Entrepreneur Watch

What bank executives could learn from Jeff Bezos

I'm still amazed at the short-term, unimaginative strategies dreamed up by most executives these days.

Here's one scenario: Banks see a revenue delcline coming because Congress cuts the amount of fees they can charge when they use ATM cards. Damn, we can't charge merchants when customers use their ATM instead of cash? No problem, we'll charge the customers to get their cash back from us instead.

The result? Customers get pissed off, activists announce a national Bank Transfer Day, encouraging people to move to credit unions. A PR disaster, banks have to back off the plan. But now the idea is out there. Why use banks, whose only concern about customers is how much money they can collect from them through any means their botton-line focused minds can dream up?

Here's another scenario: Amazon.com CEO Jeff Bezos wakes up in early 2000 to find that stock prices for unprofitable dot-com companies have been devastated by a tech stock crash. What to do? Raising prices would be the knee-jerk reactino from most executives. No, Bezos decides to keep prices low, cutting costs instead and turning Amazon into a hugely profitable company. 

Then, in 2011, Bezos decides to invest in new Kindle products and in distribution centers to better serve customers. Profits drop dramatically for the quarter, the stock drops 13 percent in one day. Bezos shrugs. He'll get it back in the long run.

Nobody announces Amazon Transfer Day.

Most companies -- and financial institutions, who seem to see customers only as wallets -- are happy to punish their customers in order to try and raise revenues and profits. Even Netflix decided to raise prices without any increase in service, even though potential competitors, including Amazon, are looming on the horizon.

The smart companies deicde -- gasp! -- that customers come first. Serve your customers well, and they'll reward you in the long run.

Is that idea really so hard to comprehend?

Not to me. I switched from Citibank to a credit union months ago.  I held off for years because I needed access to ATMs that wouldn't charge me a fee to get my money. Citibank has a deal with an ATM network prominent in 7-Eleven stores. Guess what? So does my credit union (Redwood Credit Union.) Think I'll ever go back? Let's see, that would be a no.

To the rest of you, stop being banking sheep, a group to which I belonged for years. Look into a credit union. Your bank is simply betting that inertia will keep you there and they'll use that to milk you for everything they can. 

But I see no reason to stop using Amazon.

Google violates Kansas copyrights

Once again, Google has shown its blatant disregard for international copyright standards.

Earlier today, Google CEO Eric "Oh aren't I smart with my Ph.D©" Schmidt announced that the Mountain View, California company was changing its name to Topeka. 

Why? Because the city of Topeka, Kansas had supposedly given up the rights to that name when it announced it was changing its name to Google.

This argument doesn't wash any better than my uncle Ernie after a night drinking with the hoboes in U.N Plaza in San Francisco.©  

Google, sorry, Topeka, knew that the people of Topeka, sorry, Google, were only planning on making the change temporary.

The Topekans, sorry, Googlans, simply wanted to call attention to the fact that children in that city of 122,000 have never had the luxury of Web-surfing faster than 122K baud, 1,000 times slower than that enjoyed by children in more developed parts of the world like Singapore. The good people of Topeka, sorry, Google, Kansas want to convince Google, sorry, Topeka, to install a Singapore-speed© broadband network in its fair city. 

Google, sorry, Topeka, has promised to do that for any U.S. city willing to change its name to Google, sorry, Topeka, wait, I'm confused now. So that city-that-must-not-be-renamed in Kansas obliged, but only for a month.

I know that Google knew this change was temporary because, in another blatant copyright violation in its attempt to destroy mainstream media, Google CEO Eric "Oh, aren't I smart with my Ph.D" Schmidt's announcement actually linked to a CNN article that described Topeka's, sorry, Google's sad attempt to gain Schmidt's attention so that the children of Kansas might catch up to the technology of the "Singapore Age"©. In that article, mayor Bill "No, I don't have a PH.D."© Bunten said it was only for a month.

