For People Who Live Their Work

I grew up in a small middle class house in Billings, MT. My father bought the house in the late 1950′s, and worked hard – frequently making double payments - to pay the mortgage off in 15 years. He and my mother lived in the house for over 25 years, and when they decided to trade-up they had saved enough money to pay cash for the difference in price to the new house. During the 25 years he lived in the house he never refinanced it, nor  was he constantly having it appraised to see if it’s value had increased.  There was no reason to do so; it was his home, not a real estate investment.  After twenty five years the value had increased – in fact it had about tripled in value – but if you really run the numbers that amounted to a return of a little over 5% a year – a decent but not stellar return.  However, when viewed in the long-term it was a safe, stable, and smart investment.  People of my parent’s generation valued the concept of home ownership for the long-term.

We all know what a mess the housing market is now.  Banks loaned money to people that could not afford the loans.  Interest rates rose, housing prices plummeted, many homeowners could no longer afford to make their payments, and now we have empty houses and people without homes.  The unethical banks are at fault.  The people that bought houses they could not afford are at fault.  And the taxpayers and those that did no overextend pay the price.

I understand the difficult situation of losing your house because you just can’t afford to keep it. But amidst the foreclosure statistics there is a more insidious kind of investor.  The homeowner that bought a house at the top of the bubble, can still afford to make the payments, but seeing the value of the house plummet they choose to walk away.  And when they walk all of us ultimately suffer.  They have taken a home loan and turned it into an investment real estate loan.

For a credit qualified buyer, the interest rate on a loan for a home is one of the best deals around.  Even seasoned and well-capitalized investors pay much higher rates to finance investment real estate.  That’s because it is a riskier investment for all involved.  The bank understands that the investor could potentially walk away.  They understand that commercial real estate prices can fluctuate wildly.

But when it comes to home loans they anticipate that the borrower has a much greater self-interest in making their payments.  The home loan business was built on  borrowers with my father’s generation’s attitude about home ownership – not the current generation that see’s their home as a rolling real estate investment.  People that can afford to make their home loans, but choose not to do so, change the game for all of us, and may ultimately raise the risk parameters – and ultimately the interest rates – for the people that do pay their bills.

I was thrilled to see the administration take on Goldman and attempt to put some much needed financial reform and regulation in place. Much of the impact of the financial crisis could have been avoided if thirty years ago we had not allowed the Reagan administration to eliminate many of the safeguards that had been wisely put in place after the depression.  Public companies have no soul – they only live to grow.  And when we remove all barriers to their growth we get institutions too big to fail, too complicated to understand, and with the ability to bring us all down.

So, while I was suprised at how long it took to address the problem, I was happy there was at least some momentum.  I was also disappointed to see that the Republicans are unwilling to back even the most essential reforms.  These are nasty political times, with the Right Wing so angry I doubt they would agree to anything Democrats might advocate.  I suspect that if Obama introduced legislation “to allow every American the right to breathe” the Republicans would find a reason to fight it.  

But it is equally disturbing to see how quickly the Democrat’s ethics disappear when money starts to flow, as the big banks try to buy their way out of this scrutiny.  In 2010 the securities and financial sector has dumped $5.3 million into the coffers of Senate Democrats – three times the amount donated to Republicans. Senator Chuck Schumer has received $1.4 million, Senator Kristin Gillibrand $630,000, and Harry Reid $530,000.  Banks and Democrats would seem to make odd friends, but soul-less corporations have no real political affiliation – they will support any person or group that advances their goal of profitability; like parasites that have found a way to feed their prey so they can continue to gorge themselves.

Perhaps this points out the reform that is most needed in this country – campaign reform.  As long as we have a political structure built on incredibly expensive elections that force candidates to spend their time begging for donations, and allows major corporations the same status as individuals, we will continue to suffer a system that is filled with undue influence and corruption brought on by big business.

Here’s an interesting stat on the state of cable television. In the US, over 800,000 households that previously had subscribed to cable TV have “cut the cord” and cancelled. Of course, that might seem insignificant compared to the 100 million households that still subscribe, but my guess is that this is only the beginning. We are in the midst of a profound change in the way we watch and interact with television, and the cable providers and television programmers need to change their model to prosper in the long run.

