Disrespecting Customers Has Consequences

April 23rd, 2019

A few years ago, we remodeled our basement.  At the time, I was just starting to collect wine.  Several times, my lovely wife asked me how much wine storage I would need.  I was certain I would never exceed 150 bottles.  Well, I exceeded that limit quite a while ago.  I’ve hidden wine and even stored some in offsite locations.  The basement was getting a little tired so we decided to augment our wine storage. 

Last week, my wife stopped in a local custom cabinet store.  She was the only customer in the store at the time.  She asked the salesperson about wine storage solutions.  The sales person said, “We’re only doing big projects.  If you’re not prepared to spend $X, we won’t do it.”  Shocked, my wife said, “Thank you,” and walked out.  The sales person asked no qualifying questions.  She never learned that our project will be many multiples of their self-imposed minimum project size. 

Maybe she was not trained.  Maybe she had wasted time on small projects the company did not make money on.  It really doesn’t matter why she failed to find out more about a customer that came in the store.  What does matter is that customer has friends (and a husband that blogs) who have repeated the story.  Even if our project did not qualify for their services, a better approach would have been, “We aren’t the right solution for your needs.  I suggest you go to…” 

Every interaction with a customer or potential customer should be used an opportunity to create good will.  No company can be all things to all customers.  There are respectful ways to communicate that message.  If you do not respect your customers, your business will suffer.

A Reason to Smile

April 15th, 2019

On tax day, I normally ask for a simple thank you for paying my taxes to multiple jurisdictions, most of which I cannot vote in.  Rather than repeat myself, I am going to try to spread some cheer.

Over the weekend, we attended our goddaughter’s school play.  Last year, her school decided to change up the format.  Instead of a traditional play put on by the school’s students, the school partnered with The Penguin Project.  (https://penguinproject.org/)  The mission of The Penguin Project is “Empowering Children With Special Needs Through Theater.”  In a nutshell, the children from our goddaughter’s school acted as mentors to kids with special needs who performed “The Wizard of Oz.”  They rehearsed after school for over four months.  You could see the friendships that formed between the mentors and the performers.  You could see how proud all the kids were of their performance, and justifiably so.  After the show, the cast and crew sang and did a choreographed dance to “Don’t Stop Believin’.”  The principal of the school said they ended every practice with that routine.  The sheer joy that emanated from that stage is something I will never forget.      

To see what these kids accomplished on stage puts life in perspective.  I forgot about my taxes.  I forgot about our political discord.  I forgot about challenges at work.  My faith in humanity was restored.   The world would be a much better place if we all treated each other like these kids treat each other.  If you are in need of a smile, check out The Penguin Project.    

April 9th, 2019

The US Economy Needs People to Grow

I have written about this topic in the past.  Apparently, President Trump is not a regular reader.  Recently, he decided to announce that the United States “is full” and does not need more people.  For a guy who describes himself as smarter and better educated than most people, including his adversaries, he displays a lack of understanding of basic economics.

Two inputs drive the supply side of the economy: capital and labor.  Capital investments are made when companies see an increase in demand and/or an improved return on their investment.  Labor growth can be broken down into population growth and productivity growth.  Our labor force is aging; demographics are not working in our favor as they did throughout much of the twentieth century.  People are having less children.  Plain and simple, if we want economic growth, we need population growth.  Hopefully, that population growth is driven by people that want to come to the US and contribute to our society.  I believe we should prevent people from coming to this country illegallyand we should encourage legal immigration. 

Virtually every business laments the challenges of hiring today.  Academics and the left leaning pundits think raising wages will magically make skilled workers appear.  If they stepped into reality, they would realize there is a general shortage of skilled workers.  The right needs to understand we need to embrace legal immigration and fix our education system in order to grow our workforce and therefore, grow our economy.  It’s not that complicated.  Our politicians like to make it complicated to appeal to their radical constituents.  Stop pandering and focus on what is good for our country. 

McDonald’s Will Stop Lobbying Against the Minimum Wage Because They Can Automate

April 2nd, 2019

Last week, McDonald’s announced it will stop lobbying against efforts to increase the federal minimum wage.  Proponents of an increased minimum wage took that as a positive sign that they will have success raising the federal minimum wage from $7.25 an hour to $15.00 an hour.   McDonald’s supports a “phase-in” approach to raising the minimum wage.

Supporters of a minimum wage increase might have missed that this announcement came the same week McDonald’s announced its largest acquisition in over 20 years: a $300MM purchase of a software company that specializes in decision logic.  Instead of a pimply 16 year old asking, “Would you like fries with that,” a prompt on a kiosk or a phone will ask that question to McDonald’s customers.  McDonald’s has already begun to automate the ordering process and will use the acquisition to increase its automation push.