CNN, of course, is owned by Rupert Murdoch©, who has complained about Google, sorry, oh to hell with it, Google stealing his intellectual property by linking to his news articles. Dr. so-smart Schmidt is just trying to goad Murdoch© into doing something stupid, like blocking his news articles from Google searches. 

When is Google going to learn that EVERY WORD any American ever writes down or steals from a native American tribe is automatically copyrighted and nobody else has ANY rights to it? Just because Topeka is temporarily relinquishing the name, Schmidt cannot violate the city's copyright©. The city has exclusive rights to that name for 123 years past the death of the city's last living resident.

Please, write to your Congressman and ask the Justice Department to crack down on Google before it becomes any more powerful. Before long, it will have a monopoly on every city name in America©.

Let's face it, if this doesn't prove that Google is evil, nothing will. ©

Google earnings 4Q 2009: Wall Street sez Google will beat Wall Street. I wonder...

Wall Street seems to think Google will beat Wall Street's "expectations" when it announces results tomorrow (Jan 20, 2010).

Interesting how this game works. 'We expect Google to do better than we expect.' Why didn't they expect this earlier?

Thomson Reuters says the consensus forecast is $6.45 (or $6.43, depending on who's quoting) per share and $4.9 billion in sales.

Kaufman Bros. expects Google will report earnings of $6.74 per share on sales of $4.98 billion, beating Kaufman's expectations of $6.64 per share on sales of $4.82 billion. 

A collection from Eric Savitz at Barrons:

Broadpoint.Amtech expects $6.92, beating its expectations of $6.74.

BofA/Merrill Lynch DIDN'T change its expectations of $6.65, but still expects the stock to go up.

Credit Suisse didn't change expectations that people will drive the stock up this year, but changed the long-term target from $600 to $700 per share.

Oppenheimer didn't change Outperform rating, but thinks that the stock might decline when earnings are announced. 

The stock declined 1.23% to $580.41 on Wednesday, possibly over concerns about the leak that Google may lose the iPhone biz. I wonder who leaked that. Or possibly because today was just a down day on the NASDAQ. As of 5:02 PM EST, stock had risen in after-hours trading by 0.19%

The recommendations collected by Savitz are: 

Buy, Buy, Outperform, Buy, and Outperform.

But not all of them think you should do it before the earnings report. May go down first and then go up. It seems that all the news about Google beating estimates may keep it from beating the estimates.

Steven Sears at Barron's gives us two possibilities: the stock will either go up 5% or down 5%.

Thought for 2010: How to succeed in business? Don't be evil

Greed is bad. Fear is bad. Google is good. 

(Wait. Hear me out.)

    As we enter a new year and, full of hope, crawl toward a better year than the one that brought many of us to our knees, I thought it would be good to stop and think for a moment about what it means to be an entrepreneur.

    I take my example, of course, from the two most successful entrepreneurs in the world Larry Page and Sergey Brin. Despite the cynics (and I'm usually among the most cynical), and despite an arrogance born of oversized brains and an almost religious belief that they are doing the right thing, they really do their best to build an ethical business. Their model is the one that will prove to be the most successful in the coming decade. Get used to it.

    Greed is no longer good. With all due respect to Andy Grove, a man I have always and still do admire, is a life built around greed and fear really worth living? The most fascinating thing to me is the irony that, in what has become the most hyper-competitive business climate the world has ever seen, greed and fear are no longer the best motivators for success.

    Consider that when they were still at Stanford, Larry and Sergey wanted a search engine to be a non-profit. Scoff it you like (the folks at CNBC did when I mentioned this on-air) but it is absolutely true. They did go commercial, but when they did it, they did it on their own terms.

    Neither men came from families with capitalist roots. Academia, not entrepreneurship, was the families' prominent aspiration. Certainly, when Larry and Sergey went to Stanford, they had a strong entrepreneurial leaning.

    So how did two nerds with no business experience create such a successful company? Quite simple, really. They decided to ignore Wall Street. 

