Business Stories

The Truth Can Be Bitterer than a Sweet Illusion

October 6, 2015 By Nagesh Belludi Leave a Comment

Bitter Pill - The truth can be bitterer than a sweet illusion

In 1998, as CEO of 1-800-Flowers.com, Jim McCann could not bring himself to let one of his senior executives go. McCann and the rest of his leadership team understood that this senior executive was neither right for the job nor performing well.

For McCann, the biggest hindrance was that he was friends with this executive and had spent time with his family. McCann agonized over being heartless to a friend and couldn’t bring himself to dismiss the executive.

Unexpectedly, McCann met General Electric’s CEO Jack Welch at a dinner party and discussed this dilemma. Welch advised, “When was the last time anyone said, ‘I wish I had waited six months longer to fire that guy?’ Always err on the side of speed.”

Urged by Welch’s counsel, McCann deftly dealt with the situation. Initially, McCann felt that being tough was unjustifiable and was pained by the loss of a friendship. He was hurt but relieved because firing the executive was the right decision for everyone.

On a happier note, the former executive soon got a new job that better suited his background. Their friendship stood the test of time and they eventually made up.

Firing is awful—indeed, it’s the most difficult thing managers have to do, especially for those who encourage camaraderie and treasure loyalty. As in McCann’s case, if you think an employee isn’t up to par and you may fire him/her within the next year, it’s always better for management, the employee in question, and other employees to take the right actions promptly.

Idea for Impact: Don’t Be Conflict-Avoidant

Confront the Bitter Truth The truth is that the truth hurts sometimes. Even if the truth can be bitterer than a sweet illusion, delaying action will only make things harder.

Making the right decision and taking the action may involve unpleasant confrontations. Though conflict can be emotionally distressing, being decisive and doing what’s best eventually works out well for everyone.

Instead of being hyperconscious of other’s possible judgments and avoiding conflict, do difficult things as soon as practically possible.

When dealing with difficulties involving others, there is nothing more insidious than unresolved conflict and inaction. Read “Five Dysfunctions of a Team” (by Patrick Lencioni) to understand how to engage in conflict in a way that nurtures (rather than harms) relationships. Also, read “Crucial Conversations” (by Kerry Patterson, et al.) on how to conduct effective discussions by stating the facts, speculating possible remedies, and then skillfully leading the other person to a course of action. Stick with facts to reduce defensiveness. Have the other person develop and commit to a course of action on his/her own.

Burt, Bees, and Simple Happiness / The Curious Case of Burt Shavitz

September 8, 2015 By Nagesh Belludi 1 Comment

Narratives of entrepreneurial success and great wealth are fascinating

Today’s high-achieving culture adores people like Elon Musk who dream big, set ambitious goals, stubbornly get things done, and build wealth for themselves.

This scale of purpose, however, is not for everyone. A surprising number of people find their purpose by going the other way—by rejecting the trappings of wealth and pursuing humble, unpretentious, contended lives.

Consider the case of Burt Shavitz, the namesake and co-founder of Burt’s Bees, a prominent beauty-products company. Burt, whose bearded face and scruffy hat grace the tins of the company’s hand salve and ointment, died this summer at age 80.

The small, simple, happy life

Burt Shavitz’s extraordinary reclusive life exemplifies what Marcus Aurelius wrote in Meditations, “Very little is needed to make a happy life; it is all within yourself, in your way of thinking.”

As a young professional photographer in the sixties, Burt grew increasingly disenchanted with city life in his native New York City. He was particularly distressed by the loneliness of an old woman whom he photographed at a home across his apartment—she always looked out sorrowfully from behind dingy curtains and never left her room. “As soon as I took this shot, I knew that that would be me, ninety years old and unable to go outside, if I didn’t get the hell out. I borrowed a van from a former girlfriend, packed up everything I needed—my bed, what clothes I had, an orange crate of books—and disappeared into the declining sun,” Burt recalled in 2014.

