Competition

Secrets of Success: You're Not Alone

Today, as I was reading the truly excellent OpEd piece on the Business of Fashion site, I was reminded of what always struck me as the stupidest series of questions I almost invariably got when I was a C-level advisor talking with a new client. Here are the two versions of how it went:

Version 1:
Executive: Have you worked in our industry before?
Me: No.
Executive: Well, we're different.
Version 2:
Executive: Have you worked in our industry before?
Me: Yes.
Executive: Well, we're different.
Do you see a pattern here?

The thing that continued to amaze me - and does until this day - is the provincialism and insularity of each industry or company. Everyone thinks that what they're experiencing is different from what everyone else is experiencing.

They're wrong. And if you think that way, you're wrong, too.

Sure, there are nuances that are industry or company-specific. In fact, they're function-specific, if you want to get down to that level of detail - which, eventually, you do.

But to think that you're living in some sort of vacuum and can't learn from other industries about how to get over and beyond humps and hurdles is not only short-sighted, it's dangerous.

Granted, each industry goes through its own version of a set of problems that the industry has to solve for itself. Those within the industry that learn and grow fastest and best are the winners. The laggards either stay that way, have to work WAY harder than before to catch up or go out of business whether through M&A (if they're lucky) or closure.

What's always worth watching is how each industry is addressing, embracing and integrating the challenges it faces. That arc is your lesson.

That's why the Business of Fashion OpEd was so important. It talks about how the "businessmen" in both fashion and media have taken innovation out of fashion. How, by corporate ownership industrializing design to the point of sameness (for which read blandness), real creativity is either threatened, gone or only coming from the really courageous designers or those outside the mainstream industry.

Innovation is everyone's job in every industry and sector. From small, almost unnoticeable tweaks in how you do business to new product or service launches that change the world (or at least your industry), innovation is key to success.

So why wouldn't you read a piece focusing on the threats to innovation written about the luxe industry and fashion, in particular?

If you're smart, you would. In fact, if you intend to succeed, you will.

Don't be insular. Don't think you're different - at least not at first.

Start by knowing that others - before you and currently, in your industry and out - have and are facing the challenges that you face. Then be open to learning from them.

If you do, eventually they'll be learning from you.
________
Who Watches the Watchmen? (Business of Fashion)

The Secrets of Success: Cheerful Ruthlessness

There's something particularly enjoyable about the shopping experience - in person and online - that some retailers simply know how to create.

They make you happy to do business with them. In fact, they make you so happy to do business with them that you begin to forget to do business with anyone else.

It's not their products or services or branding - or not necessarily. And it's not even their customer service - although that plays a part.

It's their ubiquity. Just as "xeroxing" became a verb for the action that is, in fact, photocopying, these organizations make themselves so common to your retail transactions in their spaces that they become a default.

Which is exactly their goal.

How do they do it? It's what I call "Cheerful Ruthlessness."

For those organizations that have nailed the strategy, they feel and operate and keep working to be unbeatable. They work with the assumption that there is simply no aspect of the industry in which they define themselves as leaders that they're not going to own.

And it's that bit "the industry in which they define themselves" that's most important to watch. Because that's how they become ubiquitous. They see their space as the whole space - not just an aspect of it. And particularly not as an aspect that would be defined by those outside.

That's how they fool everyone as they build and expand and then expand some more. While the competitors are looking at the company either for what they think it is or what it was in the past, these Cheerfully Ruthless companies define themselves in their own terms - and then bring the consumer right along with them.

(By the way, this is as applicable for the Big Boys as it is for the Little Guys, so everyone pay attention.)

The easiest way to explain how Cheerful Ruthlessness works is to take two primary examples: Amazon and Starbucks.

When Amazon first started, it was an online bookstore. Or so everyone thought. In fact, as everyone who wasn't paying attention found out later, it was all aspects of online retail. Here's how it goes:
  • You have a small business providing specialty items you want to sell? You can do that on Amazon.
  • You're a Big Boy but haven't been able to crack online retail? Amazon will partner with you.
  • You're a customer and you purchased something - whether for yourself or as a gift? You're going to get guidance and pings on a regular basis to 'help' you find more of the same...or different, as the system learns your preferences.
And everything comes packaged in a box with a smile on it.

