Mr. Moore will tell the story of how this fourth generation, family owned business founded in 1883 streamlined its operations and doubled its profits from $40M to $80M in the late 1990s culminating in the company’s sale to Berkshire Hathaway in an all-cash transaction in January 2001.

Every Family’s Business by Tom Deans

This book is the relating of a colorful conversation between two fictional owners who recently sold their respective businesses who meet on a flight to Barbados to invest their proceeds.  One sold his family’s insurance business twelve years after taking it over from his father.  The other sold his furniture manufacturing business after years of fighting with his son, daughter and wife.

The book’s best passage: “(Lay out) a process…that keeps the family members in the business focused on the goal of selling the business at some point–selling the business at the highest price to the highest bidder, giving preference to cash and without prejudice to whether the buyer is family or an unrelated third party.  The stock of the business must always be understood to be for sale.  Sale of the stock takes primacy over any consideration of family employment.  And family employment will not alter or distort the value assigned to the stock.”

Putting the business first.  Brilliant.

Anyway, I had been dying to read his new book The New Capitalist Manifesto. There were some great ideas here…Like his explanation of the societal cost of things like burgers (a $3 burger includes $10 in health and environmental costs) and $10 of subsidies of water, land and jobs) and oil (hidden costs add $4/gallon the price).

If you are familiar with the corporate social responsibility (CSR) movement, you know about the many “externalities” in our current economy–costs that are borne by the planet and/or society outside of the corporation. These externalities have always been there but they are becoming a bigger problem and–this part is important—a bigger opportunity for businesses everywhere.

Haque wants us to think about these and the iconic products that represent them: McMansions, Hummers and Big Macs. And then re-think how to change business for the better.

The alternative is what he calls Constructive Capitalism. He uses research of 250 companies to make his points. The contrasts between yesterday and tomorrow’s capitalism are instructive. His point is weakened by his bias for players like Apple, which to me is not that different in philosophy from Microsoft (they are both about control). But it’s hard to blame him for this—everyone loves to love Apple. And the book is still worth a read, although not nearly as fun as his blog.

By the way, Haque is not alone in his calls for reforming capitalism. I see new names associated with these ideas every week. The latest is the article on Capitalism for the Long Term by Dominic Barton of McKinsey.

Of course, in my opinion, no solution to capitalism’s ills is possible without giving value to the intangible knowledge assets that are critical to the future of every business as well as our national economy. It’s what we already know that will save us–but we will need to apply our knowledge in new, innovative ways. Let’s get busy!

-Mary Adams

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Although this book was written in 2007, it presented ideas regarding the role of the Chief Security Officer and the importance and opportunities around customer data and its security.  While normally viewed as a cost center and part of Risk Management for a firm, the CSO can be a contributing player in activities like Marketing (no kidding), Customer Service, and Corporate Strategy.

After all, it’s the CSO (or maybe the COO) who knows best what data your firm has collected. Besides protecting against security breaches, the CSO can ensure appropriate access to customer information, storage of relevant data around research for product development and other issues.

While reinforcing the idea of the CSO’s importance for disaster protection, the opportunity comes in involving the CSO in strategic initiatives that become revenue-producing, not just a cost center.  While protecting customer data must be of highest importance, the opportunities around strategic application of that same customer data to enhance the business was the most interesting angle for me in the book.

Pink has authored other thought-provoking books in recent years: Free Agent Nation: the Future of Working for Yourself and A Whole New Mind: Why Right Brainers will Rule the Future so I looked forward to diving into this one.

Pink analyzes motivation over the course of history, calling what inspired cave men Motivation 1.0, where the focus was on survival, so decision-making had this as a priority, living

and eating first.  For Motivation 2.0, the pursuit of materials goods and fear of punishment led to a carrot-and-stick structure in motivating employees.  However, Pink makes the case that in modern America, personal fulfillment — Motivation 3.0 — can be a stronger motivation than material reward.  This explains why financial rewards for behavior may backfire (extrinsic motivation). The opportunity for freedom/autonomy (Google’s corporate policy of allowing 20% of employee time to work on whatever they want), greater mastery of the skills required for the job and purpose, and gaining a real understanding of why we’re doing what we’re doing may provide real motivation, what Pink calls intrinsic motivation.  Lots to think about here for businesses and non-profits.

Johnson has written other well-received books and this one has created quite a buzz.  It’s a little dry, even with the many stories, but there’s no question it contains lots of interesting takes on innovation, inventions, and process.  For example, Johnson detected patterns of innovation and analyzed their origins:

• How most innovative ideas are built on other ideas recently generated
• Why office space is best laid out so people have an office to think and plenty of common space to share ideas
• How we learn from errors
• Why cities produce more innovation

• Why great ideas take time to germinate
• “Exaptation” taking something designed for one thing and applying it to something else
• Why connecting ideas often leads to greater ideas
• Relating stories relate the history of scientific and engineering innovations inclucding computers, the Internet, Morse Code and the vacuum tube

This discussion seems to beg the question of how it will be used. In contemporary accounting, the investment by an organization in tangible assets is “capitalized” on the balance sheet and depreciated over time. This serves as a way of keeping non-operating expenses (that is, not related to the current year’s operations) out of the income statement. It also serves as a way to track the cumulative effect of investing in a company’s capacity over time. As we have explained in previous posts, this model is not used for intangibles.

