Better Than Capitalism

A few months ago I wrote about Dan Price of Gravity Payments in Seattle. He made a splash for announcing that he was raising the salaries of all his employees to at least $70,000 per year by cutting his own million-dollar salary to pay for the raises. Even Rush Limbaugh got in on the act, saying that the move was “pure, unadulterated socialism.”

I thought then, and I still think, that Dan’s idea is a brilliant one.

Over the last few days, however, Dan has gotten more press because of the financial “woes” he’s facing. Fox News reports that he’s taken to renting out his apartment in order to make ends meet. The New York Times gives a fuller, somewhat more nuanced explanation of the situation, pointing out that the financial impact of his decision to give raises has been mixed; he lost a couple of his best employees and a few of his customers, but he’s also earned new customers and a great deal of publicity from the change.

And as much as I like El Rushbo (I grew up listening to him), he’s dead wrong. Tocqueville explained the difference between democracy and socialism expertly: “Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.” The equality of socialism is imposed by the central planners who substitute their own judgment for the judgment of each individual.

Dan’s decision, on the other hand, is a perfect example of the liberty Tocqueville describes. Dan looked at his business and at his own well-being and said, in effect, “I can do better for my employees without great cost to myself.” No government actor forced him to it. No bureaucrat requires any employee to accept Dan’s offer of employment. And no one demands that any other business owner follow his lead.

That’s the very essence of a free-market decision.

For his part, Dan has offered to “give up everything I have personally and everything I’ll have for years to come” as part of his effort to make this change work. That’s the power of a change like the one Dan Price has made. Undoubtedly Dan has made mistakes. No question his efforts will take refining over the coming months and years. The beauty of the free market is that he is free to make the decision.

Be that as it may, it’s a line at the very end of the New York Times piece that matters most to me here. One of Gravity Payments’ newest customers, Mario Zahariev, realized that after switching from another provider to Gravity Payments he’d be saving nearly $800 per month in card processing fees. Instead of pocketing the difference (which, I’d stress, he’d have every right to do), Mario decided to use the money he’d save to give raises to his 8 employees.

Dan’s made his decision and for now it looks like he’s sticking with it. I’m still impressed by his willingness to give up his own salary in order to make his employees’ lives better. Nick Hanauer, a Seattle venture capitalist, said of Dan “Who can tell what that last big thing is that catalyzes big change?”

Who can tell indeed.

I had the opportunity recently to talk about this blog with a colleague of mine. He’s a trial lawyer I’ve known for several years and he’s been very successful. While we were talking I told him that I am looking for people who will challenge what I’m saying here, which he gladly did. (Life lesson: it can be dangerous to ask an experienced litigator to challenge your ideas).

Right off the bat, he asked me to describe what I’m trying to say in one pithy statement and I didn’t have an immediate answer.

After we said our goodbyes, I reflected on my inability to answer his direct question with an equally direct answer.

It’s the same question I’ve been struggling with over the last few posts. And here’s the answer:

Business should exist to make life less difficult for as many people as it can.

There are lots of moving pieces in this idea so it will take a bunch more exploration to put all everything in its place. But if somebody asks, that’s the point: making life less difficult.

I listen to Dave Ramsey all the time. My wife has always been frugal (she’s teaching me) and we discovered Dave while I was in law school. It resonated with us immediately, and now we’re trying to pay off my law school loans as quickly as we can.

Dave inspires me partly because he talks about such a boring subject. Seriously, when was the last time you really wanted to talk about how to prepare your own budget, let alone listen to some guy you don’t know tell other people you don’t know how to prepare theirs?

Yet millions of people do exactly that every day.

Dave starts every show by saying it’s the show “where the paid-off home mortgage has taken the place of the BMW as the status symbol of choice.” It’s a powerful idea.

Every one of us defines ourselves by the status symbols we choose. We don’t always do it consciously. Sometimes we associate ourselves with a symbol and other times we react against a symbol. But we all use the things, the people, the ideas, and the organizations around us to identify what we are.

So it’s a testament to the power of Dave’s idea that he has convinced so many people to accept his redefinition of their status symbols.

You see, a paid-off home mortgage is a really crappy status symbol. Unlike a Beemer, nobody can look at you and tell that your home is paid off. Nobody (not even if you drive an Audi) is going to look at you and say “That guy, right there, is debt-free.”

