Out to agencies … hope to get a bite.
By Drex Davis on October 21, 2011
I’ve been really disturbed by the photos/videos and other footage of Quadaffi. News shops are plastering the bloody images (from just before and just after his vigilante execution) all over … everywhere I go there’s a picture of his bloody, mashed face, and I’m not looking for it. They’re pushing it. Is it good that a mass-murderer is gone? Yes. But are we the kinds of people that leer at images of destroyed human beings for satisfaction? Are we the kind of people who cheer on the street execution of a person who was captured alive and whose justice could have been administered by the process of law? I hope not. But I’m wondering … sad at our culture’s coarseness.
By Drex Davis on October 12, 2011
Want a free scary bedtime story for your (older) kids this Halloween? I wrote this one called Throwing Voices, for mine a year ago, but once I finished it I realized that it was a little too disturbing so I didn’t share it with them (yet!). It’s based on a recurring fear I had as a child and is even partially true! Probably OK for kids 9 and up … an excerpt:
For my eighth birthday I ask for it. And I get it.
I tear the blue wrapping paper from the rectangular box, and there, through cellophane window he is looking at me, his eyes open, his mouth just slightly parted, a silly grin on his face.
“It’s the Charlie McCarthy ventriloquist dummy,” says Dad. “The one you wanted.”
I smile at him. Charlie is perfect. I run my hand over him – black tuxedo, white-collared dress shirt, black dress socks, polished black shoes, felty black top-hat, and his trademark eyepiece – the glass monocle fitted over his right eye.
I reach up, behind his head and find the string. I pull it and his mouth opens.
“Nice to meet you,” I mumble, trying not to move my lips. It leaves my lips sounding more like, “Eysh oo eat oo.”
Mom laughs. So does Dad. I practice all that day and even get a little better at making it sound like Charlie, not me, is doing the talking.
I play with him all night. And all week. And all month. I am getting good. I hardly move my mouth when I make the sounds and sometimes it even looks like Charlie is alive. My friends and my parents are impressed.
But then one day I come home from school and his wooden face looks different.
Full story here.
By Drex Davis on October 4, 2011
Debt is evil.
Debt is good.
It all depends ….
I think about debt the following way and I feel like it helps me harness the goodness of debt while mitigating its evilness.
What is debt?
Debt is money borrowed from a party who does not have a better alternative use for it in the near or (often) long term. It is money the lender has earmarked for later consumption (otherwise it would be spent now), and so to derive value from the forgone consumption, the person who has the money “sells it” to party who wants to “consume or use” cash now, but does not have it. The “cost” of that money is to give it back in the future along with interest to compensate the lender for her forgone consumption and the risk she took that she might not get it back when she lent it.
So debt is what is created when a person who has money, but a later consumption preference, gives that money to someone who doesn’t have money, but has an immediate consumption preference.
But what happens to the borrower over time? The borrower must earmarks future monies earned to pay back the debt (i.e. they will forgo future consumption in order to pay back funds to the person they borrowed from).
Are you following? This is the key point.
DEBT PULLS CONSUMPTION FROM THE FUTURE INTO THE PRESENT.
As a borrower, whatever you consume today is consumption you’ll forgo in the future.
When a whole bunch of people borrow money at once, a whole bunch of future consumption is brought into the present.
One reason that group debt binges are so bad (when everyone pulls their consumption into the present by borrowing), is that in the future they’ll all have to forgo consumption together as they pay the debt back. If everyone consumes at the same time (pulling future consumption into the NOW), one, they drive up prices of commodities and assets and labor today, and, two, in the future they will all NOT be consuming at the same time and drive down prices of commodities, assets and labor. As labor demand drops in the future, and as the price of assets drop in the future, it makes it harder to pay back the debt from all the previous consumption, and leads to bankruptcy.
This is often called a boom/bust cycle. And they are destructive to society.
We don’t want debt spikes. We want smooth debt patterns that aren’t lumpy, where not too much consumption is pulled into the present.
Knowing that, I get VERY CAUTIOUS when there’s a lot of people borrowing money at the same time because I know that a lot of the business the binge is generating now will result in a bust later. I don’t want to commit to business that is ephemeral.
On the flip side, if I don’t get into debt when everyone else is, but instead live within my means and save, then when the bust occurs and labor, assets, and commodities get cheap, I load up.
I’m not perfect and I make debt-related mistakes, but by keeping in mind what debt is and how it affects present and future consumption patterns we have kept our company out of trouble first during the tech boom/bust and later during the housing boom/bust because we were cautious when everyone else was reckless. After the busts, we were aggressive in expansion when others were hunkering down.
