The biggest mistake is often thinking you know something. This is a bit paradoxical because you can’t be successful in business without an over abundance of confidence. So you have to be confident and questioning at the same time. This is actually why entrepreneurs see opportunities where other people don’t. But it’s also why they can assume the market will love their product when it doesn’t.

Almost everything we do in life has unintended consequences. It would be pretty egotistical to assume otherwise. We’d have to be omniscient. Given that we’re not, it makes sense to expect (and look for) the unintended consequences of our decisions. But this works in two ways. Sometimes the consequences are negative, and you want to limit them as much as you can. But sometimes they are positive and you want to exploit them.

I was reminded of this when I read a CNN article on the 25th anniversary of the first frequent flyer program. These programs were started to encourage customer loyalty. But they’ve grown into a $4 billion revenue source because airlines sell points to other companies who use them for their customers to earn tickets (and other things).

Example: My wife and I are leaving in a couple days for two weeks in Europe (I make no promises as to how that will affect my blogging schedule). We’re flying business class both ways, staying at 4 star hotels for a week in London and a week in Paris. Included are breakfast, ground transportation and some other coupons offering free tote bags and shopping discounts. None of that is costing us a penny – all miles. I’m a platinum member of American Airlines yet I probably fly less than 10,000 miles a year.

How did this happen? I buy as much as I can for the business and personal on a credit card which gives me miles (of course I pay it off in full every month or the interest would wipe out the gains). I doubt that American Airlines considered this 25 years ago when they started the program.

[Side bar - if you're going to Paris] One thing I just learned about which we did pay for – a Paris museum pass. $50 for 3 days – it not only gets you discounted admission but NO WAITING IN LINE. You have to buy a rail pass also (we’re taking the chunnel) and you have to buy them in North America before you go.

Takeaways:

• Take the approach that you’ll make the best decision you can with what you know and you’re sure it will have unintended consequences.
• Be on the look out for the consequences you don’t expect.
• The consequences can be positive as well as negative.

[tags] business mistakes, frequent flyer, Paris [/tags]

There is no plot, no love story, no car chases. Only one explosion (and you’ve seen that one before). Sounds boring. Why should you see it?
It will captivate you! It’s about your home, why it’s in danger and what you can do about it. And despite being about an impending disaster, it will give you hope.

The trailer is here

Takeaways:

• Learn about the movie and find a theater near you here
• Then see this follow up. It starts off with a stand-up routine that’s surprisingly funny given the comedian, and ends with things you can do to help. But that part won’t make much sense till you’ve seen the movie.

[tags] inconvenient truth, environment, global warming[/tags]

I don’t usually write about big companies because the stuff is not applicable to us small-frys. But, as you may have heard, Bill Gates is leaving the day to day work at Microsoft to devote more time to philantrhopy. It turns out there are some lessons we can use – in large part because Microsoft was a small company recently enough that some of us can remember. Bill Gates and I actually share the same birthday (but he’s a year younger – the whippersnapper).

Here are links to two very interesting article by great writers who’ve been intimate with Microsoft for decades.

Robert Cringely quotes Jeff Angus saying that Microsoft’s management “system” in the 1980′s was basically to guess at unimportant decisions and base important ones on trying to emulate the more powerful people in the organization. Cringely says it’s still the same today.

” Almost nothing operational was written down…The tragedy wasn’t that so many poor decisions got made — as a functional monopoly, Microsoft had the cash flow to insulate itself from the most severe consequences — but that no one cared to track and codify past failures as a way to help managers create guidelines of paths to follow and avoid.”

This prompts the question “How did the company get so big?”

Joel Spolsky shares a very interesting story from when he used to work there, and had to have his work reviewed personally by Bill Gates.

“Bill Gates was amazingly technical. He understood Variants, and COM objects, and IDispatch and why Automation is different than vtables and why this might lead to dual interfaces. He worried about date functions. He didn’t meddle in software if he trusted the people who were working on it, but you couldn’t bullshit him for a minute because he was a programmer.”

Then Joel goes on to imply that technical expertise matters more than managerial ability, and disses “the MBA who believes that management is a generic function.”

