Failure isn’t really failure unless nothing is learned.

Learning from it means that you need to look at it differently.

Few individuals or companies enjoy dwelling on what they consider failures; most pick themselves up and move forward; the strongest dissect what went wrong.

They take the time to decompose the thoughts and actions that didn’t work and document them in a ‘lessons learned’ report.

Good so far.

But what happens to the report? Is it neatly filed with the project information or under another heading?

Investing effort in lessons learned reports only to file them makes it more likely that the errors will be repeated again in the future.

And that is frequently the case.

Instead, if the goal is to learn, then learn to LAUD IT.

Look at what went wrong, not what worked;

Analyze what was done;

Understand why it was done;

Determine how to fix/improve both thoughts and actions.

IT refers to using technology to share the information, making it easily available to everyone and searchable.

Try it. LAUD IT.

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Now check out my other WW: How You Learn

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Actions have consequences—mostly unintended.

One of my clients in Texas acquires houses out of foreclosure, rehabs and rents the properties, then sells the properties to investors.

Yep, they “flip” houses—one of the emerging business models in this new economy. The secret sauce in this business is in acquisition and resale, not in the rehab.

This company acquires houses through county foreclosure auctions, which are an amazing example of the unintended consequences of government regulation.

At every step in the foreclosure and auction process, the government regulations are clearly designed to protect an abstract concept of fairness. As a result, the process inflicts the maximum financial damage possible on the unfortunate homeowner, who is already losing a house.

Foreclosure processes are controlled at the state and county level, so we’ll use Texas as the example, although many other states are even more peculiar.

Big problems often start small, then grow.

To give some perspective, each month Harris County (Houston), Texas has around 4,500 bank foreclosures and 500 county tax foreclosures. This is about ten times more than 18 months ago. That’s growth on the scale of the internet—or health care.

After a hundred years, things may change…

Texas foreclosure laws, mostly written in the past 50-100 years, require that all foreclosure auctions must be conducted on the first Tuesday of every month, on the county courthouse steps, in an “open outcry” auction. Rain, shine, or holidays, eager bidders convene on the courthouse steps every first Tuesday to search for bargains.

But this is not just one auction. Harris County has eight precincts, each with several constables, and each constable conducts his own tax auction. To add to the confusion, trustees, who hold the property title for the foreclosing banks, also must conduct their auctions, at the same time, and on the same courthouse steps.

So, on the first Tuesday a property investor will find ten to fifteen constables and thirty to fifty trustees all auctioning off foreclosed property in open outcry, at the same time. It’s more like a flea market than an auction.

Texas law specifies the method of notification. Foreclosure notices must be posted on the courthouse wall by the 18th of the month preceeding the auction. An investor has only two weeks to review 5,000 properties, estimated a market price, and make a personal inspection.

Texas law also specifies the method of payment – cash or cashier’s check – and the bidder qualifications. A bidder can bid only for himself. Stand-ins are not allowed. So an investor may find 10-20 properties of interest, only to discover that they are being auctioned by different people, in different places around the courthouse, at the same time.

Constables and trustees do not identify the property by its street address, but use a tax ID number – a string of 14 digits, with no alpha characters or other breaks, so there’s yet another challenge for the potential investor in identifying his selected property, attempting to listen to a soft-spoken constable amidst many other auctions.

Government regulations tilt the playing fields.

Finally, Texas law specifies the remedies for a buyer at the auction who may make a mistake. There are none. Once the bidding is done, the county cashes the cashier’s checks and the investor owns the property.

No possibility to recover from any mistake. It’s a huge opportunity for investors with lots of cash, lots of time to do the homework, and with nerves of steel. As a result, bid prices are very, very low.

It looks almost as if the state of Texas designed a process to minimize the bids on foreclosed properties at auction. While each of these regulations made some sense at the time, they look very dated now and one significant unintended consequence is to destroy any homeowner equity remaining in the foreclosed property. Another major unintended consequence is to shift the advantage heavily to full-time investors with lots of cash—the “fat cats” who have the time and knowledge to game the system.

It’s easy to poke fun at the process; but that’s not to the point. If we investigated government-run insurance, government-run construction projects, or any other government operation, we would find exactly the same situation.

Regulations create exceptions and processes that experts can exploit.

More regulations create more exceptions, more experts, and more gains.

Is there any solution for the unintended, unfair consequences of government regulation?

Next week we will explore goals, judgment, and transparency. Can these play a role in reducing unintended consequences? What are their unintended consequences?

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What would your reaction be to an executive who, when asked about company values, replied, “What do you mean by ‘values’? Do you mean ‘value’? I don’t understand what you mean by ‘values’.”

That was Sir Alan Sugar’s response at a recent conference when asked if he’d ever sacked someone because their values conflicted with the company values. (In case you’re wondering, Sir Alan is the counterpart to Donald Trump on the British version of The Apprentice.)

Based on what we’ve seen lately, Sir Alan has a lot of company.

So I have some questions for you.

• How do you establish values in your company or in your life?

