JJ Astor on Business
Winning in the future, with a nod to the past.

Jul
05

After two months at its current site and after some minor modifications to its design, JJAstor on Business has moved to its own domain!  New posts will appear there, so please update your bookmarks to:

http://www.jjastor.com

and your feeds to:

http://jjastor.com/wp-rss.php

Thanks for your loyal readership and please look for new posts starting tomorrow!

Jun
08

One of the things I love most about working with a lot of new ventures is the emergence of patterns – patterns which are productive, and patterns which are destructive. Near the top of the destructive list is the failure to find a balance between dealing with day-to-day operational issues and higher level managerial issues of a business. Often when problems occur, which they inevitably do in a start-up, entrepreneurs immediately rush to put out those fires. And as soon as they do, other fires start and require the same level of attention. For company management, it’s a losing proposition.

Because of this, when I work with entrepreneurs, I help them understand the value in dedicating time to work “on the business”, and spend less time working “in the business”. I’ve heard these terms from many intelligent people over the years, but recently a colleague, for whom I have a lot of respect, made me recognize the importance of this in the context of a business in which I am currently working. For a business to be prosperous, at least someone at the managerial level needs to ensure that the right people are on the team, monitor industry trends and competitive environments, refine market positioning, work on short & long term planning – some of the “on the business” topics. But it’s tough, and takes discipline.

As I’ve visited and spoken with college students preparing to enter the “real world”, I’ve recognized an “on” vs “in” parallel between launching and managing a business, and launching and managing a career. Similar to the underlying pattern of success of a business manager who understands the balance, I’ve also noticed that people who have great careers understand the importance of taking time to work “on their careers”. What do I mean by “on their careers”? Simple things such as building transferable skill sets, ensuring that at least 1/3 of your professional contacts are outside your current company, finding and developing relationships with mentors both inside and outside your company, learning about and studying trends in the industry in which you want to work, learning about the types of work environments in which you thrive most, discovering your preferred learning styles, emotional discipline/emotional intelligence, self-honesty, decision making & decision making refinement – in fact, this is a summary of what I present to and teach business students when I’m invited to speak at their classes.

“Life long learning” and “Working ‘on’ your career” are probably two of the most important things I’ve ever learned, and they warrant additional posts – which is why over the next month, I’ll be writing a series of posts on these topics.

May
30

Last week, I was headed out the door to the beach when I received a call from a restricted number on my cell phone. “Hello, this is David Nelms from Discover Financial,” the voice said. With a million things on my mind, I figured that it was in response to a recent customer service call. But, as the name started sounding more and more familiar in my mind, and the conversation quickly got to the point, I realized that I had David Nelms, the CEO of Discover Financial, on my cell phone. His primary motivation for calling me will be explained in a moment, but he also took the time to ask me about how my businesses were doing, and gave me a direct line to his administrative assistant should I ever need to get in touch with him again for any reason (he also thanked me for being a loyal customer).

Step back a day earlier, and I’m reading an article about Regulation AA R-1314, an initiative by the Federal Reserve Board misleadingly called the “Unfair or Deceptive Acts or Practices” Act aimed at limited the information a credit card company can use to price the risk on your credit accounts. Since I’ve been a long time follower of the credit card industry, and have even penned the first half of a book on consumer credit, I was infuriated by the Fed’s short-sightedness in such a proposal. But there was one opportunity – the Fed Reserve Board of Governors was looking for feedback from citizens.

As I crafted my email to the Board of Governors, and prepared to send it, an idea crossed my mind. Since I had already written the email, why not BCC all the top executives of every major credit card company whose email address I could get my hands on? Well, with about 30 mins work and a little creative thinking, that turned out to be almost all of them (top three from every major credit card company – aside from Bank of America, which barely qualifies as a company and whose executives barely qualify as businesspeople).

It also got me thinking that I should continue to use this strategy to get in touch with other executives in other industries – write to my lawmakers opposing regulation and BCC applicable industry execs. As mentioned above, my plan worked, and today I received a typed letter from the office of Richard Fairbank, CEO of Capital One Financial, as well as the surprising call I received from David Nelms of Discover last week. I think this is a strategy to save for future playbooks.

By the way – I really am passionately opposed to Regulation AA R-1314, and here is an excerpt from my email (read reg aa here and send feedback to federal reserve here):

“……Regulation AA will increase the credit card companies cost of doing business with me, because it will limit their ability to act when my risk profile changes, which in turn will increase the interest rates charged to all people of all risk profiles. Shouldn’t my interest rate correspond to my individual risk of default? Why should responsible borrowers who have worked hard to follow the rules be punished for the actions of the irresponsible few?