I doubt the timing of both announcements was a coincidence.  McDonald’s is willing to pay $15 an hour because a lot of its entry level (clerk) jobs will go away as it uses its new automation platform.  Its competitors who cannot automate will have to pay a higher wage.  A local restaurant cannot make a $300MM acquisition to automate ordering.  They will either pay the new wage or go out of business.  When labor becomes more expensive relative to capital, companies will invest more in capital if they can.  Expect more national chains to follow McDonald’s lead and continue automating.

Automation is already here.  It will continue to alter the employment landscape.  I am all for the creative destruction that is the hallmark of capitalism.  I despise crony capitalism that gives those with influence power to support initiatives that enrich themselves.  That’s what McDonald’s is doing and that is what a lot of our politicians support.  It’s a shame.

https://www.wired.com/story/mcdonalds-big-data-dynamic-yield-acquisition/

https://www.politico.com/story/2019/03/26/mcdonalds-lobbying-minimum-wage-1238284

https://www.marketwatch.com/story/mcdonalds-will-stop-lobbying-against-minimum-wage-increases-report-2019-03-26

The Easy Money Party Continues.  The Morning After will be Painful.

March 26th, 2019

Last week, the Federal Reserve indicated it will most likely not raise interest rates this year.  In perhaps bigger news, it also announced it was scaling back the reduction of its balance sheet.  Over the last few years, the Fed began reducing its balance sheet by not purchasing more bonds as the bonds it held matured.  If the Fed purchases bonds (quantitative easing), it effectively adds cash to the banking system.  If the Fed lets bonds mature and does not replace them (quantitative tightening), it effectively removes cash from the banking system.  In December, the Fed said its balance sheet reduction was on “auto pilot” and it would continue reducing its balance sheet by $50 billion per month until it reached a “normal” level.  In other words, the Fed was engaging in quantitative tightening.  The normal (pre-recession) level is around $1 trillion.  Today, it sits around $4 trillion.  Last week’s announcement indicates the balance sheet is expected to stay around $4 trillion for the foreseeable future; the Fed has effectively ended its quantitative tightening.  The US economy is a tad under $20 trillion dollars.  Think about what an extra $3 trillion in liquidity means to the overall economy.

What does it all mean?  The economy is slowing and the Fed is doing its best to stop the slow down.  What happens when there is excess money in the economy?  Bad risks are taken.  Banks make loans they otherwise would not make.  Businesses buy assets they otherwise would not buy.  Eventually, the cycle ends and the recovery is painful.  We just lived through this with mortgages.  How soon we forget.

If you have time, watch this 30 minute video from hedge fund manager Ray Dalio.  He provides a simple yet thorough explanation of the credit cycle.  https://www.economicprinciples.org/economic-principles/index.html  I’ve provided this link before.  It is a must watch.  Blame the Fed for the economy’s eventual hangover.

A Little Effort.  Please.

March 19th, 2019

When I am in my office, I generally pick up my phone.  Lately, I have received a lot of robocalls telling me about a warranty extension for a car I don’t own.  I also get a lot of calls from telemarketers who are paid to set up meetings and use a well-rehearsed script.  Every now and then, a genuine sales person cold calls me.  I take the call expecting to at least learn something.  More often than not, I am disappointed.

If your company paid for a list that actually has my correct name, company, title, and phone number, don’t you owe it to said company to actually put in a little effort?  A two minute internet search will provide you with background on my company and me.  It is not that difficult.  Yet a vast majority of the callers have done no preparation.  Do you really think I’m going to set up a meeting after you have wasted my time on the phone?  I often think these so-called sales people are happy to just fill out a call log in their CRM system so they meet their new contact quota for the week.  They really aren’t interested in selling anything.

As the world gets more and more impersonal, the personal touch can be a differentiator.  Take a few minutes to prepare before making a phone call.  The results will surprise you.

Respect the Label!

March 11th, 2019

In a famous Seinfeld episode, George Costanaza bemoans his how his two worlds collide.  “Relationship George” and “Independent George” are two distinct personalities he uses based on the circumstances he is in.

I felt that way, albeit in a more positive manner than George, when an article about Tesla’s labeling issues made the rounds among label nerds last week.  (I don’t know what it says about me, but this article was forwarded to me by several people.)  What are the chances that these two distinct subjects, both of which I have a passion for, would be mentioned in the same story?  Below is an excerpt from the article.

The General Administration of Customs (GAC) reportedly accused Tesla of omitting Chinese labeling on components and mislabeling motor capacity. (Emphasis added) The GAC suspended sales of Tesla’s Model 3s. The stock price dropped as much as 5% on the news this week. But as of today (March 5), Reuters reports that Tesla has resolved the issue, allowing sales and imports of the Model 3 to resume.

https://qz.com/1565747/tesla-reaches-deal-after-china-halts-sales-of-model-3/

I am fairly confident that my phone’s calculator is not set to enough decimal places to calculate the cost of the label(s) as a percentage of sell price that Tesla must apply to meet Chinese standards.  Saying it is a rounding error would be an overstatement.  Yet without those labels, 1,600 cars sat in limbo.  With a company needing cash, every day is critical.

