Archive for the ‘New Economy’ Category
Years ago, young Lana Turner skipped her typing class and bought a Coke at the Top Hat Café in Hollywood where she was discovered by the publisher of the Hollywood Reporter and soon became a celebrated movie star. A couple decades later in a hilarious episode of I Love Lucy, Lucille Ball hung out at Schwab’s Pharmacy in Hollywood hoping to be discovered. Over the years, aspiring entertainers from Warren Beatty to Ben Affleck have dropped out of college to try their hand at acting in order to become a star and move to Hollywood.
The entertainment industry has been gravitating north for years as companies like Netflix, Apple, and Pandora in the San Francisco Bay Area have been reshaping the film and music industry. Facebook, which was chronicled in the film The Social Network, has been talking with former My Space co-President (and former MTV exec) Jason Hirschhorn about spearheading the company’s outreach to Valley media companies. And, the entertainment industry’s largest talent representation firm, CAA, has been mulling the opening of an office in Palo Alto.
A couple of weeks ago, I spent four days in a row in downtown Palo Alto right in the midst of the news that Steve Jobs had passed away. As I walked by his home just south of downtown with hundreds of candles and thousands of flowers lovingly placed there, a neighbor remarked that “this is the kind of reception America used to give to its film heroes.” The next day, as I sat in a local café and overheard young entrepreneurs hawk business plans to angel investors like screenwriters might do the same to an agent, I was struck with by the electricity in the air. Young people – many of them college dropouts like Bill Gates and Mark Zuckerberg before them – are streaming to Palo Alto hoping to be the next Steve Jobs (another dropout) with the desire to invent something incredible that might change the world. And, yes, they are looking to be “discovered,” or at least, funded.
Palo Alto doesn’t have a Schwab’s or a Top Hat Café (both of which no longer exist), but it does have Palo Alto Creamery, a soda fountain full of aspiring entrepreneurs comparing notes on the Valley’s powerful players just like struggling actors did in Hollywood years ago. Having spent a few days hanging out in the collegial environment of a few Palo Alto start-ups, it struck me that the optimism, curiosity, and vitality of this tech eco-system is probably not nearly this pure or potent anywhere else in the world. Just eavesdropping on the heady conversations made me giddy! I’m sure a half-century ago, being in Hollywood must have felt quite similar as the entertainment industry gained a global foothold.
And, while Palo Alto is the celebrated place of the moment, there’s a legacy of thinking big and different in this community. Taking a walking tour with a partner of the world-famous IDEO design firm (headquartered in downtown Palo Alto), I saw that the roots of this entrepreneurial gold rush have a storied legacy. There were the first offices of Google and Intuit on University Avenue. And, next door to where my company aspires to create a luxury boutique hotel is where Facebook got started (across the street from the Creamery). But, no tour of Palo Alto could be complete without a visit to mecca, the famous garage (now a historical landmark) where Hewlett and Packard got started just a five-minute walk from where Mark Zuckerberg first started paying office rent for Facebook. There is no star Walk of Fame in Palo Alto (yet), but there’s an unmistakable spirit that the world is counting on this little community to chart a path of hope and renaissance for the world, just like Hollywood did in our darkest days of the past.
If we’re going to see a job recovery in this decade, it’s likely to come from America’s entrepreneurs since 80% of the net job growth in our economy comes from small to mid-size businesses. So, if we know our economic recovery depends on incubating more entrepreneurs, it’s natural to ask, “How can we create more entrepreneurs and what drives an individual to relentlessly work eighty hours a week on a risky new venture?”
Conventional wisdom suggests the primary motivator for entrepreneurs is money or wealth creation and, in fact, much of the political debate tends to center around what kind of tax or regulatory policy changes will turn corporate suits into small business adventurers overnight. But, what drives someone to be an entrepreneur is a much more complex question and one that I’ve grappled with in the quarter century since I launched my company.
When I started my hotel company, Joie de Vivre, at the age of 26, I saw this venture as my ticket to freedom. I’d done my time in corporate America from McDonald’s making shakes to Morgan Stanley making deals and, yet, I felt awfully constrained by the uniform – not just my clothes, but how I felt I needed to conform – that a traditional job required me to wear. So, the freedom to be myself and develop a business based upon my own rules was my first driver. Right behind that was a need to be creative. I joined a maverick commercial real estate development company right out of business school thinking that it was going to unleash my creative juices, but instead, found that I was just a transaction jockey constantly toggling between negotiating high-stress development deals and having my eyes glued to a Lotus 1-2-3 spreadsheet. This was not fertile ground to explore my creative side. Launching a boutique hotel company dedicated to creating original, stylized small properties satisfied my need to be inventive.
