Entrepreneurship

Entrepreneurs are typically micro-managers.  They believe nobody can do the job better than they can, and accordingly they often control every aspect of their organization to create their ideal vision for the company. And often that is when an entrepreneur is faced with a decision.  They can continue to micro-manage, which typically severely inhibits growth, but allows them control and sustains the vision.  Or, they can loosen the reins, hire really smart people that have diverse talents (hopefully talents the entrepreneur does not possess), give up some control, and try to guide the company to even bigger heights than they imagined.

There are pros and cons and risks to each approach.  But the one path that seldom works is straddling the two approaches.  You can’t bring in talented employees with the promise that they will be integral in growing the company, and then not allow them the freedom to do their jobs.

The entrepreneur that makes this jump successfully is self-confident enough to let talented individuals move the company to new heights, but also smart enough to recognize when they have made a bad hire that ultimately threatens the organization.

You would assume that any competent manager would always hire the most qualified and experienced person for the job.  But I have often observed that even very good managers sometimes “hire down” as opposed to “hire up”.  They pick a minimally-qualified applicant over much better candidates. Perhaps it is sometimes subconscious – they inately fear choosing a candidate that might be able to replace them.  Or it is more indicative of a need to control – a weaker employee is easier to control.

In any case, it is bad for the organization, and ultimately bad for the manager.  A great manager does not fear hiring someone more talented than they are.  They realize it will make their life easier, improve performance for the organization, reflect well on them with upper management (unless they are so completely incompetent that they need to go anyway), and ultimately will allow them to move up in the company.

Great managers always hire with an eye towards finding a candidate that can replace them – so they can elevate to new heights in the company, knowing they have a hand-picked talented team to support them.

I don’t believe in market timing, and I think investing (be it in the market, real estate, or almost all other potential investments) is ideally a long-term game. But as the chart I just received from blog-contributor Ray Link illustrates, the market certainly has hot and not-so-hot decades (and right now we are in a chilly one). Of course if you started investing in 1980 and stuck to the course, the current market is a minor annoyance and a blip on the performance screen. Personally. I am in this for the long haul, and see opportunity unfolding right now (since I plan on living a few more decades).

An Analysis of S&P Returns

Decade                Cumulative Return         Annualized Return
1930-1939                              -41.9%                                       -5.3%
1940-1949                               34.8%                                        3.0%
1950-1959                              256.7%                                      13.6%
1960-1969                               53.7%                                        4.4%
1970-1979                               17.2%                                         1.6%
1980-1989                              227.4%                                     12.6%
1990-1999                              315.7%                                     15.3%
2000- June 2008               -12.8%                                      -1.6%

I was hiking in the Washington forest last weekend with my good friend Jeff Merrick, whining about lawyers. I told a few of my favorite lawyer jokes, complained about how expensive and incompetent many of them are, and even pontificated a bit on how lawyers might ultimately be responsible for spreading rampant immorality in society (I will save the details of that one for a later blog entry.) I should point out that Jeff is a lawyer, so his patience with my ranting is indicative of his generally low-key and likable demeanor. (Qualities unfortunately not normally found in the legal profession.)

Like most business people, I have a love/hate relationship with lawyers. The good ones have been a tremendous help to me over the years. The bad ones (both those that have worked for me, and those that oppose me) have made my life miserable. And while lawyers are certainly necessary, it seems that society has somehow created a legal maze of bureaucracy with lawyers directing the traffic. And unfortunately, we have incentivized the lawyers to create traffic jams!

In any case, I will whine about the legal profession in detail at a later date. I do acknowledge that it is easy to complain from the outside, and since I am not an attorney I really can’t understand the pressures and situations they face. Accordingly, I asked Jeff to pass along some advice from a lawyer about how to control lawyers, and his guest blog follows. Here is his sage advice: [click to continue...]

Despite the fact that I never intended this to be a financial blog, given the recent market turbulence we have been financially-focused. Accordingly I would be remiss not to acknowledge the passing last week of Sir John Templeton, the brilliant contrarian who founded The Templeton Growth Fund and ran it until he sold it in 1992.  Here is a stat that will make your mouth water in this market:  $10,000 invested in The Templeton Growth Fund when he founded it in 1954 would have returned over $2 million by the time he sold it! 

Templeton had a talent for recognizing true value.  He bought Japanese stocks in the 1960′s when the Japanese brand meant “cheap and disposable”, and sold technology stocks in 2000 when others were still rushing in, correctly surmising that the market exuberance was not based on real value.