I pay almost $140 a month to receive premium cable that delivers the ten or fifteen channels I regularly watch, and the other hundred and thirty or so that I ignore. Some consumers are choosing to drastically reduce their bill while still receiving almost all the entertainment. The convergence of television and the web, easy downloading, efficient DVD delivery systems, and an increasing amount of content have made it easier than ever before.

• Buy an inexpensive antenna, and you can receive many basic stations for free. But this is not the snowy on-air signal we hated when we were growing up – now it’s in high def! One time cost for the antenna – $20 to $80.

• Buy a Tivo, or other Blockbuster, Netflix and Amazon Unboxed-equipped device that can accept downloads. You might already own one that has this capability. Samsung, LG, and even Wii now allow you to download for free from these and more providers. As the Apple iPad expands, consumers will also get more comfortable paying download fees for video, and I suspect the underlooked Apple TV will grow in popularity.  Cost for the hardware if you don’t own the right equipment – $200 and up.

• Sign up for a download provider. My favorite is Netflix. For as little as $9.00 a month you can get DVDs in the mail, and unlimited downloads to your TV. You can choose from thousands of movies and full television series. So while you won’t be watching “24”, Desperate Housewives, or The Tudors on the same night they are released, you can watch them a few months later on your schedule for a fraction of the price.

• Connect your computer into your television to watch other network episodes through Hulu, ABC.com, and the other online sites that allow you access to all kinds of programming.

So for an investment of a few hundred dollars at the most, and monthly fees of less than ten bucks a month, plus maybe another ten or fifteen dollars for download rentals, you can essentially create your own little personal television network, programmed with the programming you want to watch, and on your schedule.

Now I am not predicting this will lead to the immediate demise of cable television. I’m too lazy to cancel cable, and there are features I still enjoy. But if I was a cash-strapped, technologically adept young person I probably would not be paying for cable, just as I would not be paying for a phone land line. And as that generation ages, they will have a different attitude towards cable TV that advertisers, programmers, networks, and cable providers need meet.

Let me begin this with the caveat that sometimes I am unfortunately a jerk to do business with. I have been unreasonable and abusive to suppliers, and on too many occasions have been a pretty unpleasant guy to do business with.

But in watching my own company’s interaction with difficult clients from the service provider perspective, I have come to realize there is a high price to pay for being a jerk, and I have often just hurt myself and my company by not operating in a real spirit of cooperation with those I buy from. Businesses perform best in a real atmosphere of cooperation, which has made me more focused on creating real partnerships with those I buy from.

In any service business you should anticipate demanding clients, and being demanding is not a bad thing. Demanding clients are doing you a favor by making your operation continually improve performance. Clients that are honest and direct about their needs help suppliers build their capabilities and expand their own business. And as the book says, “a complaint is a gift”. I appreciate a client that lets me know when we are not performing so I can fix the situation.

But there is a big difference between being demanding, and being abusive. Cross the line to abusive and you create a dysfunctional relationship, and ultimately nobody performs to their best. Sometimes even good people unwittingly slip into the abusive category due to the many pressures of the workplace. You have crossed the line if you are doing the following:

1. Scream as your normal mode of communication with your supplier.

2. Consistently call your supplier at home very early and/or very late because that’s when you get your best work done.

3. Insist your supplier work on major holidays just to prove their loyalty to you. Certainly, emergencies do happen that require attention over holidays, but forcing people to leave their families and work just because you have the power to do so is a bad idea.

4. Continually disrespect your supplier’s time. Certainly a good service provider should do their utmost to accommodate their clients’ schedules, but if you consistently show up an hour late for conference calls, cancel meetings at the last minute as a matter of practice, and basically leave people continually waiting for you, you have crossed the line.

5. Abuse your supplier financially. This includes continually grinding suppliers for discounts just because you can, refusing to pay bills for no good reason, demanding additional discounts before you pay a bill because you are holding the supplier hostage financially, and otherwise forcing your supplier into a situation where they lose money working for you.

6. Use your supplier as a scapegoat to the boss. Too often people are afraid to accept responsibility for their own actions and find it easier to blame a supplier when a mistake occurs.

7. Steal from your supplier. Time is money, but too often people have suppliers spend a lot of time preparing proposals, plans, bids, and ideas when they have no intention to purchase – then take that intellectual capital and use it without any form of compensation.

If your relationship with a supplier has reached a point where you constantly have to be abusive because of their failure to provide adequate service, it’s best to do everyone a favor and fire them.

