Upturning, in a Downturn

Once again, that Snake Guy advises

While helping a client quantify the financial rewards of social media I received a call from the reader many of my readers referred to as “that snake guy”. This stemmed from his response to a question I asked him back in the toughish times of 2003. I had asked him how someone should behave during an economic downturn. His answer was simple: They should “act like a…snake.” This caused a lot of comments from my readers, many using very colorful and pointed language.

Since he was now on the phone, and the country was involved in yet another downturn, this one nasty, I couldn’t help but ask him how he would approach things if he were not retired. Below is the brief but useful conversation. Clearly, his tendency toward boisterous, strong opinions has not faded with his fame.

"Well, come on Tal, read your own stuff! An enemy in chaos is prone to remarkable stupidity. Look around. A lot of management can't think on their feet anymore under the best of circumstances and many of the guys that still can are freaked out right now. They're managerially paralyzed, worried about how the board and equity holders will react to good old fashioned decisive CEO behavior. So they’re just focused on keeping the ship steady. No unnecessary rocking, thank you very much."

"So, what would you do?"

"Me? Simple. I'd double down. Just double down on where I wanted the company to be."

"You mean as in gambling?"

"That's right. 21."

"But what about pulling in and retrenching?"

"That's for idiots," he said laughing. I could easily picture his self-assured smile. "Look around. Now is a great time to be daring or even audacious. You're always talking about the competition being The Enemy, well, now is the time to figure out what your competition's got that you want and go for it! Just DO IT! Don't act for today. Act for tomorrow. Don't worry about pissing people off because they're gonna be pissed off no matter what you do. Hey, change is gonna happen anyway. You might as well make it in the direction where you want it to go, right?"

"So you would be on the offensive?"

"Damn straight. I'm buying."

"Buying? Now?" This struck me as contrarian but shouldn't have, given the source.

"Sure, nobody is going to be making much money for a while anyway. So making a little less because you bought some assets, well, so f’n what? Just make sure they're the sort of things that help you down the road." He paused then added, "Plus, it shows you're confident."

"Well, brave anyway."

"Of course. But that's a given. You have to be brave. But then good senior managers, hell ALL good managers, have to be. Show me a senior manager that isn't brave and I'll show you a problem."

"A problem to who?"

"Himself. Because if he worked for me he would be looking for a new job."

With that, the conversation moved onto (in approximate order): my daughter in Boulder ("You're kidding! She's now in college? Didn't we advise her on how to grow a babysitting business?"), Gene and Georgetti's steakhouse in Chicago ("I wouldn't say THE best, Tal. But damn close."), Emirates airlines First Class to Dubai ("Actually I've heard there's not much privacy in those new suites but with the right companion it would be fun [to try some funny business], Dubai's Sheikh Rashid Al Maktoum ("What's with all those islands?") and, of course, president elect Obama ("Well, I'm hoping...").

So, it was an interesting conversation. Take a moment and consider—maybe this is the time to "double down" not hunker down. But you will have to be brave.

Think about it…

Preventing Systemic Failure (Things to Look Out For)

Over the last several years one of the nice things about doing the Corpwar newsletter are the conversations I've had with smart, influential people (most of them here in the States but also in the EU and a growing number in the Pac Rim and China). Occasionally they will send along books or papers or links to interviews they've done (Note: apparently being on The Daily Show isn't as much fun as you might think...).

One paper came as a result of a conversation with Bob Prieto. He was the chairman of Parsons Brinkerhoff (think Bechtel). Bob, a nuclear engineer by training, is one of those people you meet and realize, very quickly, you are probably not the smartest person in the room. At the time he was an SVP of Fluor Corporation and was part of the Fluor pitch group for doing work on widening the Panama Canal. That's the scale of Bob's world. Pretty big. Actually pretty huge.

I had called Bob for some advice and the conversation turned to the condition of our economy at the time (it was 2008) and how we got into that dire condition. His take was fascinating. After the call he sent me a paper that uses the construction industry as an analogue to the economy (and vice versa). It's intriguing, especially since it was written around the time the economy tanked. It makes you realize nothing really happens in a vacuum and not much is truly invisible before it becomes a huge, grotesque mess. If you Google Bob Prieto and Black Swans you’ll get a good taste of his insights which are remarkably impressive.

If you take the time to read the short paper it will likely make you think in terms of cause and effect in your own industry and business. When one thing happens, all potential outcomes are somehow effected and possibly remapped entirely. I find particularly useful the paper's framework of the “analogue” (understanding one thing to understand another).

Bob's paper, which at only six pages is very tightly written, addresses several categories of vulnerabilities inherent in highly engineered systems. But the thinking is remarkably portable to systems I guarantee you have, in some form, in your business as well (or your house for that matter).

