Tag Archives: strategy

More Thoughts On “Father, Son & Co.” (#business, #family)

These comments are from an email to a friend with regards to my recent review of Father, Son & Co.:

The book excited me at first because in the intro Jr says that if you have the opportunity to go into business with your father, you should do it. I figured the book would be filled with all the fulfilling things that he experienced as a result of that relationship.

Instead, it seemed to be chock full of warning signs! His father seemed to be interested in exposing him to the business at a young age. He took him on a cross country train ride for business around age 10 and introduced him to managers, sales people, toured plants, etc. Sr was thinking of him and the business from the start. But what Sr never seemed to figure out was how to actually transition his son into business and power.

Junior started out a salesman and did that for several years with small success after initial frustration. Eventually he was brought in as a manager, but there was no set plan for Senior to retire and hand over the reins. They also hadn’t worked out how a space for Juniors younger brother would be handled. It seemed like Senior was either enjoying the prestige too much, or had his ego too wrapped up the business, and was reluctant to give up power, even when it seemed clear his energy and mental faculties were failing.

Junior and Senior fought constantly, and violently. It’s likely a lot of the fights were due to this unresolved question of power sharing and succession. They had different ideas about how to grow the company, junior seeing value in computers and senior being skeptical of them. They always made up in the end but what a terrible toll to take on one another emotionally and physically!

Eventually junior asserted himself and got his dad to agree to give power to him. It was almost like he was waiting for him to man up and insist. One of the challenges of the transition was that there was a perception that senior had surrounded himself with loyal yes men. Junior ended up canning a lot of these people, and then canning other people he and his dad had both picked for different positions, until he had culled the management team down to just a group he had advanced himself. This is typical in business and represents a challenge especially for family succession. An ideal situation would see the aged old guard nearing retirement right around the same time as the younger new guard is ready to take over, that way there are no hurt feelings or dicey incentives from one regime to another.

So I think some takeaways were:
-talk early and often about strategic questions, especially succession timelines and process
-have an agreement to transition an entire management team, don’t expect the successor to play well with people he didn’t groom himself
-if there are other family members involves in the business, discuss roles and opportunities (based on merit) early and often and establish a clear hierarchy of who reports to who and why
-the son or family successor will never be comfortable and confident exercising power, and will never be taken completely seriously, until the previous family member officially and totally transitions out
-dont let business issues poison personal family relationships, if you find yourselves fighting outside of work, seek counseling

Notes – How To Win The Pitch (#marketing)

The following notes come from a presentation delivered by marketing gurus Tom Patty and John Pietro at a CEO Forum speaker event:

  • “the desire” is key to improving your pitch
  • getting better at the pitch means getting more business; we’re all pitching, all the time
  • 2 ways to grow business
    • get more customers
    • do more business with existing customers
  • the pitch is when you persuade someone to give something to you, and it usually involves competition with others trying to do the same
  • 7 things you must do to win the pitch
    • know your client; if you don’t know much about them, you’ll probably lose
    • know your competition; do you know who you’re competing against, including the alternative of “No.” or “Not interested.”?
    • know how your client perceives you; look them in the eyes to see how they’re responding to you, engage quickly or the story is over
    • know your client’s business; what do they do well, poorly? “feet on the street”
    • know how their customer’s perceive them; show what you’ve learned from their customers
    • have a great pitch team; look in the mirror, don’t be the “behind the counter manager”
    • be lucky; “the harder I work, the luckier I get” attributed to Lincoln
  • why do winners win? because they make a connection; they know what the other person is thinking all the time
  • 8 strategies for connecting
    • humor
    • common interest
    • common values
    • common friends
    • common beliefs
    • sincere interest in the other
    • ask questions
    • common enemies
  • how to connect: shift the goal from “making a sale” to “making a connection with the other person”
  • how to connect
    • know about their business
    • know what’s important to them
    • know who is important to them
    • know how and where they make their money
    • demonstrate that you honestly care about their business
  • the simple business model; identify these elements in the client’s business
    • the offering
    • the passion
    • the profit
  • Bobby Knight, “Anyone can have the will to win, you have to prepare to win.”

