Category: Business parables

I bring up this subject because of my experience with Starbucks more than twenty years ago.

Starbucks was ready to expand internationally. A board member came to me for advice about opening in Japan, the first country they had chosen.

Since Starbucks depends heavily on location, and location everywhere in the world, is deeply connected to the corruption of local government, I advised partnering with a local business to get good locations.

Starbucks wisely partnered with the Sazaby brothers, who came from a family with 200 years in the food industry. Since the Sazabys were in the process of expanding their tea cafe’s, Starbucks was able to get some of the best foot traffic locations in Japan.

The Sazaby Co. recently bought out Starbucks in Japan. The same thing happened earlier when 7-11 Japan bought out the Japanese chain and then bought the U.S. parent company, Southland.

I watched Peet’s coffee fail promptly in Japan; a few years after Starbucks. They hired a Chinese man as the regional manager, assuming he would later handle Korea and China efficiently. Wrong. The Chinese are not Japanese, in anyway. He got many things wrong in the marketing. Failure built in from cultural stereotypes.

Did I make a mistake or did Hassan change?

A few years ago I was asked to help select a tenant for a store front.  The storefront was in a location that had been a small grocery and was suited for a coffee shop or sandwich shop.

One of the applicants was a fellow named Hassan who had a large coffee shop on Fillmore near Haight.  

I was not impressed with Hassan’s operation.  It seemed to have too much old raw wood on the walls and floor (hard to clean) and many of the tables had cracks that looked unsanitary to me.  Simply on the basis of the cleanliness issue, I didn’t recommend Hassan for the new tenant.

The exact opposite is the case with my old client La Taqueria which I described in this blog.  One of the restaurant’s strongest points was its cleanliness.  Not something often found in Mexican restaurants.  In the earlier blog I pointed out that my advice had been right and La Taqueria was still packed to the walls with customers every hour they are open, 40 years later.  Since that blog La Taqueria has been named the best burrito in America.

The point of this blog is that Hassan has since opened three other restaurants.  They are favorites of mine.  All three are immaculate and successful.  The name is Squat and Gobble in the new locations.

Did I misjudge Hassan?  Was his first shop appropriate for the neighborhood and I didn’t understand that necessary funkiness.  Or did Hassan change?  

Honesty in business yes, candor no.

Mona is an architect friend who had a problem client.  The client, Betty and her husband, had a small job remodelling their garage.  After the garage was finished Betty and her husband planned to make it into an illegal apartment.  Mona did some drawings, got little feedback and no response to an invoice for the next four months ago.

Mona is busy, doesn’t need a small job and doesn’t like projects that are intended to be illegal.

Betty phoned recently to ask about the garage job.  Mona, the architect, asked my advice.

My view is that honesty is important to business but candor isn’t.  Candor would mean saying: ‘your invoice is overdue, you are wasting my time and I don’t want to work with you, fuck off.’

Since many people have no understanding of business, especially sole proprietor businesses, we can’t expect them to understand that sole proprietors only have their time to support themselves with.  I’ve never found explaining that issue of any value.  Education is not something businesses can afford to do; big or small businesses.

To me the solution is to phone the client back, I always recommend phone calls because writing emails can be misunderstood too easily.  Mona can explain that she never got paid for the last invoice.  Then explain that she is too busy now to do anything on the job for the next few months (that is true).  Mona  would appreciate getting paid and be happy to discuss working on the project in a few months.

The best outcome is to get a check in the mail and never hear from Betty again.  

The best outcome happened.  The invoice was immediately paid; the client never called back.

We are in a period of merger frenzy.  

The modern world of mergers was created in the 1960’s when International Telephone and Telegraph showed that a giant conglomerate could run profitably with a wide range of disparate holdings.  Harold Geneen was the man who developed the accounting and financial statement based management system that made it work.  

Business people began to see that any viable businesses could be packaged for sale to the growing market of companies that wanted to expand by buying other firms.  What was needed was an excellent accounting and financial system, a president who had a team of managers who formed a coherent cluster of experience and a structure that was working well together.

Why merge?  In the 1960’s a major reason was the volatility of stock prices that made some firms very desireable when bought in a low market.  All that was needed was for the purchasing company to have a higher multiple of earnings to stock price.  Adding a new company with good earnings, even from fields where such multiples were historically lower, meant raising total earnings and consequently the stock price of the purchaser.