But if you’ve listened to Dave for more than a few hours and you keep listening, people are going to figure it that you’re serious about getting out of debt. They might be impressed by you, irritated by you, and maybe even weirded out by you. But they’re going to figure out how committed to getting out of debt you are because they’ll start to see how your commitment affects everything you do.

Businesses have status symbols too. Every tech startup wants to be cool and fresh and have better food than Google. Every department store plasters its ads with perfectly-coiffed playboys doing blue steel and trying to sell you some new fragrance. Every lawyer wants to drive a BMW.

Being otherish in business means that you’ll be adopting another really crappy status symbol. Unless, of course, you get so serious about being otherish that people start calling you weird every time they talk about you. So serious that it affects everything you do.

So get to it.

 

Shortly before I started writing this blog—really, one of the things that motivated me to start writing it—I saw a TV show about an organization called Farm Rescue. It’s a non-profit started in 2006 that helps farming families who have experienced a major injury, illness or natural disaster by planting, harvesting and haying their crops.

As I watched the show, I realized that Bill Gross, Farm Rescue’s founder, really gets the value of serving other people. I could also tell that his service affects him deeply and personally.

I was inspired by Bill’s decision simply to start doing something about other peoples’ needs. In everything worthwhile that we do, there comes a point where we have to fully commit to making it work.

I’ve talked before about something that Ben Arment said: “A great idea is a spreadsheet with skin on. No dream can be sustained without a profitable financial model. And make no mistake – whether you’re profit or non-profit – the goal is to make a profit. Otherwise, it’s not a dream; it’s a hobby.”

Ben makes a really important point very clearly: if you’re in business, you have to have a viable financial model.

But he’s also wildly wrong. Viable financial model or not, the goal doesn’t have to be to make a profit. And a failure to make a profit doesn’t make your work into a hobby. We can choose other goals. But if we do choose another goal, we have to be fully committed.

T.S. Eliot once asked, “What do we live for; if it is not to make life less difficult to each other?”

Its clear that Bill Gross is fully committed to seeing Farm Rescue succeed. And I think that he’s figured out that making life “less difficult to each other” is enough to keep a business growing.

 

 

 

I’m frequently struck by the similarity between trying to motivate employees and trying to motivate my kids.

It’s not that employees are childish. But as my kids grow, I am reminded over and over again that I’m dealing with other human beings who, though they still can’t put their pants on properly, are determined to deal with the world as they see it.

When my daughter was two my wife and I decided it was time to get her a “big girl” bed and start training her to go to sleep without getting out of it. We said prayers with her, read her stories, sang her songs, and every night as we tried to leave she would wake up and throw a fit as soon as we started to shut the door. It was exasperating.

One night, it was my turn. I had gotten her almost to sleep but it was late and I was in a hurry to finish some work I had left undone. Sure that I was going to have another 10-minute fit on my hands, I told her that I loved her and that I was going to put her in bed and she needed to stay there. She looked up at me and said “Door open.”

Einstein never had a more meaningful Eureka moment. “You want me to leave the door open?” I asked.

“Uh-huh.”

“If I leave the door open, will you stay in bed?”

“Uh-huh.”

“Okay, I’m going to leave the door open. But if you get out of bed, I’ll close it.”

“OK.”

And in less than 10 seconds that was it. She stayed in bed that night and every night since.

As business leaders, we’re often stuck trying to get our employees to do things that would be good for our customers, good for our business, and good for our employees. They don’t often kick and scream like my daughter did, but they are often just as stubbornly resistant to change.

So we resort to carrots and sticks, company “culture”, “new and exciting” initiatives,  and sometimes just plain threats. Sometimes they work, sometimes they don’t. But they almost always guarantee frustration for both sides.

What we don’t do nearly often enough is ask our employees what they need to get the job done.

My wife and I were right; it was time for our daughter to learn to stay in bed. But our idea for how to do it was nothing like what it actually took. When we finally got my daughter’s input, we succeeded. We succeeded because we finally aligned our vision with her needs and she was happy to do it.

I’m fascinated with charities. This blog grew partly out of my experience with the Intellectual Property and Non-Profits Clinic (now the Entrepreneurship & Intellectual Property Clinic) at my law school.

The problem with charities is that while many of them serve important functions, they serve only acute needs. In the U.S. this is partly a function of the legal restrictions facing non-profit organizations. But, more generally, it’s also a function of how we think about helping people.

We tend to think about people who need help as those who are suffering through some sort of traumatic experience. Whether it’s a shelter helping victims of abuse escape danger, a drug and alcohol recovery center helping people regain control of their lives, or a charity that builds houses for injured vets, these institutions step in when people’s needs are greatest. They touch uncounted lives and they are a testament to the goodness of the human heart.

