In Which I Learn About the New World

Two stories with (I think) a common thread.

One:  I succeeded in breaking the zapper for the Chez Buce Toyota so I popped by the dealer looking for a replacement. The service guy reached into his drawer and pulled out a pasteboard.  "Call him," he said, which I think meant "he's way cheaper than we are."

I forgot about the card until I was cleaning out my pockets the next morning.  But I did find it, and popped him an email about 6 am.  He responded about 615 am: I think I've got what you want, I'll call you. 

I got a call about 930 am as I was going out the door.  I've got the part, where can I find you. No, I'm on my way out the door right now, why don't I find you.  I'm in the service lot at the Nissan dealer, you'll recognize my truck.

And so I did.  I found a cheerful and pleasant chap, tucked away in what amounted to a man cave, if the man in question happened to be a locksmith. He had a couple of devices, a little worktable and drawers--lots of drawers for what I took for inventory.  The deal took us about 20 seconds.

This is your shop?  I asked, artlessly.  Yep, all I need.  And I added: seems to be catching on. I guess computer repairs work this way, too.  Oh, you bet, he said.  I didn't think to ask whether he did computer repairs too.

But  that's the thing, isn't it?  You want a computer repair, you can go to Best Buy.  I guess you could even call Geek Squad although it doesn't appear that anybody does any more--their little vans seem to languish in the lot.   No: you Google for computer repairs, you come up with some phone numbers and many--most?--seem to be people with no identifiable place of business.  Call us, we'll come find you.

[Fn.: there seems to be at least one outfit that is trying to aggregate this business nationwide, suavely inserting itself (for a little pourboire) between the repair guy and the customer. The Open Table of computer repair.]

I got to speculating over how many businesses can run this way.  Mr. B's favorite shoe repair guy?  Maybe, but he seems to have a bit too much inventory--also biggish machines.  Transmission replacement?  No, I don't think the neighbors would stand still for that one.   Oil change?  I'm thinking, I'm thinking.  And I'm remembering Woody Allen's definition of a "luftmensch"--a guy who has his office in his socks. It used to be a slur but now it's a business model.

The other--this one I got here--roofing.  You need a new roof, used to be you'd call the roofer and he'd come out and price the job.  Every roof is different so he couldn't quote you a standard price which means that some guy had to climb a ladder and take some measurements.

These days, what?  Aw, you're way ahead of me.  You Google it and appraise the rooftop from the comfort of your office, maybe inside your panel truck.  

But that's not all.  Now you can see every other roof in he neighborhood. And now we're thinking' "economies of scale."  You're going to be out there anyway--why not knock on a few doors and offer them a bargain?

New world. New ways of doing business.   The Amazon of roof repair.  Somebody's going to do it. No, wait, probably somebody has already done it.

Business/Finance Books: Embarrassment of Riches

Wading into Jean Strouse's Morgan: American Financier, may I take a moment to marvel at how much more and better business/economic history of the United States we have today than we had back when I was a tad,  the best I can remember finding were Matthew Josephson The Robber Barons,  John Kenneth Galbraith, The Great Crash, and John Chamberlain, Enterprising America, A Business History of the United States, none entirely worthless but each unsatisfactory in its own way.  I suppose I could add Frederick Lewis Allen, Only Yesterday,  although I didn't recognize this as "financial history" until much later.

I won't begin to catalog what is available these days except to note that we've got at least two fullscale presentations of Morgan (I'm counting this) and, FWIW, two of Warren Buffet (link, link).  I keep trying to put together some sort of Amazon top-ten list but I can't narrow it down enough.

Afterthought:  Lacking good history, I suspect the best way to get a feel for American business/financial history was to read Dreiser or Dos Passos.  Might still be a pretty good way.

Toldja

If  you had listened to  me 18 years ago, you would have known that Amazon was going to crash and burn.  Only a matter of time.