Burt left his city life for the backwoods in Maine and started living in a camper van. He led a hippie lifestyle; he had no ambitions and very little money. He took to beekeeping after unintentionally stumbling upon a swarm of bees at a fencepost. One day, while peddling beeswax by the side of the road, he met Roxanne Quimby, a single mother who was hitchhiking to work. Roxanne and Burt soon got romantically involved.

Roxanne had an entrepreneurial mindset: she made candles, lip balm, and hand lotion from a 200lb stash of unsold beeswax and started selling personal care products to tourists and at fairs. Over time, when their business thrived enough, Burt and Roxanne moved to North Carolina to establish a factory. However, Burt missed Maine very much. After a falling out with Roxanne, Burt sold his one-third stake in the company to her for a measly $130,000 and returned to Maine. (In 2007, Roxanne and her associates sold the company to Clorox for $913 million; she claims to have given him $4 million of the proceeds. Burt’s Bees/Clorox continued to pay him an unrevealed amount for continued use of his likeness and his name on its products.)

Idea for Impact: Happiness is mostly a matter of perspective

After returning to Maine, Burt no longer kept bees to make a living. He just enjoyed life—doing what he wanted, when he wanted. He told Flare magazine in 2013, “I’ve always had enough. I never starved to death, and I never went without a meal. I served in the army and went to Germany and slept in snowbanks, and walked 100 miles in the day carrying an 80-pound pack. What was it that I needed? My beekeeping produced enough cash that I could maintain my vehicles and pay my land taxes. What do I need? Nothing. No wife, no children, no TV set, no washing machine. All the pins sort of fell into place my entire life.”

During his later years, Burt lived in a cluttered country home in Maine that had no hot water and liked to watch nature pass by. A 2013 documentary called “Burt’s Buzz” captures his long and unconventional life. This highly recommended documentary (entirely on YouTube) juxtaposes Burt’s ideal day—“when no one shows up and you don’t have to go anywhere”—with the rock star adoration that he received from fans during a visit to Taiwan as the ‘brand ambassador’ of Burt’s Bees products.

In interviews—as in “Burt’s Buzz”—Burt denounced the emptiness of consumerism and extoled the virtues of simple, reclusive living. Evidently, he never regretted missing out on millions, but felt hurt by a three-decade-old business deal with Roxanne gone bad. “I’ve got everything I need: a nice piece of land with hawks and owls and incredible sunsets, and the good will of my neighbors,” he once said. An obituary in The Economist observed,

Settling back in his rocking chair, feet spread to feel the heat of the stove, Burt Shavitz liked to reflect that he had everything he needed. A piece of land first: 40 acres of it, fields and woods, on which he could watch hawks and pine martens but not be bothered, with luck, by any human soul. Three golden retrievers for company. A fine wooden house, 20 feet wide by 20 feet deep, once a turkey coop but plenty spacious enough for him. From the upper storey he could see glorious sunsets, fire off his rifle at tin cans hanging in a tree, and in winter piss a fine yellow circle down onto the snow, and no one would care. … He would wander into the woods or lie on his lawn to watch the baby foxes play, murmuring “Golly dang!” with simple happiness.

The seventeenth century French writer Francois de La Rochefoucauld once wrote, “Happiness does not consist in things themselves but in the relish we have of them; and a man has attained it when he enjoys what he loves and desires himself, and not what other people think lovely and desirable.” If, indeed, contentment consists of liking of what one has and having what one likes, Burt’s humble life illustrates how happiness arises from the harmony between oneself and the life one leads in one’s simple corner of the world.

Bill Gates and the Browser Wars: A Case Study in Determination and Competitive Ferocity

January 20, 2015 By Nagesh Belludi 1 Comment

Competition Drives so much of our World Today

We live in a hypercompetitive age where winning is the outcome, often necessary for survival—in classrooms, sports, trade and commerce or at work. The archetypical successful person is determined, aggressive, and obsessed with winning at everything, sometimes at any cost. Of course, competition is healthy; but, winning may come at a hefty price—always striving to win or being overzealous can be both unnecessary and unproductive. Besides, collaborative or naturally uncompetitive individuals tend to find competitive people somewhat unpleasant.