That is less reasonable today because management of a diverse conglomerate is much harder when there are more competent managers in the market who can run independent companies well and aggressively with independent sources of capital.

Mergers today make sense for several new reasons.  First and foremost, in the U.S., government regulation is so intrusive and odious that a corporation needs to be very large to cope with the cost of fighting a bureaucracy.  That is true in the banking world and most true in the pharmaceutical world.  It is now, thanks to Obamacare, true in the medical, hospital and senior care world.

Second, large companies need mergers in any industry that is prone to labor harassment and perennial lawsuits (autos, international construction).  This is because the legal department has to be big in real numbers but small as a percentage of the total expenses.

Third, mergers are an efficient way to buy research.  Often creative people and entrepreneurs develop new products and markets on their own better than in a large company.  So they are bought after they have developed and tested new products.

Fourth, American corporate taxes are among the highest in the corporate world.  This means mergers with overseas corporations in lower tax domains can increase the merged company’s after tax earnings.  More commonly it means that a large lobbying operation within the business budget can get specialized favorable domestic tax treatment.

Finally, but not lastly, some volatile industries are ripe for mergers into bigger firms to create some form of stability.  True in advertising and food products.

The current merger frenzy comes at a time of gross government bureaucratic expansion and low domestic economic growth. 

In the mid 1970’s I had one of my favorite painting contractors develop a technique that has become a standard in the painting contractor industry.  

I looked at the individual estimates he made for prospective clients and saw that he could use one standard checklist form.  He did.  The form emphasized the interconnectedness of many paint issues.  Fail to repair gutters and the lifespan of the painting job goes down.  Use a darker color and the lifespan of the painting job goes down. Cut back shrubs and the job costs less. There were a whole range of job components that had an impact on the total price and quality.

A few years later I got a building cleaning service client in Tokyo.  The fellow was just starting out.  That is uniquely difficult in Tokyo where corporate loyalty is deeply ingrained.  Fortunately there was a building boom in Tokyo at the time and some new buildings were potential clients.

My client had a few buildings to clean as a start.  I modified the painting contractor idea to fit this Tokyo client.

I had his workers complete a checklist for each office that was cleaned to be left in the office every month.  The checklist showed all the detailed and intricate cleaning functions that my client’s workers performed.  Japanese are the most fanatic cleanliness people on the planet.

These cleaning checklists became very popular and resulted in countless letters of recommendation for my client as well as frequent conversation in the buildings with employees expressing their thanks.

In less than two years, my client was a major cleaning service in Tokyo.  He is now, decades later,  one of the top three maintenance companies in Japan.

I think my readers owe a debt of gratitude to Michael Padway.  

Michael is a long  time friend and client.  We often have a chance to relax and chat about his latest brilliant business exploits.

I sometimes add a few stories from my several thousand business clients to the discussion.

Yesterday, Michael suggested that these stories are parables.  People whose parents are in business get to hear stories like these at home and at meals.  Michael’s parents were both in business.  With Michael’s introduction, I once did a job for his father’s insurance headhunting firm.  

Others, without business parents, may need parables like these to succeed in business.

The first parable is about Michael’s law firm, which he ran with his brother.  The firm did auto liability claims.  Usually a victim of an auto accident was the plaintiff against an insurance company.

Michael ran a powerful ad on post-mid-night TV that generated many responsive phone calls every day.  The firm had lawyers on the phones full time screening callers to see if they had viable lawsuits.  This phone answering was costly to the firm, because it required expensive lawyers to do the screening.

Michael’s solution was to make a high quality professional video tape (an important medium in the days before DVD’s and the Internet) and sent it immediately to everyone who phoned in with a case.  The video helped the potential plaintiff decide if they had a viable case.  If they did, they were given a quick pitch on why Michael’s firm could be good for them and what they could expect on the way a lawsuit would progress with medical exams and legal filings.

It was a brilliant screening, selling and training mechanism and increased the number of viable cases while reducing legal hours in getting good clients.

With that success in hand, Michael added an even more brilliant video.  

He created a video to prepare his plaintiffs for depositions.  Depositions with cross examinations are part of nearly every lawsuit.  They require preparation time that is expensive; most clients are anxious about being cross examined under oath.  The deposition video was a stunning success in preparing plaintiffs.

Such a success that Michael’s firm was able to sell the video far and wide in the legal profession.

In-house money saving option becomes outside revenue producer.