Healthy campaign; Sick government.

I just finished reading Double Down: Game Change 2012. It’s a tick-tock of the last presidential election.  As you might expect from someone who ran for Congress (and is a geek), I’m fascinated by the behind-the-scenes stuff. (Yes, recommended for those w/a similar mindset.)

One of the sharpest points in the book was just how finely-tuned the Obama campaign was, both in 2008, and, again, in 2012.  On strategy, on tactics, on adjustments, and discipline they were off the charts.

I found this spectacular performance particularly grating when placed up against the actual Obama administration’s execution. The most current, and glaring, demonstration of which is the disastrous rollout of the Accountable Care Act (aka ACA, aka Obamacare).

The failure goes much deeper than simple procedural errors or stupid technical decisions. The botched implementation is a reminder and reinforcement of everyone’s worst belief: that the government is incapable of executing, and left to its own devices, will screw up pretty much everything. The central “argument” among the most vocal critics of health reform was that the government getting more involved would just make things worse.  Hmm.

The book makes what’s plainly obvious, all the more glaring: the Obama election had a life-or-death accountability attached to the planning and executing of the election campaigns. In the implementation of a program that touches all Americans and has consequences measured in the trillions? Not so much.

The practice of politics is a true market exercise, giving us ugly, painful to experience campaigns and sometimes it creates ruthlessly efficient machines like the Obama campaign. The knock on government execution is exactly that – there is no accountability, no market forces, no stimulus leading to course correction. The rollout of ACA apparently embodies this.

This is why we can’t have nice things.

Health reform was a mess from the beginning. It started with Republican intransigence, leaving Democrats to moderate the legislation themselves. There was the fundamental focus on the political palatable instead of an intellectually honest dedication to addressing the fundamental issues of the existing system. Then there was the standard opposition-driven hysteria abetted by a generally clueless public, and the “required” back-room deals which weighed down the legislation further. Now, after surviving a Supreme Court challenge,  triggering one of the biggest wave elections in 100 years (which I was knocked on my ass by as a candidate), and all other theatrics, here we are: The crowning indignity. The public launch basically coudn’t have gone worse.

This is why we can’t have nice things.

The president and his administration, I hope, are ashamed. And, look, I’m not saying the bill is doomed: Not saying that we won’t bend the cost-curve long-term and end up with a more humane system. But since it only gets more complicated from here, why should we believe that this screwup was the aberration and not the sign of things to come?

It’s my belief that government is going to have an even more critical role in the not-so-distant future. Unfortunately, the general vapidness of political conduct and current execution of complicated policy, like the ACA, only shows how ill-prepared we are as a nation.

Forget China. We have the met the enemy and he is us.

financial services reading.

Lots of disturbing, horrifying, and bizarre facts out there about the state of the financial services sector of our economy.

One of my all-time favorite writers, Michael Lewis, has a great piece on AIG in Vanity Fair.

Much more controversially, Matt Taibbi, in Rolling Stone posts a searing indictment of uber-bank Goldman Sachs. Almost must read.

The past year in the banking sector (based on the actions over the past decade+) has had a truly stunning impact on our country. Likely, we’re going through a history-shaping event. It’s why I’m shocked at how what has gone on has been out of the public spotlight. I hope to see more in-depth reporting coming out soon on the role lobbyists, PAC’s, and financial firms themselves played in this national nightmare.

2 hours of pain and bliss.

Below are some of the more interesting articles I’ve found over the past month. Not sure if it adds up to 2 hours of reading, but it sounded like a good title to me. Why pain? Because reading some of these articles made my blood boil and indignation rage. After avoiding these kinds of articles for a few months, I’ve jumped back in and hope that maybe something productive will result. Here goes…

1) NYTimes: Banks up to their old tricks.