I actually have no idea how Microsoft got so big. I think it was a combination of timing; being smart enough to exploit the timing; having a good enough product; great marketing; and being ruthless. But that’s just my opinion. Your company is not going to be that big, and it’s not Microsoft, so how they got that big is not the lesson for you.

The one for you is that management IS an generic function – to a point. And the smaller your company, the sooner you hit that point. But conversely, the larger you want your company to grow, the more you need to systemize (or genericize) management. The three levels of management is one way to systemize it.

Takeaways:

• As a small company you must intimately know your customers, your product and how the two relate.
• If you want the company to grow, that information must not just reside in people’s heads. You need a system to pass it around so good work doesn’t depend on certain individuals being in certain positions.
• “That information” that I referred to is not just information – it’s emotion, relationships, intuition, skills, as well as information. But it still needs to be passed around.

[tags] management, growing company, Microsoft, Bill Gates [/tags]

President Clinton was the keynote speaker at the NAA conference last week. He posed 4 questions to the audience:

1. What is the nature of the world in the 21st century?
2. What should it be?
3. What can be done to make it so?
4. What can each of us do?

The speech was basically a call to think of what we do in light of it’s larger impact on the world.

Being that the NAA is an association of landlords, the concept of using our clout to make buildings more environmentally friendly came up. It made me realize that in 15 years as a member I’ve never heard the NAA address any environmental concerns nor, in fact, any topic that related to our impact on the world at large.

This is typical of business, and it got me wondering why? I think there are two parts to the answer.

1. Living in the Now (aka short sightedness). Business people are very focused on the immediate so they often see investment as expense. That is they look at the immediate consequenses which may be negative, and ignore the future effects which may be so positive they outweight the negatives.

2. Competition. When you have competition, doing something “because it’s right” can put you at a disadvantage cost wise. This can even put you out of business. This is true even when doing “what’s right” would pay off big time in the future. Ironically, the solution to this often involves government regulation to “level the playing field”. Yet business people often see only the short term negatives of any intervention and ignore the long term positives (see reason #1).

I think it’s time for this to change, and companies run by smart people will be able to use this to their advantage. Here are some examples:

Being Green
Is it just a coincidence that the color of the environment is the color of money (at least in the US)? The June 2006 issue of the Harvard Business Review has an article about the profits companies are realizing by building green buildings. It’s available for a limited time here.

Minimum Wage
Henry Ford made history by paying his workers $5 a day (twice the going rate). The reason? Among other things it allowed his workers to afford his cars. No business in history has survived very long without a market. As I write this, the minimum wage in America hasn’t been raised in 10 years. Real wages for most workers have remained flat during that time. Yet expenses haven’t. How much better would your bottom line be if your market had more spendable income?

A few companies are known for providing actual real living wages for even the lowest employees on their totem poles. Costco is one that’s usually cited and it’s kicking Sam’s club’s butt. Starbucks provides health care for all workers – even part timers. The Container Store pays twice the average wage for it’s retail workers and gives them 10 times as much training as the norm.

What do companies like this know that others don’t? That in this environment, providing better pay and benefits allows you to attract (and keep) the best workers. How much is that worth?

Of course to make this work, you have to manage better – not just pay better.

Don’t even get me started on Health Care
It’s ridiculous that America spends more on health care (as a percent of GDP) than any other industrial country and ranks 32nd in the health of it’s citizens. How much more profitable would you be if your employees were healthier? What if your customers were healthier? Does it really make sense that people stay in jobs they hate because they can’t get health insurance if they move? Does it make a level playing field that GM has $1500 of health care costs in every car and Toyota has $110?

Why has business been so reluctant to demand an overhaul of the system?

Oil
We knew back in the 1970′s that our dependance on oil was a problem. Jimmy Carter proposed funding research into alternative fuels. But we didn’t follow through. 30 years later we’re paying for it. And not just at the pump, we’re paying with the environment and with the power that oil money has given to countries and even terrorists who aren’t exactly friendly.

Doesn’t it make sense that American inginuity that put people on the moon, could be harnessed to solve a problem like this? And in the process we would be creating high paying jobs, and new technologies we could export to the world.