For example, Bob discusses the vulnerability of tightly coupled systems that go unidentified as such by management. This is very scary because what may look like RANDOM EVENTS can actually be highly coupled. He provides a simple example of a fire in a small building outside of Chicago that disrupted telephone service for much of the country. Why? Because (to quote the paper) "It seems that most transcontinental land-lines passed through that single building and they were destroyed in the fire." Excuse me? How could somebody not know, or know and not do something about, that vulnerability? He gives another example of why the price of anti-freeze went up 300% a while back. Turns out ethylene glycol was made in only two places here in the States and one of them, a small plant in Idaho, burned down with the obvious price result.

Bob also discusses the risk of failing to KISS (Keep It Simple Stupid), inadequate core capacity (and lack of key redundancy), the danger of positive feedback loops (aka progressive failures—which, as an effective recruiter, I was often paid to induce at target companies) and other strikingly relevant concepts. So read the paper. It's short and punchy and can help you ask questions that could potentially save your company, your equity holders, and you.

Bob has graciously given me permission to "spread the paper around" so feel free to forward it. I guarantee it will lead to some interesting and likely useful conversations.

What We Seem to be Forgetting & Why We're in Trouble

AKA: If your head’s comfortably in the sand, just fire yourself.

A finance journalist, and reader of this occasional newsletter, called last week to ask what I thought about the $700 billion bailout plan. The conversation quickly expanded into a discussion of, "What happened?" He was referring to the larger picture, as in “What happened to us (the United States)?” Basically, he was asking what happened to Chrysler, Wall Street, Main Street, you and me, etc. In fact, as I write this on Monday the Dow is down 400 (four h-u-n-d-r-e-d) points.

Well obviously, it's complex. But I think a lot of it stems from 9/11 which was so classic it now seems grimly inevitable. I wrote about the tactic in a corporate setting in a Corpwar way back in 2003. Al-Zawahiri, one of Osama bin Laden's key strategists, knew the only way to bring us down, arguably the most “powerful” civilization in history, was to help us bring ourselves down. Aside from our spirit, America is also a business and as such we “behave” like a business. And all businesses have their weaknesses which are too often discernable to our competition (e.g. al-Zawahiri, or picture your own competition—there really is no difference). So al-Zawahiri helped come up with this cheap little plan, pretty crude really, and sent a huge arrow dead center into our economic heart. And, let's face it, it's been pretty rough sailing ever since. And if you don't think so, you and I don't live on the same planet.

If you think your business is any different you are part of the problem. You need to think better. You need to think stronger. We all work for our stakeholders. We OWE them our best, now more than ever, because things are starting to fall apart. And if we don't give them our best we should be replaced. Period. This is no time for dull, obtuse, thinking folks.

I've taken on the role of new business development for a candidate interviewing company (technically a spin-off) and have noticed a couple of alarming things. To put this in context the service does screening interviews of a client's "short list" of an open job's candidates and makes those recordings available to the hiring group so they can efficiently comment on whether or not they think a candidate would be a good fit to the position, the team, the company, etc. Pretty simple.

Now, managers that use the service typically love it because of the time savings but, conversely, some really hate it (actually loathe everything about it). When I drill in to understand why, it's usually because "things work well enough as they are". All I can say is, “Stop right there.” This is the kind of thinking that some clever guy in a corporate cave somewhere (a.k.a. your competition, some of whom you probably aren't even aware of) is waiting to exploit. This mindset insists "things are cool enough now, we'll survive". Really? Think again. If you're sitting around thinking your business is some sort of invincible fort I GUARANTEE you somebody, somewhere, is x-raying your walls to find weak spots. They are focusing on YOU, trying to find YOUR Twin Towers. And we all know the potential result.

Another thing I've noticed because of the interviewing service is the quality of many of the candidates (the resumes are supplied by the client's HR department, or retained recruiting companies, and we have no control over what we get). I do some of the interviews myself and listen to many of the others and I'm often shocked at what I hear. We typically interview 4-5 candidates per position and often 1 or 2, sometimes even 3 of these candidates are pretty poorly qualified for the position (even internal candidates up for internal transfer or a succession move). Sometimes egregiously so. 

It's just so vivid in the recording that they can't do the job you have to ask yourself, how did these people get on the short list? Sometimes, of course, our interviewing process lets somebody really shine that looks weak on paper (that's great when it happens, by the way), but more often we uncover expensive hiring mistakes waiting to happen. Often their only real skill is knowing how to game the hiring system. Thank god people like us help weed them out.

Look, you need to impress everybody around you, everybody in your company, that there are barbarians at the corporate gate, because functionally there really are. This is no time for lazy, yesterday thinking because competitors that need to eat are hunkered down trying to figure out how to steal your food.

This is capitalism folks. Your competition doesn't care if you starve to death.

Think hard about it...