I want to make clear, that I am in favor of the Fed and the government increasing spending for the education of consumers about these issues. This is a fantastic idea. In fact, I’ve noticed that many of my credit card companies themselves have made great efforts to help consumers better understand their policies and offer free financial education directly on their websites for no charge. I hope that the Fed recognizes this effort by the industry. But at some point, governing bodies need to recognize that there will still be people who choose not to take advantage of this free education or to educate themselves about how to responsibly manage their finances. It is unreasonable for you to shape policy around this minority, especially at the expense of the majority of Americans.

I strongly believe that the letters you have received regarding Reg AA R-1314 do not represent a cross-section of the American public, but instead, only the angry few who took the time to write to you. I’m writing to you because I know it’s the right thing to do, because I know many responsible Americans who feel the same way I do, and because Regulation AA R-1314 punishes those who have taken the time to educate themselves and build the financial discipline that we should be promoting as a society.

May
26

Over the holiday weekend, I spent time at a nearby beach resort. Over the years I’ve seen this resort turn from a family oriented spot for working class multi-generational families to vacation, to just one more over priced, over developed beach front community for people to show off their cars, boats, and other flashy assets to one another.

But this Memorial Day Weekend was truly something special. With all the talk of recession, real estate busts, and bubbles bursting, I was surprised to find that six of my eight neighbors were all sporting the new $300,000+ Bentley Azure Convertible. For an area that has experienced an 800% increase in real estate values in the last 15 years, maybe this isn’t surprising. But I have to defer to my time tested theory of “The same skill sets required to make money are needed to manage/retain it.” So, if simply buying and holding was the real estate “investment” strategy for the last 15 years, you have a large percentage of the population who really never learned the lessons of proper wealth acquisition, and therefore spend their money on Bentley Azures and other flamboyant extravagances that would make even Donald Trump blush.

This is one of the several reasons why I think a national recession is a very positive thing for our country. It’s a very natural part of a capitalist economy, but lately, the public/media have acted as though we can financially manipulate our economy to completely avoid them. This, however, is impossible, and is not in the best interest of our long term economic viability. Americans need to learn the lessons of being financially undisciplined, and the impact of recession needs to touch them personally in some way that leaves emotional residue for the rest of their lifetime. This is how our economy becomes more efficient, and how we less frequently repeat the mistakes of the past.

Now let me be clear – this recession is very different from the recessions of recent decades. I’ve heard many people remarking about the buying opportunities available one the market “bottoms out.” In reality, this is highly unlikely. Unlike the recession of 2001, as well as the recessions in the eighties and mid-nineties, the big/smart money was on the sidelines for most of it. That’s right, every rich person ($50M+) and rich person’s money manager that I know saw this coming from a mile away, and switched to more conservative asset classes. What that means is that there are hundreds of billions of dollars of capital waiting on the sidelines to pick up underpriced assets at fire sales. And because most of these wealthy individuals/funds made their original fortunes in these now underpriced domains/asset classes, they not only have the funds but have the experience to buy troubled assets and turn them around.

In fact, almost none of the Forbes 400 list billionaires dropped off the list or lost considerable amounts of money during this most recent recession. This concerns me. In my opinion, there are definitely people on that list whose money would be better off in someone else’s hands. But it’s tough to knock the $50M+ crowd off their horses. Though, I sure as hell wouldn’t mind seeing the $1M to $20M crowd (my nuevo riche neighbors) get their asses kicked by these markets. That would at least allow some financially disciplined Americans without huge checkbooks to make some money by investing wisely. Americans just have to be willing to stomach this down turn until it gets to that point, and let the natural “shake out” of bad money occur.

So next time you hear someone say the “Recession word” like it’s a profanity, recognize that it’s the other “R Word” that we should be concerned about – Regulation. One of the nations best poker players once said that short term volatility is normal, but over the long run, the smartest, most disciplined poker players always win. And the primary reason that this happens is because the casino doesn’t handicap the game – they just let the players play. And that’s all I’m asking from our regulators.

May
15

Next week I will be speaking to business students at a local university on the topic of entrepreneurship. From time to time I’ve had the honor of being asked to speak at this university, and every time I end up learning a lot from the class. About a year ago, I decided to be proactive about learning from them and I asked the class to help me with an experiment. Going into it, I had very low expectations of the conclusiveness of my informal study. Since then, I have conducted this same experiment with three more classes, a total of about 100 college students. The results floored me.

Here’s what happened. First, I instructed them to raise their hands if they knew college was definitely the right place for them to be. Generally all but one student raises their hand. “Now keep your hands raised if you’d still be in college even if none of your friends or family went to college and none of those people expected you to go to college.” About a third of all the students lower their hands. I continue, “Now keep your hands raised if you’d still be here in college if the studies showed that going to college had no impact on your future salary or earnings.” Ninety-nine of the one hundred students I conducted this experiment with lowered their hand. One student, 1%, claimed he was in college because of reasons other than family/friend influence or expected monetary gain.

