term like civilization is possible (FA doesn’t make this mistake) and that one can create categories that make some sort of sense is so depressing.  It is the idea that taking on the mask of mathematics gives some legitimacy to an argument.  Mathematicians would probably be the last to see a reason or basis for this approach. 

 

David Harlan’s “The Degradation of American History” is another good book with a bunch of quotable quotes.  For example “… social scientists like to imagine themselves a community of inquirers held together not only by a common grievance over parking but by a common set of research procedures.”  It is always a definite thrill – OK, I am being sarcastic – to be involved in one of the wonderful debates over word usage and definition, etc.  I think mathematicians find it particularly humorous, since math builds fromm a VERY small set of simple statements (called Peano’s Axioms) into the entire field of mathematics.  Nothing is REAL in any sense of the word.

 

In 1940 G. . Hardy, one of the bright lights of early 20^th century mathematics from Cambridge, wrote a classic piece on the role of mathematics. 

http://en.wikipedia.org/wiki/A_Mathematician%27s_Apology has a good summary.  I think Hardy would have considered many of the attempts to “borrow” the beauty and stature of mathematics, as seen in many of the sociological works I read, and even some histories, to be vulgar.  And I think it is downright silly.  Language is so extremely imprecise that to think we can describe something as vague as civilization, or almost any other similar concept, precisely is fools play.

OK, rant over.  And I lied.  Here is a little topical economics for the class. Courtesy Dilbert, August 22, 2009

Open Source Economics

OK, so a lot has been said about this, but I am not convinced that anyone has really explained the economics of open source software development. 

For those not familiar here is a TED presentation on the subject -

http://www.ted.com/talks/yochai_benkler_on_the_new_open_source_economics.html

Basically communities of interest come together and develop software that is free to use.  So where is the economic rationale?  I have read some who discount the "prestige" factor that developers get recognition from peers.  Others argue that the "value" is in terms of getting software that doesn't currently exist, but this doesn't address the origins of open-source programs that are at best marginally useful when published.

What I think is shown by this movement is that simple economic "value" arguments are not of significant utility when we get into more emergent phenomena like open-source or even things like LibraryThing or other such socially constructed sites.