The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It
Blue Ocean Strategy: How To Create Uncontested Market Space And Make The Competition Irrelevant
The Know-It-All: One Man’s Humble Quest to Become the Smartest Person in the World
One of our great legal minds lives right here in Chicago. I have read, listened to and appreciated Judge Richard Posner for a while now. But every so often, even the brightest of us can get a brain fart. Such was the case with this blog post by Judge Posner.
Judge Posner has advocated the outlawing of linking to and summarizing of newspaper articles in order to save the newspaper industry. But the whole purpose of the internet was to bring the world’s information to people in a usable fashion. Linking is key to that. I couldn’t even write this blog post with the information needed to provide the reader with context without linking. Rather than the newspapers figuring out how best to react to the new world of media, they are looking to find ways to make it illegal to compete with them.
The state of the traditional media in our world is deteriorating quickly. Publishing companies are in bankruptcy. Newspapers have stopped printing in Minneapolis, Seattle, Baltimore, Albuquerque and Cincinnati. The newspaper people are doing everything in their power to become more relevant to the masses, as are television news, cable and radio. But it is too late.
Too many people are getting their news from the internet. So, that is the problem. The difference is that the internet experience to getting news is two way and customized. There can be discussions (ok, a lot of flamewars too) on stories. Citizen journalists can add to the story by providing photographs or video. Through the use of Twitter and email, stories are told in a much more immediate fashion. Stories get traction because people link to them. That is the way of the internet. Links are king.
Following up on Judge Posner’s blog post, Connie Schultz of the Cleveland Plain Dealer talks about changing US Copyright Law to allow newspapers to own their content for 24 hours, during which time no one else could link to the story. She has a First Amendment attorney to back her up. If this isn’t a violation of the First Amendment, I am not sure what is.
Jeff Jarvis writes a blog post about it today. Check out the comments to see the variety of positions taken and how our view of the issue is enhanced, not by the self-serving traditional media company, but by the interaction with two way dialogue.
Finally, Andy Sernovitz reminded me of the Charles Darwin quote that is applicable here:
It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change. – Charles Darwin
Please, please, please don’t mess with my First Amendment rights.
There are so many great one line catchphrases that have come to us from cartoons. But one of my favorites is from Popeye — I yam what I yam, and that’s all that I yam. One of the things that I have learned over the years is that you have to know what you are, what your strengths are and look to enhance them, rather than look at trying to solve every weakness.
In business too, we seem this same dynamic. Too many successful companies are looking for the newest thing when they have a good thing right in their own companies.
In Chicago, WGN Radio is a powerhouse. It has a 50,000 watt transmitter that allows its signal to be heard in 37 states. It is always in the top 2 in terms of market revenue. If you asked anyone in the city what the demographic of the radio station’s listener was, they would know: it was an older, white, mixed politically, educationally advanced audience. The station was a throwback to old times. The announcers still read commercials live. It had personalities who were engaging and a devoted audience for those personalities. The station had the ability to do indepth shows on topics that others could not. In short, it held its own place as a unique place on the radio dial. But then Sam Zell bought the Tribune Company and with it, WGN Radio. In short order, their morning drive time host retired. This was not a surprise — the host had planned his retirement for over 6 months. Management named one of their afternoon hosts as the new morning host. After 6 months, they moved him into a spot that they created by firing the hosts of a unique morning show directed at women that had been on the air for 20 years and had a hugely loyal following. In the meantime, they fired the hosts of unique shows that focused on money, pets and gardening and replaced them with what the rest of the world sees in talk radio – bigoted, loudmouthed talk radio guys. I am convinced that although WGN had a good thing going with their market, the moves that they made will make them a middle of the road player. By going after the coveted demographic segment (men 25-45), they will be indistinguishable from all of the other stations out there. The latest numbers are not in, but my prediction is that they will be trending in the wrong direction.
Consumers are looking for what you can bring to the table. They like knowing who you are and what you can do for them. Bring them something different, but don’t bring something different to an audience that is not yours. Don’t be like everyone else. Know what you are and bring it – better, faster, cheaper – but bring it.
How many times have you made the statement to yourself (or to your significant other) “Man, they just don’t get it.”? Maybe it’s because I am getting older, but it seems like those “Get off my lawn!” moments are happening more and more frequently to me. Let me give you a couple of examples from this week.
