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How The Rich Are Different (Hint: Not Much)

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I’ve found the older I get, the more I hear people talk about how some rich or famous person is so smart, generous, insightful, good at business, etc. Only these days, I actually know some of the people being placed on pedestals. I offer you this report as a public service, since I made this mistake for many years, often to my own detriment.

We get confused. We think that if someone’s rich, it means all kinds of other things about the person. We’re probably biologically hardwired to think this way. in our societies, money connotes status, and humans (being primates) seem to believe that status corresponds with all kinds of other qualities.

Let’s be clear:

  • Rich people aren’t necessarily smarter than you (though some are).
  • Rich people aren’t necessarily any better at business than you (no one ever writes an autobiography called “I was born to the right parents and was in the right place at the right time,” but they should. Nor do any tomes get written about the supremely competent who just happened to have bad luck)
  • Rich people aren’t necessarily any more moral than you (no matter what Ayn Rand writes in her fiction books)
  • Rich people aren’t necessarily any more generous, any greedier, or any more insightful as to what the world’s problems are or how to solve them.

The next time you go looking at a rich person and proclaiming how smart they are, how insightful they are, or how much good they’re doing for humanity, stop and double-check yourself. Go find some poor people who are also smart, insightful, or doing good for humanity. Then give a long, hard look and decide whether the rich person actually has all those qualities, or whether you’re confusing bank balance with human attributes.

(*) For the psychologically-inclined among you, this is called the “fundamental attribution error.” We tend to underestimate the role environment plays in outcomes, and overattribute outcomes to personal qualities.

You have to want to succeed as much as you want to breathe. Really?

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I just saw this video, shared on Google+:

“When you want to succeed as bad as you want to breathe, then you’ll be successful.”

How Bad Do You Want It from Greyskale Multimedia on Vimeo.

The sentiment is common: in order to succeed, you have to want it so bad you burst a blood vessel. The only problem with this sentiment is that I don’t know that there’s any truth to it. Maybe it’s true in weight lifting (I’d like to see the study), but I’m not aware of psychological research or motivation research that supports it. While it’s true if you want something badly, you’ll go after it, it’s also true that too much urgency shuts down creativity, problem-solving ability, and even perception. There are plenty of domains where it’s possible to succeed without that kind of motivation1.

There’s a similar zen fable about enlightenment. The story ends differently. The student goes to the zen master and says, “Master, how long will it take me to become enlightened?” “Ten years,” replied the master. “What if I work at every day of the year, every waking hour, and try harder than I’ve ever tried before?” “Then, it will take a lifetime.”

I think we do ourselves a disservice in looking only at the “work unbelievably hard and you’ll succeed” situations in life.

There are plenty of successful people who are motivated by peace, serenity, and joy. And yet they still seize opportunity, they still do work, and they still get what they want out of life. But they don’t have to force themselves into an asthma attack to get there.

There are plenty of people sitting on their asses doing nothing. I agree that asthma-attack motivation is better than nothing for those folks. But it would be nice to put the last few decades’ research into the psychology of achievement into practice and teach people to achieve without needing this stress-filled style.

There are plenty kinds of achievement that are motivated the other way. Do yourself a favor and find one of them. Train hard, keep your eye on your goal, but don’t give yourself a heart attack in the process.

1 Forbes recently did a study of the Forbes 400 and discovered that half of those folks inherited their money. I would submit that those folks reached positions of success without the kind of unbelievable franticness we see in this video.

The Power of Visceral Relationships

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I’m having a conversation on Google+ about social media, and it connected up with an exercise I did today to produce a rather puzzling realization.

Social media has certainly broadened who I know and how we connect. It’s because of social media that I have met some of the great in-person people I know. And I definitely use it to keep in touch with people I’ve met at conferences, etc. It’s just such a weird thing to me.

I’m working my way through a process of re-examining my life, and I did an exercise today of writing down my happiest memories. They mostly fell into categories of: “times I was hanging out in person with friends,” “times I was alone in a nourishing/replenishing environment,” and “times I was performing.” When I think about those memories, I feel really good. I don’t feel really good when I think about my social media interactions, however. I don’t feel bad, either. And that, I think, is why I raised the question. For me, social media relationships are cerebral, not visceral.