There are far more people whose needs are nowhere near so acute. Many, if not most, would benefit from a helping hand. Some don’t realize it and others don’t want it. They go to work or school (or neither), day in and day out. Some of them have escaped a trauma and are learning to care for themselves. Whatever the reason, these people are out of reach for the charities but they’re not yet self-reliant.

Business, with its longevity and focus on effort, productivity, efficiency, and growth, can encourage and develop skills that improve lives. But a business that is focused on maximizing profit focuses all those skills on a single purpose that, like the charities above, serves only an acute need. And this focus, in turn, blinkers people who might do more for others if it weren’t for the single-minded devotion demanded by their work.

What we need is business that will refocus to a higher set of priorities. Not to the exclusion of profit, but to a perspective that puts profit in its proper place alongside the well-being of its employees and the value it provides to its customers.

 

 

 

One of the most common refrains in business, especially growing business, is “we only want the best.” That is, we only want the best employees.

It’s no wonder. According to Gallup’s 2013 State of the American Workplace survey, 70% of the American workforce is either disengaged with their work—meaning that they come to work, clock in, then clock out—or they are actively working against the company’s goals by wasting time, ignoring quality standards, or simply stealing from the company.

Unfortunately, what many employees hear—and what too many employers come to mean—is that only the best will survive. Only the best employees belong.

Executives talk exhaustingly about motivating employees to do their best work. Invariably, some executives say things like “if our employees have free time, there’s more we can get from them,” or “why can’t we just put the fear of (God/their manager/the CEO) into our employees to make them do what we want?”

The problem with this approach is that it doesn’t bring out the best in the employees or the company that employs them.

In their book, Conscious Capitalism, John Mackey and Raj Sisodia contrast John’s experience in hiring at Whole Foods with the approach taken by Jack Welch at GE. Under Welch, GE’s policy was to fire the bottom 10% of its workforce every year, on the theory that people would then work really hard not to be in the bottom 10%.

As John and Raj succinctly put it, such a policy is “a disaster.”

Whole Foods has implemented several different policies to encourage better productivity from its employees. From working to create cohesive teams, to transparent compensation policies, to personal wellness benefits available for those who want them, Whole Foods’ approach has been to bet that happier, more well-adjusted employees will more than compensate the company (and, by extension, it’s employees and customers) for the extra costs it incurs in employing them. John reports that the experiment has been an unequivocal success.

In Touchpoints, Douglas Conant and Mette Norgaard describe a similar effort at Campbell’s Soup Company that Doug started when he took over the reins as CEO. On his first day at work, Doug made a promise to all the company’s employees that became known as The Campbell Promise: Campbell Valuing People; People Valuing Campbell. He proceeded to demonstrate his commitment to the well-being of his people by asking “everyone he ran into, ‘What can we do better?’ ‘How can I help?'”

John attributes much of Campbell’s enormous financial turnaround to the effects of this policy.

What John, Raj, Doug, and Mette demonstrate is that there is a great deal more power in telling people that they belong. This is not some Pollyanna-ish desire for us all to be nicer. Teaching others that they belong brings with it the need to have clear, direct, and sometimes painful discussions about what they bring to the table.

The greatest power in business cannot begin to be unlocked until we have employees who are trusted and who understand and support the vision of their leaders. It takes a leader who is committed to being only one thing.

Only the best.

Lots has been written about corporate values. For many employees, “corporate values” are little more than words on a wall somewhere; an expensive boondoggle concocted to showcase How Awesome {BrandX} Really Is. In the worst cases, the plaque on the wall only serves to highlight how shallow the values were in the first place.

I’ll hazard a completely unscientific guess and suggest that the majority of American small businesses, the ones that drive our economy, don’t have corporate values written down at all. When you’re a 4-man landscaping crew,  writing down a bunch of “corporate values” doesn’t count for nearly as much as busting your butt to get the sprinklers installed and the trees in the ground before dark.

I can also definitely tell you what values really drive most companies I know. In-N-Out just makes awesome burgers and fries. BJ Plumbing will sell you any plumbing or sprinkler part you need, then show you how to install it.  Weber means barbecue. Fezzari is out to make the best bikes on the mountain. And on and on and on.

