Graduation Speach

Recently I was filling out some tax forms at a bike shop I’m going to work out. Retail isn’t exactly the job I hoped to land immediately following my graduation from business school, but it pays the bills and allows me to pursue two of my real passions, buying bicycle related gear and working on some business projects of my own that aren’t producing revenue yet. I had to put my parents address on the tax forms because I am not sure where ill be living 2 months from now. The store manager said something I really liked. He said, “I just laugh when young people give me their current address, ‘yeah right’ I tell them.” I have had my MBA for almost a month now and not much has come of it, this is the same for many in my class. It’s terrifying really. It’s also agonizing to think about all the unused talent floating around in the double-digit unemployment numbers.

My unemployment does give me a lot of free time though. Time I have spent reading a lot of start up buzz, blog posts and web comics. Being such a wide-spread problem, the low employment numbers for recent grads has prompted a lot of press and a lot of thoughtful writing by some people who have the benefit of both experience and comfortable employment. I have neither of these, yet I would like to compile my learning from the reading I’ve done to comfort other recent grads as I have been comforted myself.

Every one feels a great deal of anxiety about becoming something worthwhile at this age. Whatever your definition of worthwhile, the question, “So what are you doing next?” while harmless in its intent, has likely flooded your sub-conscious with a dragging guilt at not having a decisive career plan set and started at age 22. Maybe you have one, maybe your executing it, but if you think either of those are true you are kidding yourself. Think about it this way, how old are you parents? Probably 40’s to 50’s, how many places have they lived/worked/gone back to school since they were 22? If the answer is below 3, are they happy? If they are, how many of their friends could say the same thing. If they aren’t happy, do they have plans to change? The retirement age for us is likely to be in the mid to late 70’s. that leaves about two times the time you’ve been on this earth so far. And you spend the first 13 years of it nearly completely disabled by an under developed brain and crippling hormones. You have two of your current life-times to figure out what you want to do and to amount to something. So don’t settle down just yet. Leave time to explore, travel, learn and work at something you love. The opportunity cost of having it all figured out at age 20 something is pretty high.

human or computer

I have friend who hates her summer job, and rightly so, it sucks. She’s an intern in the alumni relations office at the university we just graduated from. The task she has been given for the last few weeks has been to search facebook and linkedin manually for names from a list, record job information if its there and mark whether a facebook account exists so that the alumni can be friended or invited to a group later. This is not only tedious and repetitive, it takes no real judgment calls. There is no need to think critically or make tough decisions, just type, click add to the spreadsheet. If something is this boring, can probably be done by a computer.

If the University had hired a computer science grad to write such a program, it would take a fraction of the time and would continue to work after the internship was over. It would also provide the CS major a chance to practice his skills while freeing my friend up to something that actually engaged her mind and her skills. The costs for everyone involved are pretty high. The university pays a graduated student to type and click 8 hours a day, five days a week for an entire summer. My friend spends that time hating her job and distracting herself with Gchat when possible and somewhere a recent CS grad is out of work.

So why does her job exist? Because that’s how they’ve done it before, because no one has thought critically about the problem and because if my friend suggested it, she would think herself right out of a job. Its easy to hire someone for a job a computer could do. They are cheap in this market; you can interview and manage a person, which gives HR something to do, and since you are a person, you know generally how people work. But people like to think, they don’t like to act like computers, and when they do, they are slower at it. They are also more expensive in even the medium term, and they make more mistakes. If something is repetitive or involves data input or collection of any sort, think long and hard if it can be done by a computer instead of a person, you will save everyone involved a lot of stress and money.

Does this beard fit into that niche?

I recently decided to grow a beard. It started because my electric razor’s charger blew up when I plugged it into a 220 volt European outlet, and became a bit of a joke between me, and the guy in the mirror. While the general consensus was that facial hair of such a beardy nature would be a hindrance with the opposite sex, a friend of mine had a different logic. The clean-shaven heard was competing for the clean-shaven-appreciating heard. According to his logic I was competing in a niche market. While perhaps a decidedly smaller number of girls appreciated my rugged appearance, the supply of bearded men is much smaller than that of the clean-shaven. In his words, you could go to a party in a chicken suit, and while most girls may think you’re obnoxious, 5 will think your funny and that’s 4 more than you need.

 

Another friend of mine is a clean-shaven, 6’5”, model. He has had decidedly more luck in his flooded market than I have in my niche one.

 

This analogy sheds a bit of light on the traditional view of the niche market. First the preferences of the niche may include that which is actually disliked by the majority, not merely un-preferred. By competing in a niche, are you alienating the majority and limiting future growth? Second, the market for 6’5” models is nearly everyone, how can you differentiate in a way that applies to the entire market, not just the niche?