After he sold his fund he used his big brain to concentrate on philanthropy, eventually endowing his foundation with over $1.5 billion dollars to study what scientists and philosophers call “the big questions”.

And today’s investors might find Sir John’s words particularly insightful in the current market. “The time to buy is at the point of maximum pessimism”.  

Ray Link’s recent guest blog was one of our most popular entries!  And today I am pleased to present a guest opinion from another financial expert with a slightly different perspective.  Doug Johanson is one of the Northwest’s leading financial managers, and I have always known him to take a sensible long-term perspective towards the market.  He advocates discipline in investing and stresses a long-term approach towards the market.

Of course, right now investors are finding their resolve (and nerves) a bit tested.  As I write this the Dow is off another 250 points, diving into areas I frankly did not think it would hit. Last night as I drove home I listened to a very pessimistic George Soros on NPR essentially advise investors to take their money and bury it in the back yard to avoid what he believes is the coming really big meltdown.  But sometimes the Warrior finds opportunity when other people run in terror, and I personally find myself conflicted.  Though I am not a market timer, common sense and a historical perspective towards the market is giving me a buy sign, yet these are weird and wild times. Filling your tank might require taking out a home equity loan (if only you could get one), and the once venerable General Motors has a market cap smaller than Hooters.  So, lets listen to Doug’s calm and rational advice, and hope he is right. [click to continue...]

I was having dinner the other night with my friend Ray Link – a very smart guy that understands numbers. Ray mentioned he had just completed an analysis of investing in the stock market over the past decade compared to taking the safe route of parking your cash in a money market. After looking at the data, I asked Ray to be my first “guest blog”, as his numbers are pretty compelling. Now to put things in perspective, I am an ardent believer in dollar cost averaging and taking the long approach to investing. If you have the proper time horizon, asset allocation, and discipline, I would always advocate that the market can provide the best return. But Ray’s analysis clearly shows the market risk at shorter time horizons – even though many might not consider ten years a short term investment. Here are Ray’s conclusions in his own words. [click to continue...]

My good friend Jonathan Sills passed along an interesting list of “Common Mental Mistakes” that I think we can all relate to. The list was originally developed by Whitney Tilson, and it occurred to me that I see many of these mistakes occur in my own business and among friends and clients on an almost daily basis -

Common Mental Mistakes

1. Overconfidence
2. Projecting the immediate past into the distant future
3. Herd-like behavior (social proof), driven by a desire to be part of the crowd or an assumption that the crowd is omniscient
4. Misunderstanding randomness; seeing patterns that don’t exist
5. Commitment and consistency bias [click to continue...]

One of my company’s competitors recently did us a great favor. One of their biggest clients was a bit dissatisfied, and began looking for a new agency.  The potential client made it clear to us they were not ready to make the big switch, but wanted to work with someone else on a project “just to test the waters”.

Unfortunately, while I welcomed the opportunity to win their business, I was all too familiar with the scenario, as it sometimes happens to us.  Business relationships are a little like dating.  Even if things are going really well, people are tempted to look around every now and then.  Often through this process, they discover that the one they are already with is the best choice for them.  And if a competitor really does do a better job for them, we deserve to lose the business anyway.

So when a client gets a wandering eye, we act maturely, try to talk them out of it, but ultimately if they are resigned to try someone new, we graciously let them go, and tell them they are always welcome to return if things don’t go well.  Most of the time this is a great strategy and they return.

However, our competitor took a different tact, and when the client told them they were going to try working with us, he became very emotional, and essentially told the client to “get lost”, assuring that the business would never return.   He then proceeded to make the transition as difficult as possible for the client.

Months later we still have the business, and the memory of the good work the previous agency did is all but forgotten, instead clouded by their immature actions when they lost the business.

Losing gracefully is always a good idea, and in business it is especially essential. Business environments and situations are constantly evolving – people move around – and opportunities close and re-open in unexpected ways.  Clients fondly remember the companies that treated them respectfully – and have even longer memories of those that didn’t.

Adam Mcfarland, a fellow blogger and entrepreneur recently blogged about what he calls the, "Please Fire Me" worker. Adam describes this type of worker as the employee who does only the amount of work necessary to avoid being fired; this particular behavior commonly occurs right before a employee intends to leave the organization.

Interesting Phenomenon Adam!