Takeaways:

• Often what I’m talking about means making a bigger pie rather than fighting for a bigger piece.
• Some changes require governmental action – that should not be anathama to serious business people – only to the short sighted ones.
• Don’t be so short sighted you eat your seed corn.

[tags]Bill Clinton, President Clinton, NAA, Oil, Environment, Minimum Wage, Business, selfish [/tags]

Innovation is the sexier of the two. The cool ideas and “why didn’t I think of that?” make it seem easy. But it’s not.

Execution (though hard) is actually the easier of the two. But it’s boring. Tedious rather, and it takes discipline. These are things we didn’t like about school. But execution works. And anyone can do it. It’s also the more important of the two. Innovation without execution is just a nifty pod-cast before you go belly up. Execution without innovation is the kind of company that makes a “Millionaire Next Door“.

That’s why most of my writing is about execution (and also probably why I’m not the hottest blogger around). But today we’ll take a look at innovation.

I’ve not written in a while because I’ve been away at the NAA conference where there was (with two exceptions) ZERO innovation. One was a product I’ll mention below. The other was an innovative presentation (about execution of all things!) given by a couple of fighter pilots who are part of The AfterBurners.

Innovation comes in two flavors. One is the consistent, tiny changes that go unnoticed. They are actually a part of great execution. The other is the mind-bending, out of the box idea that rocks your world. It used to be called paradigm-shifting. Here are two examples of the latter:

Mobile-Shop exhibited for the third year in a row at NAA – but this year, for the first time they production ramped up so you could actually buy their product. [Full disclosure, I own a very tiny piece of the company] Their idea is that a person working with tools is paid to work, not walk around getting the tools they need (or forgot). And that people who work with tools feel better, and work better when they have the best tools to work with. Until now there’s not been a way for companies to provide the best tools to their technicians in a way that makes it easy for the workers to always have everything they need on hand (less walking, more working) and that provides simple accountability.

Their motto is “Changing the way the world works” but I told them it should be “You Know You Want One” because that’s the reaction from everyone who sees a unit. I saw that reaction when I was with them last Monday in NY when they won the Stevie Award for most innovative new product. One woman wanted to buy one for a father’s day gift. More at www.Mobile-Shop.com
Igglo (a Finnish company) provides a way to show interest in buying a home that’s not yet for sale. They’ve photographed every building in Helsinki (more cities to follow) and provided pictures, maps and such for every one – not just those who are on the market. Buyer’s can earmark a street or area you’re interested in and even post offers on line, You can get a message when a property you like comes up for sale. And for property owners – wouldn’t you like to know who want’s your property and how much they’ll pay – even if it’s not on the market?

Then when supply meets demand, Igglo can connect buyer’s and sellers for less than normal real estate commission because the hard work is already done.
More Here.

My point about both these businesses is that the innovation is a whole new way of looking at something – and building a company around it. If you’re like me you feel a combination of excitement (How cool is that!) and remorse (Why can’t I come up with something like that?) when you see this kind of innovation.

Don’t worry – there’s always execution.

I just posted  Everything I know about Business all in one place.

I know you don’t run a public company, but you can learn some things from this situation. Before the memory fades, here are some lessons that entrepreneurs can take away.

Don’t invest where you work.

Enron employees who did this got creamed. My financial advisor won’t even put people into stocks in the same industry as their job because if that industry goes south then why risk your job and your nest egg? But many entrepreneurs have most of their life savings in their company. Big mistake. Even Bill Gates sells off Microsoft. He divests 1% of his holdings per quarter no matter what. You should diversify as well.

Never blame THEM.

The defense of Ken Lay and Jeff Skilling rested on the premise that they didn’t cause Enron to collapse. Rather the debacle was the fault of journalists, short sellers and market analysts. But what’s worse, is that according to some reporters who watched the trial it’s possible the two actually believed this themselves. This is often called CEO Disease – where you start believing your own BS.