After screwing over their country (and, to be fair, many other countries) American banks have decided they’ve been punished enough. They are passionately lobbying against regulation of the same complex financial instruments that pushed the world economy to the brink of collapse. They’re pushing for less transparency and less oversight. The money quotes:

“The banks run the place,” Mr. Peterson said. “I will tell you what the problem is — they give three times more money than the next biggest group. It’s huge the amount of money they put into politics.”

“The outrage among the public means that things have a chance to change, if things move quickly,” said Michael Greenberger, a professor at the University of Maryland Law School and a former director of trading and markets at the C.F.T.C. “We’re in this brief moment of time when the average citizen is on a level playing field with the lobbyist.”

The banks run the place? A brief moment in time when the average citizen is on a level playing field with a lobbying group out to bankrupt taxpayers? Wait. What was that sound? Oh, just me throwing my laptop against the wall.


2) NYTimes Magazine: Tom Davis Gives up on Washington

An old article on a republican congressman from Virginia. Half human interest story and half sad state affairs of Washington. I would take 435 Tom Davis’ over almost anything else you could give me. I found it really interesting to read the story of a man who spent a lifetime in politics, played the game enough to exist within the power structures, yet refused to compromise on some core ideas and principles.

3) The New Yorker: Money Talks – the Obama budget

Peter Orszag, Obama’s budget head may have the toughest job on the planet. By all appearances he’s a non-political, intellectually honest policy wonk trying to follow through on an ambitious agenda while not bankrupting America. In times like these, saying that last phrase, becomes more than empty rhetoric. Interesting to read about the schism within the administration between those who are scared of our deficits and those who feel we need to march ahead to “right America”. Though, unlike the battle in 90’s, we live in a different world where the dollar is actually in some amount of danger.

4) New Yorker: Cost of healthcare…

Atul Gawande is an *amazing* writer. He wrote a great book called Better: A surgeon’s notes on performance. Here he takes on the peculiarities of health care costs. Gawande writes with the credibility of a renowned doctor and with the incisiveness of a gifted author to confront a taboo in the world of medicine– the profound import of money. Examining a city in TX that boasts health care spending far above the national average and surrounding towns, he dives in full bore. There’s a synergy to this and the Orszag article and, hopefully, we’re approaching a consensus in potential approaches. Make no mistake, health care is the single biggest threat to our country’s future. It threatens private sector viability and the potential to bankrupt the government. Social Security and bailouts can’t touch our medical system.


5) New York Review of Books: Crisis and how to deal with it.

Niall Ferguson is one of my favorite authors and speakers on economic issues. I’ll warn you to not read this next to any sharp objects, prescription drugs, or other dangerous things. The conversation, between some of the “brightest economic minds”, offers very, very little sunshine.

I’ll have 5 more in a few days.

manufacturing customers.

“…the future of business lay in its ability to manufacture customers as well as products.”

That’s a quote from an advertising trade publication from the early 1900’s referencing mass production and the shift from scarcity to abundance. It also struck me as what’s often missed about advertising.

Advertising has two (simplified) central components:

1) To convince people to buy your product when they’re interested in the category (I need toothpaste…hmm…what kind should I buy?)

2) To convince people that they should want your product/category when they don’t really. (creating demand where there it previously didn’t exist)

When you think about #1, Google AdWords could come to mind. Google makes their money selling ads based on your perceived intent. If you searched for “web hosting plans,” you’ll see a slew of offers from companies that offer this service. You could say it’s worked out pretty well for them.

#2, the latter is manufacturing customers. It’s been at the core of advertising for years. It summons the culture of guilt, playing on insecurities, and keeping up with the Joneses. It’s exactly the world we live in. When I think about how crassly superficial a global society we’ve become, it seems obvious. I’m often struck by how few marketers understand and/or explicitly think about this division.

I wonder what the Great Global Disaster of ’08 will mean for our consumer culture. Will we step back from the age of abundance to a more rational time of earnings and expenditures? Will advertising and marketing as a whole completely change as a result? As long as there is a choice of products, there will always be marketing. But the kind of marketing is dictated by the times.