• Do you depend on a set ideology or do you determine them yourself?

• Are your values absolute or are they flexible? Why?

• Are they sustainable?

I hope that many of you will take the time to respond and add your own thoughts.

Hat tip to the Leadership Hub for this quote.

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Years ago when I was a headhunter I recruited “John,” an inarticulate hardware engineer who wore his hair like Willie Nelson, had a beard streaked with gray, no-fashion clothes and was a bit vague about the world.

But John was brilliant and a genius in his work. He could look at a circuit design and know that it wouldn’t work, although he couldn’t always explain why.

The vp he worked for at the time ignored him, dismissed his opinion, built the circuits anyway and was shocked when they wouldn’t work.

All that changed when I stole him for a client whose focus was content, not looks or delivery.

“Jim” had no belief in intuition, but a deep belief in what he called ‘unconscious pattern recognition’, which, he said, was why John knew a bad design when he saw it.

John told me years later that Jim was the only person in his whole career who seemed to appreciate and value his skills.

According to Jim, in many ways John was a pain to manage, but his value to the product development effort more than off-set the irritation factor. He said that if managing people was easy managers wouldn’t be paid a premium.

And that brings us to the point I want to make.

I’m really tired of hearing managers constantly complaining about

• needing to hire ’self-starters’ so they can focus on building their leadership skills;
• the amount of time they spend settling team member disputes;
• how childish their people can be; and
• how the time spent hiring take them away from their ‘real’ work.

If you choose to become a manager you need to understand that

• no matter your level your people will always take precedence over everything else, because without people there is no company;
• people do become childish when thwarted or upset and that one reason that you make more money is that it costs more to hire a trained, adult baby-sitter than a teenager;
• few stars are born, rather they are the result of how they are managed; and
• if you don’t like the above three points you shouldn’t be a manager.

Management isn’t everybody’s cup of tea, so how do you know if you are/will be good at it?

Look in the mirror and answer this question:

Would you be happy and engaged if you reported to yourself?

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There’s a lot of talk that women wouldn’t have taken the same risks if they had been running Wall Street. According to Betty Spence, president of the National Association for Female Executives, that’s because “women don’t tend to bet the farm because their children live there.”

Don’t be too sure.

Perhaps women just haven’t been in a position to bet it, but they’re getting there.

“As early as this week, though, an American start-up company, AltaRock Energy, will begin using nearly the same method [that caused earthquakes in Basel, Switzerland]  to drill deep into ground laced with fault lines in an area two hours’ drive north of San Francisco.”

Susan Petty, a veteran geothermal researcher, founded Alta Rock to do geo-thermal research.

“In a report on seismic impact that AltaRock was required to file, the company failed to mention that the Basel program was shut down because of the earthquake it caused. AltaRock claimed it was uncertain that the project had caused the quake, even though Swiss government seismologists and officials on the Basel project agreed that it did.”

Am I the only one who is reminded of the expert warnings that were disregarded from people such as Warren Buffet regarding derivatives 5 years before they blew up or Harry Markopolos warnings a decade before the lid blew off Bernie Madoff’s Ponzi scheme?

Maybe Bella Abzug’s comment that “our struggle today…is for a woman schlemiel to get as quickly promoted as a male schlemiel” is finally coming true.

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I’m traveling today, so I’d like you to welcome Miles Mochizuki.

Miles is a certified public accountant and principal at M. Mochizuki & Co. He is a CPA and MBA with more than 25 years of experience as a finance executive, auditor and consultant.  He is the former CFO of several technology companies in Silicon Valley and a financing specialist who has arranged financing ranging from venture capital, bank and lease financing to multi-million dollar debt and equity offerings on Wall Street.  His consulting clients include pre-IPO start-ups and established public companies. You can reach Miles at (925) 413-9198 and miles@mmochizuki.com

Summary

The recession and credit crunch have made cash a strategic asset.  While debt and equity financing is still available, these sources of cash have become unreliable and difficult to tap, increasing the importance of operating cash flow.

Optimizing cash flow requires the close scrutiny of incoming and outgoing cash transactions and the implementation of credit, purchasing and strategic decisions that impact cash.

Simply put, maximize cash by spending wisely.

Reduce and Control Expenses

Headcount is a main driver of operating expenses.  In good times as well as bad, organizational rightsizing is essential to effective cash management and controlling the company’s “expense burn.”  Operating expenses are also strongly influenced by the company’s business model and strategic focus.

Here, the aim should be to reduce complexity by eliminating unprofitable products, markets and customers.

Reducing complexity will also simplify the purchasing process and reduce the required investment in inventory.  Operating expenses such as travel and supplies should be examined and nonessential expenses eliminated.  The feasibility of a negotiated rent reduction and other contract restructurings should also be considered.

The company should adhere to a regularly scheduled check run, typically once a week as a means of instilling discipline in the disbursements process.  During this process, cash disbursements should be prioritized in order of importance to ongoing operations.