History provides but a few vivid portraits of intense competition that compare to the mid-90s’ “browser wars,” a narrative characterized by the dogged determination and intense competitive spirit of some of the world’s greatest entrepreneurs.

Bill Gates and Microsoft are legendary for using brute power: whenever a new competitor emerged, Microsoft would muster its financial resources and its smarts to storm into those markets with alternative products that would eventually dominate. Up until the dot-com bust, Microsoft not only out-competed Borland, Lotus Development, Corel, and other rivals that were previously in the lead, but also crushed upstarts such as Netscape.

“The Browser Wars”: Rise and Fall of Netscape

At the start of 1995, a new software called Netscape Navigator took the computing world by storm. Unlike primitive browsers, Netscape could display text and graphics on websites. Early web buffs eager to discover the marvel of the nascent internet were no longer restricted to downloading text alone. In addition, Netscape could render web pages on the fly while they were still being downloaded. Users did not need to stare at a blank screen until their dial-up connections loaded text and graphics.

Even more astounding was the fact that the upstart Netscape Communications, Netscape Navigator’s creator, had been co-founded by a 23-year-old programmer just a few months previously and seemed well-positioned to take advantage of the imminent consumer internet revolution. Netscape was on its way to an extraordinary 90% market share amongst internet browsers. What’s more: the company’s spectacular IPO was drawing near and was to start the dot-com boom.

Netscape’s meteoric rise could not escape the attention of the world’s dominant software company. Early in 1995, Microsoft was particularly occupied with finalizing Windows 95. Its launch, scheduled for August 1995, would prove to be the largest, most expensive consumer marketing endeavor in history. Moreover, the U.S. Justice Department (DOJ) had embarked on an intrusive investigation into claims of unfair business practices as alleged by Microsoft’s competitors.

While Netscape was capturing the Web browser market, Microsoft and Bill Gates had seemingly missed the paradigm shift created by the consumer internet. Financial and technology analysts wondered if Microsoft was destined to lose its supremacy over software. Microsoft could not wait on the sidelines and cede business opportunities in the upcoming consumer internet revolution.

Browser Wars: The Rise and Fall of Netscape Navigator and Internet Explorer

Bill Gates and Microsoft Jumped on the “Internet Tidal Wave”

Bill Gates, Steve Ballmer, and the Microsoft team were not to be trifled with. Microsoft simply could not afford to be the underdog. Its strategy was transformed entirely when, on 26-May-1995, Bill Gates wrote the groundbreaking internal memo, “The Internet Tidal Wave.”

Bill Gates deployed an extraordinary amount of capital and talent to battle for control over consumer internet. Just after the August-1995-release of Windows 95, Microsoft released an inferior Internet Explorer 1.0. In 1996, Version 3.0, matched the features of Netscape Navigator. Finally, in 1997, after bundling Internet Explorer 4.0 into Windows 95, Microsoft started to take a significant market share from Netscape.

In 1998, the DOJ and twenty US states alleged that Microsoft had illegally thwarted competition by abusing its monopoly in personal computers to bundle its Internet Explorer and Windows operating system.

By 1999, Netscape was an inferior web browser and quickly lost its dominance. The software’s market share dropped from 90% in 1996 to a meager 4% by 2002.

In subsequent installments of the browser wars, Netscape Navigator’s open-source successor, Firefox, regained market share from Internet Explorer. More recently, Firefox and Internet Explorer have had to contend with Google’s Chrome, which has grown to be the dominant web browser.

Microsoft Set Out to Destroy Competitor after Competitor

Historically, Microsoft has never been a substantial innovator. Instead, the company’s most famous strategy was to be a “fast follower.” The variety of rivals’ projects made no difference—competitors could pioneer anything from graphical user interfaces (GUI,) pointing devices, spreadsheets, word processors, browsers or gaming consoles and Microsoft would catch up in due course.