After a while, no matter which aspect of the retail experience you touch, you're going to turn to Amazon. And that's exactly what Jeff Bezos, its Founder and CEO (among other titles) wanted to achieve.

It was never about being an online bookstore. That was the Test Drive. It gave the organization the chance to kick the tires of putting the internet and retailing together for the first time. But, even by Bezos' own reckoning, it was a matter of selecting what the company would start with first. That was never where it was intended to end.

Which takes us to Starbucks. In the world of ubiquity, there are those who would argue that no organization can beat Starbucks for being everywhere. But there's more to it than that.

Because Starbucks isn't just Starbucks any longer.

After all the years of expansion and brand-building followed by the years of too much expansion, negative reputation and the effort required to rebuild what was lost, Starbucks figured out two things:
  1. People drink things besides coffee that the company can make and sell, and
  2. There are people who don't like the Starbucks brand...but they still like coffee.
As a result, Howard Schultz, its Chairman and CEO (twice), has taken the company into:
  • Juice-like drinks (that have a base of green coffee beans)
  • Energy drinks (that are canned, bottled and can easily be found in your local shop, gas station or supermarket) and, most importantly, 
  • "No-name" Starbucks coffee houses.
Yes, it's very possible that you are going to a Starbucks in your neighborhood which has a neighborhood-like name ("34th Street Coffee," for example) but is, in fact, a Starbucks. Because for everyone who doesn't want to support the Big Beast coffee vendor, they can say, "Oh, I don't go to Starbucks" - but the company is still gathering their cash.

All with happy barristas serving you whatever you want.

It's Cheerful Ruthlessness. They're finding every way to get consumers through their doors or on their site or seeing their products - all the while making them feel as if they still have a choice.

And they do - which is the most important point, because, when you work it right, that's where you and your company come in.

For those who are competing against a Cheerfully Ruthless competitor, you watch, learn and change how you define your win...because, realistically, you're not going to put these guys out of business (which is their intent for you).

So, it's on you to figure out how to differentiate yourself enough that they can keep doing what they do (because they will) - while you out-perform them at every turn in your own particular part of their bigger than big space.

But, before you start, there's one thing you need to know: They're afraid of you.

Yes, you. Scared to the bones. Because what they know (and hope you don't...or hope you forget as you stress about them) is that you can do things - both online and off - that they can't. Specifically:
  • You're faster and nimbler. 
  • You're more responsive and personable. 
  • You create personal relationships while theirs are all at least one, two or three degrees of separation removed - frequently more.
b2b or b2c, those are your greatest selling points and point of differentiation. Add in your ability to be innovative and you can take and keep your piece of whatever your market is.

Business is ruthless. It's the nature of the game. Even if you're in the charity sector, you're competing against every other charity - in and out of your field - for the money people are willing to spend. And that makes you ruthless as you do your good deeds.

So, as you add Cheerful Ruthlessness to your and your organization's skill set and strategy, first stop thinking of it as a bad thing. Instead, think of it as being completely committed to:
  • Taking and keeping your particular part of your market, in part by
  • Determining what your customers need,  while moreover
  • Meeting and exceeding those expectations regularly, by
  • Building an organization that is as committed as you to those goals. 
Never feel bad about being strong and consistent and tough about what you want. As long as you're clear about what you do and where you're going, not only will you take your employees along with you (who will help you get there and beyond faster, cheaper and smarter than you ever hoped) but your customers will gleefully go along for the ride.

Because, in your ruthless commitment to their satisfaction, you've made your customers cheerful - which will bring a smile to your and all your other stakeholders' faces, too.

Executive Compensation: How Fear, Scarcity and the Wrong Measures Drive the System

Over a decade ago, I wrote an article entitled, "Worth Every Penny" for a local Silicon Valley business publication. My position was that the entrepreneurs who were building their dreams into companies should be compensated for the work they were doing.

My reasons for making that particular case at the time were that:
  • The entrepreneurs were building a new industry
  • They bootstrapped in for months and years before getting their funding
  • I had no idea that they were burning cash as stupidly as they were once they had it - nor that their investors were allowing them to do so.
This was the beginning of the executive compensation anger that is so rampant now.  Frankly, had I known then exactly how insane the compensation system would become for executives in all industries, I'd never have written the article at all.