I read an article from Slate today about the plight of airline pilots, written from the point of view of a airline pilot. In this rant, he blames the consumer for looking for $99 fares causing airline executives to: look for less experienced (cheaper) pilots, for diverting flights from big planes to commuter jets, for the decrease in pilot pay and even for the company not providing the pilots with free food.
We all know that the airline business is a tough one to be in. It has been estimated that the US airline industry in all of its years of operation has not posted a cumulative profit. Be that as it may, the pilots for a long time ruled the roost. Their unions have provided the most senior of these pilots with salaries well into the 6 digits. The author of the article talks about new pilots making “welfare wages”. In fact, first year pilots make in the low $30K range across many of the major carriers. Not big bucks, but it is based on a half time flying schedule. They are limited by Federal Law (FAR 121.481) to a maximum of 1000 hours flying time per year, which is considered half time in my book. Yes, they have to get to the job, but so do a lot of commuters. I don’t know about you, but $32K is not welfare wages. In fact, it is right at the median for wages across the whole US. The picture changes as the pilot gets more experience. With the larger carriers, within 3 years, the salary will double or almost triple. With the regional airlines, the initial salaries are lower and the rate of increase is also lower. The pilots’ union for these carriers have had less success in negotiating the higher salaries than their brethren at the majors.
The author claims that safety is compromised by hiring younger, less experienced pilots at the regional airlines. These pilots must meet the same qualifications, mandated by the FAA, as at the bigger carriers. His conclusion that the safety of passengers is threatened has not been verified by the actual events. Flying in a commercial jet (of any size) is safer than most other modes of transportation.
But the most laughable point was that despite flying a full day, the pilots were not given free food. Now, other than Google (and a few other non-traditional companies), where else do you, as an employee, expect to be fed while on the job? Heck, even at Burger King, employees are not given free food, only discounted meals. Get off my lawn!
Well, let’s see… I haven’t talked about health care in about 12 hours, so let’s hit that one as well…
The AMA, Big Insurance and Big Pharma are against any major reformation of health care in our country. And why not. They are all making a ton of money at our expense. I read an article by Abraham Verghese in the Wall Street Journal about the health care debacle from a doctor’s perspective. In his article, he decries preventive medicine and electronic medical records (EMR) as not helping to solve the problems of our age. In my opinion, both preventive medicine and EMR provide critical advantages to our populace. Preventive medicine will allow doctors to get more information on the tracking of conditions. This will provide the benefit to aggressively treat a risk factor and hopefully shortcut the critical issues that cost the most amount of money. If the doctor was tracking the coronary heart disease over a period of time, the doctor and the patient together could plan for a treatment that was gradual and effective, rather than waiting for the heart attack and then starting treatment. From both the cost standpoint and the quality of life standpoint, the patient would be in a better position. EMR, if implemented correctly, will allow doctors to have the wisdom of the crowds to gather information on conditions and how others have successfully treated them, in much closer to real time. Today we wait for articles to appear in medical journals to get our information. We can and must do a better job here. Dr. Varghese, you just don’t get it. The world has changed and the medical community needs to change as well.
So, the former Labor Secretary, Robert Reich writes regarding the health care crisis that the only way that we will get out of this mess is to look to cost containment, or even cost reduction. Those doctors, hospitals, insurance companies, drug companies and their friends will need to reduce the costs of providing their products and services. The best way to do that is through the free market system and a mandate from the government to implement changes in our medical systems. President Obama needs to have a strong hand and force the issue.
Earlier this week I posted about the health care mess and talked about some of the causes. In thinking about this a bit more, I feel the need to expand upon one particular group of participants. Over time I may go over some of the others, but for right now, my ire is with the health insurance industry.
These are presented as separate musings, all related to the same topic.
Insurance is a funny thing. Many people believe that insurance should cover all medical costs. In my world view, this is playing with OPM – Other People’s Money. If the insurance policy will pay for everything, where is my responsibility to evaluate the costs and benefits of my health care needs? I firmly believe in high deductible medical policies — where the insured pays for the regular charges and uses the insurance to cover the risk of a costly medical event. In this way, you can determine if you should go to the emergency room with that sprained ankle or whether it is better to wait to go to an urgent care center where the costs are less. You need to take control of your health care and the best way to do that is through the lens of your wallet.