Consequently, the most important Microsoft products started essentially as copies of existing products made by competitors or upstarts that Microsoft was able to purchase early. MS-DOS evolved from QDOS, which itself derived from CP/M. Microsoft Windows was inspired by Apple’s Macintosh, which, in turn, had been inspired by a prototype mouse-driven graphical user interface that Steve Jobs had seen at Xerox PARC. Microsoft Excel borrowed from VisiCalc and Lotus 1-2-3. In addition to riding the coattails of bona fide innovators, Microsoft excelled in smart integration—it combined nifty functions and features into a single product or into a suite of easy-to-use tools such as its Office productivity software.

Microsoft’s Once-Invincible Strategy of Being a “Fast Follower” Wasn’t Sustainable

Alas, in the last 15 years, Microsoft’s “fast follower” competitive strategy has proven unsustainable. As its dominance in the enterprise world grew, Microsoft’s impressive financial performance relied mostly on its “old faithful” franchises. In fiscal 2014, the Windows operating system, Office productivity suite, and servers/cloud businesses contributed 78% of Microsoft’s revenue and almost all of the gross profit.

Despite the competitive ferocity of Bill Gates, Steve Ballmer, and others at the company’s helm, Microsoft has been unable to return to its domineering ways in the internet’s recent mobile- and social-computing trends. In fact, Microsoft stumbled in category after category of consumer computing and technology, including search, social networking, phones, music players, and tablets. Google, Facebook, Apple—lead by entrepreneurs just as intensely competitive as Bill Gates—have soared ahead, altering the social-media-tech consumer experience.

Recommended Reading: If you like business history and entrepreneurial success stories, read ‘Forbes Greatest Business Stories of All Time’, Daniel Gross’s engaging profiles of twenty great American entrepreneurs: Revolutionary War financier Robert Morris, McDonald’s ‘founder’ Roy Kroc, Walt Disney, Microsoft’s Bill Gates, et al. For more stories of Bill Gates’s fierce competitive instincts, read Stephen Manes’s “Gates”.

Defend in Public, Reprimand in Private [Two-Minute Mentor #3]

November 19, 2012 By Nagesh Belludi Leave a Comment

When Richard Branson, founder and chairperson of the Virgin Group, was seven years old, he took some 50 pence in loose change from his father’s table and walked over to a candy store. The shopkeeper suspected Richard and wanted to call his mischief. The shopkeeper called Richard Branson’s father and asked him to come down to the store. The shopkeeper told the dad, “I assume your son has taken this, that you didn’t give it to him?” Richard Branson’s dad seemed irritated at this suggestion. He retorted back to the shopkeeper, “How dare you accuse him of stealing!” Although the senior Branson knew Richard had taken the 50 pence, he avoided humiliating his son in the open. Back home, Richard Branson admitted he had taken the coins from his dad and swore never to take money again without permission.

Idea for Impact

Most people are conscientious enough to recognize their mistakes. They do not want to be humiliated or shamed in the presence of peers and team members. Nor do not need their managers, parents, or other authority figures to ram mistakes down their throats.

When you think you can nail someone’s mistake in the open, take a breather and give a face-saving opportunity for the other. Avoid the temptation to put them down in public. In the privacy of one-on-one meetings, listen to their points of view, describe the impact of their ideas and behaviors, encourage them to reflect on their mistakes, and correct themselves.

Origin of the Expression “You are Fired!” [Business Folklore]

February 3, 2010 By Nagesh Belludi 15 Comments

The term ‘fired’ is a colloquial expression for dismissing a person from employment. It became more popular as a result of the NBC reality show The Apprentice where the host, American businessman Donald Trump, eliminates contestants for a high-level management job by “firing” them successively. In 2004, Trump actually filed a trademark application for the catchphrase “You’re fired!”

Some sources suggest the expression may have originated from the verb “to fire,” as in “to discharge a gun.” However, legend has it that the phrase originated in the 1910s at the National Cash Register (NCR) Company.

NCR founder John Henry Patterson (1844—1922) is widely recognized as the pioneer of sales management and for developing formal methods for training and assessing salespersons. In spite of all his genius, Patterson was quirky. He sought total control of his surroundings, imposing his personal values on employees. As a food and fitness fanatic, he had employees weighed every six months. He often dismissed employees for trivial reasons just to deflate their self-confidence and, soon after, rehire them back.