That’s great for work, accomplishment, and idea exchange. But it’s the visceral community that, as revealed by this exercise, brings me joy. It’s also the visceral community that make me feel supported, like someone’s got my back, etc. So I wonder how much my social media actually supplants or shifts my relationships from “happy-making” to “engaged-making.” Those aren’t the same thing, and I personally prefer the former to the latter.

“Strategic Thinking” – The Meaning Behind the Buzzword

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It sounds easy: my client wanted to think more strategically. isn’t that the hot buzzword? “Strategic thinking.” Oooh! Sexy. There’s only one problem: what, exactly, does it mean?

You’d think we would know. But I’ve seen executive teams discuss in all seriousness what the lever does on a piece of machinery. That’s about as non-strategic as it gets. In fact, a general rule is that if you read it in a manual, it’s quite likely not strategic.

What is strategic is when you’re doing something that changes the structure of the business in some basic way. Paint a machine lever red? Not strategic. Decide to outsource manufacturing to China? Strategic, because it changes who you hire, how you manage them, and what they’re capable of achieving. You punt your machines and take on eager young managers who speak Mandarin.

This is the first kind of strategic impact: changing organization structure. This includes outsourcing, selecting vendors (since what you can do now becomes expanded and limited by what they can do), mergers and acquisitions, changing the org chart, going public, and hiring and firing people who will in turn make strategic decisions.

Or consider an entrepreneurial client who insists on answering the phones himself. He’s done it since founding the business 20 years ago and prides himself on knowing everything that’s going on. But now that the company gets a hundred phone calls a day, he decides to install an automated attendant, freeing himself to do other things. This is an example of “business process reengineering,” which is a fancy way of saying “doing things differently.” Changing how a business does something is strategic because different hows give the business different capabilities. If your product is produced on a machine that turns out 100 widgets a day, then you simply can’t bid on a job that wants 500 units by tomorrow. If you can rearrange your factory processes and produce 5,000 units a day, whole new markets open up.

Speaking of markets, choosing the markets to compete in, what to sell, and how to price are all strategic decisions. After all, those decisions determine who you’ll hire, how you set up your org structure, and how you’ll deliver your product or service.

The American Express web site lists 20+ cards. I called a friend in Amex’s strategy group to help me understand the difference between the “Platinum Business” and the “Business Platinum” cards. He said, “I work in strategy. I don’t really know our product lines.” A strategy group that doesn’t know the products? I don’t know what they do, but it seems awfully dangerous to be making organization structure and process decisions without even knowing what your customers are buying.

Everything we’ve discussed so far is cross-functional; they can involve changes that affect many parts of a business. Though it’s possible to make strategic decisions in one area of a company without involving other areas, that’s a dangerous game. If our marketing department starts competing in a new market that cares about delivery time, but doesn’t tell our shipping folks, they can set the company up for failure.

Don’t make the same mistake. Learn when your decisions are strategic.
That means decisions about org structure, process–the HOW–, cross-functional decisions, and the marketing decisions of what to sell and who to sell them to.

If you want to learn more about strategy, my very favorite book is Co-opetition by Adam Brandenburger and Barry Nalebuff. I also liked Geoff Moore’s “Crossing the Chasm.” Both books are circa mid-90s. There are 83,416 other business books that will teach you some kind of strategic thinking. I’m not sure the specific strategic approach is very important (though consulting firms will make big bucks telling you otherwise); to me, the value comes from learning to think at a strategic level consistently and integrate strategic thinking into your daily running of the business.

Income Distribution and the Ultra-Rich

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A friend wrote to a group I’m part of:

Some folks I know who are at pre-IPO companies are really opposed to Warren Buffett’s support of raising taxes on the ultra-rich, saying that Buffett is helping keep a glass ceiling in place between them and being super rich.

They say we shouldn’t discuss politics in public, because then people won’t like us and we’ll die alone in a gutter. So after much deliberation, I decided to risk ending up in the gutter and posted my response to my friend’s post:

My Response

And thus we find the problem: the vanishingly small percentage of people who stand to benefit from low tax rates on the rich are vocally opposed to changes.

I’m surprised at how vehement and negative my reaction is to your friends’ outrage.