I read an interesting article from Nate Silver, from fivethirtyeight.com, the statistical blogger who correctly predicted the last presidential race. He talks about a George Will opinion article that describes the President’s wish to include a public insurance option as a folly. Nate (and I) believe that the addition of a public option will provide some competition to the ingrained insurance cabals.
One of George’s thoughts is that the government can undercut the insurance companies because it does not need to make a profit. Nate brought a good point to the discussion – the fact that profits are not earned by providing better service, just by adding additional people to the pool. Therefore, the government can provide serious competition to the insurance companies. Last year, Aetna earned $1.3B in profits, UnitedHealthCare returned $2.977B and CIGNA had a bad year, only $297M in profits down from $1.1B the prior year. We should not cry for these companies; we need to ask how they are going to help us address the health care crisis in our country.
In any case, the logic that the insurance companies use is flawed. For example, let’s say that someone has an insurance policy through an employer. No problem, the insurance company takes a history but, in general, accepts everyone in the group. All is fine until the employee loses his job. Not a big deal, because there is COBRA, which allows the employee to continue coverage, by paying the entire premium. Now, this is only the law for companies that have 20 or more employees, but let’s not pick on details. So, the former employee is now paying the full premium, but is covered under the same terms and conditions as when he was employed. But COBRA runs out 18 months (yes, there are some exceptions and temporary extensions, but bear with me…). At this point, former employee needs to get other insurance. Hopefully he will have gotten a new job that include health insurance benefits. But let’s take the story one more step. He is unable to get a new job. He tries to get an individual policy that will cover his insurance needs. So, he goes back to the company that provided his insurance coverage while he was employed and during his COBRA period. Note that nothing has changed: same company, same person, same health experience, no health changes. The company denies him insurance because of a medical issue. They claim that his risk is too high. But nothing has changed! The risk is the same as when he was employed. The insurance company claims that because the group is now small (1), they have different underwriting standards. Instead of looking at their entire pool of policyholders, they focus on the risks associated with a single participant, which negates all of the reasons for having insurance in the first place.
There are many problems with the insurance system today. George Will elaborated on some of them. OPM even raises its head here because a significant portion of the employee’s insurance premium is paid for by the company with tax deductable dollars. But as Nate Silver so adeptly points out, you can’t just start up a health insurance company anymore. The only entity that has the ability to do so is the Federal Government and I sure would like to see some innovation that might be spurred on by new competition.
The one thing that the general public doesn’t have that all of the other constituencies have is a lobbyist. The doctors and the AMA have one. The insurance companies have one. Big Pharma has one. The hospitals have them. Right now, the President has the responsibility for lobbying for the general public. He has claimed that he wants bipartisan support for health care reform, but it is clear that the only way to get both parties to agree is to have no real change. President Obama needs to use his bully pulpit and put together a program that will work to reform healthcare, despite the opposition party and the lobbyists. This is his opportunity to put his stamp on ensuring the future of the American health care system.
The thing about this health care crisis is that no one is going to come out of this with the status quo. Each constituent is going to have to make a change: it could be to their process, procedures, reimbursement, staffing, equipment, expectations etc. The insurance companies need to take the initiative to strive for new ways of doing business so that they have some say in how it all comes out. Otherwise, they might just be forced by competition from the government and by force of law to react to a very different world view.
Big Picture: And small differences. The Washington Post op-ed today talks about statistical evidence that indicates that we should believe that the election numbers in Iran were fudged. Interesting conclusions.
Business: One of the internet’s success stories has to be Amazon.com. What a lot of people don’t realize is that there is a lot going on at Amazon behind the scenes to ensure that you as a consumer get the right information to buy the right products. And how they make money was an eye opener to me. This is one case where the answer to how can you sell products at a loss can truly be Volume!
Entrepreneurship: On the other side of the coin, Clear has stopped doing business. Joel writes about the lack of a change in business model that helped cause the failure of this company.
I read an interesting article on health care that debunks many of the commonly stated reasons for our health care crisis in this country. It seems that we don’t have more hospital beds, doctors or CT Scanners than the rest of the world. Malpractice insurance and tort reform are a problem, but not a huge problem. Why in the world are we spending 2.4 times the amount of money per capita and 70% more as a percent of GDP than the rest of the world on our health care system?
My quick answer is OPM – Other People’s Money. Just like its homonym, OPM (opium) is a narcotic that can induce people to misuse it.