As my company grew, I became aware of another motivating force that led me to entrepreneurial pursuits beyond just freedom and creativity. I became more and more curious about human nature and, as we grew to nearly 40 hotels and thousands of employees, I saw our company as a laboratory for trying things in one hotel – whether it was a new incentive plan for employees or a new unique service for guests – so that we could roll it out elsewhere if we saw that we struck a chord with this innovation. And, ultimately, this curiosity led me to writing books on the crossroads of business and psychology.
But, what’s most fascinating about what drives an entrepreneur isn’t necessarily what’s most conscious to the entrepreneur. For many entrepreneurs, the fuel that keeps them going could be power, fame, a trophy wife or husband, or – possibly – as is true with many workaholics, their business is a means of running away from other elements of their life that either scare them or make them feel small. More than a few entrepreneurs use their business and their success as a means to build their fragile self-esteem. As the business goes, so goes the entrepreneur’s sense of them self. So, for many of us, our ego is a major driver for why we throw ourselves with reckless abandon into a new venture.
Carl Jung said that we are powerless over what we’re unconscious of in our lives. For me, while it was enlightening to know that freedom, creativity, and curiosity – more than money or power – were the key qualities that made my work life a calling, it was when I came face-to-face with how much of my identity and ego was wrapped up in my work that I found real freedom. Becoming conscious that my sense of self didn’t have to be strapped to that inevitable rollercoaster that defines the ups and downs of a business gave me a “joie de vivre” that I never found by just chasing the next success.
So, as politicians harp on about the importance of various tax or regulatory policies that will lead countless entrepreneurs out of their corporate closets, let’s realize that fiscal policy alone won’t fertilize an abundant economic garden. Steve Jobs, Jeff Bezos, Oprah Winfrey, Richard Branson – these folks didn’t launch their employment vehicles because they calculated how the government had made it more financially lucrative for them to launch their businesses. For every entrepreneur who is doing it to get rich, I’ll bet you there are three others who are doing it to either make a difference in the world or their community, make a name for themselves, or just make something that makes them feel good. The best way we can encourage people to create companies that create jobs is to celebrate the diverse entrepreneurial stories and the variety of drivers that led these entrepreneurs to sticking their necks out. Telling powerful entrepreneurs’ stories and aggressively educating people on how to start a business may have more of an impact on reducing our unemployment rate than some subtle or complicated change in tax policy. Silicon Valley didn’t become the entrepreneurial capital of the world because it has some uniquely attractive tax rate (in fact, quite the opposite, it’s in the high-tax state of California).
[Originally posted August 31, 2010 on the Huffington Post]
Last year, liberal filmmaker Michael Moore lamented the fact that the bankers were “burning down our economy” while earning obscene bonuses. Recently, some Tea Party conservatives have suggested that President Obama, with his gentle demeanor and misplaced upbeat perspective on the economy, wasn’t acknowledging “the auditorium is filling up with smoke.” On last night’s network news, the anchor suggested that people across the country were “burning mad” about the state of the economy. So, given all the references to fire and the economy, what’s to be learned from the annual Burning Man celebration in the “high” Nevada desert?
The world’s largest active art exhibition begins this week as it does each year around Labor Day. Nearly 50,000 people come together to create a temporary utopian community based upon radical self-reliance and self-expression. Think Mad Max meets Lawrence of Arabia meets Hair. The mind-altering alchemy of art, spirituality, sex, and dancing under the stars is popular with the bobo (bourgeois bohemian) crowd and gets its share of snarky press, but maybe there’s something to be learned from some of the basic tenets of the quarter-decade old festival.
First of all, this isn’t Hooverville during the Great Depression. This bedouin-like tent city’s participants are there by choice and this temporary tribe has bought into the associated economic principles that define Burning Man and could inspire an under-inspired White House economic team. Here’s three lessons that we might learn from the Burning Man economy:
(1) Long Live The “Gift Economy.” The only thing you can buy at Burning Man is ice or coffee (with the exception of the entrance tickets). Everything else is gifted. In other words, in this utopian midsize suburb, you can get a haircut, a massage, hang out in your favorite pop-up bar, find an outrageous outfit, or listen to a lecture on global politics all for free. What would it be like if we de-commodified our relationships and truly lived the Biblical scripture that it is better to give than to receive? What if our pecking order of status in the United States was more based upon who gave away the most as opposed to who earned the most?
(2) It Does Take a Village. Just like America was built on barn-raisings in its past, so does Burning Man tap into that communal spirit of civic responsibility. No country in the world is more enamored with its sense of manifest destiny and individual liberty than the United States, but our forefathers – whether they were venturing west through the wilderness or whether they were fighting the British – truly valued the essential nature of communal participation in our democratic society (and Alexis deTocqueville wrote quite a book observing this). Both Burning Man and America pride themselves on radical self-reliance, but neither would exist without a culture of volunteerism (or, in Burning Man’s case, “voluntourism”). Social psychologists have proven that those that are unemployed who volunteer their time during their work hiatus build self-esteem and tend to be hired for new for-pay work faster than those who don’t volunteer. How can the White House tap into this slumbering giant with nearly 20% of the country under-employed currently?