I don’t want to see boom/bust cycles in our economy, but so long as there’s a central bank manipulating interest rates, I have to live with them and plan accordingly. I hope you will choose to “run against the herd” so that instead of going over the cliff during debt-binge booms, you sleep well at night.
In fact, at our company when we discuss investing in expansion we have a “sleep at night” test. If any expansion move would cause any of us to lose sleep at night, we just don’t do it. That means we don’t do things just because everyone else does.
By Drex Davis on September 23, 2011
I made up this bedtime story for my girls a few months ago. My 4, 6 and 8 year old all really liked this one. Your kids may like it, too … check it out. Free bedtime story.
Before the robots came, Gunnar only fought real bulls. He was a child prodigy, they said. The youngest bullfighter ever to vanquish a bull from the Rodriguez-Garcia stables. He was seven when he did it. They called him the Matador Maravilla.
But then the robots came, from who knows what planet. They exited the space ships and made robots lookalikes of every type of animal they found. And when left, they took all of the robot animals with them. Well, all except one type of animal. The bulls. The bulls were too wild and unruly, and they tore the spaceships apart. So they abandoned them on earth and left it to the humans to try and solve the problem.
A robot bull is like a regular bull. It has red eyes, huge nostrils that blow hot vapor, slabs of rippling muscles piled high, and two razor-sharp horns perched like daggers on the crown of its hulking head.
But robot bulls are also different. When a real life bull chases you, it eventually gets tired and stops to rest. But robot bulls never tire and never rest. They just run, and wreck, and destroy, all day and night.
By Drex Davis on September 16, 2011
Right out of college I had a job interview to be a web designer for a retailer. I was interviewing with the store owner and we were seated around the store owners computer in his office, looking at the company’s existing website.
At that time, everyone used Internet Explorer and the URL field had a drop down box that showed the most recent/most visited sites (I don’t know if it still has it, I haven’t used IE for years.).
We had looked at some competitor websites and he wanted to go back to a site we had looked at. He was looking over my shoulder as I hit the arrow which opened the drop down box of visited sites, and the list was FULL of p*rn sites. Just full of them! Down and down and down the list, with the craziest site names.
I sat there for a moment, looking for the site link we needed to visit, found it and clicked on it, and the page took forever to come up. The two of us sat there in silence, waiting.
He clears his throat a couple of times and finally says, “Uh, how did you do that?”
“Make that thing with all the sites pop up.”
“I just clicked on that arrow there and it shows you all the sites you’ve visited before.”
“That thing keeps track of everywhere you go on the Internet?”
The site then came up and we began talking about it. But I’m not sure either of us was fully “there”. We were both just sort of hurrying through the rest of the interview, wanting to get out from under the huge elephant sitting in that room.
The surprising thing to me? I got offered the job! (I didn’t take it).
By Drex Davis on August 30, 2011
No one person really “creates” a culture. Individuals live their lives and their shared beliefs, desires, and ritualized “transactions” result in the culture established. Cultures are collective contributions. They are “crowd-sourced”.
However, there is great power in the individual contributions we choose to make to the cultures we’re in because we can be examples. We can even change the dynamic of these cultures as others imitate us, including our desires.
The cultural contributions I try to make are ones that I refer to as “cultures of care” contributions. By care I mean concern for others, loyalty, empathy, accountability, carefulness, and other behaviors and sentiments that indicate/project value for others as people who – by dint of the fact that they are people – are like me, and who share with me similar hopes, dreams, aspirations, and fears.
Corporate cultures could – in my opinion – greatly benefit from their members making contributions to a culture of care and it starts “at the top” so to speak. At least, that’s the easiest way to encourage such a culture, because people take their cues from leaders in organizations.
Many years ago I was in the unenviable position of having to work for two direct reports. Both, technically, had an equal and simultaneous claim on my time and work. However, this presented me with a very unique opportunity to experience how being treated in different ways affects employees, because I got to experience a range of emotions interacting with two different bosses throughout a day. How I was treated by each drastically affected how I felt about the organization.
Just two quick anecdotes.
On some Friday afternoons at 5PM, just as I’d be thinking about finishing for the day, Boss #1 would email me her unfinished tasks and ask that they be completed by Monday morning. This boss would set the email on a delayed/scheduled send, so that I’d see her leave for the weekend (without a goodbye), and then a few minutes later, the task assignments would hit my inbox. I resented this person very much, because I felt like she did not care for me, and really did such things in order to assert some sort of power over me, not because there was ever any real need for the tasks to be done. Most of them were menial. The Monday due date was arbitrary. After all, if the tasks were so vital, the boss would have taken the time to actually have a conversation about them and verify that they’d be done. A few times, just to test my hypothesis, I left some tasks undone. The boss never noticed. Never followed up (on hardly any of them, actually) and I soon learned that this was a CYA tactic the boss employed so that if work she was assigned was not completed, she’d have a “fall guy”.
