Among the annual flood of business and economics books, two recent ones caught my attention.

Shaking the Globe: Courageous Decision-Making in a Changing World by Blythe McGarvie (230 pages, John Wiley & Sons, 2009) addresses the fragmented, multi-polar world of global business.

In this book, targeted to execs at mid-to-large businesses, Ms. McGarvie surveys the plethora of challenges and opportunities that companies face in the new century. She details the diversity in three major areas: cultures, nations, and generations.

Simply put, companies no longer have the luxury of ignoring any of these diverse constituencies. Even if a company is not competing internationally, then it is defending its domestic market against a multi-national competitor.

Likewise for multi-generational workforces and multi-generational customer bases. For the first time ever, many companies have up to four generations in their workforces, and possibly four or even five generations in their customer bases. Illustrating this trend, a recent survey identified the fastest growing age-group of employees in the US as people in their seventies.

The book amply documents the simultaneous interconnection and fragmentation of businesses, people and markets across the globe.  It identifies various segments and constituencies in each major area, providing a good overview for readers wanting an introduction to the topic. The book concludes with three key messages:

“First, we need to understand how the world is interconnected and that all people in it are interdependent… We need to transcend our nationality.

Second, we must face the financial realities that created this need for going global.

Third, we should become aware of the six forces shaping personal courage if we are to go global. Namely, we experience different cultural norms as evident through beliefs, family, and time horizons; communicate with youth in new ways; tap into the talents of women; understand shareholder interests; capture the entrepreneurial drive for innovation; and respect individuals’ value systems.”

Most interesting are the personal vignettes which Ms. McGarvie uses to illustrate particular topics.

As a reader, I look forward to another book by the author, possibly in a case study format, in which she explores specific situations in much more depth, based on her personal experience.

Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Tom Woods (194 pages, 2009, Regnery Publishing, Inc.) is a timely analysis of the underlying causes of the current recession. Although the style is light, the analysis is thorough and detailed. Mr. Woods explores and debunks a number of myths about the current recession.

“In both cases [the Great Depression and the current recession] an inflationary credit boom brought about by the Fed’s lowering of interest rates led to massive resource misallocation and a distorted capital structure. The Fed tried in vain to inflate each of these booms back into existence, and grew frustrated with banks that refused to lend out the new money it was pumping into the banking system. In both cases the federal government sought to prop up prices… rather than allowing them to fall to a level that made sense [in the market].”

Comparing this recession to the Great Depression and many other recessions in the 1800’s, the book identifies the common culprit in the boom/bust business cycles – government manipulation of the currency. Although this conclusion is no great surprise, the compelling analysis makes for good reading. He defends free markets, pointing out that the money supply is not a free market, but a government-controlled monopoly.

Mr. Woods makes a damning case against the Federal Reserve, condemning it for hidden dealings, a bias toward inflation, and backroom collusion with banks. His analysis demonstrates that government action not only causes the booms and busts, but that same government action significantly delays and cripples the eventual recovery.

As if on cue, in December the Fed strong-armed Bank of America to complete its acquisition of Merrill Lynch even when that purchase significantly weakened the bank and increased the risk to the economy. Of course these machinations occurred in secret, with no disclosure and no transparency for investors, customers, and employees of either company.

In his conclusion, Mr. Woods calls for the abolition of the Fed, proving that he is an incurable optimist. Failing that, Mr. Woods predicts significant inflation ahead, due to government debasement of the currency. Government tampering with money is not just a recent phenomenon, as the author illustrates with examples as early as the tenth century, of governments (then kings) cheating their subjects by debasing the currency.

Even in the age of the internet and electronic commerce, some things have not changed.

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When would you evacuate?

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Many economic pundits are predicting the end of this economic meltdown (see previous post). Chalk those predictions up to the optimism of springtime and the need to fill a news cycle.

While rates of decline for various economic indicators may be decreasing, the excesses that created this meltdown will take years to work through. The ham-handed responses by government and many businesses will only delay the eventual recovery. This is only a break in the winter weather.