If we want we can go into the blah-blah-blah of:
  • The reactive VC/Angel investment model of the day that led everyone to jump on the bandwagon and get their bucks in first (which led, interestingly enough, to the need to legislate to protect stupid investments by dentists - or stupid dentists, you choose)
  • The fear that someone else would take over the market before there was - or would be - a market
  • How eyeballs were considered currency...
You know the rest.

In fact, as you look at the newest social media IPOs out there, in some ways we're seeing the same thing.  Plus ça change...

But I digress.

Today, as the Governor of the Bank of England is calling for cuts in bankers' compensation, I listened to an interview with Ralph Silva, Director and Banking Analyst with SRN, talking about that subject.  He said:
"The assumption is that the actual shareholders care. The truth is if you tell the shareholders how much these senior executives are getting paid they're probably going to want them to get paid more. Why? Because they want the best of the best and the shareholders simply don't have a problem with these huge salaries."
Yes, in fact, they do have a problem with them.  Fund managers - in the form of shareholders - may not...but even they're getting a clue.  Because, just as eyeballs were considered currency in the lead-up to the DotCom Bust, so, too, are the measures of executive "success" tied to completely wrong measures now.

What, you ask, are those measures?  In too many cases, as long as the guy - or, in far fewer cases, woman - shows up, the money flows into their pockets in the form of cash, stock, options, perks....You name it.

The logic of this argument comes from the thought that there is a scarcity of talent to run these organizations.  That, too, is wrong.  In fact, too many executives currently in those positions make exactly the case for their own demise - because, clearly, the decisions they're making aren't good ones.

How do we know?  Because the measures that underlie what is considered "success" in these organizations are flawed.  Where there is no growth, there is no success.  Where there is only short-term thinking, there is no future.

The problem is, by the time the shareholders Mr. Silva is talking about realize their mistake, the executives in charge will have moved onto greener pastures in their next jobs.

It's time to get a clue.  Executive compensation is out of whack - but it's fixable.  Change the measures and create accountability for those in their positions.  At the same time, forget the fear and scarcity argument and look at the real talent pool that exists.

Very quickly and without too much difficulty, compensation and audit committees will find that there are a lot more good choices - at much more reasonable prices - than they think exist now.

Wanna Get Hired? Be an Entrepreneur!

Time was that if you had a great work record, were talented, highly regarded and accomplished, you'd get a job for big bucks.

Sorry, not any longer.

Now, at least in the tech space, if you want to get hired for big money, you need to have started up your own firm - and have it bought by one of the Big Boys.

Only what they're buying isn't what they used to buy.  Now they're buying you.

Because in the "time was" category - like a very few years ago - whether it was the companies or the VCs, they were looking for products.  New technologies.  New capabilities.

They're still looking for that - but they've gone to the core and are now looking at where those technologies come from.  And that's talented engineers.

To get that talent, they go direct.  They buy the company - then they dump the product.

There's even a hiring strategy named for it. It's called "acqhiring."

This raises some interesting questions for you - whether you're an entrepreneur or inside an organization and looking for talent.

For the entrepreneurs, the biggest difficulty will be seeing your product jettisoned.  Sure, you have lots of money - and stock options and the potential for more - but the question of how much you believe in your product really comes into play.

If you believe that strongly in your product and its potential, I suggest that you get yourself some seriously great legal support and have, as part of your employment agreement that if the company drops your technology within a specified timeframe, that that intellectual property reverts back to you.

That way, the Big Boy gets you for as long as you want or need to stay - but you still have the option of doing something with the baby you created.

For executives, you've got problems unless you've got seriously big bucks on hand that your company is willing to spend on acquisitions for products they don't want.  Just the people involved.

If you're a Facebook or a Google, it won't be a problem.  It's the way it's being played in the Valley.

If you're anything else, this won't sit comfortably, won't fit with your culture and has far more risks involved than in the technology space.

But it's definitely something to consider.

Because, no matter the industry or size of your organization, innovation is key - and innovation comes from people.  But it also comes from the systems inside your organization that lend themselves to people making those contributions - and someone being willing to listen.

Many of the engineers who were part of the acqhirings are not staying with the Big Boy buyer.  They're not happy there.  So they leave.