I wasn’t the only one who experienced this behavior from this individual. It was a regular occurrence with all the “subordinates” who reported to her.
Boss #2 however, was different. Early on in my employment and work with her, she entrusted me with a task designed to raise my profile in organization (while she took a backseat), which I attempted to do to the best of my ability and felt grateful to have the chance to do. However, soon thereafter it became apparent that I had not done the task correctly. A senior person took issue with the work and asked “who was responsible”. Before I could answer, Boss #2 spoke quickly and said, “It’s my fault. I made that mistake.” The senior person muttered something and it was dropped. Afterward, I cornered her and said, “I was the one who screwed up, I should have taken the blame.” She said, “No, it’s my fault. I asked you to do something you’d never done before. Either I didn’t train you right, or I didn’t check the work to make sure that you had understood what needed to be done. That was entirely my fault. I didn’t set you up to succeed and I wasn’t going to let you take the fall for that. I’m sorry you were put in that position.” Well! Talk about loyalty! I was willing to run through a wall for her at the drop of a hat! For the remainder of my time with the company I did not mind coming in early, staying late, working a Saturday, changing my schedule, etc. to help Boss #2 out with any project she needed help with. I knew that she valued me, respected my time, hoped for my success, and would never abuse her position or use our relationship as a way to demean me in order to gratify her ego.
Why? Because I knew she cared about me and was sincerely trying to help me have a happy and successful experience, even to the extent that she was willing to put her neck on the line for me.
Let’s quickly tell another story about Boss #1 … Boss #1 eventually made a huge screw up on a project I was not involved with (nor asked to participate on) and blamed me for it. Because of that, I resolved never to volunteer to assist her with anything, even if it was apparent she needed help. If I was going to be blamed for things I didn’t work on that went bad, why make it even easier to blame my by getting involved at the last minute with something, try to fix it, and then take the fall for the whole thing when it went bad. Later on, I noticed another project she was involved with and was not going well (she thought it was). Rather than speak up and say something, and risk “volunteering” for the role of “fall guy” when it inevitably went bad, I kept quiet. It, of course, ended poorly (a different employee got the blame for that one). When boss #1 eventually left to take another job, it was one of the happiest days of my life. A huge cloud that hung over the office was gone.
So, cultures of care.
Treat people like they are people, with shared hopes, dreams, fears, and problems. Stick up for them. Set them up to succeed, and they’ll run through walls for you. Forgive them and help them when they mess up, and they’ll never forget it.
But treat them like dogs, and they’ll feel satisfaction when you fail.
On the wall of my office I have a picture of two triangular organization charts. One is inverted. They are labeled “Responsibility Flow” (inverted) and “Accountability Flow”.
They look like this (I’ve tried to approximate the structure using characters. The stars are “empty space”).
This indicates that I, as the CEO at the “bottom” of the pyramid, am responsible for the success and well being of the managers, employees, and customers “above” me in the chart. The customer is at the top – our highest responsibility is to her. I want the employees to be responsible (responsive) to the customer. I want the managers to be responsible (responsive) to the employees directly and also the customers. I want myself to be responsible (responsive) to the managers directly and also to the employees and the customers.
Usually org charts put a CEO at the top. I think that’s awful. It is intended to show accountability flow, but I think it fails for a couple of reasons. One, that implies that everyone “under” the CEO and that the CEO is not “under” anyone. Secondly, it is often used analogously for justification that CEOs aren’t accountable or responsible to others, but that all others are to the CEO. That’s wrong. If not for the customer and the privilege of serving her, none of us has a livelihood. If not for employees and managers who do a great job serving those customers, I as the CEO don’t have a livelihood.
I must CARE for those people and those relationships and help those people be successful. They don’t come to me, first. Rather, I go to them, just as I want them to go to each other and out customers.
Now, the other triangle org chart (again, the *stars* are empty space).
This chart reminds me that I’m accountable to the Customer, first. I report to them. The managers report to me, and are accountable to me for their performance. The employees are accountable to the managers.
So, we have two directions of flow. Responsibility for people who are traditionally “under” us in organization charts. Accountability from people who are traditionally “under” us in or charts.
And a constant reminder that the whole organization is ultimately responsible for, and accountable to, the people we serve, the customers.