It may be only a label, but without it products cannot be delivered.  In the aforementioned Seinfeld episode George Costanza famously quipped, “If Relationship George walks through this door, he will kill Independent George!  A George, divided against itself, cannot stand!” It may be only a label, but without it products cannot be delivered.  Respect the label!

Tesla’s Real Disruption: Upending the Sale Process

March 5th, 2019

Last week, Tesla announced it will offer a version of its Model 3 sedan for $35,000, a price the company believes will make it a mass market car.  The announcement also included the news that Tesla was switching to online sales only and will close numerous stores and eliminate several sales and marketing positions.  Shifting to an online-only sales model will allow the company to lower prices on all cars by 6% on average.  https://www.tesla.com/blog/35000-tesla-model-3-available-now

While much attention is given to the advances Tesla has made in its products, this change in its sales process might have a more lasting impact on the automotive industry and the economy in general than any of its technological advances.  Most states legally mandate automobile manufacturers use dealers to sell cars.  Tesla faced numerous legal challenges by states when it started selling cars through stores it owned; it has no dealer network.  If the elimination of stores and sales staffs gives Tesla a cost advantage, expect automobile makers and dealers to react.  Don’t be surprised if the manufacturers lobby to change the dealer network structure.

With information readily available on virtually all products, expect more companies and industries to follow Tesla’s lead.  If all you are is a glorified order taker, your job is in jeopardy.  Provide value or find something else to do.  There will always be a role for companies and people that add value.

Most of Academia Does Not Understand The Real World

February 26th, 2019

In January 2016, I attended an executive education program at a prestigious business school.  Early on in the program, the professor asked a question: “Do you favor free trade?”  Virtually everyone in that room said yes.  The professor replied, “Of course you do.  Because you all benefitted from an increase in trade.  Do you think the auto worker in Michigan or Ohio feels the same way you do?  If he still has a job, his pay has been stagnant over the last 30 years.  Again, that’s if his job hasn’t gone away.  Yes, he probably pays less for goods at Wal-Mart on a relative basis, but if you don’t have a job, does it matter what things cost?”

I thought about this exchange when Trump was elected.  I also thought about it yesterday when I read an interview with the past chairman of the Federal Reserve, Janet Yellen.  President Trump did not reappoint her to the Fed Chair position.   After months of silence, Yellen finally opened up about President Trump.  An excerpt is below.

When it comes to economics, she (Janet Yellen) said Monday that Trump misunderstands some fairly elementary concepts, citing his stance on reducing trade deficits with China and other global partners.

“And when I continually hear focus by the president and some of his advisers on remedying bilateral trade deficits with other trade partners, I think almost any economist would tell you that there’s no real meaning to bilateral trade deficits, and it’s not an appropriate objective of policy,” she said.

https://www.cnbc.com/2019/02/25/janet-yellen-says-trump-has-a-lack-of-understanding-of-fed-policies-and-the-economy.html

It never ceases to amaze me how little understanding academics and supposedly intelligent people actually possess of how the “real world” works.  While his tactics and communication style leave much to be desired, Trump at least understands that moving manufacturing offshore, while benefitting the country as a whole, did not benefit the people whose jobs went away.  They don’t care about bilateral trade deficits or any other ivory tower theory.  They care about their jobs and their families’ well-being.  Trump might not grasp macroeconomics but he certainly understands the American workers’ microeconomics.  If he can tell the American people he got the Chinese to buy more products from us, he can claim victory.  That’s what this trade war is all about.

“Free” Government Services = Value-Added Tax

February 19th, 2019

With the coming presidential primary, I watch with great interest as each potential candidate seemingly takes it as a challenge to one-up what a previous candidate promised.  The ante is now “free” healthcare, college, and economic security for those unable or unwilling to work.  (Emphasis added.)  I am aware that the two authors of the so called Green New Deal are not running for president, at least not yet, but several announced candidates have indicated support for this legislation.

https://www.cnbc.com/2019/02/07/ocasio-cortezs-green-new-deal-offers-economic-security-for-those-unwilling-to-work.html

Apparently all of the politicians supporting more socialistic programs are not paying attention to Venezuela.  Or maybe they are.  The politicians and their cronies did just fine.  The common people are the ones suffering and trying to flee the country.  They were promised all sorts of “free” things too.

As Margaret Thatcher said, “The trouble with socialism is you eventually run out of other people’s money.”  Talking about “free” goods and services makes for great sound bites and bumper stickers.  The reality is that a 70% income tax on the “tippy top” will not pay for all of the promised entitlements.  Every country with socialized medicine has a VAT tax (value-added tax).  There is no more regressive tax system than a VAT.  Unfortunately, politicians will not propose a federal VAT until they get the population addicted to “free” stuff.  Unless something changes, that is the path the US is headed down.