Final comments: John Pietro relates a story about a successful pitch to the Wynn Group on behalf of his client, Coca-Cola. Coca-Cola had been the vendor for the Wynn casinos for many years but they decided to put the contract up for bid with Pepsi-Cola. As John and his client prepared for the final pitch to the group, word came through the grapevine that Wynn’s CFO and another lead decision maker had been informed by Pepsi that they could bid the contract much lower than Coca-Cola which likely made the decision a lock. Not ready to give up, and knowing that Coca-Cola HQ in Atlanta wasn’t willing to budge on their bid price and was confident they’d still win, John and the Coca-Cola VP got to work on a new strategy.

The Coca-Cola VP was good friends with Steve Wynn and his wife and had supported them in various local charity endeavors. They also knew that Steve was a great art lover and was particularly fond of “La Reve” by Picasso, which Steve had recently acquired for his collection at great cost. They decided to produce a special Coca-Cola bottle with the painting reproduced on the label of the bottle, laid inside a velvet case in a specialty wooden box.

After making their pitch covering dollars and cents, product offerings, etc. over a period of several hours, and knowing they were 2nd to present on the final day and Steve Wynn was completely zoned out and bored with the whole process, they finished their presentation by having the Coca-Cola VP walk over to Steve and offer him the box, informing him that he was extremely grateful for their personal and business relationship.

Steve Wynn opened the box, pulled out the bottle and began to tear up as he admired it. On the spot, he announced, “Coca-Cola has won our business.” And like that, the decision was made.

Or so the story goes, but it’s an interesting idea of the principles of the pitch in action to the extent that it is true. It’s also a great example of developing a competitive advantage by some means other than price.

Review – Deep Value Investing (#contrarian, #investing, @HarrimanHouse)

Deep Value Investing: Finding bargain shares with big potential (buy on Amazon.com)

by Jeroen Bos, published 2013

A “valueprax” review always serves two purposes: to inform the reader, and to remind the writer. Find more reviews by visiting the Virtual Library. Please note, I received a copy of this book for review from the publisher, Harriman House, on a complimentary basis.

Benjamin Graham’s Principles Applied

Although it provides a summary introduction to the theory of Benjamin Graham’s classic deep value (net-net and discount-to-book value) strategy, Bos’s “Deep Value Investing” is decidedly a practitioner’s guide, not a philosophical work. More accurately, it’s a collection of case studies for observation and analysis– what did and didn’t work in various key examples from Bos’s own investment portfolio.

This is the book’s strength, and weakness. It is a strength because any opportunity to peer into the portfolio of a working money manager and see not only what he’s done, but why he has done it, is often worth the price of admission. Bos gets hands on with the reader and provides the relevant information in each case study, including the start and end date and price of each trade, the relevant balance sheet information and per share calculations and a helpful chart of price movements over time to put it in perspective.

Most importantly, though, Bos provides a lot of qualitative detail that helps to flesh out the simple quantitative analysis. Many curious students of value investing will be happy to see Bos not only explains what piqued his initial interest in each security, but that he also talks about how long and why he waited to get involved in each opportunity and how he interpreted business developments in each case (positive and negative) along the way. He also provides an explanation as to why and how he exited each investment, whether it was a winner or a loser.

This is something that’s missing in most investment case study discussions and it’s a real value add with this book. Another value add is the online support materials for the book, including a record of all relevant publicly available information for each investment that Bos used in his analysis (so you can follow along and see if you can see what he saw), as well as a free eBook version of the title accessible with a special link.

As mentioned, the weakness of the book lies in the fact that it’s mostly a collection of case studies with little else to structure it. In that sense, while the material is approachable and certainly not technical or difficult by any means to comprehend, this is not a “beginner’s book” but better for a reader who has already read a more philosophical work such as Graham’s “The Intelligent Investor” or “Security Analysis”. After reading those, revisiting Bos’s “Deep Value Investing” should yield many profitable insights and appreciation for what he has managed to accomplish.

Additionally, a bit of information that is normally found in these “how I do what I do” guides, that being whether or not the author supports diversification or concentration of portfolio positions and how he sizes his positions and manages his portfolio as a whole in general, are noticeably absent. The mere addition of this insightful information might have pushed this book into the “4-star” range in terms of usefulness and candor. As it is, it’s a “3-star”, though a strong 3-star candidate. A good read, but not essential in any library and by no means a classic like “Security Analysis”, though of course it has no pretensions of being so.