Granted this is not a scientific study by any means. But I have to admit, the first time I conducted it, I was amazed by the results. I’ll leave the analysis to you, and possibly, for future posts.

So what did the student say who was there because of internally driven reasons? He told me that he loves learning and that after careful consideration and a study of the alternatives, he decided that college would provide the learning structure and accountability he needed to maintain a solid pace of learning.

May
12

Early last year, I was given an opportunity to broker the Series C funding of a medical devices company. It was the largest deal I’ve ever worked on and even though the deal fell through in the 11th hour, it provided for an amazing learning experience and I’ve spent much time replaying the situation in my head. One of the more interesting thoughts that I’ve had in recent days relates to the trouble that this MedDev company had with evangelizing their product to investors, end users, the media, and the industry.

Throughout my career I’ve run into countless companies with this problem, particularly in the life sciences field. If you think about it, it makes sense. A very small percentage of the population understands the science behind these innovations – and in full disclosure, I sure as heck don’t. A typical profile of one of these companies often consists of:

1) An FDA approved product (if required)
2) A network of a dozen or so doctors who have experience with the product and can attest to its effectiveness.
3) Major problems attaining market penetration in the healthcare industry, with both hospitals, and/or partnerships with existing industry participants. i.e. no distribution network.

Let me be clear here – in my mind, the problem with this scenario is that viable medical technologies are not getting to end users because current industry participants have a vested interest in ensuring they never get to market. And in the healthcare industry, when the big guys throw their weight around, it works. As the American public is learning, it’s a top down industry, and what’s best for the patient isn’t always what’s practiced. So how have successful companies in other top-down industries broken the mold?

I believe the answer is through carefully engineered and executed grassroot campaigns. I know it sounds crazy, but think about it for a moment. If you’ve been following the political dialog on this matter, you probably agree with me that increasing transparency and empowering consumers to make decisions about their own healthcare will have to be a high priority for any healthcare company that wants to survive over the next decade. The perfect battle strategy to fight a top-down system is to empower consumers.

This is why I’m amazed when many of the CEOs of these companies tell me that they’re holding out for the perfect “strategic partner.” I can relate to how they feel – you’ve pretty much struck gold if you can partner with a company that has the distribution network. But so few companies are successful at this. What seems scary to me is how many viable medical innovations probably die not because they are unsafe or ineffective, but because this strategic distribution partner is never found. Almost just as scary is hearing how many of these CEOs think that these industry heavyweight potential strategic partners write the rules about who wins and who loses. HOGWASH! Let us never forget that consumers write the rules and that there is a lot of money to be made in empowering them!

If I could build a time machine and go back in time, I would have spent my efforts with this company on finding investors to help me buy out the company (after careful due diligence, of course). They had a great product that saved lives, but management was too conservative, they had too much buy-in to the industry norms, and they had serious issues with how they handled constructive feedback from investors.

My go to market, customer empowing plan would have gone something like this:

1) Use the proceeds of the $15m Series C Funding to build 10 machines (@ a cost of $50k/ea = $500k), maintain and service them for a year ($5k/ea = $50k + no marginal cost of operation), onboard three doctors with token salary and reasonable stock option incentives ($500k/yr), lease 5,000 sq ft Class-A facility ($175k/yr), malpractice insurance ($400k/yr), hire 6 nurses ($400k/yr), hire admin staff ($100k/yr) = ~$2.2 million for the first year. This is peanuts compared to what some of these companies are spending on their failing business development efforts.

2) Give procedure (early cancer diagnostics) away for FREE to consumers – target people without insurance, in exchange for them telling everyone they know about us.

3) Engrave the David v. Goliath story in the minds of every person you come in contact with. Get the media on your side – spin the story. Everyone loves an underdog, everyone loves not dying of cancer, and everyone will love being the one to tell their friends, family, and co-workers about it.

4) As your customer base grows and word spreads, expand. After a year, continue to offer the service free to those who can’t afford it, charge $150/ per screening to the rest (this was their suggested price to end users through the traditional distribution network). You’ll still be the robin hood to the little guy, and you will have proven your value to those paying the token amount of $150.

What’s really exciting to me about this is that the burn rate is less than what the company was currently spending trying for traditional distribution deals – even in that first year when you’re giving the screenings away for free! And, ironically, I would almost guarantee that this would yield that coveted distribution deal with one of those industry heavyweights who wouldn’t even meet with you before. Most of the industry heavyweights would salivate over the type of goodwill that would be created with this strategy (and I’m pretty sure you’d get a better deal with them than before, when you had no customer adoption!)

My hope is that someone out there will take this approach – consumers deserve it, and the healthcare giants certainly deserve it!

And if you think this strategy would work for your company, and funding is an issue, I’d love to hear your company’s story!

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