This runs a straight line through a few of my previous posts, and this thought stream brought me to reading The Age of Abundance which is a lightly-heavy read. It’s where the intro quote is from.

a better stimulus plan?

I meant to post on this last week when Friedman’s op-ed in the NYT hit, Start Up the Risk-Takers. Friedman, not surprisingly, beats up on the US autos among others, and says that instead of giving them more money, we should instead turn to venture capital. He proposes giving the top VC’s (top 20%) a slug of money to invest in new technologies and then collect a share of the profits (80%) in exchange for this seed capital.

Fred Wilson, one of the most well respected VC’s in the business, responded on his blog: No thanks. Basically, he asserts that the problem isn’t a lack of money but that too much dumb money came in. Now we’re getting the crap washed out of the system, and the strongest investors still have money that they are putting to work.

While this little dialogue was interesting, I was troubled that this was even being talked about. It’s like the obvious was invisible to everyone discussing the topic. While money is important (and may or may not be the issue depending on who you believe), the bigger problem is complexity and bureaucracy.

The government should be making it far easier for people to start companies. Bottom line.

What if the Obama administration proposed a dramatic set of new rules intended to jumpstart new business creations?:

1) Minimize the complexity for forming a company. Today there seem to be about 8 different types of business types that you form (LLC, Inc, partnership, etc) and in any one of the states all with rather bizarre differences. How about a single, simple filing type which gets a company off the ground and “formalized.” It gives you the flexibility to finalize the specific type of business you want to be after your business gets traction. Why worry about tax treatments, etc upfront? Let people start the thing, and sort out the details later. Put the form online so that anyone can fill out the one page web form and in a matter of hours, their business is formally created. We need to cut the red tape.

2) Eliminate the complexity within a business at the start. Everything from hiring more employees to expanding office space is supported through the SBA or another body. Let’s make it as easy as using TurboTax to figure out how to add new employees, etc. I can picture an online form that asks simple questions and gives you the advice you need, makes changes to your corporate structure as a result, and recommends who to use if you need to use a vendor.

3) Health Care. One of the major (non-monetary) costs of our current health care system is that it is tied to employers and stifles innovation. Health care plans & costs for small companies is often prohibitively expensive. I’ve long argued that the reason we needed to see massive health care reform is not on moral grounds, but because it was such an impediment to the creation of small-businesses and entreprenuership.

The new economy that is going to have to be built to sustainably drive the world forward from here will, in my opinion, have to be driven by entrepreneurs and small companies. Technology has set us up for a world where david can regularly take on and beat goliath. This is awesome. As a country, we need every last drop of creativity and entrepreneurial drive we can wring out of our citizens. To tap into that we need to make it turnkey easy for anyone to start a new business. From there, the government can help create a transparent marketplace for these companies. The private sector will take it from there, and investors such as Fred Wilson, Reid Hoffman, Paul Graham, Andreessen and the slew of other great minds in the space will provide money and the advice needed to build great companies.

It’s disappointed that everyone’s answer to everything has become MORE MONEY. The black hole that is our financial system will continue to destroy more than its share of money for some time to come, so let’s think broader (and more intelligently). Let’s create more efficient and effective government that does it’s part, gets the hell out of the way, and allows individuals to unleash what’s best with themselves.

the rebirth of the long.

Up on the Tom Peters site there’s a good note on the “Generation Gap.” The idea is that his generation was handed a functioning business world with solid fundamentals, and that they took it created a world of stilts, which the current generation has now been bequeathed. Today those stilts are being knocked down and we’re trying to figure it out what the hell to do now.

The obvious answer is that we need to start rebuilding. I’m more convinced than ever that the problems of the last twenty years will have to be fixed by building companies that are driven by the new technologies that are transforming everything. Though, as TP’s post points out, the business world’s current guiding ethos also need to change.