(3) Leave No Trace. Some might suggest these three words describe the economic impact (or lack of one) of Obama’s stimulus package. But, these words also describe that this deserted desert is wiped completely clean of the collective fingerprints of this mass event due to a collection of simple rules that everyone buys into. We’ve spent a couple of hundred years milking what we can from our natural resources in this country without fully accounting for the cost of what externalities we create whether it may be oil spills, pollution, or human or animal health risks. Ironically, Burning Man exists because the U.S. Bureau of Land Management leases the “Playa” for this event each year, but with extremely strict regulations with respect to how it will be returned to its natural condition and the Burning Man economy absorbs that cost through the ticket price and the community policing. What if our government and businesses took that same “leave no trace” mentality with respect to how we used natural resources throughout our economy?
No, this won’t likely play in Peoria, but there’s something to be learned from the allure of the Burning Man experience. At a time when Nevada leads the nation in homeowners being thrown out of their homes, Burning Man will break records this year for attendance as people create their temporary home in the desert. The most resonant thing I’ve heard in past years on the final days of each Burning Man as people go back to their “normal lives” is “Why can’t life be like this all the time?” Well, we’re adults, so summer camp only lasts so long, but that doesn’t mean we can’t adopt some of the Burning Man creed when it comes to our moribund economy. Nietzsche wrote that “the measure of a society is how well it transforms pain and suffering into something worthwhile.” The idea of burning a wooden effigy started out of the pain of Burning Man founder Larry Harvey trying to get over a failed romance. Maybe it’s time the White House took Rahm Emanuel’s channeling of Nietzsche more seriously (“never waste a good crisis”) before America fully loses its romance with Rahm’s boss.
[Originally posted Oct. 30, 2009 on the Huffington Post]
Unconscious Capitalism…we’ve witnessed that. Even Drunk Capitalism may sound more accurate than Conscious Capitalism. But, the truth is we can’t afford to have Capitalism be anything but Conscious given the stakes involved and the power wielded by the world of business. I’ve just come back from the second annual Conscious Capitalism conference in the hill country of Austin. This gathering of CEO’s, entrepreneurs, financiers, and academics gave me some encouragement that those handling the machinery of industry have come to realize that they can’t operate this delicate and powerful equipment while inebriated on short-term ambition and unconscious plundering.
What does it mean to be a conscious capitalist? Here’s my stab at a list of 5 basic rules (fueled by some of the discussions at the conference):
(1) Focus on the Long-Term. While short-term profits are the milk, smart investors and business execs understand that building a relationship with the cow is far more valuable in the long-term. Warren Buffett asks his CEO’s to operate their businesses as if they were never to be sold or merged for 100 years. And, the academic authors of “Firms of Endearment” have proven that long-term minded companies outperform the S&P 500 by eight times over a ten year period.
(2) Bow at the Altar of Purpose. An expansive Purpose that addresses the needs of a broad definition of stakeholders – employees, customers, vendors, the community, the environment, not just investors – provides an animating and attracting force for a company. Proctor & Gamble’s new CEO recently remade the company’s business plan so that it is purely focused on how P&G delivers on its Purpose to all of its broad definition of stakeholders. And, great companies from Southwest (“freedom to fly”) to Apple (“a bicycle for your brain”) have great Purposes that energize those who come into contact with them.
(3) Think of Business as a Practice. Few of us see businesspeople as “practicing” their craft like a doctor, lawyer, athlete, musician, or spiritual leader. But, this new generation of leaders at companies like Patagonia (which is now teaching Wal-Mart how to green their supply chain), Whole Foods Markets, and PepsiCo are approaching their work with a level of conscious practice that suggests that they understand there’s a systemic effect in the decisions they make. Kip Tindell, CEO of the Container Store, says that leaders need to understand the size of the “wake” they create based upon the decisions they make. Business leaders can no longer afford to take an unconscious “just do it” approach to how they make decisions.
(4) Redefine what Winning means. Life and business are all about where you pay your attention. MBA’s have been taught to “manage what you can measure,” but unfortunately, what’s most measurable in life and in business isn’t usually what’s most valuable (think Mastercard’s “Priceless” commercial). Conscious capitalists recognize that intangibles like brand value, culture, and intellectual property are making a mockery of the 500-year old tradition of the balance sheet where these valuable assets can’t be found as line items. The good news is that “valuing intangibles” has become the hottest topic on American business school campuses. Jack Welch’s traditional bottom-line definition of “Winning” has lost its luster.
(5) Leverage Loyalty. Leverage has been a dirty word this decade and we’ve even created new recessionary phrases like “America is de-levering herself” (that just sounds painful). Yet, the ultimate leverage in a downturn is loyalty. In today’s “word of mouse” era in which social media and Web 2.0 sites are the primary means that people use to tell their friends and colleagues about their favorite (or least favorite) products or companies, reputation and loyalty have become the primary sustainable competitive advantage for companies. Tech-savvy leaders like Tony Hsieh at Zappos (who has tens of thousands of followers on Twitter) have created an evangelical collection of customers that is leveraged into market share momentum.
