StartupGarden: October 2006 Archives

Does Purpose Scale?

My new favorite business book of the year is Purpose: The Starting Point of Great Companies by Nikos Mourkogiannis. It builds upon many of the ideas of Jim Collin’s Built to Last, with a greater strategic focus. Mourkogiannis shows that while Purpose has an abstract value as a company’s “moral DNA,” it has real applications that are fundamental to success. I will write more about this book here, or on the 8000CEOREAD business book blog.

But for now I must share a passage that ties into my last post on how scale ultimately subverts the animating idea of even the best companies. Mourkogiannis examines the key question at the heart of both Burlingham and Fishman’s books.

“Was Sam Walton concerned that the company’s size and its growth dynamic might weaken its Purpose? Yes. He even speculated in his autobiography that the customer might be better served by five $20 billion companies than one $100 billion company. He went on to write, ‘What’s really worried me over the years is…that we might someday fail to take care of our customers, or that our managers might fail to take care of and motivate our associates. I also was worried that we might lose the team concept or fail to keep the family concept viable…as we grow.’

“The Wal-Mart in recent headlines—the giant box that swallows everything in its postal code—would be beyond Walton’s imagining. He was not a visionary. He had a single gift, and it worked for him to the end of his life. There was, as a result, no need for him to doubt himself. What he did for the customer—that was God’s work.

“The scores of altruistic companies starting out today will face similar challenges to those Wal-Mart faced in the 1970s. They will need to be ruthless on behalf of their altruistic Purposes. (Sam Walton succeeded brilliantly at that.) And then, when the shadow side, the inevitable consequences of their Purpose, becomes clear—for every altruistic endeavor wreaks some toll on someone, whether intentionally or not—they will need to reframe their action to keep their altruism intact. That’s the far more difficult challenge, and it’s not clear yet whether even Wal-Mart, in the absence of their founder’s presence, will be able to rise to the occasion.”

Posted by tom at 11:11 AM | Comments (1)

Does Charisma Scale?

Recently I wrote a long essay on the 800ceoread blog about the unifying themes of the five books nominated for this year’s Financial Times/Goldman Sachs Business Book Award. Here’s an adaptation of this piece, addressing two books in particular, Small Giants and The Wal-Mart Effect.

Reading these books close to one another leaves a powerful impression that they are both about the same business questions—is big good?—but that they come at it from two sides and meet in the middle. As Bo Burlingham’s Small Giants argues, the measure of a great company has less to do with its brute size than with the quality of the company’s management, profits, people, and practices. This may seem a surprising message from a guy who was key to the success of Inc. Magazine, a publication which for years celebrated insanely fast growing companies.

Yet Burlingham has been around long enough to witness the hazards of growth, and his book celebrates companies with a powerful sense of purpose and meaning, a culture and spirit that binds itself together in a business sense by linking the company to the community, providing motivation for the employees, and maintaining what really matters for its customers. “When a company has charisma you want to be associated with it,” he says. And that charisma must always be consciously tended to.

Indeed, there could be no more stark an illustration of growth gone mad than that described in Charles Fishman’s wonderfully written and researched “Wal-Mart Effect.” I really loved this book. For many of the early chapters, I was intrigued by the book, and fascinated by many of the stories. Yet at the same time I couldn’t help but feel that the author was somehow conflicted: while writing about the detrimental effects Wal-Mart has on everything from the environment to wage structure to the fabric of city life, Fishman never seems to miss an opportunity to report on the remarkable innovations pioneered by Sam Walton, enabling the company to become such a force of nature.

It turns out that Fishman’s mixed tone results an awareness of the company’s ill effects, tempered by an Inc.-like admiration of the policies and practices that enabled the company’s spectacular growth. Fishman reports on many of the common-sensical yet challenging practices of Ole Sam that made the company what it is today. Walton was a genius at delivering on the most basic of missions—to provide good goods at the best price. And during the crazy growth times he created a culture that kept employees motivated (and produced many Wal-Mart millionaires.) The company has always been single-minded in its goal of growth by selling things ever cheaper than anyone else. And Fishman finds that most of the practices that it now finds itself skewered for are either unintended consequences and byproducts of that goal; or were elements of the business model that translated into qualitatively different results on a smaller scale.

Indeed, for much of its growth Wal-Mart might very well have qualified as a Small Giant, (or even a Massive Behemoth as it were), before it collapsed under its superweight. Scale back its growth by a factor of ten, or maybe one hundred, and the company might have made it in Bo’s book. However, the massive scale resulting from its compounded success, finally takes Wal-Mart to a new and virtually alien place.

