The Founding Entrepreneurs

I have been listening to the cast recording of Hamilton quite a bit over the last two months and decided to read a biography on George Washington to better fill in my understanding of the time period. I’m now up to George Washington in his first year of the presidency. It’s amazing how similar the issues faced by the Founding Fathers are to those faced by entrepreneurs and businesses today (albeit with fewer armed conflicts).

First, the population of the US in the 1780s was only between 3 and 4 million people. New York was not the most populous city in the country. Leaders were usually not pure political figures but were made by their written words or actions (it also usually required significant wealth to enter the conversation).

Now imagine the development of the US Constitution and the first years of the new government. It’s basically the story of the small business of America becoming a well-run organization. There were many, many, many ways that the organization could have failed. In fact, it was more likely it would fail than succeed – just like so many businesses.

The early leaders in the new government were essentially tasked with building their own businesses. Alexander Hamilton’s Treasury Department was the largest branch of the government in the early days. Thomas Jefferson in the State Department had to develop new policies for everything along with protocols. President Washington had to spend significant time just helping determine the proper way to address the person in his role (the early Senate recommendation still included “His Highness”).

The federal government also faced stiff competition from state governments that thought they held the highest standing. Nothing came easy and there was no blueprint for success. Facebook at least had MySpace to see what to do/not do.

Pop business theory is all well and good but if you really want to read about a true blue ocean strategy, read about the achievements of the Founding Fathers. It’s good for mapping their experience onto your own but also for better appreciating what we really have today. Well established institutions can survive for many reasons and the federal government in its early days established a very effective path to creating long-term sustainability. Not everything is perfectly applicable but more is than I ever expected.

Thinking Moneyball in CRE

Moneyball is one of my favorite books about business operations. When you exist in a highly competitive environment it is in your best interests to think about the landscape differently than your competition. You need to find an advantage that you can leverage that no one else is focused on.

There are few spaces as competitive (with as many competitors) as CRE. Every building is competing with every other for tenants. Every business is trying to attract customers. Every company is trying to recruit the same talent. Time is an enemy for everyone.

It can be easy to fall into the same mindset of everyone else and compete on finances and physical building characteristics. It can be easy to think that the money is all the matters since so much of CRE ultimately comes back to the almighty dollar.

But CRE is fundamentally about business operations. Without companies that need your space to work from, your buildings lose value very, very quickly. Without retail customers that want a brick and mortar store to go to, your corner property suddenly looks less attractive. If you know what fundamentally makes your business successful you can target it when others aren’t.

And no, your fundamentals are not made successful by “cars that drive by every hour” or “pedestrian access” or “distance from the freeway”. Those all sound good, are easily measured and can be used to justify high rents but they don’t make a business successful. Think of all that store/restaurant/bar in the middle of nowhere that you are willing to drive 45 minutes to get to with nothing else around because it is the best. If they can make you drive 45, a good business can get you to go 5 out of your way.

What makes you successful are the right people (the good ones won’t care about your address but will care how you build out their space). What makes you successful is a product that appeals to people. What makes you successful is an attitude to please your customers no matter what. What makes you successful is a single-mindedness to ensure every part of your business is actually focused on your business.

Is this Apple’s Steve Ballmer moment?

Steve Ballmer famously once said about the iPhone:

There’s no chance that the iPhone is going to get any significant market share. No chance. It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60 percent or 70 percent or 80 percent of them, than I would to have 2 percent or 3 percent, which is what Apple might get.

His forecast couldn’t have been more wrong.

Now we get to see Apple returning the favor after Microsoft’s new Surface Book was released:

From the ergonomic standpoint we have studied this pretty extensively and we believe that on a desktop scenario where you have a fixed keyboard, having to reach up to do touch interfaces is uncomfortable. iOS from its start has been designed as a multi-touch experience — you don’t have the things you have in a mouse-driven interface, like a cursor to move around, or teeny little ‘close’ boxes that you can’t hit with your finger.

There’s a chance that this may turn out to be true.  But the essence of the quote is no different than Ballmer’s. It’s a straight dismissal of an idea simply because it doesn’t match the current business model of the company.  Business models need to change over time.

Is this where Apple begins to start stumbling?

Infrastructure matters which is why competition is important.

