investiledysfunction

I’m a huge proponent of thoughtful, surgical and ongoing cost optimization - not the stuff we read about today which is reactive and hatchet-like in most organizations.  People like Tom Peters who I wrote about in my last post seem to agree with this viewpoint as well.

When I talk to organizations, they universally decry the idea of quick-hit efforts to cut costs and insist they take a very thoughtful and surgical approach.  However, after we dig into what’s being done, it becomes obvious that the efforts are reactive and far from surgical.  While consultants may come in to put “lipstick on the pig”, the efforts are typically characterized by high degrees of politicized decision-making and horse-trading and little focus on distinguishing between strategic and non-strategic expenses.

So with that said, if companies will be cutting somewhat indiscriminately, what is an employee to do - especially finance employees who may be especially vulnerable in organizations that undertake SG&A reviews.  Compounding the problem is that with the slowing economy, there may actually be less work to do.

In an effort to help employees justify their existence, below are my suggestions on what you can do to look busy when the cost-cutting goblins are lurking.  The key is to look busy, but that’s not the only thing.  So here are some tips that may help you stay off the cost-cutting radar.

1. Come in earlier than your boss and stay later
2. Plan lots of meetings, prepare the agenda and then send out followup emails which spell out lots of nebulous next steps
3. Keep your desk a bit messy with lots of papers
4. When you’re boss drops by to ask a question, tell him or her that you’ve got to make a quick call but will come by in a few minutes
5. Talk about how you feel the long-term prospects of the organization are very solid and throw in some language about remaining customer-centric, customer value propositions and being value-added.  Suggest that you start to do work to plan for when the down-turn ends so your company can be best positioned.
6. Get up-to-date on the latest jargon and throw words out like leverage, synergy and always ensure that everyone is “on the same page”
7. Get a screen blocker so people cannot see you on gmail or instant messenger.  Better yet, keep lots of documents open on your desktop.  Extra points for impressive powerpoints and large excel spreadsheets.
8. Send emails late at night.
9. Have meetings with friends in other parts of the organization and try to learn a thing or two that you can drop into conversation with your boss so you can look informed

Ultimately, the best way to look busy is probably to actually be busy.  One word of caution - if you’re boss is someone who may be vulnerable in a cost-cutting effort, make sure you don’t overshadow them.  They may perceive you as a risk.

Best of luck avoiding that hatchet.

I’d previously co-authored an article (along with Sandeep Arora) that appeared in Business Finance Magazine titled “The House of Rolling Heads” in which we decried mindless cost cutting in favor of a more thoughtful approach which segmented expenses into strategic and non-strategic.

It seems Tom Peters, author of In Search of Excellence, agrees with us.  In the December 2008 issue of Inc Magazine, he comments,

“Instant, mindless cutting of R&D or training or salesforce travel in the face of a downturn is often counterproductive - or, rather, downright stupid.  Tough times are in fact golden opportunities to get the dro, and the longterm drop at that, on those who respond to bad news by panicky across-the-board slash and burn tactics and moves that de-motivate and alienate the workforce at exactly the wrong moment.”

I’d previously written and complimented Domino’s Pizza Tracker in a post entitled “Innovative Pizza Technology“.  While skeptical at first, I did find the Pizza Tracker to be a pretty useful little technology.

For the exact opposite in pizza technology, we have Papa John’s Order Online Widget which they’ve created for Facebook.  This technology marvel has 34 users so far.  As Caroline Waxler points out in her Nov 2008 Fast Company article entitled Social Misfits, the widget “lets customer place their order upto 21 days in advance of their preferred delivery date or pickup date and time.”  She goes onto to appropriately state this functionality is great if you just sit back and “Remember that time you got a pizza craving for two weeks from next Tuesday @ 7pm and couldn’t act on it?”

Building a Facebook, iPhone app or using Twitter doesn’t make you current or cool if you’re not doing anything to actually help you enhance your brand and ultimately sell more stuff.  These attempts are just as misguided as the me too social networks which were cropping up regularly but which the current market malaise seems to have squashed a bit.  Technology for technology’s sake, no matter how cool, is a bad investment.  These gizmos must help people actually do something they want to or might be interested in doing and ideally help them do it better.

Here’s the Papa John’s widget.  I’m going to get going now and order a pizza for Nov 23rd now.

The November 3, 2008 issue of Newsweek contained a letter from Mayor Michael Bloomberg to the President-Elect (and now Barack Obama).  This blog is strictly non-political and will remain that way, but Mr. Bloomberg offers a great commercial for portfolio management applied at the public sector level.

In his letter to the president, Bloomberg writes,

“In exchange for legislation creating an infrastructure bank that funds projects based strictly on merit, agree to invest more money on the infrastructure our country needs most.  And you should also demand more from the states and cities that get federal money: hold them accountable for building on time and on budget.  Call it a “New New Deal”: investing more, more wisely and getting bigger returns.”