Kumquat Theory

The kumquat theory is when a concept reaches the forefront of your consciousness and your subsequent increased awareness of the concept leads you to believe in coincidence.

 

Take for instance the day you first learn what a kumquat is.  In the coming week you will undoubtedly see kumquat soda at your local coffee house and kumquats on sale at the grocery story.  Now, it is not that kumquats are new to any of these locations, just that you now recognize them.  But you are likely to view these events as coincidences, “funny, I’d never heard of a kumquat till last week, and now I see them everywhere.”

 

Coincidence can be a very compelling selling point.  If you can induce “kumquat experiences,” you can likely induce further exploration and even better, execution.  I’ve seen this happen time and time again with business pitches, new products, restaurant suggestions, or job candidates. (When pitching this to your boss it may be best to not say you want your new product to elicit “kumquat experiences”)

 

The disclaimer of course: once you garner the attention you desire from the contrived/serendipitous coincidence, you have to have something to back it up. If the first kumquat soda you try, after learning what they are, sucks, it doesn’t help other kumquat products.

Elementary Algebra

On one of my first days in class as a first year MBA student, my professor walked in and wrote this on the board:

 

P*V-C=$

 

He then proceeded to say, “This is what business is all about, sorry you paid so much to learn it.”**

 

This beautifully simple equation continues to be a great framework to evaluate businesses and thing about strategic decisions. Anything you do within your business should pull one of these levers:

 

Increase price

 

Increase volume

 

Decrease costs

 

When you pull these levers, you make a bigger money machine.

 

If I was going to organize a business, I would have one member of the C-suit in charge of one letter. There would be a CEP, CEV, CEVC, CEFC. CEP is in charge of what amounts to marketing – figuring out how to make a product that people will pay for and how much they will pay. CEV is a combination of logistics, marketing, and advertising. CEVC and CEFC are in charge of operations and finance.

 

With the understanding that this is a dynamic formula (it is nearly impossible to increase price without decreasing volume and there is often a trade of between fixed and variable costs), the CEO’s job is to coordinate efforts. Coordinate and optimize.

 

**there is of course one more wrinkle, the difference between fixed and variable costs. The formula is P*V-VC*V-FC=$

Let the games begin…

First off, this going to be one of those narcissistic blogs. We have several checkpoints and feedback loops established to avoid any sort of digression in that direction. Anything remotely approximating, bordering, or second cousins to Ego are for humor’s sake, not that we are claiming to be funny. We are young, naive, and will not pretend to be a value-add for anyone other than ourselves. The purpose of this blog is to document things that we believe make successful businesses, mistakes that smart and/or powerful people make*, and smart lessons that other intelligent people have taught us, all in the hopes that one day we can compile this into a functioning career.

Let the games begin…

Opportunity cost (for those Art History majors out there who didn’t take an econ course or never made it to class because sleep seemed like a better alternative) is the cost of forgoing your next best alternative. An example: the time and energy we spend writing this blog could be put to use doing any number of productive things. We must narrow the options down to the “next best” forgetting about things like collecting Subway coupons, selling toothbrushes on eBay, buying toothbrushes on eBay, alphabetizing our CDs, or trolling the Craigslist personals as all of these things (except maybe Craigslist personals) clearly hold little value. We should probably also not include creating world peace or training for the World Mixed Couples Badminton Championships, because given our resources (skills and time) this is not plausible.

Obviously the debate can get complicated. But for arguments sake we will say that my opportunity cost is the education I would get from doing the mountains of post graduate work I have assigned to me on a daily basis, and my sister must forgo a few minutes every day of making sweet excel models. Given that she is paid to make sweet excel models and I pay to do homework one might call the cost of this blog a rather hefty one. But, all that it really means is that this blog is super valuable, so valuable, that we sacrifice our invaluable would-be-work time to do it.

You must promise us to memorize and thoroughly understand this entire definition with all of its nuances and rambling asides, including this important subtlety: too often people evaluate the short-term opportunity costs when they make decisions. They don’t consider the third and fourth iterations and consequences of a decision. This is probably because there is a vast amount of uncertainty about the future; however, that does not mean it is worthless.

Anyway, opportunity costs are important. They are particularly crucial in the strategic sense. Evaluation of opportunity costs, including the unknown consequences, is strategy at its most basic and effective level. This blog is going to be dedicated to evaluating businesses and situations that we encounter on a day to day basis with an eye towards strategy and mouth towards, “what we would do differently if we were running the show” or “what we think is working.” In addition, we’ll try to include smart thoughts that other people have had that might be useful and/or entertaining.

*We are still trying to establish the correlation between the smart and powerful

**Disclaimer – neither one of us can spell or edit appropriately. You can expect to see AND where there should be an AN on numerous occasions.