Lets take a few examples and see where this leads. Insurance companies pay the bulk of the medical bills in this country. In most cases, they negotiate with providers (hospitals, physicians, etc.) to pay from a price list. That is, even though a hospital may charge $1000 for a procedure, the insurance company has negotiated a rate of $600 and will pay that $600 to the hospital. The hospital writes off the $400 negotiated credit. But what happens if you don’t have insurance… You will be billed $1000 and be expected to pay that. The hospital is not taking a loss at $600, but there is no incentive for them to accurately price their services. In fact, they may not even know their true costs to offer services. That to me, as a business and numbers guy, is truly scary.
The patient, in most cases, has insurance. Do most patients shop around for services based on cost? Actually, most people pay more attention to the pricing of their cell phone plan or auto body repair than they do for health care. Why is this? OPM. They know that their insurance company will pay according to the terms of their policy and this gives them the freedom to be blind and dumb when it comes to their healthcare. Do whatever the doctor recommends, no matter the cost. This has the additional unfortunate side effect of people not having the data to accurately determine the competence of their health care provider. If you are not going to check on price, you probably aren’t going to see if the doctor or hospital has significant experience and positive results with your type of condition.
Ah, then, the answer is to get the insurance companies involved. Well, not so fast. The insurance companies by definition, assess and reduce risk. The usual answer is that they do this by combining risk for many people to reduce the harm that an individual’s loss could cause. In auto insurance and home insurance, they do this pretty well. In health insurance, unless you are part of a huge group, say a Fortune 1000 company, insurance companies will weed out anyone who shows even a glimmer of a future problem, either through direct denial or increased rates. Rather than look at their entire portfolio of insureds and combine risks, they focus on the micro level of each individual subscriber. But the only data that they have is based upon doctor records. So, if you know you are sick but haven’t been to a doctor, you are more likely to get insurance coverage than if you have been doing the preventive medicine routine with regular checkups and preemptive care. Totally backwards, but somehow it makes sense to the insurance companies.
Well, then the problem must be solved by the doctors. Again, OPM raises its ugly head. Doctors also buy insurance — in their case it is malpractice insurance. They are scared senseless by the threat of huge lawsuits, so they overtest. Sure don’t want to be that guy who gets asked “Why didn’t you order an MRI to determine for sure the extent of the problem?” on the witness stand. All of this testing costs money and the patients, in general, don’t make a fuss — if the doctor requests it, it must be the right thing. This leads into a long discussion about tort reform, another OPM — insurance companies paying off litigants and their attorneys, but I am not going to go there. The thing about overtesting is that the doctors have wised up. They have seen the amounts of money going to testing, imaging and minor surgical procedures. They too are taking advantage of the OPM gravy train by starting up centers to do imaging, diagnostic testing and minor surgery. They can then take a piece out of the insurance dollars on both sides of the transaction. There is nothing in the AMA charter that disallows this practice. Does it equal more unnecessary tests? You would have to think so.
Solving the health care crisis is not solving a simple problem. It will require many small steps to help to corral the runaway train that is OPM. But nothing is more important to the future of our country than the process of reining in health care costs and improving medical outcomes. We as a country need to step back and say that we didn’t have the optimal solution and look at how other countries have attacked the problem to help us find our right path.
Follow-Up: Last week I wrote about Technological Innovation, where I talked about Microsoft’s introduction of the search engine Bing. I was interested in seeing how the world reacted to Bing after the introduction. Microsoft has chosen to push shopping and decision making as the key aspects of Bing’s success. The screens are colorful and the sample searches that I completed were fine. The media has generally been pretty favorable to Bing’s introduction. But you can make your own determination with a visit to a site called Blind Search which will compare your search results through the use of Google, Bing and Yahoo.
Microsoft has also made good on its promise to advertise the heck out of Bing. There are banner ads, newspaper ads, television ads, keyword ads, blog post ads and even, dare I say it, Google AdWords. They have increased their influence on buyers with the Bing Cashback program which like a combination of the Google Checkout program and the Discovercard’s Cashback program.
Google is not taking their leading market position for granted. It is interesting to me is that Google has started to ramp up their advertising engine for the first time. Both adwords and blog ads have become much more prevalent. For a time, Google even changed their normally sparse home page to include a link to Explore Google Search to help people understand the wealth of options that Google provides for finding stuff.