Patterson’s employees and customers branded him abusive and confrontational. Patterson once dismissed an executive by asking him to visit a customer. When the executive drove back to NCR headquarters, he found his desk had been thrown out on the lawn. Right on time, his desk burst into flames. He was “fired.”

Thomas Watson Sr. was “fired” by NCR

Famously, NCR’s star sales executive Thomas Watson Sr. (1874–1956) met a similar fate. In 1914, Watson argued that NCR’s dominant product, mechanical cash registers, would soon go obsolete. He proposed that NCR develop electric cash registers. Patterson resisted the idea. He warned Watson not to overstep his boundaries and demanded that Watson focus on sales only and intrude into product innovation. Following an argument at a meeting, Patterson dismissed Watson. In a fit of rage, Patterson had workers carry Watson’s desk outside and had it lit on fire. Watson Sr. was thus “fired.”

Watson Sr. still believed in the potential for electric cash registers. He joined a smaller competitor, Computing-Tabulating-Recording Company (CTR,) which soon grew into International Business Machines (IBM.) Watson Sr. led IBM for forty years and turned it into the world’s leading technology company.

Source/Source: Keynote address by Mark Hurd, then-president and COO of Teradata at Kellogg School of Management’s Digital Frontier Conference on 17- and 18-Jan-2003. Teradata was previously a division of NCR Corporation, the company Patterson founded.

Home Depot Stock Underperformance: Who’s to Blame?

January 5, 2007 By Nagesh Belludi Leave a Comment

Home Depot Chairman and CEO Robert Nardelli resigned on Wednesday. Since early 2006, Nardelli had been under a fair amount of criticism from investors primarily for disproportionate compensation and poor performance of Home Depot’s stock [HD].

In May of last year, the New York Times estimated that Nardelli had received compensation worth $245 million during the first five years of heading the company. During this time, Home Depot’s stock had slid some. The stock performance was especially poor when compared to that of Home Depot’s archrival, Lowe’s [LOW].

Is the company management completely at fault for the fact that the share price has gone nowhere in the last six years? After all, during Nardelli’s tenure, Dec-2000 to Jan-2007, Home Depot’s has grown significantly and profit margins have improved. Here are key numbers (2007 data are Wall Street consensus estimates for the financial year ending 31-Jan-2007.)

Revenues increased from 45.7 billion to 91.0 billion, an increase of 100%
Net income increased from 2.6 billion to 6.2 billion, an increase of 140%
Earning per share (EPS) increased from $1.10 to $2.95, an increase of 170%
Dividends (per share) increased from $0.16 to $0.90, an increase of 460%

Lesson for Investors: Perspective in Valuation

During the late eighties and nineties, Home Depot grew exponentially under the leadership of its founders. Naturally, its stock was very popular on Wall Street and attracted rich valuations. The Price to Earning ratio (P/E) of the stock was high; so was the PEG ratio (the ratio of P/E to growth rate). Investors ‘bought high’ and ‘sold high’ during this period: they purchased at rich valuations and sold at rich valuations, as with any other growth stock.

Home Depot Stock Underperformance: Who is to Blame?

After Nardelli assumed leadership of the company in December 2000, investors continued to expect richer valuations. In the post-bubble period, Home Depot’s stock lost its sheen; it lost the rich valuations it once attracted. Its P/E ratio was now comparable to that of mature companies. Further, stocks of large, blue chip companies (GE, Intel, Microsoft, Wal-Mart, Citigroup, Pfizer, etc.) went out of favor on Wall Street from year 2001. Despite impressive earnings growths, these companies have suffered from decreased interest in their stocks (see story and chart on Business Week’s cover story and accompanying chart from April 2006.)

Investors often have undue expectations of stock prices of rapid-growth companies and lack perspective on stock valuations as such companies mature.