I’m not saying your business doesn’t suffer because of things beyond your control. What I’m saying is a healthy CEO will always be able separate what is under her control and what is not. When things go haywire, you have to look first at what you did or didn’t do to contribute to the problem and secondly what caused you to act that way. Then change what you can control. (If too much is going against you and it really is not under your control. Get out. Quick.) Don’t just sit there and blame “them”.

Don’t inflate your numbers or get too optimistic – even to yourself.

When a company like Enron needs to suck up to Wall Street they do it by inflating earnings. There are two parts to this. One, they minimize expenses and two they account for sales that aren’t really sales. I’m not suggesting that entrepreneurs do this in a criminal way. But it’s human nature to take comfort in rosy projections.

For example, you might figure out a way to meet this month’s bills and put off thinking of next month till later. Or you might be counting on sales that might materialize (but might not) or expect customers to pay you sooner than is likely. This will not solve your problems. At best it will just put them off, but it could make them worse.

Takeaways:

• Andy Grove (of Intel) said famously “Only the paranoid survive.” There are many ways to interpret this quote. I like to assume it means that I should be most suspicious of my own understanding of a situation. I try to second guess myself constantly to see if I could be assuming a “truth” that isn’t right.
• When it comes to projections, be conservative. Be Very Conservative.
• Expect the best but plan for the worst. You want all your surprises to be positive.

A system is a set of parts which accomplish something by relating to one other. Drive a bolt through a pair of blades and the three parts form a system we call scissors. As a scissors they’re more than two blades and bolt. Systems have meaning beyond their parts.

What does a business system look like?

• It’s designed to produce a result – so it includes a description of the result.
• It has some instructions or rules about what steps to perform in what order to produce the result.
• It is repeatable and scalable and you can teach it to others.
• There are about 50 systems each company needs to some degree. The good news is you’re probably doing most of them already.

What if you don’t have systems?
Then you depend on really good people who “get it.” You’ve probably got a few people like that. The most frustrating thing for entrepreneurs is how hard it is to find good people who get it. It’s usually easier to systemize than to find more of them. Plus when you don’t have systems, the good people can’t move up as the company grows – so you’re kind of stuck.

Why don’t more companies systemize?
The first reason is they don’t know how. No one’s ever taught them about it. It’s not really that hard, though it does take some tedious work at the start before you see the benefits. But boy is it worth it.

The second reason is they don’t think it will work because of all the exceptions and special cases that happen in their company. I think these special cases are what makes a small company strong. I agree if you had to make everything routine, then systemizing would do more harm than good. But systemizing the right way will take those special cases into account. The result is the right people will do the right things a lot more effectively.

Examples:
I know of a small law firm with 6 attorneys who were partners. Each day they spent an hour dividing up the mail. That’s 30 hours a week, 1,500 per year that they weren’t able to bill for. Once they were able to define some rules about where the mail should go they could off-load that job to an administrative person. They key is that they defined the exceptions that in certain cases the admin couldn’t make the decision and had to show it to a partner. Also when the partners first looked at their mail, they looked for exceptions that had slipped through – if they found one they either dealt with it or dealt with in and made a change to the rules. This increased their billable hours by much more than it cost for that admin position.

I know of a publishing company that sold ad space in a directory. The two owners were the main sales people and they used to cut so many special deals that they cut all the invoices themselves. They felt no system could handle it. To systemize, they made a list called The A List. It included names of all the customers who’d gotten a special deal. It wasn’t as long as they thought. The bookkeeper was instructed to cut invoices in the normal way for everyone who wasn’t on the A list. Of course they also had to define what “the normal way” was. That helped a lot. Then the owners would spend time only on invoices for the A-list people. Only the two partners were allowed to put someone on the A list or take someone off. The result? They spent less time on invoices AND since they trusted the system more, they were able to make fewer special deals and still keep customer happy.

Some systems are more complicated than these, but a great many are not.

Takeaways:

• Systems allow your company to grow.
• They make it easier to hire, train and cross-train people.
• The 50 systems I mentioned? The fall into 4 result areas: Owners, Customers, The Company and the Future. Start with the area that’s giving you the most frustration. Get your best people together and design a system.
• It won’t work right the first time. Keep making changes. When it clicks, you’ll never go back.
• Managment’s primary job is to design systems