Update:  Nah, it was a lame joke.  Anyway--Justin Fox puts it all in context.

OEM

I suppose the kewl kids knew all about this all along, but I am just catching up with the concept of "original equipment manufacturer" --OEM.    Parsing out a tantalizing but somewhat disjointed Wiki, I gather it can designate at least two (mutually contradictory?) concepts.  One, as perhaps you might guess, is the "manufacturer" makes the "equipment," you know, "originally."  So far okay. But apparently another and more common usage is to designate the one guy who is not the "original equipment manufacturer," but rather the guy who assembles the components produced by others.  So Wiki: "Under this definition, if Apple purchases optical drives from Toshiba to put in its computers, Apple is the OEM."

Fascinating how this confusion may have come about.  Wiki (with a citation) says "It may derive from a Dutch phrase, 'onder eigen merk', which means 'under own brand.'"--which sounds like the latter use, rather than the former, and really doesn't sound at all like the English "translation."   My own guess: what we are seeing here are more of the confusion I was adverting to yesterday when I talked about the ambivalence about the  brand.  So you can picture Saralee explaining: well, yes, this particular piece of fluffed cardboard was manufactured in another country by people operating in a language that none of us speak and we just buy-for-resale from them.  But it's not real until we slap the Saralee label on it.  So we are the, like, um, "original."  Get it?

Well, maybe.  If it works here, I can see how it might also work for Hewlett-Packard, Nike, whatever.  And in a world where Bolivia maintains an international ship registry--even though it has not had a seacoast for 150 years--I suppose stranger things are possible.

Utterly vagrant afterthought: Saralee is a brander.  Hostess went bankrupt a while back in part because it could not cope with its own in-house labor force.   Is there a connection here?

Biblio: Gerald Davis again.  Wiki has a footnote to Tracy Kidder's Soul of a New Machine, which I read  (and much admired) some years ago, but if OEM is there, it flushed right out of my brain.

I've Had the Same Axe for 10 Years...

Nice piece on the NYT  "Itineraries" page about the branding and rebranding and re-re-branding of hotels.  I suppose something that the cognoscenti have known about for a long time but the Times does flesh it out with plausible detail for the entertainment of us yokels.  The point is that the brand (or "flag," in the trade) may come and go but the hotel may go on forever.  So, the Essex House on Central Park South--you've seen the sign--is now a JW Marriott; last year it was a Jumeirah; a while back it was a Westin.    

And there is an interesting tension here.  One, through all the caterwauling, the name remains the same--who would want to change the sign?  People will remember the old name, just like they remember the old phone number.  Still, they do want you to know that there is a new sheriff in town with all the good things this canard is supposed to imply--the Marriott medallion is just as important is the Essex House label, and in the same way: they give an image of stability and constancy in a turbulent market.   [Ownership/management of the real estate--the dirt--is a different topic altogether.] Will things really change?  Ah, who knows!   Sometimes, the new flag means a new manager with a whole nuther attitude (which may nor may not be a good thing).   Sometimes it is new bells and whistles with the same old gent frantically pulling the levers behind the scenes.  Interestingly, a Times source suggests that  if you are an event booker, you want an escape clause that lets you out if there is a change of brand.

Great so far, and no need to blame the Times for failing to generalize the point. But we can generalize, can't we?    We know that the "corporation"--these days, almost any large corporation--is more likely than not to be just (as my friend Anupam likes to say) the locus of the intellectual property.  So, Saralee doesn't make cakes; it contracts with people who make cakes.  Likewise Nike in footwear, HP in computers, likely almost any product whose name is vivid enough that you are likely to remember it.  They are selling the sizzle; someone else is cooking the steak.  Or as they say, "I've had the same axe for 10 years; it has had three new heads and two new handles."

[There's a nice discussion of all this, with references to the literature, in Gerald Davis' Managed by the Market--a book which is in general a first-class nontechnical discussion of the changing nature of business and finance.]