First of all, it’s stupid to complain about taxes and ignore the rest of the costs of their equity.

Tell your friends if they are concerned about increasing their take, they should lobby for the investment banking fees that get withheld from their IPO proceeds to get capped at some rational number. The banking fees are financial rape, but since they’re “standard,” no one bothers to protest. And they should read the prospectus carefully to see how badly their stock and options got diluted by sweetheart deals in the footnotes.

Speaking of which, do they track outstanding shares on a weekly basis and calculate their ongoing dilution? Or market fluctuations? If not, why not? Those effects can have far more effect than the tax rate differences. Did they quiz the founders on the dilution that last round of funding brought, and whether the return to your friends was negatively affected? Was that last round really necessary? Did those capital improvements really need to be made pre-IPO? Etc. Most people cry foul when the government wants a share, but ignore all the others who take a bite. They don’t ask whether those others are providing value for their money.

I’ve been through 4 IPOs and they’ve all been feeding frenzies. Of all the parties who lifted significant sums (sometimes many millions) out of the transaction, at least the government provides something in return:

  • A stable system of contracts, which makes IPO-able business possible in the first place.
  • A public infrastructure that gives them electricity, water, food, etc. so they can spend their time building their business instead of worrying about the logistics of running a server farm when power is spotty and only available for part of the day.
  • Financial markets that, no matter how corrupt individual players may be, at least provides liquidity for those IPO-bound friends.
  • A justice system that enforces the contracts allowing business to rely on them.
  • Etc.

Perhaps your friends should learn something called gratitude for having the privilege of living in one of the very few times in human history where we had an infrastructure that afforded them any chance at an IPO, combined with the incredible luck to be at a company that can viably go public (which only ~.02% of companies do).

On the other hand, I’ve been through 4 IPOs—all when the tax rate was a lot higher than it is now—and still have to work for a living. Maybe I’m just bitter and begrudge your friends a lifetime’s worth of free money without them having to contribute to the upkeep of the system that made it all possible.

How rich is an ultra-rich person?

Most people have no idea how truly ultra one must be to be one of the ultra-rich. Let’s tie the numbers to something real:

A million dollars is 25 years’ income for an American median family (median income is about $40K)

Ten million dollars is 250 years’ income.
100 million dollars is 2,500 years’ income.
A billion is 22,500 years’ income.
Ten billion is 225,000 years’ income.

John Chambers stashed four of those overseas to avoid taxes. Bill Gates has four of those in his bank account. In other words, enough money for a family of four to live at an American median standard of living for a million years, ten times as long as our species has existed.

Explain to me the value system in which there is any way to justify that concentration of wealth.

Yes, the mechanism of the system allows that to be accumulated by one person. But to argue that somehow we should be concerned about his tax rate seems bizarre. Honestly, a 100% marginal tax rate seems perfectly reasonable to me. He has enough to survive for a million years. No matter how hard he works, or what he contributes, he doesn’t need a single cent more.

(Nor do I believe his contribution to the human race approaches the contribution a family of four would make over a million year timespan, no matter how much one may like Windows.)

Tell your friends to use their after-tax proceeds to start another company that’s more successful, only they can do it in another country with a more favorable tax structure. I suggest Haiti. Port-a-Prince is looking for commerce.

Email Overload – Where the CEO of Xerox and I Disagree

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As you probably know, I’ve launched my You Are Not Your Inbox, so I’m revisiting some of my old thoughts about Email Overload.

Tim Sanders wrote a blog entry that references a Business Week article (“What’s So Bad about Information Overload?”) on information overload I commented on last week. The writer suggests that information overload might be good. There might be some valuable information, and besides, young people can handle it just fine.

Sure. In what universe? My Get-it-Done Guy podcast email and people’s reaction to my
What is Email Costing You Assessment, suggest many people of us feel our life force being regularly sucked from our bodies by information overload. It makes us jump from topic to topic. It interrupts us when we need to concentrate. And then we feel guilty that we still can’t keep up. Gee, that sounds like a resourceful emotional state for reaching our goals.

Yes, we’re getting more info. Yes, some of it’s useful. But that’s not the point! We need to ask: is it useful enough? Are the benefits—financial, social, or emotional—worth the cost?

