The small things

If you see someone come in to a non critical meeting prepared and with an agenda, take notice.

There are many who brush away the “small things” because they’re saving themselves for the “big things.”

Why bother showing up on time for a meeting at school? I’ll do that at work.
Why bother keeping up my promises with my peers? I’ll do that when my boss asks me to.
Why bother? I’ll do that when I have to.

Many of these folk do actually bring their A game when they have to or when the big boss asks them to.

But, the way life works, very few meetings or opportunities come with the right labels. Very often, it is the small meetings and interactions that lead to the big meetings and interactions.

Watch for how we approach the small things. Because, it is the small things that become the big things.

Huger mistakes and better processes

I make mistakes like the next man. In fact, being–forgive me–rather cleverer than most men, my mistakes tend to be correspondingly huger. | Albus Dumbledore

As we grow older, and hopefully smarter and wiser, our mistakes generally become bigger. We may make fewer mistakes but the stakes are generally much higher than they used to be. That’s part of the natural growth process. Sometimes, this process is accelerated – as in the case with young entrepreneurs who’ve created successful companies and find themselves making huge mistakes – and sometimes, it happens slowly. But, if you’re learning, growing and doing more, it generally happens nevertheless. Bad judgment -> mistakes -> experience -> good judgment.

The response when we make such mistakes should not be to attempt to avoid them. Instead, it should be to check if our processes are better today than they were yesterday. Here are a couple of examples –

Example 1 (good) – when I went on school trips as a kid, a loss of possessions was guaranteed. I’ve lost many clothes and shoes on these trips. Over time, I’ve learnt that I’m pretty careful with others’ possessions but tend to be careless with my own. I’ve also learnt to be aware of this and modify my processes. So, today, as I finished up a camping trip, I actually double checked our tent to make sure I didn’t leave anything behind.
Does this mean I’m going to stop losing stuff? Absolutely not. I misplaced a water bottle just a week ago, after all. But, the processes are getting better and I hope to lose less stuff in the future.

Example 2 (not good) – I bought a $25 extra protective sole for my shoe last weekend and promptly threw the receipt and the box. It seemed to work fine at the store but the daily reality was that it wasn’t right. And, unfortunately, I can’t return it without a receipt or a box. That’s $25 I will never see again. This, however, is a mistake that I kicked myself for – in my ongoing attempts to keep clutter out of life, I’ve disposed off receipts too quickly in the past. And, yet, I haven’t quite learnt – a perfect example of a bad process. A moment’s thought made me realize that I could easily have taken a quick photo on my phone and then disposed the receipt.

Lesson hopefully learnt and process hopefully improved.

The mistakes will keep coming and will continue to get bigger. But, the goal with examining processes is to make sure we make newer, better mistakes and learn from them. With every mistake, we can get better. Like all good things in life, the choice is ours.

Realistic job preview – The 200 words project

Here’s this week’s 200 word idea thanks to Decisive by Chip Heath and Dan Heath..

At a time when call-centers kept revisiting their hiring process because the average employee left within 3 months, Evolve tried a different approach. They called it “a realistic job preview.”

On day 1, the trainers showed applicants everything negative about the job. They took them through an example of a bad customer call with an irate customer who insulted them, then spoke about the bad hours and the difficulties to commute to their center.

Almost as soon as they started this practice, they experienced decrease in turnover with savings of $1.6M in a call-center that employed 5000. The reason for the success of the job preview was not because it scared off applicants. Very few actually change their decision. Instead, it simply ensures vaccinated them to surprises and made them decide they would succeed.

As a result, the author’s advise – when starting on a new project, try getting a preview from others who have done it. These experiences trigger coping mechanisms and help us trigger responses long before we face real problems.

Realistic job previewSource and thanks to: www.EBSketchin.com

When we are no longer able to change a situation, we are challenged to change ourselves. – Viktor Frankl

The energy rule

There are some people and environments that give us positive energy. And, there are some people and environments that unfailingly manage to suck our energy.

If we have no choice but to spend time with the latter, we need to learn to interact with a complete lack of attachment and be “matchers” rather than “givers.” When we become matchers, we only give as much as we get.

Also, there’s a chance that someone who was a source of a ton of positive energy once no longer is. That happens, sadly.

The first step is to be aware and to identify the difference.

Then, when given a choice, spend time with the former. And, when doing so, work on building a life where we can do more of that.

Making policy decisions

A big part of being a good decision maker is learning how to make good policy decisions. Good policy decisions have, among other things, two attributes –

1. They understand the downstream consequences. You don’t create policy for the short term. So, policy makers spend time thinking about the downstream consequences.
2. They minimize exceptions. In doing so, decision making in the future can go on auto pilot.

As a simple example – a friend once asked me to share a list of the best books I read. So, I put the list down in a word document and sent it. Another friend then asked me for the list with a few notes on the books I recommended. A few months later, I got a similar request from another friend. Every time I got one of these requests, I groaned. Sometimes, I did justice and gave them what they wanted and, other times, I just forwarded them an older version of the list.

It only hit me a few months later that I’d be better off with a system solution. That’s how my book review blog was born. It made sense as it was one of those decisions that had very good downstream consequences. And, most importantly, it put all book recommendation requests on auto pilot.