So if we recommend tracking intangibles investment, does that mean that we think  intangibles should go on the balance sheet? For all the reasons explained in why are intangibles not on the balance sheet,  intangibles such as human capital and some aspects of relationship capital will never go on the balance sheet as we know it today. But there will be a need for reporting that shows the health of a company’s intangible capital. And an accurate picture has to consider all the components together, including the human and relationship capital.

We do believe that some day, a greater portion of structural capital will be capitalized. Process, for example, could gain a clearer legal description and, possibly, protection. Think about the package handling systems at UPS or Fedex. These systems are core assets of these organizations. Although they include hardware, software, networks, processes and workflow, only a small tangible fraction of the full system is really tracked as an “asset” of the company. The heart of these systems is in the software each company has developed to connect the processes—and how it is integrated into the work of everyone in the delivery chain, starting with the sender and ending with the recipient. The whole process and system is clearly an asset of the company. It only makes sense to develop ways of tracking the accumulated investment and putting it on the balance sheet.

All this is to say that there are lots of opportunities to get more intangibles on the balance sheet. But it won’t be enough. There will also be a need for disclosure of spending on and performance of human and relationship capital. It’s too early to predict whether this will be accomplished through a new kind of financial report or just better supplemental information. But a full view of an organization’s knowledge factory is long overdue.

Adapted from Intangible Capital: Putting Knowledge to Work in the 21st Century Organization by Mary Adams and Michael Oleksak.

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“Superfusion: How China and America Became One Economy and Why the World’s Prosperity Depends on It” by Zachary Karabell

For those who were not paying attention the last 20 years, the United States and China have become closely linked economically.  Many companies re-located manufacturing operations to China to take advantage of lower labor costs.  So the U.S. is now deeply in hock to China (not to mention having lost an intellectual property advantage by sharing all the manufacturing knowledge with Chinese partners).  Much of the economic growth in the U.S. in the 1990′s was financed by China’s purchases of U.S. issued debt.  In this way, they raised the standard of middle class Chinese with favored economic development zones.

Karabell traces the origins of this economic dependency with storesand examples.  His original point of view regarding this interdependence does not offer solutions to the U.S. problem, but does provide an entertaining version of how we got here. ]]> http://trekconsulting.com/2010/11/17/superfusion-how-china-and-america-became-one-economy-and-why-the-worlds-economy-depends-on-it/feed/ 0 http://trekconsulting.com/2010/11/17/family-business-and-a-joke/ http://trekconsulting.com/2010/11/17/family-business-and-a-joke/#comments Wed, 17 Nov 2010 15:09:02 +0000 Michael Oleksak http://trekconsulting.com/?p=1108 An owner walks up to his son and says, “Son, I’ve been thinking, I’d like to give you half of this company. I’d like you to learn the business starting on the plant floor with production.” Son says,” Dad, that’s not really interesting to me.”  Father says, “OK, son, work in the office with me and learn finance, sales and marketing.”  Son replies, “That doesn’t sound very appealing.”  The father, frustrated, then said, “Well, what do you suggest, son?”  The son replies, “Why don’t you just buy out my half?”

Former owner and now family business advisor Scott Wakeman, told this joke at our first Owners Academy session at last month’s Exit Planning Exchange (XPX). At this event, owners were invited by XPX members to hear other business owners talk about their various experiences in owning, operating and exiting their own businesses.

Another former family business owner, and now investment banker Andy Crain, explained how his family was somewhat insular and less inclined than other companies to get good outside advice from a board of advisors. This is actually common with family businesses – to keep it ‘inside’ and figure it out without help from the ‘outside’.  Luckily, Andy isa smart guy and was able to lead the family business out of trouble, but some family businesses aren’t so lucky.

Maybe not everyone would find Scott’s joke to be that funny. But I think it proves the point that family business is such a unique and special entity. You can understand business, but that doesn’t mean you understand the first thing about a family business – so maybe it’s safer to consider this an inside joke. ]]> http://trekconsulting.com/2010/11/17/family-business-and-a-joke/feed/ 0 http://trekconsulting.com/2010/10/13/valuation-for-ma-building-value-in-private-companies-by-chris-m-mellen-and-frank-c-evans/ http://trekconsulting.com/2010/10/13/valuation-for-ma-building-value-in-private-companies-by-chris-m-mellen-and-frank-c-evans/#comments Wed, 13 Oct 2010 20:49:58 +0000 Michael Oleksak http://trekconsulting.com/?p=1083 Chris Mellen (XPX Boston member) took on an aggressive assignment when he agreed to update the first edition of Valuation for M&A, written years earlier by Frank Evans and David Bishop.  What he created is a valuable resource forowners and advisors.  Valuation for M&A combines the tools for valuing companies, along with accounting process, strategy for value creation and exit planning advice.  While this may not be the type of book you would sit down to read for pleasure, I can certainly recommend that participants in the value creation and M&A space familiarize themselves with the concepts and practice within.  This is a business course in itself.  Very dense and rich in content.