Winning or Losing with Near Certainty

“Battles are won or lost before they are fought.”–Sun Tzu

Last week I received a phone call from a longtime reader that is out of work and asked me if I knew of anything (we keep both formal and informal lists of readers looking for fellow hard hitters). As a rule I'm sympathetic to involuntary unemployment since I know what it can do to a family. So I listened. A moment later I connected the name to the news and I tightened up. Although it was announced he had "resigned for personal reasons" everybody knows he was fired because of the poor performance of his company. I asked him what happened. He very articulately explained what I already knew because it had been given a lot of coverage in the financial press. I also looked up the stock price while he was on the phone—it was all right there.  He described how every time they (the company) went into a new market they were trounced, or nearly trounced, by the incumbent. "Suddenly they would deploy all these resources we had no clue they had. Nobody knew." Huh? I mean seriously…what?

Please. This guy deserved to be fired. If he was a military general in the battlefield, rather than a civilian one hiding away in his corner office, sons and daughters would be gone. A lot of them. I couldn’t get off the phone fast enough. A weak whiner. No wonder his company’s expensive efforts were so easy to defeat. All that equity holder value wasted. Poof!

Never forget: "Battles are won or lost before they are fought." Although it came from Sun Tzu a very long time ago there is absolutely nothing mysterious and illusive about this. The reader’s comment about "Nobody knew" is just plain lame—a genuinely ludicrous excuse for egregiously poor chief-level performance. Everybody in the other companies knew what was available to deploy against a new manufacturer entering their market spaces. The defeated guy on the phone was surprised when he should have been prepared for marketplace battle. His idea of being prepared for the worst, was expecting the best, and that’s what he provisioned for. And this happened to his company more than once! He should have been fired 8 years ago. I’m embarrassed the guy is a reader of this newsletter. It makes me feel like I’ve somehow failed.

Remember, the outcome is always decided before the clash. Business. War. Parenting. It’s all the same, folks. Only the stakes are different.

And this works all the way down through your company. Everybody in your company, including those in your department, should think like a good soldier. Always ask yourself what’s the worst that can happen within the timeframe relevant to your job scope. The shipping clerk’s horizon is different than the CEO’s but The Magic Question is the same: "What can go dreadfully wrong and what have I done to prepare myself, and my team, for it?"

That’s only one part of earning your paycheck and supporting your equity holders, but it’s a vitally important one.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”- Sun Tzu

Think about it... 

Mistakes--And What Great Leaders Do About Them

"If everyone is thinking alike, somebody isn't thinking."-General George Patton, Jr.

Genghis Kahn was always trying new ways to capture new ground. This is one reason he created an empire on a scale never seen before, or since. He would try something new and unexpected, and this would throw off his enemy. After all, it was new!

But, like any manager that is pushing the envelope, he knew there would be some failures. He would make mistakes. The key was that he encouraged discourse about them. He was not so wrapped up in his own superiority that he wouldn’t listen. Like any great general, or CEO, Khan actively removed impediments to the truth reaching him. Great leaders know they don’t know it all. Their greatness comes, in part, from creating open, sharing environments. They know it takes more than best practices—everybody wants to talk about those. A true leader ensures he knows about the organization's “worst practices” as well. Why? Because they know if you can’t see it…you can’t fix it.

So you have to ask yourself: “If I am aware of a mistake, what do I do? If one of my team makes a mistake what will they expect my reaction will be when I find out? And, typically, how do I find out?” Genghis Khan and his chief orloks, Subedei and Jebe (an orlok was a marshal) would sit around the smoky yurt (not much wood on the steppes so they burned dung) and talk about what tactics worked that day and what didn’t (although appearing chaotic, Mongol tactics were precisely engineered in advance). Occasional failure was an accepted cost of moving forward. Not admitting that a mistake had occurred meant someone in the vast organization might make the mistake again and they knew that was counterproductive; an unnecessary expense. So admitting to a mistake was the important, group oriented thing to do. Mistakes are always costly in some way—but you get a rebate by learning from them. And sometimes a big bonus…

One advantage of scrutinizing seemingly minor mistakes is because they can be precursors to disasters. Big organizational disasters, and Khan had only a few, almost always have weak inflection points somewhere in the event stream leading to the catastrophe. It doesn’t take much to imagine Khan and his orloks sitting around studying each mistake so it didn’t lead to a bigger one, which would in turn cause another, etc. Soon you have Enron or New Coke or Bear Stearns when somebody could easily have broken the chain. Corporate warriors never forget, big, sprawling mistakes don’t just happen. They evolve.

You can’t have your people hiding problems. You need to ask yourself: Do people around you in your organization hide the bad news from you? If so, why? What are they afraid of? Is it you personally, or the corporate culture? If either, you have repairs to make.

Finally, Khan knew that, as the leader (and this applies to any manager), it was imperative that he admit when he possibly made a mistake. If he didn’t, who would? Khan knew a fish smells from the head first.

Think about it…