Afterthought:  A Google search suggests that Jumeriah had been doing some savage discounting.  Does this mean they were having trouble figuring out how to manage one of the world's best hotel locations?  Maybe the fuller story is here.

Oh Those Guys! Nu Skin

Joe Nocera at the NYT has a typically crisp and professional piece up this morning about yet another company whose main business appears to be cozying up to the powerful and well-connected so as to enhance the cozyer's private gain.  In this  case the company is a peddler of skin-care products and the ranks of the "rich and powerful" conclude the fellah who wants to be the Republican President of the United States.

The name of the outfit is "Nu Skin," and it took about five seconds before the bell went off and I muttered "oh those guy!"    Those guys indeed.  Travel back to me now if you will to the fall of 1996, when I picked up a visiting gig at Cardozo Law School on Fifth Avenue just above Washington  Square (thanks, David!).  My brief included the basic course in business associations.  It was not part of my regular portfolio but I figured I could handle it and indeed as I recall, I brought it off well enough.  

But about six weeks into the semester, it sank in on me that if you're going to teach the chillun' anything about the Corporation in American Life, you really ought to show them a 10-K or an S-1--an annual report or a prospectus--so they can get some sense of how the money moves.   One day I uttered my insight in class and added: look, one or more of you must work in a financial printing house--see if you can scare me up a stack of samples that we can use for discussion.

Sure enough, a couple of days later a nice lady showed up at my door with a crate, and you know where this is going: Nu Skin.  A public offering of stock.  I dove in with curiosity and enthusiasm.

Boy, what an eye-opener.  Although in fairness, I don't remember anything about Ponzi multi level marketing schemes or unsupported product claims, the stuff of the Nocera piece.

What I do remember--and I grant I am deploying a 16-year-old recollection, but it's pretty vivid--what I do remember was what looked to me like one of the most brazen displays of self-dealing I'd ever seen.  The prospectus, as I remember it, said in essence: if you give us your money, we will pass it on to an unnamed third person who may (heh!) have some relationship to the principals of this company.  If he makes a profit, he may give some back.

Hoo hah, are we talking teaching moment, or what?  I've long marveled at the essence o f the American investment regime: we give our hard earned dollars to total strangers and expect them to behave with it.  The whole point of securities law is to try to impose some limit on the recipient so as to keep him from just flipping out his cigarette lighter and setting fire to the stuff.  Here was a scheme that seemed tailor-made to make sure that those protections didn't do their job.

I paid no attention to Nu Skin after this particular episode.  I do see from a quick check at Yahoo Finance  that anyone who wanted to take a flutter on Nu Skin could have bought it (on Nov. 22, 1996) for $30.88 an ridden it all the way down (by Dec. 1, 2000) all the way down to $4.75.  Would that have been the moment when Mitt Romney was trying to peddle them as a sponsor to the Salt Lake Olympics?  Whatever.  In any event, then and now this seems to be one skin that shows up already ribbed and lubricated.

Against My Better Judgment, I Keep My Promise

Oh, I may regret this, but what the hey.   I talked over the last couple of days (link, link) about the idea of a "bubble quiz" to test knowledge of "business."   Formulated more precisely than before, I think what I'm struggling for is a list of the kinds of things "business people" know that they kinda sorta maybe wished the President knew.  Or, if not "knew," precisely, at least understood in some broad intuitive sense.

I invited contributions from some of my buds, mostly involved in the bankruptcy trade. They came up with some good offerings, albeit with some overlap (evidently we think along parallel lines). I have to acknowledge that I'm not satisfied with my list: I think it is probably too limited, a failure of imagination on my part (inside the bubble?). I note also that when I say "business," apparently I mean "small business"--one-person or one-family operations, nothing Jack Welch- or Steve Ballmer-ish.

So, think of it as a start. Note that unless specified, the proper punchline for each question is, "what do you do next?"
If you've got any interesting contributions, toss 'em into the comments. Maybe I'll do a revised version. Anyway, here goes:

What's the employer's share of FICA?