For Xerox CEO Anne Mulcahy (mentioned in the article), the answer is Yes. In email, they say things they would never say otherwise. Like that comment about the chocolate mousse, telephone pole, and garter belt. Who would ever say that out loud?

Of course, an anonymous suggestion box would fill the same function. Even better, the tipster could actually include the original garter belt. But apparently, those emails are amazing enough that Anne devotes a lot of time to her email. Since she’s gotten great results at Xerox, for her, the benefits might be worth the cost. (Assuming, of course, that her success is because of email, rather than in spite of it. Maybe a weekly suggestion box would be just as good.)

If you’re top dog, no one pays attention to how you use your time as long as you produce business results. The rest of us aren’t so lucky. Our pointy-haired boss gives us specific goals, and email can suck up a lot of time without moving us towards our real goals. That “Top 10 Reasons Working Here Sucks” email will only help you reach your goal if that goal is a new job at your major competitor’s firm.

When you’re deciding how much time to spend with your inbox, think long and hard about the benefits you’re getting. After all, there’s lots you could be doing with that time. Ask yourself if there is any other way to get those same benefits? If you hired a $50/hour assistant to read and answer your email every day, what would you tell him/her to process versus ignore? Are you following those same guidelines?

Being perfect in every way, I follow my own advice and am ultra careful with my email habits. Even so, I often get sucked in for up to 30 extra minutes a day. Since I’m perfect, that must be the perfect amount of time to waste. But there’s still a nagging feeling: that comes out to three weeks per year. If I’m going to spend three weeks a year blathering mindlessly, I’d rather do it wearing a bathing suit on a sunny Caribbean beach than sitting hunched over my computer in my basement office, looking like one of the Mole People. At least on the beach, I might get a tan.

So don’t take my word for it. Don’t take Tim Sanders’s word for it. And don’t take Business Week’s word for it. Your email time is productive to the extent it helps you get what you want out of life. Hold it to a high standard and if it isn’t performing, drop it from your life faster than that stalker you accidentally dated in college. With email, only you can take control; there’s no way to get a restraining order.

The Key Business Concepts Missing From The National Debt Debate

In business, if you decide to do a project you scope out the project. You estimate what it will cost, over what time frame it will produce results, and so on. Then you decide how to finance it. There are many, many possibilities: you might finance it by paying for it directly. That’s equity investment. You might borrow to pay for it, which is debt financing. You could also finance it in other ways by having suppliers or customers carry part of the cost. Which option is best depends on many factors, including prevailing interest rates, payback periods, and so on.

It’s easy to get people to have a knee-jerk reaction to the idea of lower taxes, however. So for political reasons, virtually the entire debate has focused on “do we finance our government with taxes (the equivalent of equity) or debt?” That’s been turned into rallying cries about taxes that candidates use to drive elections.

If we were making good decisions, the national debate would be about how we want to spend our money. In 2011, the only large discretionary category is defense at $722 billion(*). If we include mandatory spending, the other large categories are social security, Medicare, unemployment assistance, and health care.

Once we’ve made that decision, we would decide whether it makes sense to fund those measures with equity or with debt. The consequences of debt default would, of course, be included in the financing discussion.

Neither the Democrats nor the Republicans seems much inclined to cut spending. They cut specific items that they’re ideologically opposed to, but they don’t touch the big items listed above. And not even candidates who claim to advocate small government propose slashing the only large discretionary item in the budget, our $722 billion defense budget.

What worries me most, structurally, about debt is that debt has to be repaid with interest. An ever-increasing percentage of our national budget is going to pay interest on debts incurred decades ago, whose benefits have long been played out. If we continue funding things with debt, we’ll be piling up interest payments that could eventually wreck us.

Why do people not like high taxes? Because it brings into stark reality the fact that policy choices have real monetary consequences that we must pay for collectively. We like our highways, and our Medicare, and our defense department. But we don’t like to face up to the cost of those things.

Debt allows us to defer taking responsibility. High taxes forces us to take responsibility immediately. That’s why I favor tax hikes. For the ultra-rich? Certainly; they use far more of our infrastructure than the average person uses (e.g. airports, the justice department, the banking system, etc.), and it’s only fair that they pay their fair share of the common resources they’re using. But for all of us. Taxes force us to make smart choices now, rather than giving us the false luxury of waiting for emergency to push us into harried stupid choices.