I’m not sure there has been a better encapsulation of what portfolio management is all about.  I am pretty sure that government and citizens ultimately would benefit significantly from the approach Mayor Bloomberg is advocating.  Competition for funding and holding people accountable for results always yields good results.

The best definition I’ve heard of a business case is that “It’s the lie people tell to get funding.”  And that is the truth.  Growth is high and expenses are low leading to unreasonable expectations in the majority of business cases.  So what is the key to reducing the lies that people present in business cases.

It comes down to tracking what they deliver, e.g., benefits realization, tracking actuals, etc.  Roger Goodell, NFL Commissioner, has a good suggestion on this.  When talking about the New England Patriots videotaping opponents’ signals, he stated,

“The most important thing is to take decisive action.  We discovered that they were taping the signals of visiting coaches, which is against our rules, and we made very clear it was not going to be permitted. [Patriots coach Bill Belichick was fined $500k and the team was fined $250k and denied a draft pick].  Sending a message that you’re going to enforce the rules is the best way to deal with integrity and make sure that our fans understand that games are going to be played by the rules.”

When it comes to investments in projects and initiativess, companies rarely hold folks accountable ensuring the cycle of lies and rosy projections continue.  Instead, they should take a page from Roger Goodell and reward those who deliver and ‘punish’ those who don’t.  The punishment can take the form of reduced funding going forward, greater oversight or even diminished responsibilities or dismissal.  Only by doing this will you ensure that people come with their best ideas and are incentivized to put forward their best ideas and deliver per their business case.

As anyone who reads this blog knows, I’m addicted to CNBC in the morning.  It’s an unhealthy habit, but I find the talking heads on CNBC hilarious because of their extreme short-term’ism.  If you watched earlier this week, you got to see tons of folks predicting the bottom based on one day’s good performance.  Where were all these smart people to tell us about the bloody October we were going to have?  Oh wait, these guys are mostly Monday morning quarterbacks.  In any case, it’s a channel for those with A.D.D.  Insights are infrequent but for me, entertainment value is high esp with folks like Joe Kernan and the morning crew who seem to be in on the joke.

In any case, I was watching Donny Deutsch tonite (The Big Idea is one of the best shows on TV so check it out)  and he had Jim Cramer on.  Cramer is a massive personality and for me personally, his picks have done well for me.  On The Big Idea, he was talking about the economy, the market, etc, and it was pessimism to another level.

Per Cramer, those with entrepreneurial ambitions should put them on hold for the next few years.  While a good stock picker, I think this type of generic device is wrong.  What I think Cramer should have said is “Those with entrepreneurial ambitions that are half- or partially-baked should put them on hold forever.”

Per my earlier post on the downturn resulting in smarter startups, having a good idea that solves a real problem will always be in demand.  And being contrarian, e.g., when there is blood in the water, can be exactly the right time to start a business as talent may be cheaper, there may be cheap office space and computers available and you may be competing against a lot less fluff to get attention from partners, the press, etc.

As Warren Buffet says, “Be fearful when others are greedy and be greedy when others are fearful.”

Josh Kopelman of First Round Capital put up a great quick website promoting the idea that technical talent (meaing those who know computer stuff) may want to consider a startup given the mess the banks and financial services are in.  The site’s master of the obvious title is Leave Wall Street - Join a Startup.  I’ve posted his points below which make a lot of sense and which would help ‘diversify’ NYC’s economy a bit although this would take many many years.  I remember the days of Silicon Alley (upto year 2000) as I worked at Kozmo.com.  Unfortunately, no significant businesses emerged from that as far as I can gather.  But here’s to hoping a Google can emerge out of NYC.

Financial services will always be huge in NYC, but introducing some other types of economy into the mix would only be healthy.  Remember, diversification is good.  The politicos seem to agree as well having recently started NYC Seed - an angel investment fund giving $200k to worthy business plans.

For those who aren’t familiar with Kopelman, he is best known for starting Half.com and selling it to eBay for $350 million.

Those who visit the site will also see Kopelman has posted positions at some of First Round Capital’s portfolio companies as well.  So besides making some good arguments, Kopelman has also found a good way to promote his companies and his interests in them.  This is very smart.

Here’s to the new NYC startup scene.   Kopelman’s comments are below:

For years, one of the biggest challenges facing New York city based startup companies has been the competition for technical talent.   It was very difficult for a venture-backed startup to compete with the compensation packages offered by the big investment banks.  Stock options had a hard-time overcoming oversized cash bonuses.