But even as the economic meltdown is only now approaching its nadir, a few new businesses may find this to be a fertile time to set up shop.

Consider the single greatest expense and challenge of most new businesses – finding and attracting talented workers, trained and immediately available for interesting work.

Currently the US economy provides 155 million jobs. This meltdown has reduced employment through five distinct mechanisms shown in the table below:

Given that the measured statistics are usually undercounts and that these unemployment/underemployment numbers will grow in the next 12 months, likely over 32 million workers (over 20%) in the US will have talents and time available to participate in another business.

For many companies, payroll costs represent over 65% of total expenses. For new ventures, personnel costs can be much larger, up to 90% of expenses. In this environment, many workers are searching for work.

New ventures traditionally offer below-market compensation for their workers. However, they offer other significant benefits.

Typically, new ventures offer broader scope in each job, better growth opportunities, ability to make large, direct, measurable contributions to the organization, and the enthusiasm of working in a small, close-knit team. Some new ventures offer profit participation or stock options. For unemployed or underemployed workers, these benefits can be significant, even when the cash compensation is low.

Technology and the recession have dramatically reduced other business operating costs. The cost of computers, phone systems, and tele-conferencing have dropped. Office space is cheaper, and home-based employees can cut that cost even further. Travel, where necessary, is cheaper than any time in the past ten years.

Even without easy availability of capital for start-ups, this recession may offer fertile ground for new ventures and with the added benefit of retaining far more of the equity.

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Who’s innovating? Why is it important to stay focused on innovation? How are companies doing it in today’s economy?

Check out Business Week’s story on the 50 Most Innovative Companies and don’t miss the side bar on the 25 most innovative companies you’ve probably never heard of.

A second innovation commentary comes from consultant Peter Bregman who offers up and interesting perspective on why it’s better to be David in this economy than Goliath.

Finally, what’s happening in compensation these days aside from Wall Street bankers with dubious bonuses?

Here’s the information for those of you wondering what CEOs are earning or whether it’s worth going for an MBA.

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Reputations are fragile things and company reputations are no different, but in the brave new world of YouTube, Twitter and blogs their fragility has skyrocketed.

Pity Domino’s Pizza whose Conover NC franchise employed two of the stupidest thirty-somethings available. They posted a prank video on YouTube (it’s been removed) that burned through the social media world faster than any recorded wildfire and was just as damaging.

In a 2007 post I quoted Chris Gidez, head of U.S. crisis management for the public-relations firm Hill & Knowlton, “Once it’s on the Web, it’s like taking the rods out of a reactor. Companies have to work harder to determine, ‘Do we need to worry about this?’ “Overreacting can call more attention to a rumor than it gets on its own, I’ve had clients who wanted to respond to a problem with guns blazing, and I say, ‘Hold on a second. You might be telling a larger universe of people about a problem they didn’t know existed.”

I think that Gidez may be giving different advice these days, since it’s doubtful that any rumor, prank or sin will die a natural death.

“If you think it’s not going to spread [in social media], that’s when it gets bigger,” said Scott Hoffman, the chief marketing officer of the social-media marketing firm Lotame. “We realized that when many of the comments and questions in Twitter were, ‘What is Domino’s doing about it’ ” Domino’s spokesman, Tim McIntyre said. “Well, we were doing and saying things, but they weren’t being covered in Twitter.”

By Wednesday afternoon, Domino’s had created a Twitter account, @dpzinfo, to address the comments, and it had presented its chief executive in a video on YouTube by evening.”

The real problem today isn’t the speed and transparency with which information moves, but rather it’s that the stupidity factor is just as bad, if not worse, than it ever was.

Dr. Jay Geidd, NIH: “The part of the brain that fills in last is the part involved in decision-making and controlling our impulses.”

The articles on teen brain research all indicate that the brain matures around age 25 or later, but it seems the availability of instant fame, no matter how fleeting, has pushed brain maturity way past that mark increasing the level of stupidity that people find so amusing—think YouTube and AFHV.

This weekend talk to your kids. Show them the article; tell them about the legal charges filed and the civil suite in the works. And ask them what business in it’s right mind would ever hire people whose judgment is this bad?