And above all, I believe in paying $10 for a $10 expense. When we finance with taxes, that’s what we do. When we finance with debt, we pay $11 or $12, or $20, or $50 for that $10 expense. And I don’t care if you’re conservative or liberal, that’s just plain dumb.

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(*) You can see the budget numbers here. Try clicking “hide mandatory spending”: http://www.nytimes.com/interactive/2010/02/01/us/budget.html

Is The Marketplace of Ideas Turning Into a Swamp?

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We take it for granted that making things easier is always a good thing. I disagree. Sometimes it is, while sometimes it isn’t. Today, I’ve been contemplating the case where maybe it’s good to make things harder.

Technology has made it so that anyone can produce music or publish books. This is a very good thing, in that it means people driven by the desire to do those things can now do them far more economically. But there’s a downside to technology that enables: it drives the supply of those goods up, without necessarily driving demand up. More supply without more demand means prices will fall. In both arenas—neither of which have been famous for paying creators very much money—we’re seeing so much content being created that it’s hard for anyone to make a living anymore. The very few who manage to rise above the fray capture most of the money, and everyone else has to work as a waiter to get by.

In some abstract way, this may be good for the consumer by giving the consumer more choice (though the book The Paradox of Choice discusses about a dozen reasons why more choice is not necessarily good). But there’s now so much noise in the market that matching that consumer with the perfect author/musician is harder than ever. Unless the musician/author is one of the winners with a huge marketing budget, the consumers will never find them.

There may actually be benefits to markets that are somewhat harder to enter. Fewer players enter, but the ones who do can make enough money to make a living, and the number of entrants is low enough that consumers can at least have a decent shot at discovering the product that’s best for them.

Do we create our institutions to stifle creativity?

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My friend Michael posted on Facebook: I’m feeling sad today, because I’m already one of those people who works his butt off and doesn’t do much of anything to be creative, innovative or out-reaching. How did I stray from the ideals so quickly?

My response: I think most of our institutions are designed (or have evolved) precisely into places where creativity and innovation are squashed. It isn’t deliberate in the sense of some evil dictator trying to keep us down, but it *is* deliberate in the sense that we create institutions to be stable. That means, to do the same thing day in and day out. We scope the jobs, workload, and responsibilities around just enough to get things done the way they’re currently done. When was the last time a job description included, “Four hours a week to be spent day-dreaming, engaging in creative flights of fancy, and redesigning how things work?” (Well ok, Google has a similar policy, but who else?)

What do you think?

Your stereotypes may blind you to opportunity

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Today I visited a store where I often shop. The young man who cleans up and maintains the displays was there as usual, with a sullen expression on his face. My story about him is that he’s lazy and unfriendly, and does his best to do as little work as possible. Yet, I see him often. So today, I walked over to him and introduced myself.

His face lit up, he got a huge smile, and gave me his name. Suddenly, my whole conception changed. He didn’t seem sullen, lazy, and unfriendly at all. It struck me that he’s quite possibly shy, and given his job, ignored by virtually everyone who comes in. Far from wanting to drive people away, he wants to connect and be acknowledged. But my misreading his cues made me stay part of the problem until today.

A friend reported something similar after doing an exercise where he had to strike up a conversation with a stranger. Though he was in his 40s, the first person he found to talk to was a teenager who was present at a summer school program. He was astounded to discover how interesting this teenager was. Then he realized with a shock that his son was the same age, and he’d never talked to his son as a person, but always as “his son.”

Our preconceptions can help us. If they’re accurate, they can let us step right into a situation with a great deal of information. But they can also blind us to what’s really going on. The young man at the store was friendly and shy, not sullen and hostile. The teenage son is a whole person with a rich inner life, not simply a child to be disciplined or controlled. By double-checking our assumptions about other people, we sometimes find that things are very different than we think.

Challenge:

  • Find someone you don’t like. Talk to them and learn about them.
  • Find someone you’d never normally approach and talk to. Talk to them.

See what happens. The results may surprise you–or not.