We may be entering an era of Karmic Capitalism when business realizes what goes around, comes around. Let’s hope that the captains of industry realize that noblesse oblige (nobility is obligated) – a century’s old concept – should be applied to the business world. Since corporations are treated as if they are a body, they should also have some of the obligations of citizenry in terms of what they give back and contribute to the good of society. And, they should be held accountable for operating in this fashion.
[originally posted July 14, 2009 on the Huffington Post]
Two books collided upon my bedside table this week: Free – The Future of a Radical Price, and, Four Seasons – The Story of a Business Philosophy. The first book, written by my friend Chris Anderson (who is the Editor of Wired magazine and authored the recent bestseller, The Long Tail), argues that giving things away, especially in the digital marketplace in which the marginal cost to produce a new product comes close to zero, is a great marketing tool for companies and provides the opportunity to sell the person who got the free product all kinds of other add-ons once they’ve been hooked with the free offer.
Free is probably giving Isadore Sharp a severe case of heartburn. Issy Sharp is the founder, chairman, and CEO of Four Seasons Hotels and Resorts, and the author of the other book that’s wrestling for shelf space next to my bed. He is one of my heroes of the hotel biz as his authentic focus on corporate culture and the Golden Rule are legendary in our business. But Issy isn’t very sharp these days.
Ironically, the hotel industry is taking the concept of Free to no lows (don’t confuse that with Loews hotels). With the advent of online travel agencies like Expedia and Priceline, whenever there’s a dip in the hospitality economy, the traveling world (a shrinking marketplace since travel is a discretionary expenditure in a recession) hightails it to their laptop to see which hotel chain will offer the closest thing to free. Average room rates at upscale hotels have plummeted by 25% in the past year, primarily due to this new more efficient digital marketplace. Hoteliers love efficient operations, but they loathe efficient markets.
For good reason, Four Seasons doesn’t like this commoditized, “WalMart of travel” approach which is far from the kind of luxury pricing that Issy Sharp and his company have trailblazed for discerning world travelers over the past half-century. Yet, just last week, a friend of mine told me that he was able to book the Four Seasons San Francisco on Priceline for less than $100 per night on a weekend. No wonder this hotel recently went into default with its lender (although technically, it’s the owner of the hotel, not Four Seasons – the management company, that went into default). In fact, the poor Four Seasons has had its share of California woes as the owner of their Newport Beach hotel chose to end the relationship when the contract was up because they claimed that Four Seasons created a great customer and employee experience, but at the expense of the owner’s bottom line. And, both the New York Times and Wall Street Journal have printed front page stories airing the dirty laundry this spring between the Four Seasons and the owners of their north San Diego county (Aviara) which has led to security guards, lawyers, and serious bad press.
I do feel for Issy as I’ve experienced my own set of spirited debates with the owners of the 38 hotels my company, Joie de Vivre, manages (we’re partners on 14 of these hotels), but I’m wondering whether Four Seasons has strayed too far from their humble roots to be agile enough to play in today’s boom and bust hospitality marketplace. One of my favorite stories is the fact that Issy’s first Four Seasons (1961) was a dowdy Toronto motor hotel that “instantly became a popular hangout for the literati and glitterati.” For those of you who know my own hotelier history, 25 years later I started my hotel company acquiring a ghetto motor lodge that we remade into a rock ‘n roll hotel. Issy admits in his book that he learned the hotel biz as an outsider through trial and error and I can certainly relate to that, too. But, the question is whether he and Four Seasons are still willing to learn in a changing marketplace. He recently was quoted in the NY Times saying, “We can’t allow people to sort of run amok” in the context of talking about the owners of his hotels who are losing millions of dollars trying to live up to the Four Seasons rarified service and aesthetic standards in a recession. I might run amok, too, if I had a contractual gun to my head from a hotel brand which was more concerned about the effect of cost cuts on their reputation than they were on operating a sustainable business.
Maybe the Four Seasons has gotten the Free religion recently as they’re now making an unprecedented third night free offer which puts them in the same category with the rest of us shameless price-cutters. The company has jumped on the “stay-cation” marketing bandwagon telling Californians who are apt to stay closer to home that they can still have a Four Seasons experience. But, the number of in-state Four Seasons experiences where I can stay for free is dwindling now that there’s no longer a Four Seasons in Newport Beach, the north San Diego hotel may be leaving the flag, and the Four Seasons here in my backyard (San Francisco) may be going back to the lender if the owners can’t work something out. If Issy doesn’t make nice with his hotel owners soon, their idea of Free may be to free themselves of their Four Seasons management contracts.