If you’re “deep” into deep value strategies, or want to watch over the shoulder of a talented operator, Jeroen Bos’s “Deep Value Investing” is well worth picking up! Even veteran value guys have something to learn from Bos’s “qualitative-quantitative” combined approach and especially his criteria for exiting a successful investment as it “transforms” over time from a balance sheet to earnings play.

Other Notes

Some of my other favorite observations worth noting:

1.) Liquid assets are what we’re really interested in, for the strongest margin of safety

2.) Share prices tend to be volatile, but book values tend to be stable over time

3.) Service companies tend to offer good value opportunities because they’re light on fixed assets and heavy on current assets; they also have flexible business models that can quickly scale up or down depending on business conditions

4.) Cyclical stocks always look cheapest on an earnings basis at the top of their cycle and most expensive at the bottom of their cycle (which is ironically when they’e a best buy)

5.) To better understanding accounting statement terms, compare treatment of confusing items across different companies in the same industry

6.) When evaluating trade receivables, it’s important to understand who the company’s clients are

7.) Check lists of new 52-week lows for good value investment candidates

Review – Repeatability (#strategy, #business, @HarvardBiz)

Repeatability: Build Enduring Businesses for a World of Constant Change (buy on Amazon.com)

by Chris Zook, James Allen, published 2012

A “valueprax” review always serves two purposes: to inform the reader, and to remind the writer. Find more reviews by visiting the Virtual Library. Please note, I received a copy of this book for review from the publisher, Harvard Business Review Press, on a complimentary basis.

What’s this book about?

I finished reading this book over three weeks ago. Since then, I have struggled to get myself to sit down and write a review. The primary reason I’ve struggled is because I am not sure I can say with confidence what this book is about, or to which genre it belongs. Is it about strategy? Business management? Business planning? Organizational theory? Something else?

“Repeatability” chants about simplicity, but it’s full of so many buzzwords, different-but-related ideas and proprietary-sounding business catchphrases that it’s hard at times to keep up. And perhaps I’ve dropped into the late middle of an earlier conversation, as the book references a “focus-expand-redefine” growth cycle elaborated upon in three earlier works known as “the trilogy”.

A more charitable explanation of my confusion might place the blame with the authors themselves. Take the way in which they describe the main shifts in strategy they say they are witnessing, which led them to write the book:

  1. less about a detailed plan and more about general direction and critical initiatives
  2. less about anticipating how change will occur, more about having rapid testing and learning processes to accelerate adaptation to change
  3. effective strategy increasingly indistinguishable from effective organization

The central insight from their research, the authors claim, is that,

complexity has become the silent killer of growth strategies

Why? The authors don’t take pains to explain or justify the assumption that the world is more complex and that “traditional” strategic notions no longer work in this new world order. They just accept it as common wisdom and run with solutions for responding to it.

Building “Great Repeatable Models”

The next several chapters detail what Zook and Allen call “Great Repeatable Models”, which are businesses defined by the following three principles:

  1. a strong, well-differentiated core
  2. clear nonnegotiables
  3. systems for closed-loop learning

According to the authors, GRMs (germs?) were

sharply, almost obviously, differentiated relative to competitors along a dimension that also allowed for differential profitability

which I think is another way of saying they have a lucrative competitive advantage.

Similarly, the authors suggest that nonnegotiables are a company’s

core values and the key criteria used to make trade-offs in decision making

while systems for closed-loop learning enabled GRMs to

drive continuous improvement across the business, leveraging transparency and consistency of their repeatable model

which I understood to mean that the businesses had a culture and process for improving their practices over time.

The Cult of the CEO

Chapter 5 of “Repeatability” seeks to demonstrate how the CEO is the guardian of the three principles of GRMs. While it clearly makes sense that the CEO, as the chief strategiest and top of the organizational pyramid would have a role in implementing and enforcing a GRM, the authors offer little here to help other than numerous examples of success and failure in following the three principles followed by a hopeful conclusion that the “right leadership” will be in place to manage the delicate balancing act they specify as ideal. It seems to place the book in the Cult of the CEO genre (idealizing the role and superhuman nature of corporate chief executives) while simultaneously causing much of their writing up to that point to seem extemporaneous.