Today the sheer bulk of Wal-Mart requires all of society to rethink what the company does and how it affects everyone. This company doesn’t merely play by the rules of capitalism as they are stretched to their logical conclusion; the company has become so dominant that it in fact creates new rules. One of them being that Wal-Mart dictates what millions of companies do and tells millions of consumers how much they should pay. “Wal-Mart has outgrown its culture, it has outgrown its personality, but it has not yet come to terms with that new reality.” And his book does a great job of pointing out what that reckoning entails.

Fishman shows how this factor bears upon many of the most powerful dynamics in the economy today. For example, one of the effects of Wal-Mart’s massive scale is that its very practices redefine what it means to be global.

“In the global economy, the familiar stuff floods into stores: Levi’s jeans, Ohio Art Etch A Sketches, Black and Decker cordless electric screwdrivers, Huffy bikes, Nelson sprinklers, and acres of clothing and accessories—stuff not just for Wal-Mart, but for the Gap and Abercrombie & Fitch and Home Depot and Disney. But more than ever, we have lost track of the places where the products come from, the factories where they are made, the people who make them.” And as a result, Fishman argues, conventional ideas and practices that formed a domestic social contract are anachronistic at the least, and as a working policy, essentially ignored.

Fishman ultimately concludes that: “Wal-Mart has outgrown the rules—but no one noticed,” he argues. “At the moment, we are incapable as a society of understanding Wal-Mart because we haven’t equipped ourselves to manage it. That is the reason for our ambivalence, our appreciation and aversion, our awe and our nervousness, our confusion.” And so it needs a new set of rules, just as we have, over the decades, increasingly regulated the use of another profound American mechanism, the automobile.

One final thought about both books: they are each exceptionally well-written. I’ll prove that with one excerpt I particularly enjoyed from Fishman’s book:

“Wal-Mart’s business relies on its own ceaseless hunger to reduce price a few more pennies (and its ability to transmit that hunger to its suppliers), whether through distribution efficiencies, or cheaper product design, or cheaper labor. Wal-Mart benefits from the impression that globalization is some kind of unmanageable economic weather system out of the control of everyone, affecting all players with indifference, benefiting those who happened to be properly prepared. That posture avoids any of the challenging discussion about why the world is suddenly so flat economically and what role a globe-straddling company like Wal-Mart plays in the flattening. Wal-Mart enhances its own image as just another economic planetary body with an impermeable barrier about how it gets its merchandise, and the impact of its needs on the companies that supply it.”

And for more on Bo’s book, you can check out an earlier post of mine.

Posted by tom at 07:37 PM | Comments (0)

eBay Reservations Triggered By Futureshop

Ever pick up a book that you love at the beginning, and then, the more you read, the more you realize that you don’t love it, and that in fact you completely and violently disagree with the core values upon which it’s based?

Such was my experience with Futureshop: How the New Auction Culture Will Revolutionize the Way We Buy, Sell, and Get the Things We REALLY Want by Daniel Nisanoff. When I initially started reading this book many months ago, I found the message incredibly smart. Nissanoff, a successful entrepreneur whose company Portero helps sell luxury goods online, caught my attention with his argument that the continued explosion of activity on eBay will have huge implications on the way people buy, own, and sell products that have high degrees of emotional attachment, particularly high-end branded products. “Auction culture” will grow in influence. In fact, this Inc. article builds on Nissanoff’s point.

As more individuals become comfortable buying (and key to his argument is that many more will be more comfortable selling) on eBay, Nissanoff says, owners will shift to thinking about their ownership of things as increasingly temporary. An initial retail price for an item merely represents the down payment for some months of use, at which point a large percentage of the initial purchase can be recouped through the liquid market that is eBay. Therefore people can consider the true cost of ownership to be far less expensive than previously considered, and they can become more steward-like with their products, rather than considering them to be disposable.

Intriguing—especially for me, since I’ve been selling goods on eBay lately and find the whole world fascinating. And yet I found myself turned off by Futureshop as I made my way through the book. I couldn’t quite put my finger on it at first. But the more of this book that I read, the more that my sense of discomfort over the pure lust for big-ticket luxury branded goods grew. This is the dark side of Trading Up, writ large. The prevailing ethos of this book ultimately became too loud and powerful for me to ignore. The principle that eventually repelled me is that we construct our identities and self-esteem through the branded goods we purchase.

Once again I confess to having fallen under the spell of eBay myself, albeit on a personal amateur level. Other writers have touted the communitarian, self-organizing principles: the agora as a huge civil community where individuals pursue their passion, network with like-minded souls, and lay the basis for a benign online community. I’ve really enjoyed learning to sell stuff on the site, and have been constantly surprised at the benevolence of others to date.

But Nissanoff’s awe is much more about the goods, baby. He’s a reverse-Grinch: in his world, it’s always Xmas, only without the religion or goodwill. It’s all about the toys. He touts a world of mindless consumerism in which you build your self-esteem and identity through the things you buy. Consider this passage: “Temporary ownership is an exciting new way of thinking abut our connections to objects, a way of thinking that will empower us to enrich our lives by making purchases that we find more satisfying overall.