What's Section 6672?

You ruin (!!) run a restaurant.    One day you come to work and find that none of your cooks have shown up.   What do you do?

You catch your secretary with her hand in the petty cash.  You tell her she's fired.  She says go ahead if you want to, but she'll complain to the authorities that she you (!!) demanded sex from her.   What do you do?

You fire an at-will employee because of incompetence; that is, for cause. Employee files for unemployment.   Any decision in his favor will be adverse to your pocketbook.  What do you do? 

Angry customer files frivolous lawsuit.  Insurance company declines to defend.  You don't know any lawyers who do this kind of work.  What do you do?

You're $400 short of payroll, and your next tax deposit is $600.  Do you "borrow" from it, since you think you'll make up the shortage next quarter?

Vendor is short on your order.  When you complain, vendor makes it clear  that if the shortage is made up, she won't do any more business with you.  Se's got the best product out there.  What do you do?

An ex-con, a pregnant woman with sleeve tatoos, and a chap who speaks only marginal English apply for an entry-level, minimum wage job.  There are no other appicants.   Can you just withdraw the notice, wait a month, and see who applies then?

Employee is surfing Internet on company time.  Nothing illegal.  Still does  it after warning.  Fire her?

People!  Help me here, please!  I want to spruce this up.

Does it Matter if Obama Can't Tell a FICA from a 6672?

Yesterday I let loose with a few testy remarks about how Obama doesn't understand business.   Just after I posted I got the bright idea to cook up a little "Do You Live in a Bubble?" quiz, in the manner of Charles Murray, designed to show the test-taker (maybe the President) really doesn't understand the world he lives in.

I think I recognized that as an idea, it was pretty callow from the start.  After all, for nearly 50 years now I've had the police to collect my salary.  Otium cum dignitate.  What that hell could I know about the poor slob who is just trying to make a living?  Well, yes, but I have spent a bit of time hanging out at the bankruptcy court, which can be a culturally broadening experience. So I repackaged a few of  my war stories. But I wasn't able to come up with enough good ideas and so I emailed my homies for help.  

And hoo boy, did I get blowback.  Almost instantaneous.  Blowers made several points but the chief one seemed to be that I was being unfair or unkind to Obama, asking an  irrelevant or totally bogus question.  "Could Franklin Roosevelt have answered?" responded one of the first, in a tone I took to be rhetorical (suggested reply: no, he could not).  Could Ronald Reagan?

My rejoinder: actually, no.  I'm reasonably certain that FDR had not the foggiest notion of how to cope with (the 1932 equivalent of) a 1099, or Section 6672, or a FICA limit.  He had people to do that.  But Roosevelt did have something essential that I had failed to put my finger on.  That is: he had a knack for making you feel that he understood--maybe not in detail, but in a way that would make your life easier, more reassured.  It's why--I think--Roosevelt was able to ride to a landslide reelection victory in 1936, even though his own first term had been pretty much of a mess.  He kept you believing that he was on your side, that with him, things eventually would work out.

So also in a slightly different way, Reagan.  Actually with Reagan, I suspect that even most avid partisans knew he didn't sweat the details.  I think a lot of them even knew that most of those little moral fables he liked to dispense--that most of them were just threads spun out of his own gizzard.  They knew that he was a President who thought World War II was a movie, but that was okay with them--they knew he let them share in the movie with them, and that was all that mattered.  Contrast: a President who has to say "I feel your pain"--that President sounds like a guy who does not feel your pain.

Clinton is a somewhat more complicated case. Of all the examples, he is perhaps the one most likely actually to have known what a FICA limit is.  We all know about his almost protean capacity for assimilating detail. Yet as I've argued before, I think Clinton succeeded in spite, rather than because, his mastery of the intricacies of policy.  Mr. Detail was Jimmy Carter and we know how that ended.  