We need long term thinking. The TP post talks about too many MBA’s in charge, too much greed, and confusing profit with value. To me, these are all different ways of saying, as a business community, we’ve failed the long term. We measured things in fiscal years and quarter-to-quarter and found the long term something that was hard to fathom.

We’re already seeing some of this (apparently) change. Google when they went public stressed acting for the long term instead of sacrificing to attain the short. (I’ve got a longish rant on public companies and whether or not Google lives up to this saved in drafts that I need to finish). Facebook throughout their history has emphasized the long term vision of “transforming communications” (or something like that) over the noise of the next 10 minutes. Clearly this has done extremely well for them. And throughout startup land, smart investors and founders have been stressing building transformative products that create killer value as the only priority and short-term profits as an afterthought. This is often laughed at by pundits as signs of the last dot.com bubble. But there’s a difference between doing something stupid like raising a $100 million dollar to sell hundred pounds bags of dogfood through the mail and looking at an idea that will disrupt a market that people are getting value from today by leveraging technology to make it better, more efficient, or just cheaper.

Millions of people looked at Obama as the guy who was going to lead us out of the doldrums. But, really, we need to look at each other. And my generation specifically needs to figure out how to create the next generation of business that will get the economy growing again. Things are incredibly nasty out there. And, personally, I don’t see things getting better for a while. There are no quick fixes when you dig as deep a whole as we’ve done. So what’s left is for us to look around at the tumult, change, and turmoil around us and ask how can we help? In some cases this might just be volunteering, in others there are business opportunities to help create value, and in the process create jobs and help be a part of the solution.

I know what I’ll be spending part of my weekend doing.

there will be consistency.

I look around every day and what I see often depresses me. It’s what I fear is still to come. Consistency.

In the past consistency meant things getting better, people making more money, things thriving. What I fear, and what I see around me are models failing every where around me.

What am I talking about?

Typical for any business or project is a financial model that justified it. For a local coffee shop, they’d project out the cost of rent, labor, supplies/product, average number of customers, and average amount spent by customers. Profit margins are usually thin, say 10-15%, so a change to any variable can make a business unprofitable and destroy it. What scares me today, is that I fear that almost every single model is wrong now. If you were a credit card company a key input for your financial models would be the unemployment rate to determine the delinquency rate. No ones model had the unemployment rate going to 10% and showing no signs of stopping. People are losing their jobs in a scarily fast fashion. These same people, who have on avererage borrowed a ridiculously high amount of money, now also can’t borrow since no one wants to extend them credit. So they have bills they can’t afford, no job, and no credit to get them there. Then you have most people who are seeing this happen across the country and it freaks them out. They worry for the future. So they spend less. They save more. Other people, the wealthier ones with a lot of savings? Even if nothing else has changed in their lives, they’ve probably lost anywhere from a third to half of their net worth in the bloodbath in the stock markets. So they don’t feel as wealthy as they once were and so they spend less.

All at once, everyone is freaking out, and spending less. No model is built for this massive combination of job losses, deleveraging, and increases in the savings rate to replenish losses. Whether you’re a coffee shop, a media company, a packaged goods company, or the local barber shop your model just got torn to shreds. We crave consistency. Except the bad kind.

I haven’t posted in a while, and on my entire drive home (and for the past months) this thought has been eating at me. So I just wanted to post this and I hope I can let it rest.

america and her car companies.

This was a sloppy, not-as-coherent-as-should-be post, and so I’ve rewritten it.

We have a lot to be pissed off about. Literally trillions of dollars of (in theory) taxpayer money are being given to corporations to “bail them out.” This after years of lush profits, exorbitant bonuses, and executives living like it was the gilded age. I’ve been really pissed off. But about two different things:

1) What the hell is going on with our financial services companies? We have had to give them hundreds of billions of dollars to keep them solvent, their reckless risk-taking has endangered economies and financial markets around the world (do you know of any unharmed?). But what pisses me off even more is that these companies are still paying out dividends and giving out ridiculously large bonuses. This is absolutely ridiculous and one of the most shameful giveaways I’ve ever seen. We’re OK with families losing their homes AND with Bankers still pulling in $500K bonuses for starting this train wreck? Are you kidding? While it might have seemed justified for people to be getting paid millions of dollars for moving around money when it seemed like they were actually creating value–what’s the excuse now? This is shameful.