“Embracing temporary ownership means just saying no to second best and letting yourself reach for the things that will thrill you the way your favorite birthday gifts did when you were a child or the way you feel when you go shopping for a new outfit or a new piece of technology. In this new culture, you can have that thrill over and over and over again, and have permission to do so—guilt free.”

Or this material touting the benefits of second-hand luxury goods making their appearance on eBay: “Now fashion- and budget-conscious consumers can live the LV (Louis Vuitton) lifestyle before they have the disposable income to fully support it, and they’ll be well-indoctrinated customers when they can finally combine ownership with the experience of buying a bag in an LV store.”

I guess that my response to this can be boiled down to….eeuw.

The book that appealed to me was the one with an intriguing message about the way that the web-enabled growth of eBay has changed, in what could be an important manner, the nature of our relationship to our things. What were once disposable items can now have a much fuller second and third life, supported by a cool new ecosystem in which individuals meet and swap over common interests. The book that repelled me was the one that took over—the unseemly homily towards what Dirty Rotten Scoundrels lyricist David Yazbek calls “Great Big Stuff.” Mindless veneration of Hermes Birkin bags, Rolex watches, and yes, a Duxiana mattress that the author bought for $7500, leading him to say, “seven years later I think of it as one of the best investments I ever made.”

Now, in all fairness, Nissanoff does point out the potential benefits of the trends he describes, one of which is the potential for secondary ownership to provide opportunities to high-end brand wanna-buys. “One of the most appealing—and also the most economically powerful—features of the new robust secondary-goods marketplace is that more consumers will be able to own the higher-quality goods because they can buy previously owned versions or get money back from selling them after a few years of use.”

Still and all, this hopeful assertion about turning back the continued gap between super-wealthy and the rest of us feels so trivial when I think that last week the Nobel peace prize was awarded to Muhammad Yunus for his work on microlending—the practice of doling out loans smaller than $100 as a means of teaching entrepreneurship and self-sufficiency in some of the poorest regions of the world.

Granted, it’s profoundly unfair to compare anybody’s work to the guy who just won the Nobel Peace Prize. So my point is simply this, and it’s a personal one. There are times when my excitement about an entrepreneurial dynamic feels quite naïve in retrospect, and this is certainly one of them. There are times when we get so excited about the big potential changes wrought by new markets that we lose sight of what really matters, and this book feels like that to me. The same capitalism that can create small communities of heretofore impoverished individuals who support one another in creating small but robust wealth is the system that strengthens the markets for mattresses that cost more than what it would take to feed a village for a year.

Posted by tom at 12:43 PM | Comments (0)

Celebrating the 2006 Inc 500

This year’s issue of the Inc. 500 is terrific. Not just for the main body of text but also for two excellent articles distinct from the special focus. In The Idiocy of Crowds, Dave Freedman does a great job of debunking the current wisdom of crowds about the wisdom of crowds, pointing out how often a single individual actually makes better judgments than the masses; and in Three Scary Words: Buy It Used, Max Chafkin reports on the continued impact of the eBay effect in terms of building the secondary market for goods. (More this week on the book Futureshop, which talks at length about this argument.)

Long before I joined Inc. magazine for a stint as a writer and editor, the magazine was a favorite read of mine. Unlike other business publications, Inc. and its writers told company stories, seeing each growing business as a distinct character whose actions and thoughts merited analysis. The best stories, and there were many, blended snappy writing, smart business understanding, and a simple wonder at the amazing drama that was contained in the lives of startups. This same spirit still animates the pages of the magazine.

Posted by tom at 01:19 PM | Comments (0)

The Six-Year Overnight Success

While the rocket rides of YouTube and MySpace get most of the startup press, my years of writing about entrepreneurship have taught me that many startups happen upon sudden success only after devoting patient months, and often years, to being in the right place at the right time. That’s why Sunday’s terrific New York Times story about character actor Dan Fogler was both a delight to read, and felt very much like a piece about a successful company.

Fogler spent six long years after graduating from the School of Theater at Boston University in a series of nonpaying gigs, a time he describes as “climbing a glacier with a spoon and a copy of Backstage.” Cheered on by his parents at every turn, Fogler resisted the conventional wisdom of toning his chubby figure to win plum roles. Instead he concentrated on honing his craft and learning what he did best.

“With pleasing symmetry, it turned out that Mr. Fogler’s celebration of not fitting in led directly to his fitting in,” reads my favorite line from this article. Fogler was recognized by a talent agent, and scored what turned out to be the Tony-award winning part in “The 25th Annual Putnam County Spelling Bee.” Without flogging this parable too much, I will say that many small businesses with integrity have just such promise.

Posted by tom at 11:41 AM | Comments (0)