While no one is happy with the turmoil we’re seeing facing the financial services sector, and no one is happy to see mass layoffs, this does represent an opportunity for startup companies to attract seasoned, technical talent.  With Bear Stearns laying off over 7,000 employees, Lehman Brothers rumored to layoff over 20,000 employees, and Merrill Lynch expected to layoff thousands after their sale to Bank of America, we’re on track to see over 150,000 people lose their jobs this year.

If you are one of those 150,000 employees, you might want to consider joining a startup.  These days, startups are more stable than Wall Street (seriously).  And while a startup probably won’t offer the creature comforts of a job in the financial services industry, startups offer different benefits.  You get to participate in the creation of something new.  Your work makes a direct (and clear) impact on the success or failure of the company.  No more politics, endless meetings, or multi-layered organization structures.  Plus, you’ll likely get stock options to share the upside.

I’m a big fan of P2P lending as my prior post on the topic will demonstrate and so I keep abreast of developments in this arena especially as I believe that this business has some very disruptive possibilities.  The last couple of weeks have seen some interesting developments, notably:

1. The entry of newcomer, Loanio, to the space.  Their pitch doesn’t all that different than Prosper, but I haven’t done much diligence on them so may be I’ll get around to that.  Their website is clean, but browsing a couple of posts, they seem to have a handful of loan requests but not a ton of bidders to this point willing to fund those initiatives.
2. The bigger news of the week is the departure of Zopa from the US market to focus on the UK, Japan and Italy.  While my first instinct was that they chose to avoid the crazy credit markets of the US, it seems they ran into regulatory roadblocks that prevented them from ever getting started.  This is surprising given they seem to have a much more seasoned team and more money than Prosper and Loanio, but I guess stuff happens.

If regulatory reasons were the impediment to them getting started in the USA, it is a shame.  With credit markets tighter now, there may have been an interesting opportunity for players like Prosper, Loanio, Zopa and LendingClub to step up and fill a void as many consumers and small businesses may be finding it difficult to get credit given tightening conditions.

If Zopa is leaving because they couldn’t take the heat in the US “credit kitchen” as some have suggested, this indicates the company has little faith in its risk modeling capabilities.  If you’re only willing to play in a market when you perceive times to be good, that is not much of a business.

Let’s hope it was just regulatory issues.  I hope the rest of the guys will make some inroads during this time and begin to put P2P lending on the map.

I’ve been reading about how Silicon Valley is adjusting to the downturn as it’s a popular topic in many blogs.  Many prominent VCs have issued memos to the CEOs of their portfolio companies telling them to raise more money, control expenses and focus on profitability because things are going to be rough for the foreseeable future.  This is all pretty good advice.  Of course, the sinister, conspiracy theorists amongst those I’ve read feel this is an easy way to instill fear and get better valuations for VCs.  I’m not so skeptical so as to believe this.

But the outcome from this recession/downturn from an entrepreneurship and innovation perspective is going to be positive in my view for 2 reasons:

Reason 1 - As I mentioned in my Part 1 post, there are going to be a lot of unemployed or disillusioned people who say “I’m going to invest in myself instead of getting a job or investing in the stock market”.  These people will pursue new ideas, develop new technologies and will start new companies.  Out of this might emerge a few great companies and many more which will employ people and inspire even more entrepreneurs.

Reason 2 - This shakeout is going to get rid of a lot of crap ideas and companies.  There is no other way to say this.  Many of the “me too”  social networks or “iPhone/Facebook app” developers hoping to generate a userbase that they’d one day magically figure out how to ‘monetize’ may not make it.  They won’t make it not because they don’t have a cool idea that is fun and even potentially useful, but because many of these businesses were “built to flip” as a friend of mine at a prominent Sand Hill Road VC once commented.  And so they were never predicated on a real business model that could bring in more revenue than the dollars they spend.  This is a risky proposition and unfortunately, and such businesses don’t allow you to make it up in volume.

And while some of these ideas were marginally useful or fun as I mentioned, I also don’t know if they were solving real problems, e.g., building stuff that people really needed or finding a better way to do something that enough people cared about.

So what we’ll see in my estimation is the bar will get raised and better ideas will emerge and a new crop of more well-conceived startups will come forward.  With VC funding tightening up, entrepreneurs will need to do this.  Things that solve really big problems and that are built with an eye towards becoming sustainable businesses which are lean, mean and profitable are what will come into vogue.  A dollar and a dream may not be enough but a dollar, a dream and some serious discipline will be required.

In essence, for every Facebook, there will be many others that don’t have the backing to make it through the next several years.  And honestly, even if they did, being the social network for ex-convicts was never going to be that big (sorry guys).  I do think that many of these smart people who don’t make it out of this cycle will come back with better, tighter, more refined ideas the next time around, and this type of cycle is healthy.  Of course, this all only holds until the next bubble.