Which morphs into the flipside problem--not just whether I think you feel my pain, but whether too much detail in a President is positively harmful.  I think this is a complicated question: almost every example has a counter-example.  To my taste, perhaps the best response comes from Elliott A. Cohen's fine book, Supreme Command, in which he explores political leadership in time of war.   None of his examples of successful leadership was himself a military man.  What they did seem to have is a capacity to talk to military leaders, to understand them, and (what may be more important) to make them understand him.  Contrast, say, Lyndon Johnson, a bottomless well of energy and manipulative management, who never seems to have figured out how to establish the right kind of conversation with the military.

So I'll grant that the issue is a good deal more complex and subtle than I let on in my previous blog post (or in my email).  But on my main points, I think I'll stick to my guns.  Refining my expression somewhat: I think it's a failure on Obama's part that he doesn't seem to know how to talk with the finance types the way Lincoln knew how to talk with generals.    At the same time, he doesn't seem to know how to convey to "the business people" (whatever that may mean) that he understands what they are up against--in short, that he feels their pain.


Statement of disinterest: this screed should not be read as an endorsement of the Republican aspirant. I think he, for his part, has made it pretty clear that he really doesn't give a rat's hind end whether you live or die.

Now I think I'l take a whack at that bubble quiz.

Obama and Business: What He Doesn't Get

Boy,  that Obama fella just can't catch a break, can he?  The wingers think he is a Muslim socialist.  His ex-friends on the left think he has gone whoring after the false god of Eisenhower Republican.  Meanwhile the zillionaire bankers are outraged--outraged--that he won't  kiss their shiny pink backsides show them the respect they believe deserve.

This can't all be true, can it? Specifically, he can't be both a friend and an enemy of "the business community," yes? Rhetorical question, of course. My answer is yes, it can indeed be true. But we do need some clarification on just what his attitude entails.

Start with the easy part: Wall Street. Of all the formidable skills in Larry Summers' portfolio, I'm beginning to think that one of the least understood is his power of hypnosis. If not Summers, then somebody* must have cornered Obama in the elevator on the way to the Oval Office and instructed him: "until I snap my fingers and say 'peaseblossom!' you will do everything--everything!--the bankers want you to do!" I can't think of any other reason why a president would work so hard to protect the essence (I almost said "integrity") of the banking system, at whatever cost to the economy as a whole. I am not at all sure why this might be so; it's not that he's ever actually been a banker, and I doubt that he is really hoping to be one when his incumbency ends (yeh, and good luck with that one if you do want it, Barry baby). But I would observe that he does seem to have picked up a kind of awe in the presence of the seemingly brilliant--same thing that made Jsck Kennedy go all mushy in the presence of Robert McNamara.

Does this mean he understands the banking system? You anticipate me here. Of course the point is precisely that he does not understand it. If he understood it half as well as, say, Barry Ritholtz, or Yves Smith, or Andrew Redleaf (just the the names on the surface of my cortex), he'd know just how riddled with fraudulent pretension it is. He'd know that yes, of course, we need a banking system, but that what we have here is a metastasized monster that clearly sucks more wealth out of the community than it provides.

Which brings me to another hobbyhorse of mine.  That is: Wall Street isn't really business, it's finance.    And what the Obama crowd has done is to ringfence finance while letting business go pretty much its own way.  And this latter part--the non-finance part, the business part--is something that Obama seems just not to understand very well.

Consider his resume.  In some ways, it's an amazingly rich and diverse panoply of experience, and it provides much that enhances his capacity to do his job.  But as the old snarl goes, "have you ever met a payroll?"  --I think the answer has to be "no."  He just doesn't seem to have much of a feel for what business do, and how they do it.

I don't want to glamorize here.  There are plenty of businessmen who are crooks and god knows there are more than enough who are just incompetent.  But there are an awful lot (including, ironically, many of the crooks and scoundrels) who are just trying to get through the day.  I don't think Obama is actively hostile to them; I do think he is just not quite clear why  they are there.