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Now learn what an open door culture really means!

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Economic pundits, eagerly searching for signs of the recovery, are grasping at almost anything. “The rate of decline has slowed.” “Unemployment has stabilized.” “The cardboard box index has bottomed out.” And the shape of the recession and recovery has been predicted to be a V,  W,  L, or even a double-bounce W.

I think they’re all wrong.

The old economy will never come back.

This economic meltdown is much like a forest fire. After the fire burns itself out, the storm may be over, but the burn area is fundamentally changed. It does not “bounce back.” It starts at a different place.  Sometime in 2010, the economy will stabilize, but it will not “come back.” We will go forward from a fundamentally different position. This new starting point will reflect the impact of deep, long-term, global trends in the nature of work, the value of the dollar, and our relationship to our government. The current recession is a convenient marker to recognize these trends.

Work Is Changing

The nature of employment will continue to change. The United States will continue to shift to a “just-in-time,” service-based workforce. The manufacturing sector will continue its decline, from 29% of GDP in 1950 to 15% in 2000 (see analysis by Dr. Mankiw). It will drop below 10% by 2010. You can construct your own labor trend at indeed.com. ( This website is a fascinating example of the business of data, which we discussed in the last three posts.)

Many new service-sector workers will be involuntary. Growing unemployment and under-employment in the United States (which will exceed 15% this year) is driving many people into self-employment as service workers. An analysis of Japan’s Lost Decade by Tom Coyner, long-time resident of Japan and Korea, provides one instructive example of this phenomenon, and some associated risks.

These new service sector workers will be driven to a “do-it-yourself” model for almost everything. They will have to provide their own health care plan, retirement plan, office arrangement, and business planning. Many of these workers will be home-based, with little differentiation. The most common product/pricing model will be piecework, with unit pricing based on the alternative of being completely idle. Ironically, one result will be the re-integration of work and home life.

Entrepreneurship is Changing

Investment capital will no longer be available for any but the most solid businesses; and the vast majority of these newly-independent service workers do not have plans to build large businesses. As a result, the successful ones will exhibit four common, positive characteristics:

Local—In a global world, being present still counts. A local service provider who can show up in person has a distinct advantage. In addition, some services simply cannot be outsourced. When your car is broken or your roof leaks, you need a local service person. For locally-based services we may see an increase in a local, personal relationship with service providers.

Immediate—Without investment capital to fund long-term research and development, independent service-providers and small businesses must focus on services that provide immediate value. The “cash-to-cash” cycle must be less than one pay period. Fortunately, credit/debit cards and other immediate payment methods support this trend.

Information-based—Information will provide significant improvements in service quality and competitive differentiation. For instance, simply finding a customer is difficult and expensive. Irritating prospects with unnecessary and unwanted sales promotions is also costly. Successful service providers will use information to target customers on a “just-as-needed” basis.

Green—Setting aside the discussion of whether the earth is warming or whether green is good, government policies will reward green activities preferentially. Independent service providers will offer green services or enhance green aspects of their existing services.

Start-Ups Will Explode in Unlikely Niches

The availability of many talented people and the flexibility of independent service providers will fuel new start-ups. While these may not completely replace the loss of investment capital, they will certainly provide an alternative path of low-cost labor for new businesses. The change may be refreshing, for us individually, and for our economy.

This is perhaps the greatest unknown—how much will individual creativity and inspiration replace financial engineering.

I am hoping for a few delightful surprises ahead.

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Data: Salt for the Information Age

Roman soldiers were often paid in salt; this was so common that the Latin root for “salt” and “salary” is the same – sal.

As important as salt was in ancient ages, just so is data in the information age. Data is the raw material for information. Just as salt improves food, today data enhances the value of products and services.

In the two previous posts we explored how “the data is the business.” For many information age businesses, the collection, maintenance and distribution of data is, in fact, the primary revenue source.

But, based on questions from readers, I’m not getting through, so let me spell it out.

Every business collects, maintains, and distributes data.