Probably to create new start-ups.

Who's leaving your organization?  Moreover, as the global economy improves, who are you worried might leave?

It's time to start looking at how you're using the skills you have - as well as buying what you need - to keep yourself ahead of the competitive curve.

The Dangers of China - Critical Insight from @thereformedbroker

The following piece, written by Josh Brown, is one of those periodic posts that goes beyond deserving attention.  It's a critical warning for anyone currently doing or thinking about doing business with China.

It follows in its entirety.

The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations.

We are under attack.

Chinese corporate criminals and their US-based enablers are committing Capital Genocide against American investors.  We're not talking about "a few bad apples" or "a handful of exceptions", we're talking about a full-blown epidemic.  Subterfuge and malicious avarice are simply the tools of the trade when many Chinese companies do business with outsiders.

This undeniable Red Collar Crime Wave is larger in scope and financial consequence than any other international criminal enterprise in the history of the world.  We are talking about hundreds of millions of dollars, possibly billions should the Yahoo - Alibaba revelation prove itself to be a harbinger of shocks to come.

At the low end of the spectrum, corrupt representatives of sketchy or even non-existent Chinese companies are conniving their way onto US exchanges via backdoor IPOs, reverse mergers and SPACs.  They are slithering through every exchange and regulatory loophole they can find to raise money and establish their fraudulent beachheads here.  The penalties for Chinese nationals fudging numbers on a local exchange could range from exile to imprisonment to disappearance.  The penalties they face for pulling that stuff here in the US?  I don't know, a letter in the mail?  "Don't ever do it again"?

Mainland Chinese fraudsters are untouchable, they can only be barred or banned from US exchanges once caught, and so they will get away with whatever they can as long as there are investors here who are stupid enough to capitalize them.  And so the ownership of one factory in China becomes the ownership of three for the purposes of a quarterly balance sheet calculation.  The ticker symbols will be cutesy and clever while the names of the companies will almost always include the word "China".  After all, let's not forget that the name of this game is the exploitation of Americans who "want to play the growth".

It has become an absolute free-for-all.

For a nation that was so economically backwards and pathetic that it could barely feed itself 15 years ago, China's executives have certainly come a long way.  They're employing every scam and dirty trick in the book against American corporations and investors while we say thank you and send even more opportunity and cash their way.

I've held my tongue for the last 9 months, watching one scam after another appear on our exchanges.  I've said nothing as these financial landmines have been detonated beneath the feet of whichever unfortunate shareholders happened to find themselves in the wrong place at the wrong time.  No longer.

We'll limit the scope of my rage here to corporate fraud.  For the purposes of this post I'll leave out the Chinese poisoning of America-bound toothpaste, pet food and toys at their manufacturing operations.  I'll also leave out the FoxConn factory at which all the Apple products are assembled, a workplace so abusive and abhorrent that the employees must take an oath that they won't kill themselves.

But no, let's not get distracted here, we should simply focus on the accounting chicanery and falsified filings with which Chinese companies are daily relieving US investors of their capital.

The reverse mergers are by far the most insidious manifestation of the contempt that Chinese companies have for our exchanges and rules.  Working with American law firms and shameless stock promoters, these companies have found a financial engineering solution that lets them steal on our shores.  They've been able to subvert the more highly scrutinized public offering process that would normally have weeded them out.  By "cleaning up" shell companies, which should not be trading or available to begin with, the disease gets a foothold first on the pink sheets and then onto the American Stock Exchange where the real grifting can begin.

White Collar Crime columnist Walter Pavlo has collected a slew of recent examples on his blog at Forbes, including:


  • China Electric Motor – Shareholders lawsuit filed claiming underwriters violated federal securities laws by issuing materially false and misleading information.
  • China Natural Gas – Class action lawsuit alleges directors and officers issued materially false and misleading statements.  CFO of company resigned in late 2010.
  • Duoyuan Printing – SEC investigating company for fraud, NYSE delisted April 4, 2011
  • China MediaExpress Holdings, Inc. – Deloitte quit as auditor because “no longer able to rely on the representations of management”.  CFO resigned. Stock trading halted March 11
  • China Agritech – Shareholder lawsuit pending.  Dismissed its auditor Ernst & Young.
  • China Sky One Medical – Under investigation by SEC.
  • Orient Paper, Inc. – Reauditing previous financials due to license issues with previous auditor (Davis Accounting Group).