This isn’t an easy thing to do, however. And, I find myself forgetting to do this regularly. But, if done well, it can help us become better decision makers.

So, every time you have a decision to make, don’t just make the decision. Instead, ask yourself how you should approach the decision by asking yourself how you would treat similar requests. Then, create a system/policy for similar kinds of decisions. Sometimes, all it takes is an extra minute of thought. That extra minute can save a lot of time downstream..

The tension between a debt tax shield and costs of financial distress – MBA Learnings

There’s been a lot of news over the years around companies who book their revenues in foreign entities and avoid taxes. Amazon, Starbucks, Google and a few others have been tried in courts because of an inordinate amount of revenue booked in Luxembourg. Let’s take a few moments to deconstruct this –

Let’s imagine a company earns $200 in revenue. Let’s also assume costs are $100 => Profits are $100 as well.

Now, the $100 is subject to tax. So, $30 goes to the government (assuming a 30% tax rate) and $70 goes back to the company as after-tax profits. If the company is a fast growing company like Amazon or Facebook, it’ll generally choose to re-invest the amount in growth. And, if it is a slower growth company, a large portion of this amount generally finds its way back to shareholders.

Given the incentives in place for the shareholders to maximize their wealth, the 30% tax is an “unnecessary burden” (if you take the point of view that taxes are nothing but a waste of cash forgetting that it is taxes that provide the infrastructure for businesses to thrive). As a result, companies typically adopt 2 common strategies –

1. Take on debt. Even if our imaginary company doesn’t really need debt, it takes on $1000 of debt. Assuming a 5% interest rate, it now has to pay out $50 this year. As a result, its profits are now $50 => the amount paid in taxes is halved to $15. Shareholders are happier.

However, debt comes at a cost. Let’s imagine this company invests the $1000 in a risky venture that doesn’t work. Now, it has to pay interests out of its core business profits. The good news is that it has a strong core business and the interest amount doesn’t dwarf the profits of the core business. So, in this case, we’re safe. However, when companies take on huge amounts of debt to fund large investments, they can often end up paying a lot more than interest in the form of “Costs of Financial Distress” or “Bankruptcy costs.” This happens when the market believes its debt burden is too high and the stock begins losing value.

The takeaway here is that there is an optimal amount of debt for every company where the benefits gained by paying lesser taxes are lesser than the costs of financial distress. That’s why capital structure (the ratio of debt to the overall value of the firm) matters.

2. Create foreign subsidiaries. If Luxembourg offers a 0% tax rate, it pulls companies toward investing in a foreign subsidiary based out of Luxembourg. This way, our imaginary company’s tax payers don’t lose any value to taxes. The only condition here is that the money earned in Luxembourg has to stay in Luxembourg. If the company tries to bring it to the US, it’ll have to pay the 30% in taxes. Large multinationals don’t have problems doing this, of course. There are plenty of local investment opportunities.

So, as companies become increasingly global, we’re going to see more of the foreign subsidiary strategy brought in to play. Given a company’s incentives, it is common sense to optimize its tax payments because its value in the market is driven by the value it returns to its shareholders. This conflicts with the interests of the regulators, of course.

But, if there’s one thing I’ve learnt about markets, they’re rife with conflicts of interest.

Waiting 15 minutes to try out a watch

I needed to charge my phone when I was out last weekend and went down to an Apple store in the mall and asked if I could borrow a charger. As my phone was getting charged, I thought I’d ask to try out a watch. I was politely told that I have to wait 15 minutes to try out the watch. Would I be willing to wait?

Since it would take that long for my phone to get charged, I said sure.

And, so, I waited. Every 5 minutes, I’d have one of the store folks walk up to me and say – “Thank you so much for your patience. You are #__ in queue.”

And, 15 minutes later, I was told I could finally try it. It turned out to be quite the anti-climax as the queue was for a blank watch with a screen wiped out. The wait was only to test how the watch feels on my hand. I soon realized I could have played with the watch’s user interface without waiting 15 minutes. But, as I walked out, I reflected on how ridiculous this would be in any place but an Apple store. If the screen is blanked out anyway, why not just have a few more straps lying around? While the official reason is that this is to guard against theft, I think they have other more strategic reasons.

Apple would like two things to happen with customers interested in the Apple Watch –
1. They want the trial to feel special – sort of like test driving a Lamborghini. Anticipation brings excitement -> Marketing 101.
2. The first generation of the watch is far from perfect. While I enjoyed playing with it and can see utility, it is similar to the first generation of iPhone. Potentially revolutionary, but not fun to use as yet. So, Apple would want the sort of person who wouldn’t mind waiting hours in the queue or, in this case, wouldn’t mind waiting 15 minutes to just find out how it feels. This sort of person would fall in love with the watch right away and wouldn’t mind the fact that it is buggy. This sort of person would also report the bugs and make sure the next version is much better.

Apple doesn’t want a customer like me. So, it does things that alienate me. Instead, it focuses on the real fans. Smart strategy.

The only caveat – there are very few companies that can pull this off. Don’t try this at home..