The better businesses use data to enhance the value of their products and service.

The smartest businesses use it to generate revenue directly.

There are only two types of Databases…

At a high level, databases collect information about only two things – population identities or activity trails.

For instance, the company accounting system may be the original business database.

• The balance sheet is a database of population identities – how many dollars in cash, accounts receivable, inventory, accounts payable, bank debt, equipment, and owner’s equity.
• The income statement is a database of activity trails – what was the activity in sales, in collections, in payments.

The accounting system integrates these two databases into a unified view of the entire financial situation for the company.

The Census Bureau is the granddaddy of population identity databases; others include Monster.com (resumes), Dun & Bradstreet (small companies), Hoovers (public companies), MarketWatch.com (mutual funds), Google (websites and search words), to name just a few.

Databases of activity trails are just as common: stock price websites (stock price activity over time). FedEx, UPS and other shipping companies offer activity trail databases for every package they ship.

Of course, just like the accounting system integrates population identities and activity (audit) trails, the most powerful databases integrate population identities and activity trails. See if you can think of five or ten more.

There is really only one type of Database that really matters—yours

This is the key point. Your company already collects population data and activity trails for every product and service you sell. You have a database of all the products and services for sale (the sales catalog) and a number of databases that support those products—bills of material, inventories, historical demand, price histories, revisions, replacements, and a cluster of support products and services.

Your company also has a natural user and customer base for the data you collect. Customers, suppliers, service partners, and competitors all have a great interest in that data. So here already are the beginnings of a data business—a database and potential customers for that data.

A Few Small Bumps

Externalizing a database can be a significant challenge. It’s worth investing some time and even a few dollars in developing strategies for these key issues before rolling out your new business. A little planning and caution in building a good foundation will pay handsome rewards later.

Operational Concerns

Who owns the data? Does your organization have clear, unambiguous title to the data? For instance, are prices negotiated as confidential in certain supply and delivery contracts? If ownership is not clear, then how can you anonymize the data to honor the agreements? Can you change the agreements so that your ownership is clear?

How is the data refreshed? Data gets old. As the database grows data maintenance rapidly grows and soon exceeds data collection as the primary challenge. Some companies, such as D & B and Hoovers, use an army of employee agents to check and update the data.

Historically this approach worked, but the scale of modern databases has rendered the “internal data army” impractical. Consider two other approaches

• automation and a
• user community.

Automate the data collection and refresh. Google uses automation to refresh its database of websites. By some estimates Google has several million computers (really just CPU data blades) crawling the web to update its website database. Many other databases receive data feeds periodically from their sources. For instance, foreclosures.com gets feeds of foreclosure information from almost every county in the United States. The conversion and translation must be a nightmare, but the resulting database is incredibly powerful and a great business.

Motivate the user community to collect and refresh the data. With the emergence of web 2.0 and social networks, many companies are creating and using a user community to do data collection and refresh. YouTube.com, MySpace.com, Facebook.com, and LinkedIn.com are good examples of social network databases created and refreshed by user communities. Wikipedia.org, Jigsaw.com, and credit reporting agencies have created or adapted user communities specifically to provide business data. Travel websites such as Expedia.com use both automated data collection and business user communities to collect and present their databases of airline and hotel prices.

How do users access the data? Online access is rapidly emerging as the only method to sell data. Intermediated purchases, which require you to process the purchase request, are simply too expensive. Customers want instant access. Put the database online and develop search/selection capabilities that allow customers to find exactly what they want.

How do users pay for the data? A la carte or by subscription. Subscription is emerging as the preferred approach, both for data suppliers and data consumers. Tiered subscription access appears to be acceptable, so long as it is not too complicated.

Legal Concerns

The law on ownership and distribution of data is under construction. Quite simply, these are brand new businesses—often there are no regulations, limited historical precedents and even more limited applicable case law. And since the web is global, multiple national laws may apply. It’s complicated, so invest heavily in the two basic legal agreements—Purchaser Agreement and Contributor Agreement – to protect your company and your data. Limit your liability and do not compromise on your exclusive ownership. Others have found that shared ownership is simply an invitation to an ongoing dispute.