    In today's world, almost any CEO of a public company will tell you that his or her primary constituency is the shareholder. Larry and Sergey had a radical idea: What if your company was actually dedicated to making a great product, something that makes the world a little better? And what if you considered your customer to be your boss?

    Every time they faced a business decision that would either benefit the users or increase revenues, they chose the users (and consider the fact that these were not even "customers," since Google's revenues come from advertisers, not users.) They even favored the customers over advertisers when it seemed as though the decision would reduce revenues and profits. If that makes you nervous, do not buy Google stock.

    That is what being an entrepreneur should be all about. Larry, Sergey - and Craig Newmark, for that matter - show that the right approach to business can do more than bring wealth, it can bring contentment, a sense of satisfaction, a sense of self-worth. Now compare that to greed and fear.

    That is not to say that wealth is bad. I wish I had some. But as it happens, these ideals turn out to be the surest path to success. This is the most hyper-competitive business environment the world has ever seen, thanks to the Internet. It's reducing old industries to rubble and rebuilding new versions from the wreckage -- sometimes way too slowly (I know; I'm a journalist.)

    The only way to compete in that environment is to return to basics: Products built with the most intense passion, designed and sold with the highest regard for the customers, created for the sake of the product itself, not for the wealth it brings. 

    The new opportunities the Internet brings make this approach essential. Why does Google get into so many new businesses -- a smart phone called Nexus One, or a new tablet PC with free software, for example? Because the computer industry and the wireless industry are being destroyed by their own greed! Two-year lock-ins, extra charges for text messages that cost the wireless carriers zero, software that costs hundreds of dollars; these industries are full of inefficiencies and over-pricing that the Internet renders obsolete. And that means (as it always does) new opportunities for smart, savvy entrepreneurs with a new approach.

    In a world of near-frictionless capitalism, where every company, product and service is at the tip of those fingers tapping on a keyboard, why would customers choose anything less?

Business week magazine for sale?

Both the Wall Street Journal and Bloomberg report that McGraw-Hill has hired an investment bank to explore selling its flagship magazine.

As a former Business Week reporter, I have a couple opinions on this.

First, it's incredibly short-sighted. Yes, ad revenue at BW was down 30% in the first quarter. Its ad pages were down 34%.

But ad pages dropped 45% at Fortune and 40% at Forbes. There's a recession going on. It won't go on forever. Print ads may never come back completely, which is why publications need to learn to make money in online advertising. There is a future in journalism after the recession retreats.

In the 1990s at at BW retreat, Joe Dionne, then CEO at McGraw-Hill, got up and gave a rather arrogant speech about how journalism was changing in the new online world. As if he knew. He also said that experience showed that most of the reporters in the audience would not survive the transition. It was like radio stars trying to move to TV.

Well, some of us left the business, many have reinvented ourselves. It's McGraw-Hill management that can't seem to make the transition.

I also recall in the 1980s, when another corporation -- American Express, as I recall -- made a hostile bid for McGraw-Hill. BW wrote an editorial against it, saying a publication like BW should only be owned by a publisher. How could we write unbiased stories on financial institutions if we're owned by such an institution ourselves?

That deal did not go through. This one might, as McGraw-Hill looks for short-term gains to feed its stock price. Gotta keep those McGraw family shareholders rich. 

But I wonder, will they stick to the ideal of only selling to a publishing company?

AIG: Rampant greed and hubris

    It's difficult to fathom the abundance of greed and the depth of hubris at AIG. There's an article in the New York Times outlining the spending habits of American International Group, which has come to light now that we taxpayers have been so kind as to bail out the company.

It's a frightening, maddening story.

AFTER AIG got an $85 billion bailout in taxpayer money, its insurance subsidiary spent $442,000 treating its sales agents to a week at an exclusive resort in Monarch Beach, California. That includes $24,000 in spa charges.

Also:

the former A.I.G. executive who led the London-based division whose implosion is largely blamed for the insurance giant’s downfall, Joseph J. Cassano, continues to receive $1 million a month from the company, on top of the $280 million he received in the last eight years.