There are 54 countries with faster mobile internet speeds than the US (4G LTE) according to an article over at Quartz.  The list of countries with faster internet than the US include:

  • New Zealand (3.6x faster)
  • Romania
  • Hungary
  • Greece (economic health isn’t a leading indicator of infrastructure quality apparently)
  • Canada (by 80%)
  • Lithuania
  • Sri Lanka

Yet still people argue that the existing US competitive environment for telecommunications is acceptable.  There is no way that it should be considered acceptable.  CRE fundamentals are rooted in business fundamentals.  Businesses like to operate in business friendly environs of which a significant component of is infrastructure.

But it’s okay, let’s let existing companies not follow net neutrality so that they can charge the traffic from both ends and find another reason to not upgrade their networks and compete on true quality.  Just don’t be surprised when a little ways down the road our economy slowly begins to bleed as we lose economic battles to other countries that actually foster and invest in their critical infrastructure.

True statement of the day – ‘Only the paranoid survive.’

I read the MMQB with Peter King every Monday during football season.  It’s something where I find an interesting mix of reporting, forecasting, off-topic-but-not-really factoids and other stuff.  Today’s issue brought the quote that you see in the headline:

Only the paranoid survive.

This is one of those off-topic-but-not-really factoids.  It came during an interview about the NFL considering putting an internet package of games together and selling it through someone like Google or Facebook.

It’s such a great quote because it nails everything that is true about business.  There’s a saying that it’s not paranoia if someone is actually out to get you.  In business there is always someone out to get you.

The paranoid are the companies that don’t get disrupted.  The paranoid are the ones who know who their real competition are.  The paranoid are thinking about why their customers are about to leave them and not how to simply shake another dollar out of them.

Two ways of thinking about high volume, low margin customers.

I love reading about the broadband industry these days.  Articles about how Comcast and Time Warner Cable are pushing for home broadband caps just tickle me to death.  This gets me to thinking about how you treat your highest volume but lowest margin customers (because that’s what high data users are to Comcast, et al).

1.  Treat them as if they are a burden that you don’t want to support.

This is the Comcast way.  High usage customers are a drain on their rightful profits and should be forced to change their behavior or simply pay more.  Why can’t every customer who uses broadband internet simply check their email 3 times a day and nothing more?  Margins would go WAY up!

2.  Treat them as if they are your future.

This is the Facebook way.  Treat your biggest users as if they are the future of your company and your job is to keep them happiest.  It costs Facebook WAY more money to support their addicts that post 10k times a day but you don’t see them complaining.  These are the evangelists, the ones that bring in other users, the ones that give the company an idea on where they should be innovating.

So given these two ways, why don’t Comcast and many other businesses like them go down route 2?

Route 2 is hard.  It involves structuring your company to think about the future and not the past.  It involves sacrificing some profits and margin today for bigger profits and margins tomorrow.  Route 2 involves partnering with your customers and not just treating them as currency transferers.  Their money does not rightly belong to you, you must earn it.

Route 1 is easy to fall into.  Even the best companies in the world get caught up in it – even innovative goliaths like Apple.  Until they released the iPhone 6 they resolutely refused to serve customers desiring a larger phone screen.  It took years for them to finally cave and move back to Route 2.

Wall Street and Executive Compensation is part of the problem.  Short term profits and revenues are valued above and beyond the 5 year plan – whether business is currently good or bad; whether trends are currently in your favor or not.  Amazon, Google, and Apple have figured out that long-term views can pay off – even on Wall Street – but you have to train investors to think differently about your company.  It’s very hard.

But hard is not an excuse any consumer should accept because a company they do business with doesn’t think they are a profitable enough transaction.

How does #workplace relate to business strategy?

Theoretically your office should reflect your business strategy.

If you are a high tech, development organization your workplace should reflect teaming space as well as heads down comfortable work zones where developers can hide for days on end.  It’s a weird mix.

If you are a law firm your space might reflect the prestige of individual partners and attorneys while giving clients a sense of confidence and stability.  There will likely be lots of high quality offices and well thought out conference rooms.

If you are a professional services firm you may not need real estate at all because you’ve adopted alternative workplace strategies to the point that you no longer need space at all.

But then again, you may be one of the above types of firms and not want the “classic” space design at all (particularly if you are trying to differentiate).  Workplace and business strategy go hand-in-hand.  It isn’t possible to have a highly innovative and collaborative business strategy yet have a high percentage of high end private offices.  The two items are incompatible.

Workplace is the first representation of your business vision.  Workplace is to your employees what your website is to your customers.  It’s how they know your intentions and goals for them.  It tells them whether they should sit quietly in their office or if they should be out socializing and collaborating with colleagues.