Procter and Gamble: One of the world’s best breeding grounds for managers

December 15, 2006 By Nagesh Belludi 1 Comment

Procter and Gamble Brands A senior colleague at work recently mentioned that Procter and Gamble [PG] recruited his daughter as a management trainee. She would work at the corporate headquarters in downtown Cincinnati, Ohio. He said, “She interviewed at General Electric [GE] and got rejected in the last round of interviews. She was very disappointed; GE was her top choice.”

General Electric’s management practices and vast managerial talent are widely recognized as one of the world’s best. Its leadership development program and the John F. Welch Leadership Center at Crotonville, New York state, receive wide publicity, especially in the print media.

Procter and Gamble is equally well known as one of the best breeding grounds for managers. Its reputation for hiring the best young talent, training them rigorously, and challenging them with opportunities in marketing, product strategy and operations is legendary.

“Many CEOs and top managers in corporate America are Procter and Gamble alumni,” I explained to my colleague that his daughter out to be thrilled she joined Procter and Gamble. “So, she has a chance, haan?” replied my colleague, ending the conversation.

Procter and Gamble Alumni

From memory, I compiled a list of current corporate leaders that, at some point in their careers, worked at Procter and Gamble. Here it is for your reference.

Jeffrey Immelt, CEO, General Electric
Steven Ballmer, CEO, Microsoft
Steve Case, former CEO, America Online (AOL)
James McNerney, CEO, Boeing
Margaret Whitman, CEO, eBay
Stephen Sanger, Chairman and CEO, General Mills
Crispin Davis, CEO, Reed Elsevier
Scott Cook, CEO, Intuit (Quickbooks, etc.)
Michael Szymanczyk, Chairman and CEO, Philip Morris USA
Paul R. Charron, Chairman, Liz Claiborne
Bernd Beetz, CEO, Coty
James Orr, CEO, Convergys

Virus on iPods: Apple blames Microsoft Windows

October 20, 2006 By Nagesh Belludi Leave a Comment

On Wednesday, Apple’s iPod support website acknowledged that a small number of video iPods were infected with a Windows virus. In addition to describing the scale of infection and providing instructions to remove the virus, the website blamed Microsoft Windows for the glitch.

“As you might imagine, we are upset at Windows for not being more hardy against such viruses, and even more upset with ourselves for not catching it.”

Apple’s “114,000 viruses? Not on a Mac” advertisements have lately targeted Windows users to ‘Get a Mac’. Presumably, someone at Apple [AAPL] believed that blaming Microsoft Windows for viruses on the iPod could extend its ‘Get a Mac’ campaign. The outcome is a cheap shot at the competition.

The iPods were apparently infected with the virus at one of Apple’s contract manufacturers. There is no reason for Apple to be “upset” at Microsoft for not being more hardy against such viruses.” Microsoft [MSFT] has invested significant resources (money and talent) fighting hackers and improving its software development process. As Jonathan Poon of the Microsoft virus-scanning group pointed out on his blog, Apple should blame its own manufacturing system.

“It’s not a matter of which platform that the virus originated. The fact that it’s found on the portable player means that there’s an issue with how the quality checks, specifically the content check was done.”

Apple should also blame hackers, who were creative enough to get malicious code embedded on an Apple product while it was connected to a Windows machine on Apple’s manufacturing line.

The take-away lessons: (1) possess a healthy respect for the competition, and, (2) blaming the competition without cause constitutes poor taste.

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Business Stories

Idea for Impact: Don’t Be Conflict-Avoidant

Wondering what to read next?

Narratives of entrepreneurial success and great wealth are fascinating

The small, simple, happy life

Idea for Impact: Happiness is mostly a matter of perspective

Wondering what to read next?

Competition Drives so much of our World Today

“The Browser Wars”: Rise and Fall of Netscape

Bill Gates and Microsoft Jumped on the “Internet Tidal Wave”

Microsoft Set Out to Destroy Competitor after Competitor

Microsoft’s Once-Invincible Strategy of Being a “Fast Follower” Wasn’t Sustainable

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Idea for Impact

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Thomas Watson Sr. was “fired” by NCR

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Lesson for Investors: Perspective in Valuation

Procter and Gamble Alumni

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