There is Wisdom in Metadata

If the data is the salt for the information age, then metadata is the spice. “Best selling, fastest growing, most popular, most expensive, Top Ten and cheapest” are all metadata lists generated from databases.  What trends are hidden in your databases? What trends do your customers and suppliers track?

Track the trends in database businesses to identify the best opportunities for your company.

Again, please feel free to call me at 925.858.9017 or email rbarrett@one-one.net for clarification on any points.

Hope to see you in the Top Ten New Database businesses soon!

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Back in the late 20th century the business model for dot-com businesses was “Attract the eyeballs (website visitors), and the business will follow.”

Many businesses executed that model, such as AOL, FlyFishing and an embarrassing host of others, almost all gone by now.

Over time the model of attracting eyeballs simplified to Google—just Google.

Since then Google has created an effective advertising model for websites that attract eyeballs. It’s called AdSense, and the model is very simple.

Attract a large number of visitors (eyeballs) and Google will monetize those visitors through its AdSense advertising program. Google selects ads that match the profile of visitors to your website, posts the ads on your site and shares a portion of the ad revenue with you.

Google keeps all the control and can limit your revenue.

Social networks and blogs are perhaps the poster children for this Adsense business. Social networks such as LinkedIn, Facebook, and MySpace generate revenue primarily from advertising.

The community creates the content that attracts the eyeballs, and the eyeballs attract the advertisers.

Blogs are only a little different. For a blog the author creates the content, rather than the community. But after this, the model is the same. The content attracts the eyeballs, and the eyeballs attract the advertisers.

Write a compelling blog and the eyeballs/advertisers will come.

Unfortunately this is a model for a lifestyle business, not a long-term business. Over time the competition increases and Google lowers the payout, so the revenue decreases.

Is there an alternative to the model of ever-declining revenue from Google Adsense?

Yes, create some old-fashioned value from the data itself.

The Data is the Business

Last week I discussed the concept of creating business value by collecting and selling data. That is a good alternative to the Adsense advertising model:

Create value in the data.

The benefits of a data sales business model are compelling:

• Low start-up costs. Use the cloud for your computing and storage. Google and others offer free access for applications with small bandwidth demand.
• Easily scalable. Add storage as the database grows. Add bandwidth as customer demand grows.
• No delivery cost – the user shops and selects and takes delivery online.
• Minimal cost of goods sold (COGS). This really depends upon your data collection model.
• Immediate global access and delivery.
• Captures the value of the “long tail.”
• Relatively easy to protect. Compared with code, a database is easy to protect.
• Even the meta-data (data about the data in the database, e.g. statistics) has value. Think of the top 10 lists, such as the “most popular search phrases” that Google publishes.

But if this business model is so good, why isn’t everyone starting a data sales business? Maybe they are…

Join me next week when we discuss what type of data sells.

See you all then.

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Alexander Kjerulf over at Chief Happiness Officer shared a fascinating write-up (one of the case studies for his new book) about Wim Roelandts, CEO of Xilinx, managing through his eighth recession. During 2000 recession Wim decided there was a better way than the standard Silicon Valley of repetitive rounds of layoffs—and he proved there was. He called his strategy “Share the pain;” it was completely voluntary and 2799 out of 2800 employees opted to take the graduated pay cuts. He held fast in spite of opposition from both his Board and Wall Street analysts and it worked.

Next is a new book by Dave Hitz who co-founded $3 billion NetApp, number one of Fortune Magazine’s 100 Best Companies To Work For. How To Castrate A Bull & Other Corporate Survival Tips looks like a great read. Enjoy!

Last but certainly not least are two takes on Tony “A company’s culture and a company’s brand are just two sides of the same coin” Hsieh, the guy who built a billion dollar company on its culture. Both are takes on his keynote talk at SXSW 2009, but bring out different points. The one from Fast Company includes seven steps to incorporate Zappos core values into your company; the other is The Onion’s Baratunde Thurston via CNET.

Have a wonderful weekend!

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