It’s almost as if the presence of the “right leadership” implies the presence of a GRM, and the absence of a GRM implies the absence of the “right leadership.” The book suffers from hindsight bias and tautological reasoning like this in numerous areas.

My own simple interpretation

The central tenets of this book are confusing, poorly defined and at times self-contradictory. Its research methodology (inductive empirical study to explain complex social phenomena) is frowned on by this Austrian economist. Ironically, it is the occasional element touched upon at the periphery of the book’s argument, rather than its core, where the authors manage to share something meaningful to solving the dilemmas of business people.

Unfortunately, the encouragement to keep the distance between the CEO and the customer minimal and to articulate a simple vision that even lower-level employees can grasp and rally behind, for example, is rather intuitive and obvious. Why would adding layers of bureaucracy and arbitrary decision-making, or creating a business plan so elaborate your employees don’t understand it, ever be a sound practice?

There’s a lot here including many case studies and other reference materials, but not all of it is useful or makes sense when viewed through the prism of the Great Repeatable Model. For some the digging required to find the occasional nugget of wisdom may be worth it but I can’t recommend such exertion for everybody.

Notes – Nintendo Back In The Saddle? ($NTDOY, @ActiveInvesting, @NintendoAmerica)

On January 23rd, 2013, Nintendo pushed out another “Nintendo Direct” communication from the company to the gaming public, discussing their upcoming plans and vision for the newly released Wii U home console. The reaction of one major gaming media outfit, IGN, was telling:

Finally.

That’s really the only word that comes to mind after watching Nintendo’s new ‘Direct’ broadcast. In just over 30 minutes, the game publishing giant not only made a better case for the future of Wii U than in the previous 12 months, it managed to surpass the hype it generated at its past two E3 outings – combined.

[…]

Today Nintendo did something remarkable, in a way that puts most other developers and publishers to shame. Though the Big N is often quiet and secretive, it has managed to find a modern, progressive format to deliver its news directly to its fans, while retaining its trademark sense of humility. In 30 minutes, over a dozen games were showcased, some coming in mere months, others perhaps years away. Regardless, the message was clear – Wii U is not only home to innovative new play styles for families, but epic, core experiences that rival the grandest, most ambitious endeavors available elsewhere.

And these games are entirely, completely exclusive, all tied to Nintendo directly as a software publisher, not as a licensor. The sheer glee of Wonderful 101 won’t be coming to Xbox 360. The visual brilliance of Yoshi’s Island won’t be appearing on a phone with loads of in-app purchases. PlayStation 3 will never get a HD remake of the timeless, gorgeous Wind Waker.

That’s what made today so remarkably potent – for any gamer who actually cares about games instead of arbitrary, meaningless console supremacy. Nintendo has started to provide a real sense of strategy for Wii U. The GamePad’s much-hyped innovation doesn’t matter without games. Neither does Miiverse’s social connectivity. Nor the fact that all those Wii remotes and games will still work. None of that matters without compelling games. But those features and ideas, once combined with software we can’t get anywhere else, collectively start to say something powerful. Something special. At the end of the day, gamers care about games. That’s what they want, and nothing else matters. [emphasis added]

What’s worth noting here is that the editors at IGN seem to have gotten a clear sense of Nintendo’s overarching strategy in this latest “Nintendo Direct”, a strategy which was laid bare in the book on the company I reviewed late last year called Nintendo Magic:

For some reason, Nintendo observers and critics don’t get this– why isn’t the company doing what everyone else is doing? Why are they making a console with a TV remote instead of HD graphics (the Wii)?

To Nintendo, the risk is in not trying these things and trying to do what everyone else does.

The guys at the top of the company and most responsible for its current development (Iwata and Miyamoto) are software guys at the end of the day, and the hardware innovations in the Wii U and predecessor systems were all about driving unique software experiences. Those software experiences are now being divulged en masse, to early critical acclaim.

There’s more in the original IGN.com article worth reading for the curious. And if you missed the review of Nintendo Magic, this is a good opportunity to go back and check it out, then compare those notes with how Nintendo has handled the Wii U rollout and how it comported itself in this latest “Nintendo Direct.”

Perhaps one might not agree with their direction and strategy, but at this point I think it’s hard to argue there is no consistency. And to a long-term investor who understands the strengths and success of this strategy in the past, I find that comforting.

(Click here for all coverage of $NTDOY on valueprax.)