CULTURES OF CARE are successful cultures. They are the cultures that win. They are made up of people who support one another, watch one another’s backs, fight for each other, and refuse to let each other fail.
By Drex Davis on August 26, 2011
Last night I watched a very artistic music video directed by Tao Ruspoli and then a philosophical/aesthetic commentary on the video, then watched the video again and it was a really fun experience. You might enjoy it (links to video and commentary below). The philosopher who is doing the commentary, Mark Wrathall, taught at BYU when I was there.
When I served an LDS mission in Argentina, the President of my mission was a former scriptural instructor and an avid outdoorsman. He told us, “When you’re out hiking, camping, hunting and you’re thirsty and find a spring, you don’t want to drink water downstream, where deer and other animals have trod through it and ‘contaminated’ it with their presence. Rather, you want to follow it upstream toward the source and drink from where it originates, where it’s pure. That’s how it is with scripture. Don’t start with commentaries. Commentaries are downstream. They can help you understand the source, but use them as supplements, not your primary reading. They can also influence you too much and prevent you from having your own insights and opinions.”
I’ve found that to be valuable advice for my life. I always try and start with the “hard” source texts (whether it’s philosophy, business, scripture, etc) and do my best to understand them, underline what I don’t, and then research. Only after reading the original source texts do I venture into commentary. Then, I re-read the originals with the additional understanding of the commentary.
I feel like this gives me significant additional insight.
As I watched the video below, I had some impressions the first time I watched. The commentary then gave me some additional insights. On re-watching, I had a VERY rewarding interpretive (and aesthetic) experience.
The whole experience takes about 45 minutes and I found it very worthwhile! Uplifting and got me in an artistic frame of mind. (The artist, Alexander Ebert wrote and recorded the song himself, played all the instruments, and did all the singing. It’s a pretty great song and the words are very meaningful!)
Ruspoli and Wrathall Commentary:
By Drex Davis on August 23, 2011
“Manage the risks and the rewards take care of themselves.” – Seth Klarman
I define Risk is “a potentiality which, if actualized, presents an adverse outcome for the enterprise.”
Risk Management, for me, consists of “working in a systematic way to reduce the probability that those adverse potentialities occur.”
At Scrapbook.com we manage risk in a systematic way. Risk management isn’t something that’s ever “done”. We manage our risk cyclically in that we go through our risk management processes in order, and then once we’ve gone through them, we do them again, and again, and again, ad infinitum. Over time, I came up with the areas of risk we manage, and then made an acronym out of them which captures the cyclicality of the risk management process:
C – Customer Experience
I – Inventory
R – Resources (Human)
C – Capital Structure
L – Liquidity and Legal (these really don’t have anything to do with each other, but I didn’t like the way CIRCLLES looked!)
E – Expenses
S – Sales
There are things our company does daily, weekly, monthly, and yearly, in each of these categories. For example, here’s one specific thing (of dozens, or even hundreds) we do in each category.
Customer Experience – Perform website navigation audits. We test the site for broken links, unclear or incorrect language, general functioning of apps, bug testing, etc. and fix any problems areas immediately to mitigate the chance that a potential customer will abandon our site because they do not “trust” it do to our carelessness or because they are frustrated because they cannot find what they’re looking for.
Inventory – Review supplier fulfillment metrics and take action when they’re out of whack. We want our suppliers to keep us stocked at all times. Our internal algorithms tell us when we need to order product in order to keep levels in stock. These algorithms depend on fulfillment consistencies from suppliers. We don’t care so much that they ship slow or fast (though we prefer fast) – our algorithms can adjust to that – but we do care that they are consistent because if they are not, our algorithms can’t tell us the right quantities to buy and when to buy them, and therefore we’ll end up either over or under stocked. If we’re overstocked it is tying up capital we can use elsewhere. If we are under-stocked, we lose sales. So, in a very real sense, our suppliers can cost us money by tying up our resources inefficiently and losing us chances to serve a customer. If we are seeing inconsistency with a supplier, we’ll either put them on notice to improve, or we’ll move business away from them and toward more consistent companies (even up to the point of discontinuing business with a supplier).
Resources (Human) – Review employee turnover. Employees leave because they are either unhappy, or they have better opportunities elsewhere. When employees leave, all their experience and knowledge walks out the door with them. Training new employees and getting them up to speed is very costly for us. When employee turnover ticks up, we seek out the cause and nip it in the bud.