 

There's no sense of fair play that says executives should decrease their outrageous pay even as they drive the company toward bankruptcy:

And even after A.I.G. reported $5 billion in losses in the final quarter of 2007, its chief executive at the time, Martin J. Sullivan, argued before a compensation committee that executives should receive performance bonuses. He received $5 million.

Meanwhile, the company was hiding its problems from its own auditors.

An accountant, Joseph St. Denis, who had been hired by A.I.G. to address accounting problems, was not given access to the very unit whose losses ... led to the bailout ... Mr. Cassano told Mr. St. Denis, according to testimony, that he had been “deliberately excluded” from the evaluation of AIG Financial Products, to avoid “polluting the process.” Mr. St. Denis resigned in protest.

This comes a day after Lehman's CEO, Richard S. Fuld Jr., refused to accept responsibility for the firm's bankruptcy, and insisted golden parachutes and hundreds of millions of dollars in compensation for top executives was justified.

What executives today don't get is how pissed off Americans are over outrageously excessive executive salaries and inability to accept responsibility for their actions. I remember when Intel CEO Andy Grove said in the late 1980s that he was embarrassed over his salary of $300,000 and groused that other firms paid their executives even more.

There is absolutely no way that any executive in the world is worth 10s of millions of dollars in annual compensation. I've met many of them. They aren't that good. It's easy to find qualified replacements if they care to look. Sergey and Larry make $1 apiece. they already made their fortunes off the IPO.

But big corporations feel they have to go for big names to run their companies, and that means big salaries.

Today's executives have become so lost in their own greed, they think they live in another world. America has become a caste society in which corporate executives see themselves as an elite, immune from the standards that apply to the rest of us.

I mean, sure, expensive retreats are common for top salespeople. But don't these executives have the sense to cancel the deal this one time, after driving the company to the brink of bankruptcy and getting a taxpayer bailout? Do they really think we serfs see them as kings, the ruling elite? Or is it gods?

And now, executives and Republicans across the country are going to cry about government regulations that are going to strangle them like a barbed wire noose.

They have nobody to blame but themselves. They have proved that unregulated markets do not correct themselves. Completely unregulated markets brought us the novels of Charles Dickens. Now we will probably swing the regulatory pendulum too far in the opposite direction, and that's good.

It's the only way to restore some sanity to business.

Golden Boot Award: Stan O'Neal

Don't you just hate it when people who are dumber than you earn a thousand times more?

Still, it's not as bad as when someone is handsomely rewarded for their stupidity. Therefore, we have another Golden Boot Award to offer: Stan O'Neal, recently promoted to Former Chairman and Chief Executive of Merrill Lynch.

It seems he was shocked to discover that gambling on sub-prime mortgage was an unsustainable business model.

From the Wall Street Journal:

Merrill last week reported a third-quarter net loss of $2.2 billion after writing off $8.4 billion of mortgages, collateralized debt obligations and loans. Two and a half weeks earlier, Mr. O'Neal had said the writeoffs would be $5 billion, and earlier in the summer, he and other Merrill executives said the subprime mortgage crisis appeared to be overblown.

The only thing that's overblown here is the practice of promising to reward CEOs with pirated treasure no matter how much they screw up. Less than three weeks ago he still didn't know the extent of the losses, and three months ago he thought things were just hunk-dory.

For keeping such a keen eye on the business, he walks away with $160 million, including a pension that could give him $2 million a year for life. That ought to keep him in gold-plated bifocals for a while.

The Journal notes that he "will receive no severance package or annual bonus." Damn, that's cold. His money comes from "various pension plans and stock grants."

It's the wonder of American capitalism. Never build performance considerations into CEO compensation. The CEO in sheep's clothing is allowed to walk away richer than a wolf in a flock of tethered sheep, while the employees are led to the slaughter with pink slips to make up for his mistakes.

Now I may be more naive than a socialist in a libertarian world, but where's the self-correcting nature of this scenario?

It's a good day to be fired.