[originally posted March 9, 2009 on the Huffington Post]
For some reason, the fact that Barbie turned 50 this past week freaked me out. As a guy who’s on the precipice of 48 and a half, I was already struggling with the reality that our President is younger than me. But, now I know that Barbie and I will hit the big Five-O within a couple of years of each other, yet my movable body parts live by the laws of gravity and hers don’t. Damn that Barbie.
Our economy has movable parts, too, and a whole lot of gravity. In fact, there’s so much gravity that savvy observers are starting to worry that my little cusp of a generation (what some have called Generation Jones, those late boomers or early-Xers born in 1954-1965), who’ve seen their retirement piggybacks lose more than half their value, “bail out of stocks for good. Some analysts say stocks, which posted zero gains for the ten-year period ending in October, are setting up for a second ‘lost decade.’” (USA Today) Does that make mine the “lost generation” since we may lead the way to a generational divesture out of the stock market?
Frankly, my generation has been lucky as we’ve experienced the “Great Expansion” from the time we graduated from college. Starting in late 1982 and continuing for 25 years through December 2007, this adult half of my life has been one long economic orgy (with two strictly-defined little recessions: nine months in 1990-91 and eight months in 2001). My generational cohorts have gotten used to the good times. But, what if that’s been a momentary quarter-century illusion and the U.S. may resemble an economy like the rollercoaster Argentina in the next couple of decades? Don’t cry for me, Barbie and Barack!
Our growing national debt, the painful process of de-levering American households and corporations, and foreign competition that at times makes the U.S. feel like Little Leaguers promise a bootstrap era like our grandparents experienced in the 30’s. Hell, amidst all this doom and gloom, our savings rate as a country skyrocketing to 5% last month after years of hovering around zero as we were scared as the dickens to spend a dime. But, like my Nonnie and Potka (yes, that’s what I called my dad’s parents), we’re saving under our mattress instead of in those bankrupt banks (the 17th of which was taken over by the government this year on another failing Friday). Listen, the federal regulators are taking the America’s top 20 banks through a “stress test” to see if these financial giants can make it under a variety of future economic scenarios, but I think that expression is more apt for what we’re all living through at the moment.
Debt financed a national lifestyle of consumption. Ouch, it’s hard to even write that sentence as it makes me feel like a fire and brimstone preacher shouting out of a flatbed truck. But, maybe it’s time to learn a few things from that Great Generation that survived the 30’s, learned to fight in the 40’s, and made babies in the 50’s. Barack’s Inaugural address basically told us it’s time to grow up. I guess he was speaking to me and my classmates who’ve been “kids in the candy store” for most of our adult life. Some of my friends are hoping this is just a “lost weekend” (on a really rainy weekend, watch that classic alcoholic film with Ray Milland — it’ll pick your spirits up or maybe drive you to some spirits), not a “lost generation” or “lost decade.”
But, let me end on a positive note. When I was at the TED conference a month ago, an economist revealed a fascinating graph that showed that if prognosticators in 1930 had predicted American economic growth for the balance of the century based upon either the pace of growth during the roaring 20’s or the growth during the first three decades of the 1900’s, they would have dramatically underestimated the actual growth we experienced by almost half. So, one of the key lessons about life is that we humans tend to imagine when we’re in bad times that they’ll never end and we tend to do the same during good times. Yet, this graph reminded me that there’s some givens in life beyond the fact that Barbie’s skin is still taut and smooth and Joan Rivers’ shouldn’t be. One key given over the past few centuries is that over the course of a lifetime, things do tend to get better economically, at least in a macroeconomic way. That’s an important reminder to those of us who may be approaching 50 and imagining that modern medicine suggests we may have just hit midlife. Now, if modern medicine could only perfect its cure to gravity.
[originally posted Feb. 4, 2009 on The Huffington Post]
Will it take an earthquake to shake American bankers from their newfound windfall from the federal government? Congress approved the $700 billion TARP rescue plan months ago with the idea that these funds would help stimulate the economy by providing more capital to the banking industry which would ease credit to borrowers. But, these reluctant bankers took the first $350 billion and used it primarily for paying down debt and acquiring other businesses. In fact, just a couple of weeks ago, Bank of America asked for another $20 billion to help it digest the losses associated with its acquisition of Merrill Lynch. Maybe the bankers at B of A could learn a few things from a history lesson about the roots of their institution.
A.P. Giannini opened the Bank of Italy in a former San Francisco saloon in 1904 because, as a produce dealer, he found established banks unwilling to take on his or his farmers’ business. But, less than two years after opening the bank, a sentinel event shook him to his core and helped define how what would become the Bank of America would approach lending to the masses as B of A popularized branch banking across the country.