This usually means that payroll and essential vendor payments will have a high priority and will take precedence over other disbursements in the event that expected cash inflows do not materialize.

To the extent possible, disbursements should be timed to coincide with cash inflows so as to not unnecessarily deplete the company’s cash reserves.

Overall, the goal of managing cash inflows and outflows is to preserve and, optimally, increase the company’s cash balances so as to provide a financial buffer for operations.  This conservative fiscal management will also result in presenting the company in its financial best light for the purposes of bank credit lines and other outside financing.

Weekly Monitoring of Cash Flow

Another component of effective cash management is the preparation and review of a weekly cash flow statement.  This report should show in sufficient detail the items comprising cash receipts (cash sales, A/R collections, etc.) and cash disbursements (payroll, benefits, inventory purchases, etc.) for the current week and projected for the next 4 – 8 weeks.

This report should be prepared by accounting with input from sales and purchasing.  It should be reviewed by the CFO or Controller, along with the current week’s A/R and A/P agings and check run.  Follow-up items from this review should be discussed, as appropriate, with sales, operations and management.

Cash as a Strategic Asset

There is no question that in these uncertain times, cash and ready access to cash are strategically important and may make the difference between winning and losing.  A company that manages its cash well will be in a strong position to weather the downturn and take advantage of the opportunities to strengthen its market share.

Conversely, in this economic environment poor cash management can quickly lead to insolvency and bankruptcy.

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Do you have a nickname? I’ll bet you also have a nicktitle—do you know it?

There’s an unwritten equation that who you are (your MAP) = what you do = what you’re called.

When you’re at the top of a company you’re called ‘CEO’.

But what’s the nicktitle? What does CEO mean these days?

When it comes to business titles people are creative and the variations are numerous and telling.

Here’s a tiny sample of what I’ve heard from people when asked to define ‘CEO’ based on what they read and their own experience.

On one hand you have

• Conceited Egomaniacal Overlord;
• Caddish Elitist Obstructionist;
• Controlling Embarrassing Obsessor;

and on the other you have

• Concerned Energetic Overachiever
• Caring Enabling Oddity
• Charismatic Enterprising Optimizer

and in-between you have thousands of variations.

What’s nicktitle?

If you don’t like your own it then it’s time to change your actions, which means changing your MAP.

And whether you consider that good or bad news, the main point never changes—it’s your choice.

For the sake of your staff, family, friends and other stakeholders I hope you choose wisely and well!

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Three slightly odd, but very valuable, views of the business world today.

For a lot of managers it’s that time of year again, the time of mid-year reviews. A lots been written on reviews, but I found the interview with Will Wright, developer of The Sims, Spore, etc., brought out a very new point. Wright says, “The really important motivational stuff is more in their [employees] secret identity.” This isn’t just true about ‘creatives’, but about every employee.

I have a stack of books to read, many of them the result of a review I read. I usually hold off recommending them, but this one looks too good to put on hold. It’s Alain de Botton’s The Pleasures and Sorrows of Work and it looks like a great read—even vacation fare.

Quick. What sort of business would the entrepreneurial daughter of Ralph Lauren start? Something in fashion? A new publication? How about a candy company? Yup. Dylan Lauren sees “…a row of Polo Ralph Lauren cashmere sweaters or colored shirts…as food or candy.” Sweet.

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Last Friday I offered you a brain-stretching riddle. Did you get the answer?

You will recall that the shifty moneylender had put two black pebbles in the bag.

The girl put her hand into the moneybag and drew out a pebble. Without looking at it, she fumbled and let it fall onto the pebble-strewn path where it immediately became lost among all the other pebbles.

‘Oh, how clumsy of me,’ she said. ‘But never mind, if you look into the bag for the one that is left, you will be able to tell which pebble I picked.’

Since the remaining pebble is black, it must be assumed that she had picked the white one. And since the money-lender dared not admit his dishonesty out of fear, the girl changed what seemed an impossible situation into an extremely advantageous one.

I like this story because it is a simple illustration of the difficulty of so-called thinking outside the box, but why is that?

Starting as young children we are praised for coloring inside the lines and praise for coloring inside the lines continues as we grow.

The lines we stay inside my not be apparent to an onlooker, but they are obvious to our chosen world. Fashion is a great example, the Goth look that is seen as so outside-the-box by many is framed with as many rules and lines as is any mainstream look.

Fred H Schlegel had a nice suggestion, but it depended on changing the basic nature of the villain and when looking for out-of-the-box solutions we rarely can change people’s basic nature.

Becky Robinson came closest; she was honest and said that she had seen a similar problem previously. But in her synthesizing Becky allowed the crook to take the active role, assuming he would act ethically to maintain his honor, but if he had honor he wouldn’t have cheated in the first place.

Did Becky win? You decide in comments.

Creativity requires us to step away from many of our own basic assumptions as well as going outside the lines dictated by our world.

Doing this is how we enlarge our box to encompass the universe. (My apologies, I just found that this link didn’t work last week.)

It takes effort and lots of practice, but the rewards more than justify the work.

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