In the early weeks of June, since the introduction of Bing, Microsoft’s share of the search market has grown a bit. Much of this can be attributed to searchers taking Bing out for a test ride. The real question wil be whether people continue to utilize Bing or if the honeymoon ends as people go back to their first loves.
Being an entrepreneur is not an easy job. There are so many things that pull at you to spend time and effort and energy to address. How do you make sense of what is important?
Well, other entrepreneurs have taken it upon themselves to try to help you by building productivity systems. People like David Allen, who created the Getting Things Done process or Stephen Covey who created a system around his book, The Seven Habits of Highly Effective People. Other systems break things down into categories of Urgent/Not Urgent and Important/Not Important. There are many people who swear by these systems as they try to find ways to manage the complexity of their work (and personal) lives. But in the end, you have to find out what works for you. And in many cases, you don’t need a system.
I bring this all up because I have had several conversations lately with entrepreneurs that addressed this very topic, although I don’t think they thought of it in this way. Most entrepreneurs feel like they have to do everything. I wrote about this in my column last week about Superheroes. It is a fallacy. You have to look at where you can provide the highest value to your business at that particular point in time. The area will change over time, as you get smarter, more experienced, more valuable in your company and as your company changes. But you need to make that evaluation every week (at least).
As an example, I know an entrepreneur who, before he started his business, was a top salesman. Loved living the rough and tumble world of no-base pay, just full bore commissions. And he did it for years, attaining recognition as a top salesman and big bucks. Now he is in charge of building his own company. What he needs to do is to sell. What he is doing is taking care of the details of the business. He is doing a fine job of it, but in reality he is the best one to sell his product and service to prospects. But, it seems, he looks at it as beneath him, not presidential and therefore tries to manage a salesman rather than sell. His highest and best usage of time and energy is to utilize the skills he learned earlier in his career to sell his product. At this point in time, he should be the face of the business and help to build a sales team through example, not management. When that is working to his satisfaction, he can find other projects where the value is highest for him to participate.
Look around you to ensure that you have the highest value discussion frequently. Sometimes you are so in the midst of running and building your company that you can’t determine which side is up, much less where your skills could best be used. Take an opportunity to discuss it with someone you can trust who is outside of the maelstrom: a partner, a board member, a mentor, a business friend. Find ways to utilize your strengths and help (delegate to?) others to utilize their strengths in order to benefit the business.
Behind the Scenes: Sometimes the government does it right. A couple of stories from the past several weeks have shown that our government does not necessarily have a tin ear when it comes to public opinion. First the story about President Obama writing a note to excuse a student, who was attending a Presidential speech, from class. Some of the people that I have talked to think that President Obama was being a smartass, but I believe that he took the time to talk one-on-one with a student in a very real and meaningful way. Another story was the US Navy allowing a group of top bloggers, including Robert Scoble and Guy Kawasaki to spend 24 hours on the USS Nimitz, an aircraft carrier. These bloggers were able to tell a story of the servicemen and servicewomen who work on our behalf and provide a very interesting group of reports including photos, podcasts and videos.
Entrepreneurship: Inc. Magazine wrote a nice piece on Paul Graham, founder of Y Combinator. When I grow up, I want to be like Paul.
Thought for the Day:
My life is not adrift. There is no road map, but there is a horizon that I am moving towards. That horizon is broad, but it is informed by what I believe… The keel to your boat needs to be to your values, your principles, your beliefs and some sense of purpose, but that needs to be aimed at a horizon, not a point of latitude and longitude, because that point may turn out to be irrevelant.
– Randy Komisar
Behind the Scenes: The cloud in cloud computing requires extensive data centers. Most of us don’t think about the infrastructure of how Google can get search results to your desktop in 0.15 seconds multiplied by millions of users every minute.
Economics: Alex discusses idiot taxes and the price of HDMI cables. I have been surprised by the same phenomenon with regard to Apple iPod chargers and headphones. Deals can be found online sometimes, but almost never in retail stores. Why is that?
Big Picture: Innovation is a hot topic in business circles for a while now. Jeff Jarvis writes thoughtfully about how the innovations of the last few years have acted differently from innovations in prior years. Previously, business innovations created increases in GDP, things like the Personal Computer and the ShamWow that consumers bought and companies derived income from. Lately, some of the most important innovations, Craigslist and Google included, reduced corporate income (macro), but increased personal wealth (micro). This is critical because reporting on our economic progress have been focused on macro trends for many years. We need to develop alternative measures to accurately report on our progress.