In the early hours of April 18, 1906, Giannini was suddenly thrown out of bed by a violent upheaval in the earth that shook his San Mateo house to its foundation. He immediately made the trek north to the epicenter in San Francisco. His fears of what he would find in the city were exacerbated when he learned that he would not be able to travel his typical route via the railroad. The earthquake had wrenched the tracks from the ground making rail service impossible. He set off by foot, his only alternative. Along the 17 mile walk to San Francisco, Giannini encountered processions of wagons carrying frightened people fleeing the city who conveyed depressing stories of startling destruction in the city. Fearing the worst, Giannini reached his bank and was startled to find that it had not suffered any major damage. Two of his employees had rescued the overnight cash, approximately $80,000 in gold and silver from the vaults and secured it inside their bank. Giannini was tremendously relieved, but only briefly, as the threat of fire was rapidly moving their way. He moved quickly and determined that they had about two hours to get everything out of there securely. The three men obtained two produce wagons to transport the Bank of Italy’s money, books, and furniture out of the city back to Giannini’s home in San Mateo.
Bank of Italy was one of the few that was able to provide loans in post-earthquake San Francisco when borrowers’ thirst for capital was much like ours is today. Giannini was forced to run his bank from a plank across two barrels in San Francisco’s rumpled streets. Giannini made loans on a handshake to anyone who was interested in rebuilding. Years later, he would recount with pride that every single loan was repaid. Giannini is credited as the inventor of many modern banking practices. In the depths of the Great Depression, he bought the bonds that financed the construction of the Golden Gate Bridge. During World War II, he bankrolled industrialist Henry Kaiser and his enterprises which supported the war effort. After the War, he visited Italy and arranged for loans to help rebuild the war-torn Fiat factories.
A.P. Giannini is probably rolling in his grave today as American bankers have treated the U.S. government as venture capitalists providing them “opportunity capital.” Just a couple of months ago, the Gallup organization announced the results of their annual “Honesty and Ethics” poll of American professions. The only significant change from the prior year is that bankers have sunk to a historical low with only 23% of Americans considering them very honest or ethical (down from just 41% three years earlier). With nurses topping that honesty list, American bankers should realize that A.P. Giannini created a sort of capitalist triage on the streets of San Francisco in the earthquake aftermath which quickly allowed the Bank of Italy (soon to be called Bank of America) to earn somewhat of a monopoly in the early 20th century banking world.
Where is that kind of innovation and desire to lend today? American banks spend hundreds of millions of dollars in advertising to try and differentiate themselves from each other. But, in this time of crisis, when America would truly notice and applaud the banker that was in the streets trying to stimulate business, our modern day bankers are cowering in their very lonely vaults.
[originally posted Jan. 2, 2009 on The Huffington Post]
The word “workout” takes on special meaning this time of the year. We’re so predictable. Holiday binging leads to fitness cringing. And, one of our chief New Year’s resolutions is to get on a workout plan, maybe with the assistance of a trainer. In fact, during the first President Bush’s administration, his Chairman of the President’s Council on Physical Fitness Arnold Schwarzenegger acted like the country’s personal trainer by creating a highly-publicized “Great American Workout” in 1992 fashioned to help us realize just how much we were gaining around our midsection and what we could do about it. Today, Governor Arnold has installed a digital clock (sort of like a weight scale) outside his office at the Capitol in Sacramento showing the state’s “waistline” (in the form of a budget deficit) which is around $7 billion as of now, but is expected to rise to $15 billion by the end of the fiscal year in June. Arnold’s sweaty workout in 2009 is going to be with lenders, not in the gym.
We’ve been binging on debt for way too long. That great American tradition of signing up for a gym membership in January will be replaced this year with signing up for an appointment with your lender. There is no short-term recovery in sight and most of us are dangerously fat. We’re going to see massive retail industry restructurings in the new year after the historically weak holiday sales. The car industry may avert the cardiac arrest of bankruptcy, but even with a bailout, anyone associated with this industry is going to be on a crash diet this next year. Unemployment is going to experience a painful spike-up in the next few months which will put more loans at risk. Residential real estate prices still have another 10% to fall, thus putting lenders at greater risk given that their equity is about as lifeless as the guy facedown in the pool. A financial workout is defined as “the process of a debtor’s meeting a loan commitment by satisfying altered repayment terms.” If you’re lucky, your lender may become your rigorous personal trainer and be willing to work with you on a new workout plan. If you’re not and your trainer fires you, then there’s always the path of Lehman Brothers or Sam Zell’s Tribune Corporation.
I spent the post-Christmas weekend in the Inland Empire of California, an ironic name given that few real estate markets in America have been more exposed as an “Emperor with no clothes.” With unemployment over 10%, real estate prices down 30%, and those sad minimum wage-earning folks standing on street corners with their gesticulating oversized cardboard arrows pointing to tract home developments that are seriously off-track, there’s an emotional fog overhanging Palm Springs, Riverside, and Indio. Amidst some sunny R&R, I made time to meet with a lender on a Sunday late afternoon to see a hotel that was seriously underwater. You know the world is upside down if a lender is traipsing around an abandoned hotel with a barbed wire fence around it on a prime golfing day. The lender told me the sad tale of this hotel and how its borrower just kept adding on the debt with “a willing bartender – a variety of lenders – serving this drunk customer until he passed out.” The lender said to me, “I was let go by one failing bank a few months ago, but hired by this other bank since I was a ‘workout specialist’ which I learned back in the real estate debacle of 1992.” I didn’t ask if he learned his workout techniques from Arnold back then. He surmised that, “We are on the verge of the biggest meltdown we’ve ever seen for lenders. The lenders and the borrowers who will survive this time are those that know how to become great workout partners.”