2) The auto companies are getting eaten alive by the public and showered with scorn. Some of it deserved. But, especially when compared with what they financials have done to us, I’m shocked at how deep this feeling goes. The recent cover story in Time magazine nails it.Here’s the first paragraph.

“This is the thanks you get for creating the middle class, Henry (Ford). In the throes of the biggest auto swoon since 1931, the headmen of Detroit go hat in hand to Washington to try to keep their once might industry upright for a couple of months and are treated as if they had invented the four-wheel-drive subprime mortgage. AIG torpedoes the entire economy and gets a $150 billion handout; Citgroup takes risks no sane manufacturing company would even contemplate and is rewarded with a $20 billion federal bailout. And the car guys?”

So I’ll posit that a lot of this has to do with the fact that while how the financial companies wrecked our economy is kind of hard to understand (something about mortgages and credit cards), it’s pretty damned easy to understand why Detroit needs help. It’s because they’ve made poor quality cars, that looked bad, with workers who they’ve paid too much money. These guys deserve to die. Let ’em. So I guess I can see how the haterade storm on Detroit came about. I just think it’s gone way overboard. Here’s why:

A) Fundamentally, I think most Americans have never forgiven GM, Ford, or Chrysler.

Almost everyone I know in their 20’s and 30’s has an aversion to American cars. You say Chevrolet and they’ll say “crap.” GM (I’m going to use GM as a proxy)made really, really bad cars in the 70’s and 80’s. In fact, I can remember some of those cars growing up. They required constant repairs. Entire generations moved over to imports with their superior quality and damned the Big 3 to the trash heap out of their consideration set. And today, when those companies fail, many Americans see this as evidence of why they were right to abandon American cars. They’ve never been forgiven.

The truth is that the quality gap has closed. As Time points out, or any number of publications, over the past decade quality is no longer a differentiating factor. But as any marketer knows, perception is reality, and its sure hard to change. The marketing wisdom is that if the success of your product is dependent on changing a consumer’s opinion, you’re probably going to lose. And so this has been the predominant problem for GM, et al– the perception gap. And GM’s marketers have failed miserably. This isn’t new. I’ve called these guys idiots for years now– here’s a blog post from ~2 years ago, where I beg them to apologize for making crappy cars and move on. A drastic reevaluation of your brand by a consumer requires drastic messaging.

B) GM’s cost structure reflects stubbornness, a lack of cooperation, and an era long passed. The cost structure of a living wage, health care, and a pension is reflective of the era of very profitable American manufacturing base and a corporate parent willing (or forced?) to share in the profits with its labor. The social compact to share in the success with the workers dates back to Henry Ford nearly doubling the wages of his workers so they, too, could afford a Model T. Yet, as their industry spiraled into decay thanks to poor quality, globalization, and leaner competition, these contracts and labor arrangement barely budged. Also worth mentioning are the other problems — pensions and health care costs reflect a time when an employee would retire at 65 and be dead by 67. 15 years of these costs vs 2 is a big difference. These are legacy costs. Bob Lutz summed it up well in the NYT yesterday:

“You get these people who say, ‘I know what I’d do if I were C.E.O. of G.M., like close up all the union plants and set up plants down South with non-union labor,’ ” he said. “Well, any idiot can figure that one out. But how conceivably can you get that done?”

C) If GM was such a crappy company that deserves to die, how can you explain it being the #1 car manufacturer in China and having much success everywhere else in the world?