Fn.: anticipating your objection--no, I don't think the other guy does, either.
--
*A reader objects: it's Geitner.  Point taken; if anybody shows even more supine servility before the bankers, it is our Secretary of Treasury.  But remember DeLong's  rule: the Cossacks work for the Czar, and Geitner has been in office for near-four-years now because his President wants him there.

Exxon: Being a Manly Man

 Were I not reading Steve Coll's gripping new  biography of Exxon, I would  not have not run across this gem, about the observation of an executive examining Exxon culture around 1990:

The executive was startled to discover at one point that the corporation's stop five leaders, all white males, were the fathers, combined of fourteen sons and zero daughters. 

"The mathematical probability that such a quirk had no basis in the corporation's social mores was low," Coll remarks drily. And quoting his "executive:" "'What is there in the culture here that promotes people with sons?'"  Actually, Coll has already suggested an answer:

Exxon recruited heavily from the petroleum engineering departments of the public universities of America’s South, Southwest, and Midwest. By locating its headquarters in Texas, the corporation placed itself in the landscape to which many of its long-tenured American employees belonged. Exxon maintained “kind of a 1950s southern religious culture,” said an executive who served on the corporation’s board of directors during the Raymond era. “They’re all engineers, mostly white males, mostly from the South.  .  .  . They shared a belief in the One Right Answer, that you would solve the equation and that would be the answer, and it didn’t need to be debated.”

--Coll, Steve (2012-05-01). Private Empire: ExxonMobil and American Power 

 (Kindle Locations 868-871). Penguin Group. Kindle Edition. 

Man, I wouldn't have lasted there five minutes.  No, strike that: the security alarms would have howled as I walked past the front door.

Afterthought:  Has it changed?  Dunno, haven't finished the book yet.

Seemed Like a Good Idea at the Time

I think it was Peter Drucker who said one of the toughest things about being in business is knowing what business you're in.  He seems to echo the--largely folkloric, but still instructive--story of how Western Union took a bye on the telephone business because they were in telegraph, not telephone.  Readers of Connie Bruck's superb When Hollywood Had a King--about Lew Wasserman, the entertainment bigfoot--will relate.  Bruck's is one of my all-time favorite business books and no small part of its appeal is that it shows how Wasserman woke up every day wondering whether he was in the same business he had been in the day before, and how to respond to any changes he encountered.

With the benefit of hindsight, I'm wondering if Jeff Bezos  ever met Lew Wasserman.  It's  becoming clearer every day that (a) what Amazon is selling is not machine, but content; and (b) that Amazon blew it by failing to grasp the point. As my bud Larry (who watches this stuff more closely than I) said this monring: "the surprise is it took them a while to learn it.  Otherwise they'd have brought out the Kindle originally for $50 instead of close to $400. And they'd totally own the market."  Indeed.  Or just fired them down Main Street out of a cannon.  

Never Go Into a Business that Other People Do for Fun

Somehow I'm thinking of Max Bialystock and  his little checkie weckie:

No fewer than 3,812 full-length movies were submitted to the 2011 Sundance film festival. Yet only 550 films open in American cinemas each year, and most lose money. The business runs on hope.

Link.

Small Business Confidence: Say Again?

I can see how they say that economic confidence among American small business owners is "plummeting:" here's a major index that is down by 14 percent. That's the lowest since they started counting, though in fairness, they started counting only in 2006.

But wait: the new all-time low is 76.5 percent--having fallen from 88.5 percent. That leaves it still more than half again ahead of the highest-ever major league baseball batting average (achieved by?--guess first and then go here). From there is an inevitable conclusion: small businessmen are insane optimists. I suppose they have to be: few things in life are more hazardous, more doomed to failure, than opening a small business. Heaven save us from a world run by realists.