Working out is an acquired taste. It isn’t something you enjoy at first. In fact, the American fitness club industry binges on a predictable numbers game that suggests few of us are as motivated to visit the club in May as we are in January when we signed up. But, our financial health depends on the kind of working out, stretching, and dieting we’re going to do in 2009. It requires a change in mind set and a willingness to show our trainer (the lender) that we’re humble, motivated, and capable of slimming down. While a lot of blood, sweat, and tears will be expended along the way, the result may be a svelte and attractive body that’s in better health than it’s ever been in. Good luck with your workout!
When I was growing up, one of my favorite songs was Peter, Paul and Mary’s “If I Had a Hammer….” Who knew that, as an adult, I would be playing this song to corporate groups as I opened their mind to the idea of how Maslow’s Hierarchy of Needs can be applied to our business relationships? You’ve probably heard the following quote before, but you had no idea that it came from Abraham Maslow: “If the only tool you have is a hammer, you tend to see everything as a nail.” Abe Maslow coined this wise phrase when he was talking to his fellow psychologists in the mid-20th century suggesting that the psychology profession had a tendency to focus on the “worst practices” in human behavior as opposed to the “best practices” because the kind of people shrinks see in their line of work are those who are in a challenged place in life (this is one of the reasons I tell young people to choose their profession thoughtfully as, over the course of time, this occupation will color your perception of the world). Maslow’s breakthrough came from his study of 1,000 fully-functioning humans (from Socrates to Eleanor Roosevelt) to understand the best practices in humankind with his eye on how we can create conditions for these best practices to prevail. Maslow chose to have much more than a hammer in his toolbox.
In what way are you looking at the world in a myopic fashion? With your employees, do you think the only tool for creating loyalty is money? Have you thought broadly about the kinds of products or services that your valued customers would love to have but hadn’t even imagined? With your investors, do you think that all of them are purely focused on Return on Investment? Conventional wisdom is often wrong, partly because traditional thinking tends to be linear and myopic. One of the key messages I developed in my book PEAK is that the greatest value (and certainly the most differentiation in business) comes from imagining people’s intangible needs, not just their obvious tangible needs. MasterCard has proclaimed in their award-winning commercials, what’s most “Priceless” in life isn’t the tangible stuff. What’s truly priceless are the peak experiences we find when we’re in a self-actualized state, whether in our role as an employee, a customer, an investor, or, for that matter, a mother, a political activist, an artist, or an athlete.
Certainly, Southwest Founder and former CEO Herb Kelleher didn’t look myopically when he realized that his secretary Colleen Barrett was a talented and smart professional with great potential. Thirty-five years later, Colleen is the President of America’s most successful airline. Steve Jobs has far more than a hammer in his toolbox when he’s considering what new products Apple will unleash on their evangelists. While Maslow’s legacy was derided as “hot tub psychology” in the 1970’s after he passed away, the fact is that his message of “being all you can be” and understand the potential in humans is certainly a relevant concept for business.
So, how do you move beyond myopia? Ask Hank Paulson, our U.S. Treasury Secretary, and formerly the CEO of Goldman-Sachs. This is a very savvy and experienced guy. He’s also quite a competitor and coincidentally was named “The Hammer” in the Ivy League when he played football for Dartmouth. But, I have to say The Hammer got hammered last week because his myopic pair of $700 billion glasses (the “bailout”) was a narrowly-defined solution to an unwieldy problem. The nail Paulson was trying to hammer was the evaporating credit markets and the financial industry’s confidence in the fundamentals of the economy. Yet, Hammerhead Hank forgot that the American people and the 535 members of Congress had a stake in this game also and, while the U.S. Treasury Secretary tried his darnedest (and you truly have to give him credit for how much work this was), he quickly realized that his myopia led to the House of Reps reprimanding him. In the end, a deal was done but it certainly took a few more tools than The Hammer.
So, in sum, one of my favorite Harvard Business School case studies of all time was Theodore Levitt’s groundbreaking “Marketing Myopia” published two months before I was born. Levitt told the story of how the American train industry had lost the transportation game because they thought of their business way too myopically, and, hence, buses, cars, trucks, and airlines pecked away at their market share over the course of a few decades until trains were just the cute things you gave your kids for Christmas. Beware of thinking too narrowly and make sure your toolbox is equipped with more than just a hammer.