The full list is actually quite larger, it includes some of the higher profile blow-ups you may remember with stocks like RINO International and China Green Agriculture - spectacular flame-outs complete with massive insider selling prior to the denouement.

Where are the regulators, you might ask?  They are finally getting involved.  The SEC's Mary Schapiro is aware of the epidemic and is now on the case...

From Barron's:

Since March 2011 alone, she noted, more than 24 China-based companies have disclosed auditor resignations, accounting problems or both – following the auditors' inability to confirm the amounts of cash or receivables shown on the companies' balance sheets. The SEC has recently suspended trading in three Chinese businesses that "reverse-merged" into U.S.-traded shell companies.

The smarter thing to do would be to halt the entire shell company process in its entirety right this minute until we can get the rules up to a standard that will protect investors outright from these foreign liars and thieves.  Capital formation can wait fifteen minutes while we get our act together and crack down on this disgusting shell syndicate.

An even more disturbing development of late is taking place in the large cap arena, in full view of the world's media and the global investor class.  With the success of Baidu and Sina, Chinese technology companies are now finding themselves as the Belles of the Ball.  In at least one case that we are aware of, they are also finding that they can easily mislead their Western partners and shareholders.

Here in the deep end of the pool, newly-minted billionaire Chinese executives are violating contract law, globally accepted corporate best practices and fiduciary responsibility to shareholders.  They are disclosing things when and as they choose.  They are "on the level" in their own government's eyes so long as they are playing fair with their fellow Chinese investors.  This isn't a brand new phenomenon but as the companies involved get bigger, the danger grows.

This week's still-unfolding fiasco involving Yahoo being tricked out of their Alipay subsidiary by Alibaba, a company in which they hold a 43% stake, is just the latest and most outrageous example of what we're dealing with.  Here's what Jacob S. Frenkel, a former SEC enforcement lawyer who is an expert in securities law matters and a partner at Shulman Rogers in Potomac, Maryland had to say (via iChinaStock):

"Yahoo! is a victim, plain and simple.  With all the negative attention that US-listed Chinese companies, this action by Alibaba only makes worse an already difficult situation.  It creates the unfortunate appearance that executives in China may totally disregard their contractual and fiduciary obligations to shareholders.  The important message to US partners and owners is to review the effectiveness and enforceability of contracts under both US and Chinese law."

Yahoo will attempt to sue, but they have lost the asset at the end of the day, an asset whose potential was a big part of the investment thesis for the company to begin with.  US shareholders were pummeled over something that took place in secret seven months ago, escaping everyone's notice.  If major shareholders like Yahoo and Japan's Softbank can be scammed in front of everyone, what chance have any of us got?

The Red Collar crime wave is beguiling American investors both large and small.  These crooks are laughing at our securities laws and manipulating their own.  None of us are immune:

Not the savviest and most seasoned asset managers - see Glickenhaus & Co watch $4 million evaporate as China Agritech blows up.  (Bloomberg)
Not Yahoo, a player in Asian web properties since the late 90's - listen as Alipay's Jack Ma regales us with his tale of how he bitch-slapped the "declining" web portal company.  (iChinaStock)
Not even the diligent Warren Buffett can sleep soundly with his Chinese investments - see how the car company he invested in there (BYD) is essentially a counterfeiter playing games with the rules of the Chinese court system to get away with it.  (Reuters)

Can American investors trade and hold Chinese stocks?  I suppose they can...but they can also practice juggling with live hand grenades and roaring chainsaws...just because you can do something, doesn't mean you should.

I've disagreed with almost everything Donald Trump has had to say during his part-Presidential run, part final humiliation speech circuit this spring.  But where Trump and I do find common ground is in our distaste with how the Chinese do business and the lack of regard they show our companies and investors from almost every perspective.

As long as Chinese corporate officers and executives are going to blow cigarette smoke in our faces as they take advantage both here and on their home turf, I'll gladly sit out.  Until I get the sense that they have an ounce of respect for our investors, I'll watch the pickpocketing from the sidelines and focus my capital and attention elsewhere.

---
I very strongly recommend you subscribe to The Reformed Broker.