Ultimately, there is a high price to pay for being a jerk. While there are always companies willing to work for abusive clients (especially in this economy), they are seldom best in class. Or, because of the burnout factor of working with abusive clients, companies ultimately migrate the junior teams to the worst clients.

Over the years I have unfortunately had to “fire clients” that I could have really helped, but the dysfunctional relationship was too harmful to my organization. In the end, abusive clients end up working with substandard suppliers. Sometimes you even encounter companies that have nurtured abusiveness within their organization to the point it becomes a dominating feature. In the advertising industry there are a few clients renowned for being mean, and the most talented agencies refuse to work for them.

Being a jerk is also a dangerous professional move. Over the years I have known a number of notoriously abusive individuals working on the client side that lost their jobs, only to discover that their nasty reputations made finding employment very difficult.

The client that is demanding – but reasonable and professional – always gets the best work. Being nice makes people want to do their best for you. It costs nothing and pays big dividends. And with that said, I am going to endeavor to take my own advice. Wish me luck.

Over the last few years there has been a lot of angst in the advertising industry over the use of DVRs (digital video recorders). Quite naturally, advertisers assumed that given the opportunity, viewers will zap through ads. On the surface, research seems to support this. As of the last Nielsen survey in 2009, approximately 30% of US households owned DVRs, and they estimate that approximately 68% of DVR owners use the technology to skip ads.

But look a little deeper and you can draw different conclusions. A Millward Brown survey of 1000 US households of which 400 had DVRS showed no decrease in recall or prompted recognition of commercials among the DVR users in comparison to non-DVR households. Researchers attribute this to the fact that if you are zapping through a commercial you actually have to pay closer attention to it to make sure you don’t speed through programming.

As I dedicated DVR user I can attest to this fact. While I zap most commercials, I am watching them carefully, albeit at high speed. And when I see a product or commercial I am interested in, I stop and watch the commercial carefully – sometimes twice.

My admittedly biased but logical view of DVRs would lead me to the conclusion that direct response advertising bodes much better in an “ad zapping” environment, for several different reasons:

1. The highly graphic nature of DRTV, and the modular design of most good direct response is much more understandable in fast forward mode than most traditional brand advertising. Testimonials with graphic support, before and after shots, call to actions, and clear demonstrations can still be comprehended at high speeds. High concept brand advertising does fare well in comparison.
2. Viewers watch DRTV with a much higher level of involvement. Unlike watching a traditional commercial it is not a passive activity. You are ultimately expected to take action. So the DRTV viewer typically has some level of interest in the product and is interested to learn more.
3. DRTV formats are longer, so even if you are zapping you are carefully watching a longer message.

Per my final point, I also strongly believe that consumers want to be sold to, and that is why DRTV works. At our agency we know from experience that if you list an infomercial in the program guide the results go up. Consumers are tuning in when they see a Murad, or Bare Minerals, or a Bowflex ad because they want to know more about the product. If used properly the DVR many ultimately be a asset to DRTV because it would allow consumers to watch the sales message they want to see on their own time schedule.

More than a generation ago Chairman Mao embarked on a radical make-over for China that resulted in their Cultural Revolution. Long story short, the chubby communist decided that it was best to turn over the country to the common folks, and get rid of all the smart people. Professors, writers, and most of the nation’s intellectuals were either killed or moved out of their offices and into the fields, which ultimately resulted in China staying at the bottom of the international food chain for almost fifty years.

But it turns out that smart people are actually good for a country and its economy. They have ideas. They build and invent things, and help society operate more efficiently. They cure diseases and invent iPads. They help spread the wealth. They bring joy to society through art and entertainment and hope. The leaders that followed Mao realized this, and quickly opened society back up and let the smart people do their thing. They improved their educational system. They encouraged people to use their brains and their initiative. They allowed society to reward good ideas and hard work. The result…. in a few short years China has risen from a pauper nation into a world economic power.

Seems like a simple lesson that America can especially embrace. After all, we really perfected Capitalism and a society the stresses innovation and rewards great thinking and hard work. And during this economic crisis, it would seem that we could especially use a lot of both to pull us into better economic times.

So I am confused when I hear uber-conservatives blast brainpower as if being smart were some kind of crime, and wear their ignorance as a badge of honor. I was watching a little of my favorite sitcom network the other day – Cspan – when a Southern Congressman went on a rant about “Progressive Intellectuals”, as if the words were synonymous with “goat rapist”.

