Category: business

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business

Economy Surefire Fix Recipe

Economy Fix, picture courtesy of money.cnn.com Part 1. Click here for part 2.

Obviously I am not an expert on our current economy situation. However, as a small business owner I feel the pain of crisis and, as any other entrepreneur, is anxious to offer my own fix on the situation. Here it goes.

First, let me introduce a little example. For last two weeks there’s a full-size truck standing in front of the Battery Park. They sell some shoes that, supposedly, could not be found in stores. For the first week the line was long. By the end of the second week the line shortened threefold. There were couple of people in line when I checked on Friday. This morning – that’s almost third week over – there was no line at all. In fact, there was, apparently, a surplus of sales people over clients. This, if anyone missed their Economics 101, is market saturation. When you sold your product to everyone who was ready, willing and able to buy it.

Now, what happened to the mortgages is that they were sold to everyone who were ready, willing and able. Of course, the market was fluctuating, but not out of proportion. It was saturated. Then some geniuses read some marketing books and decided that they need to create a new market. This coincided with high-paying jobs being outsourced and people’s incomes going down. Or, maybe, there were no geniuses and no reading. Just someone noticed that same people who were buying houses, like the well-paid IT guys, can’t afford houses anymore, because they don’t get those big salaries, because of some starving Indian guy in poor Bangalore who claimed he could work for food and shelter.

And some real estate guy went to some mortgage specialist friend or something like that happened. And we got mortgages for the poor, when guys who make $50K a year could buy a $500K house in sunny California or in prestigious neighbourhood of Brooklyn, Manhattan or Jersey City.

This idea bombed. Obviously, there are far more guys who make $50K then those who make $250K. Even more, the average guy (or gal – it’s irrelevant to the story) who makes around $50K is much more guillible, than one who makes five times more. I know, because I’ve been there too.

So what happened next?

Demand for houses (and, therefore, mortgages) skyrocketed so high that banks didn’t know where to get so much money. So they started selling those weird papers, repackaged deals and did other smart things (see CDS, derivatives) to come up with money and profits for themselves. I am not saying it’s bad to turn a profit. I am saying that the average $50K Joe can only live off his credit cards for so long. After they’re maxed out, he has to either stop eating or move out. Hence the foreclosures became the hot topic, once more and more $50K Joes got sucked into the buying houses from same $50K Joes who got into the same whirpool a little earlier. Imagine a huge crowd, rushing and squeezing into wide open, but very narrow doors. Once the members of the crowd successfully squeezed in, the fast stream carries them into the watershed and spills them into oblivion. That’s pretty much how the system worked.

Since all these guys had problems giving back the money they’ve borrowed on one hand and demand for more credit from clients on the other hand, banks were under a continuous stress of producing more and more money so that the public can keep borrowing. That’s when it hit really hard.

Now, same guys who were fast tracked through the whirlpool and those who didn’t are splitting the bill for the fun ride. The only thing that sort of bothers me is that guys who get paid $20 million for 2 month of work (see WaMu) wouldn’t have a problem with their part of the payment. In fact – they wouldn’t even notice it.

Part 2 – keep reading!

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business

Small Business Will Step Up… Later

There was an article in Sunday NYTimes – Economy to Entrepreneurs: Turn Back (link) discussing how small business owners and entrepreneurs seek refuge in corporate life at the harsh economic times. Given the high fuel cost and tight budgets it is no wonder the profits are shrinking. For small businesses, that operate on much thinner margins now the suffering could be fatal.

However, once the economy will hit the bottom and start getting back up, there will be plenty of opportunity to shine. Seeing successful startups emerging here and there, recently converted corporate types with get back into their entrepreneural mood. Sure, many will decide to remain attached to the safety net and many who did not venture into entrepreneurship before will decide to do so. That’s a whole new market opening.

For years there have been coaches and consultants who suggested how you should run your business. It was, however, a pretty daunting task, since any entrepreneur (especially a newcomer to the scene) is mostly a one man show. Accounting, operation management, general management, sales – everything falls on a single pair of shoulders. That is exactly where the new opportunities arise.

Advising new businesses on tools, techniques and methods, assisting in research and helping with promotion have been around for a while. With internet, web sites, blogs, social networks, various advertising models and ways to reach and serve the customer the ways to do business have changed dramatically. Whoever will catch this ball at the earliest and will run with it will probably reap the biggest reward.

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business

Workplace Tribe Gone Wrong

CASE STUDY: WORKPLACE TRIBE GONE WRONG (originally for Triiibes).

The place I work for right now is all about team building. At least that’s what I was told during the hiring process. Even more so, after a whole-day round of the interviews I got another call from HR and one more “team participation” interview. Given that I am coming from independent consulting background I sensed nothing wrong, until I arrived.

Among first impressions that I’ve been put through was the all-employee meeting. Most of the meeting, though, concentrated on Sales Team. They occupied first forty or so rows of the expensive conference hall while pretty much everyone was happily dozing in the back. The whole talk was about the sales team and the finance team. They made good tribes, I guess.

Then, after much talk-around, the Q&A session ensued. One of the hottest topics was the cancellation of “casual Friday”. Turned out – many employees considered this a valuable perk (I used to wear pretty much anything as long as I got the job done the previous 10 years of my career, so I didn’t really took note until now). The CEO proclaimed that “yes, you don’t wear jeans on Friday anymore and let me tell you – you look great today”. Ask me – that sentence alone alienated exactly half of the company’s employees. Those, who don’t belong to sales and finance, made faces and whispered comments. Obviously, we all were sitting too far away for CEO to take note. As to the sales team – they have to wear their uniforms every day (even on Saturdays), so it’s not like the “casual Friday” policy was affecting them in any way before or after.

Being a newbie in the company I did a lot of asking after the meeting – talked to my peers, colleagues from other departments, even managers. What I was inquiring about can be essentially put as this: “Is the behavior this whole tribe exhibited during the meeting something regular or is it something new that no one really had a chance to get used to”. As I figured out – this was the first attempt to divide the large tribe into smaller ones and conquer only those who’s performance really mattered.

As I retreated into my smaller department tribe I realized that the reason why the divide and conquer paradigm worked pretty well for CEO is that because interdepartmental ties are quite similar to medieval relationships between city-kingdoms: “we’re not invading them because we can’t really keep that part of the land occupied”. Such truce-because-we-can’t-wage-war relationships are the reasons why any tribe can be divided and conquered into any number of smaller parts. And those are so much easier to take over…