D) It does matter where a company is headquartered– GM has the majority of their engineering and design staff here in the states. It’s not just manufacturing jobs we’re talking about. These are high value jobs that will disappear. America already doesn’t design or make TV’s, DVD players, cameras, or hundreds of other technically advanced things. We shouldn’t add cars to the list.

E) I forgot where i read this, but someone made the point that one of the primary drivers of the Japanese and Koreans basing their US auto production in the US vs Mexico was they were already foreign. They (rightly) concluded that American’s would consider them the same as GM, Ford, Chrysler if some of the cars were put together here. Without a true American manufacturer, why should they maintain more expensive labor? Let’s not even talk about expensive engineers and designers– these jobs will be based in their home office (Japan, Korea, Germany, etc) or China, India, etc.

F) This *current* crisis for the Big 3 *WAS* caused by the financial crisis. Yes. GM (which I’ve been using as a proxy) has had problems and made a number of mistakes. But they’ve known about this and have been working on fixing them. In fact, they had enough liquidity to take them through all of ’09. But then auto sales fell off a cliff almost dropping in half. This isn’t limited just GM, Ford or Chrysler. Honda, Toyota, etc is seeing this as well. They, however, aren’t burdened by the weight of history. Legacy costs threaten to kill the American 3. You could be stubborn on either side of this: If GM had made good cars, they wouldn’t be in this position. Or, if not for the financial crisis, GM would have survived because they were on their way to righting the ship. The truth is it’s both of these, right?

G) This is an opportunity. GM has inched its way to this point over the past few decades. There have been a number of union renegotiations, new car designs, and inventive research and development (The Volt anyone?) The problem is they never went far enough, because GM was never close enough to the edge. Now they are. As long as legacy costs can be brought in line (with an incentive given to labor to benefit in the upside of a leaner, more profitable company in exchange for their guarantees), and the necessary trimming to an infrastructure in line with their viable market share (think selling brands, closing dealerships, some plants and making the rest very flexible) GM can be a profitable and prosperous american enterprise. And then, as I said in my previous post 2 years ago, GM should use this as an opportunity to fess up for past mistakes, explain what they’re doing, talk about their quality improvements (YELL ABOUT THEM!), and ask Americans to invest at home again. (Full disclosure: I’ve owned a Pontiac and 2 Saturns and love buying American). With really great cars like the Cadillac CTS, Chevy Malibu, etc, a great communications campaign, and a competitive cost structure, we can compete.

If anything is clear from the financial crisis, it’s that this idiotic idea that America can compete just on services and doesn’t have to make anything is a recipe for disaster. (All of the financial instruments of mass destruction which triggered this meltdown were a large chunk of those magical service revenue). As a country, we’ve already let the vast majority of our manufacturing base leave. This is one of the last vestiges of an industry that we need (think national security).

In summation, I’m not apologizing for (OK, maybe a little) GM & gang, I’m asking you to look at it with a bit more nuance.

the laundry list in my head.

Here’s a laundry list of what’s been bouncing around in my head the past few days.

1) Obama likely ran the best campaign in history. From approaching the campaign with a data-based decision making process, thinking through weakness and strengths and letting this guide a communications/tactical strategy, a consistent (reassuring) image and message to voters, and an efficient deployment of technology– just from a business case approach this was remarkable. The New Yorker has a good article on it all. When insiders either write, or contribute heavily to a definitive account of the operations and logistics of the campaign, I’ll be first in line to buy and study the book.

2) There is more fear in the air than I can ever recall. September 11th was a very different kind of fear and nakedness to the harsher elements of the world. Talking to friends, and more importantly strangers, and reading the accounts of what’s going on in broad swaths of America– there is real, palpable fear for the future. The stock markets are a reflection of sentiment (and probably themselves guide sentiment to some degree, completing the cycle) and it’s ugly. An organization, nation, etc needs renewal. The thing is we needed this back in 2001 at the latest. But we put it off by inflating home values and pushing the levels of credit. Continue reading