Capital Structure – Review the capital stack and maximize the returns to equity without taking on undue debt. Low-interest debt is “good” because by using it we can – among other things – extract equity from the company (through recapitalization), lower taxable earnings (b/c we can expense interest payments), and lever the return that the remaining equity sees (capture spreads between the cost of the debt and the return on the invested capital). Debt is “bad” because repayment terms are not flexible and because it requires collateralizing productive assets, putting their ownership at risk if we fail to comply with the debt terms. Too much debt can hamstring or burden an organization. We constantly review our ratio of debt to equity against our current and projected needs, and adjust accordingly.
Liquidity – Monitor the ratio of sales to cash and as sales increase, increase cash on hand. Increasing sales means that inventory needs will increase. Inventory increases mean accounts payable increases. Accounts payable increases means increasing cash on hand in order to keep the inventory turns from being interrupted. So many retail businesses are tempted to extract cash when sales go up (“We’re making so much money! Let’s pull out money out from the business and buy a yacht!”), yet that’s the worst thing they can do – they INCREASE risk. Growth requires financing. Many retail companies grow themselves right out of business. By increasing liquidity and resisting the urge to extract cash while growth is occurring, businesses REDUCE risk. This also means that you have to strike a careful balance between how much of your retained earnings you allocate to inventory and how much you retain to ensure you can keep your payables turning and keep your product in stock. We have a ratio of sales to cash that is ideal for the smooth functioning of our business and we are disciplined about maintaining it.
Legal – Keep a list of legal obligations and comply with them; keep a list of counter-party obligations and require compliance . When you sign any contract with any person or business, you are obligating yourself to some performance, and so are they. In order to ensure that you do not put your business at risk by breaching an agreement, keep a list of all the contractual agreements you’ve made and comply with them. Also, to ensure that you do not put your business at risk by contractual parties failing to comply with their side of the agreement, keep a list of what they’ve agreed to do. If they do not comply, pursue legal remedies as appropriate. Failure to do so may be much more costly than allowing their non-compliance to hurt your business. (A quick anecdote about my failure to record others’ legal obligations. I executed a contract some time ago, and in the contract there was some language that after three years time the counter-party was to pay us $8,000. I neglected to note this. Three and a half years later, I was reviewing the contract and noticed this clause that I had forgotten about and the counter-party had not complied with. I wrote the counter-party and they immediately paid us [as they were in breach of the contract], yet my failure to note this in the first place meant our business went six months without $8,000 it should have had. Had I not re-reviewed the contract … well, let’s not go there … The point is, the counter-party exposed themselves to legal risk by not complying with the contract, but I exposed us to financial risk by not taking the necessary steps to ensure counter-party compliance in a timely way).
Expenses – Constantly review expenses to ensure that they are both necessary and in line with the market. This process never ends. We look at every expense as an “investments” and define what the “return” on that investment will consist of (i.e. what value comes back to us for having the cash outflow …). We ask, “If we eliminated this expense, what value would be lost?” And then we also ask, “If we increased this expense, what would be the increase in value?” By looking at expenses as investments in value (and we note that some value is intangible but ultimately should feed into a tangible value return), you start thinking like an investor and act as a more careful steward of your resources.
Sales – Are we making more sales or making less sales, and what are we “giving up” to make them? Profit is the difference between the value you add to the world (in the form of revenue that people reward you with for giving them a good or service) and the value you take from the world, (or the resources you consume to deliver your good or service, i.e., expenses). You have to make sure that you aren’t delivering goods and services that are providing less value to the world than the value they’re consuming to do so. By looking closely at those sales and making sure they’re net-value adds, you’ll lower failure risk for the business. I like to say that I can generate a billion dollars in revenue tomorrow, just give me a billion and one dollars to spend on it today! What’s a lot tougher than that is to take $9 of investment/expense and turn it into $10 of value. That’s the trick!
I hope this post is helpful and that you can take CIRCLES and implement it into your organization, thinking systematically about the adverse outcomes that can affect you. Put into place a cyclical system that helps you monitor and mitigate those adverse potentialities.
The Most Ironic (and Moronoic) Headline I’ve Ever Read – “Young Entrepreneurs Demand Government Assistance”
By Drex Davis on August 16, 2011
Let me break it down. If you’re demanding government assistance, you’re NOT an entrepreneur. Full stop.
Some quotes from the article.
“Increasingly, Congress is looking at ways to create jobs at a relatively low cost,” the 29-year-old said. “One of the interesting things about young people is that their barrier to starting a business is small, in terms of the monetary amount. We’re talking only a few thousand dollars.”
“Now more than ever, with young unemployment being so high, we have to be educating people that youth entrepreneurship is a viable career path and not some renegade choice,” Gerber said.
“You know what would really be a renegade choice? Not requesting special legislation from the government.”
Amen. And Amen.