“I am not a progressive, and I do not support these so-called intellectuals that would lead us to socialism”, he screamed. He went on to pine for the “good old days in America”, which is really code for a time when society was dominated by middle to upper-class-white men. And I realized that if he had his way, Congressman Foghorn Leghorn and his cohorts would lead us into an American Cultural Revolution, and create a country that values a fictional past over a progressive future. They want to spearhead an American Taliban that would drive us all back a generation or two. Create our jobs in coal mines and cotton fields, and have us drive quality autos like the 1984 Mercury Marquis. Put the women-folk back into the kitchen and whore house where they belong. Don’t worry about global warming, or education, or building an equitable society….. instead let natural selection run its course and chew up the weak.

The truth is we need big-brained people to help think our way to a better world. The internet, life saving drugs, solar energy devices, digital cameras, organic farming methods, and digital television were not developed by bearded guys living in caves or rednecks that still think the world is only 6000 years old. We need smart Democrats, Republicans, and Independents. You can be smart and be conservative or liberal, educated or self-taught. Society just needs to admire, and insist upon smart – whether smart comes from a college professor, a software engineer, a hockey mom, a construction worker, or anyone from any walk of life that chooses to question “how can I make this better” and is willing to work for it.

And that means supporting smart as an integral part of American life – instead of making it somehow shameful. We should have disdain for ignorance, not education. It means making sure our schools are funded regardless of budgetary implications. It means not allowing the books our children read across the country to be chosen by a small group of people with religious or political agendas. It means always separating fact from fiction, and not allowing our leaders to convince us our best future is to live in the good old days.

A few months ago I was lucky enough to find myself in an isolated resort in Mexico. Unfortunately I had to make an urgent phone call. There was no cell phone service, the land line service was poor at best, and I did not have an international calling card. However, the resort did have broadband service, and since I had my trusty iPhone equipped with the Skype AP, I was able to easily call the USA using my cell phone.

Last weekend I was at another remote hotel in the Utah desert. Again there was no cell phone service, and the outrageous charge to use the hotel phone – $5.00 for the first minute, $1.00 per minute after that. Again I used my trusty Skype-equipped iPhone to make the call, spoke for over a half hour on the phone for a cost of about fifty cents, and saved over $30.00.

Download the free Skype AP to your phone, and you can call any other Skype phone for free. To call non-Skype phones, just go online and “charge your account” in $10 increments. You use your phone just like you would when making a cell phone call – except you initiate the call through your Skype AP. You can even use your contact file from the phone to make Skype calls. The quality is pretty good, and when you find yourself in a situation where there is no cell service but you do have a broadband connection it is a life and money saver, especially if you are travelling internationally.

While the country and our politicians still argue over what the final health care bill will look like, there are a few interesting tax provisions as it currently stands. Perhaps the weirdest one (and I am not making this up), is that the bill calls for a 10% tax on tanning salons. I am not sure how this got written in. Perhaps the rationale is that tanning is “anti-health”, but if that were the case there are probably many products we should attach new taxes to. Maybe a Jagermeister tax? Those really pointy high heels also look dangerous to me, and it would not hurt my feelings if we taxed them.

Since I have not gone to a tanning salon since the Bee Gees were a top ten band, this tax does not bother me personally. And George Hamilton can probably afford a tanning tax surcharge. But there are a few other tax increases that do sound a bit painful.

• In 2013 the threshold for medical deductions is increasing from 7 ½% to 10%.

• There will also be a 2.3% tax on medical devices (excluding glasses, contacts, and hearing aids). I assume this will hit those pec and calf implants I have been dreaming of.

• The Medicare tax on household incomes over $250k increases from 1.45% to 2.35%. Whew!

• And here is another big one….. starting in 2013 there will be a 3.8% tax on net investment income. This is again a tax targeted at the rich – and will apply to individuals with income over $200k, and household incomes over $250k.

I will probably be pontificating a lot about taxes in this blog over the next few months. I am fortunate enough to be among the income group that is getting hit with a lot of tax increases, and despite the fact that I don’t like paying more taxes I do understand that some tax increases are inevitable and fair.