It isn’t easy being a transformational leader, is it? Congratulations on what looks to be a victory for the Democratic nomination, but let’s look at the last four months (which must have seemed like four years) and see what lessons we have learned about transformational leadership.
1. First, we need to give some credit to James MacGregor Burns who long ago wrote the book Leadership and described two kinds of leaders: “transactional” and “transforming.” He wrote, “The relations of most leaders and followers are transactional – leaders approach followers with an eye to exchanging one thing for another…Transforming leadership, while more complex, is more potent. The transforming leader recognizes an existing need or demand of a potential follower. But, beyond that, the transforming leader looks for potential motives in followers, seeks to satisfy higher needs, and engages the full person of the follower. The result of transforming leadership is a relationship of mutual stimulation and elevation that converts followers into leaders and may convert leaders into moral agents.” It’s almost like a transactional leader is leading from the bottom of the pyramid while the transformational leader (I prefer “transformational” to “transforming”) is leading from the top. No doubt, while most political pundits haven’t read my book PEAK, I do believe they would acknowledge that your chief political adversary, Hillary Clinton, has run her campaign as a transactional leader with her very tangible, policy-driven, and practical approach to solving problems. In fact, one of the chief knocks on Hillary has been her inability to inspire or help people see the bigger picture and, at times, her tendency to focus on the fear-driven survival needs of the electorate.
2. Many of the things that Burns has written apply to your campaign: the “complex” but “potent” message, the fact that you recognized the “higher needs” in your followers – the desire for a new kind of politics that stands above the past political pollution, and the “Yes, we can” message that “converts follower into leaders” and has helped convert you into a “moral agent.” You are a different kind of leader: one who asks us to “be all we can be” if I can be so bold as to steal a phrase from Maslow and the US Army. JFK used to talk about a rising tide lifting all boats and that’s the kind of feeling many Americans experience when they hear you speak, read your books, or really take a moment to understand your truly American Dream of a life story. We are living in a time when my fellow countrymen and women are looking for the kind of change that a transformational leader can offer. It’s a new century. It’s a delicate and small world. We don’t fit into the demographic boxes that made sense in 1958. Fifty years later, America is waking up to the fact that other countries around the world are passing us by as we live in splendid isolation on this big island we call the US of A. Your diverse history from Kenya to Indonesia, from Kansas to Hawaii speaks to the future, not the past, and the only way you will win the election in November is if you help America see the necessity of transforming ourselves to succeed in the future as opposed to just wallow in our glorification of the past.
3. You will be painted as the “American Dreamer,” a nice enough fellow but someone different enough to not understand the issues of the common man. You will be seen as a Harvard-educated elitist who can give a great speech, but who doesn’t know how to get his hands dirty to make things work. You will be vilified as a “snake oil salesman” with your slick and polished manner and you will be cast as the “other,” not really one of us. When they hit you with this kind of rhetoric, just remember two things: remind them that our greatest leaders were different and that the world isn’t what it used to be. Lincoln, that greatest of Presidents from your state of Illinois, was different. He wasn’t a transactional leader making deals in backrooms. He helped America see that we were on a path toward ruin if we didn’t unify. Kennedy was different. He was elected President when Catholics were considered to be lower class and not fit to be the supreme leaders of the land. He reminded us to reach for greater things whether it’s putting a man on the moon or having the courage to stand up to the Soviets. Reagan was different. He was an actor–and a not too impressive one. But, whether you liked his politics or not, his transformational message took us from the ugly 70’s to the confident 80’s with his “morning in America” perspective and his “tear down this wall” speeches to the Soviets. Our best Presidents have been transformational in their ability to unite us and help us individually and as a country “be all that we can be.” You are also the perfect messenger of the message: the world has changed and we need to change with it. Our American empire will crumble like the Romans if we don’t adapt and see that our leadership needs to be future-oriented and visionary as opposed to being wedded to the past. Be bold and transformative with your policy proposals whether it be in the area of energy independence, educational reform, or helping us to regain America’s status as a trusted and respected ally to our foreign friends around the world.
4. Whether in business or politics, transformational leaders need to surround themselves with practical, solutions-driven operators who know how to “make the trains run on time.” Choose a Vice President who can be a Chief Operating Officer, someone who can take your vision and make it actionable. To show that you truly mean to unify the country, choose a few members of your cabinet that are independent-minded Republicans who can give you the kind of 360 degree perspective that our current President has so sorely been lacking. Be specific about your policy goals and deadlines as the greatest risk you have is being perceived as the ethereal monk on the mountain who gets high breathing the air but hasn’t provided for the basic survival needs of himself and his people. Find a few Presidential potholes to fix. As a transformational leader, just remember that your greatest gift is in helping us see the sense of “oneness” that we have at our core and that you so eloquently speak of and exhibit on the campaign trail. Our greatest leaders help us see what we couldn’t envision on our own.
Good luck to you. You have a formidable and admirable opponent in John McCain who shares many of your qualities.
Wishing you all the best,