But I think the politicians have to be very careful about how they tax, as it could have unintended and serious consequences. The last thing we want to do is de-motivate people from investing in the economy. Hit people with too many taxes on their investments and they will quit taking investment risk. Investment fuels the economy, and right now we need everyone willing to pour a lot of fuel into companies to get them to invest in innovation and expansion, which will build jobs and result in more tax payers. It would be a shame if a tax on investment income actually shrunk the economy and resulted in a loss of taxes overall.

I was very pleased to see new government regulations on credit card companies. It was lack of regulation that put the world in our current precarious financial situation, and putting some controls around the massive, faceless credit card companies is a great move.

To be fair, I have had some good experiences with some credit card companies. I have had an American Express card for almost thirty years, and with a few bumps have found their customer service to be consistently good. I have had a Chase Freedom card for a couple years, and have also found them to be top-notch. But unfortunately others have not performed so well.

Last October I cancelled a credit card from Bank of America I was not using very much. As always, I paid the balance in full, and notified the company I was cancelling the card. And I never heard from them again, until last week, when I received a letter that I was past due for $187.00. Confused, I called to inquire what was happening. The customer service representative explained that they had no record I had cancelled the card, and in December they billed me the $50 yearly card membership fee. Since they did not send me a statement, I was unaware of this. In three months this $50, with interest and penalties, had grown to $187. (Normally you would have to borrow money from someone named Vinnie Brokenose to get this kind of deal.) I explained that I had cancelled the card, and therefore should not be expected to pay. And since they had never sent me a statement, I also had to assume they knew I had cancelled the card and this was just a technical error. The representative agreed with me, and noted that it especially made sense because there were no charges after October. But unfortunately it was not within his power to credit the charge or the fee.

For the next 45 minutes I went through credit card hell. They switched me from rep to rep – much in the same way car dealerships keep bringing more people in to try to close a deal. Nobody had the power to credit the amount, and they began to negotiate with me.

“Sir, we can credit the $50 fee, but we will need you to pay the $137 in penalties and interest”, came the first offer.

“Absolutely not”, I replied. “If you acknowledge that I didn’t owe the $50, then why should I pay the penalties and fees”, a rationale I had to repeat at least five times, each time with my voice elevating.

“Sir, how about this? We will credit the interest and fees, but you pay the $50?”

“No”

“What if we were to just charge you a $25 administrative fee?”

“No”

It was quite clear this was a game that they continually played. Regardless of whether or not the customer owed them money, they would cajole, negotiate, and threaten just to make a few bucks. It’s a sleazy and evil business model that corporate America should not be participating in. Ultimately, I wore them down and they credited the entire amount, but I could not help but think of what would have happened if my elderly parents had been faced with this situation. This kind of business model preys on the weak, and companies that participate in it should be forced to pay a high price.

One way that companies expand is by extending their brands into new areas. And often this makes sense. Bose makes great speakers, so it was not a leap for me to believe they make great headphones. A little more of a leap…..Caterpiller makes wonderful heavy equipment, so I might be convinced they would make good heavy duty work boots. Some things would make absolutely no sense. Pfizer is a world-class pharmaceutical company, but I would not want to eat a Pfizer-burger.

Many corporations simply license their brands, and while this might seem like easy money, it presents significant risk to the core brand. If I buy a pair of $75 Armani Jeans made by a Chinese manufacturer under a licensing agreement with Armani, and they fall apart the first time I wash them, I would be hesitant to buy a $2000 suit from the real Armani.

So whether you are expanding or licensing your brand, you need to be sure you are protecting the core brand by assuring that consumers have a consistent experience between brands and expanded brands. But we are in a brand expansion world, and unfortunately many companies want to reap the benefits of their brand without taking the responsibility. Case in point…

I used to do a lot of business with US Bank. Like most banks, they expanded over the years to be much more than a bank, offering a full slate of investment services. Since working with one institution was easier for me, I tried out these services, but ultimately decided to just work with them on their core banking capabilities. During this process I had a big problem with their investment division. They essentially broke a contract with me, and have yet to pay me as the contract specified. When I complained to my business banker, I was told that “he had absolutely no control”. “Different division and we don’t communicate” he said. The problem with this is that they sold me the investment services based on their core brand and the convenience of working with one institution. And the result? As the consumer I just see one US Bank logo. Since I am unhappy with one division, I certainly won’t work with another unless they all get together to protect their core brand and do the right thing, and ultimately they lose all my business.

With the benefit of brand expansion comes the responsibility of brand management, and companies are foolish to expand without a plan to keep the consumer experience consistent.