The values of these companies are obvious. Sure, they’re out to make a profit. Everyone’s gotta eat. But these companies don’t exist just to make money; they make money because they exist. And they exist because the people who work at them really care about what they’re doing. Even those 17-year old kids working at In-N-Out care about what they’re doing. Maybe they don’t aspire to be burger-flipping magnates, but I have literally never seen an employee at In-N-Out who didn’t seem genuinely happy to be at work.

So there’s a big part of me that’s suspicious of people who talk about writing down corporate values. I suppose that’s because it seems that if you have to write them down they’re not really your values and that if they really are your values then nobody needs them written down.

But there are some companies that seem to get their values right. One of the first I became aware of is Moz, an inbound marketing and SEO firm out of Seattle that lives and breathes by its corporate value statement,  TAGFEE (check out the explanation from Moz’s CEO and founder, Rand Fishkin). Whole Foods, Zappos, and Netflix are other examples that come to mind. Right or wrong, agree with them or not, these companies infuse their values into every aspect of their work.

There are a few values that are essential to this movement I’m trying to build:

1. People first. Whatever we do, the company is here first and always to make life less difficult for its customers and its employees.
2. Quality. No one will ever have a legitimate reason to complain about the quality of the service or the goods we deliver.
3. Respect. We are honest, reliable, and courteous. Every time.

Hopefully it won’t take a plaque on a wall for people to see them.

 

Welcome back. It’s been a good month. I took the opportunity to read a lot of new books and I’m excited to be able to keep building on the ideas I started outlining a few months ago.

I’ve thought a lot over the last few weeks about what priorities we adopt and, by extension, where we place the bulk of our focus and efforts.

Over the break I took the chance to read Aldous Huxley’s Brave New World. It’s an interesting book but not a subtle one. Most importantly for this blog, the question of conflicting goals takes a central role in Huxley’s dystopian vision of humanity’s future.

At the climax of the story, the protagonist argues with Mustapha Mond, the World Controller of Western Europe, about whether or not society is better off for having eliminated poverty and conflict at the expense of truth and beauty. Mustapha Mond explains the trade-off they made:

“Our Ford himself [Henry Ford] did a great deal to shift the emphasis from truth and beauty to comfort and happiness. Mass production demanded the shift. Universal happiness keeps the wheels steadily turning; truth and beauty can’t. . . . One can’t have something for nothing. Happiness as got to be paid for.”

I’ll try to redeem Ford later. But Huxley saw Henry Ford, and American society in general, ushering in a new era where the universal happiness of commercialism would steadily erode people’s ability to appreciate truth and beauty. Henry Ford’s assembly line would develop in society an insatiable appetite for new and appealing, but ultimately cheap and insubtantial, baubles.

Brave New World is no doubt a bit alarmist. But it’s also sadly prophetic. In every choice there is an opportunity cost. Far too many people have chosen self-interest as the focus of their life’s work. Far too many more have been convinced that the business for which they work should have no greater purpose than its own profit. Neal A. Maxwell called it “the demanding cadence called for by the cares of the world[,] . . . maneuverings of materialism [that] would be comedy if they were not tragedy.” And in the process these people have lost the opportunity to make business do more.

This is really at the root of why I called this blog “Better than Capitalism.” It’s not so much that I’m out to prove that there’s some other economic system that will outperform capitalism, I don’t have anywhere near the expertise in economics that I’d need to do that. It’s really about the twin ideas that (1) there are way more important things than self-interest, even in business, and that (2) by making capitalism a means instead of an end—by shifting our focus so that business becomes first a way of lifting each other—we can achieve things even better than capitalism now offers us.

One of my favorite bloggers, James Clear, just beat me to the punch. He announced a couple of days ago that he’s taking a month-long sabbatical from writing his blog. As usual, even when he’s writing about not writing, he gave me some good ideas.

Last Thursday, my wife had our fourth baby. So today, I’m following James’ example. I’m taking a month off to spend more time with my wife and our kids. I’m also going to spend some time planning how I can use the next year to round out some of the ideas I’ve begun to develop here.

See you on June 2.

In 1925, Calvin Coolidge gave a speech to the American Society of Newspaper Editors about the role of the press in American life in which he famously declared “the chief business of the American people is business.”

Calvin probably had his finger on the pulse of the U.S. pretty well. The stock market was flying, business was booming after World War I, and optimism was the order of the day.

Today it seems that not much has changed. According to a 2014 Gallup poll, 50% of full-time salaried workers and 26% of full-time hourly workers in the U.S. work more than 50 hours a week. Entrepreneurship is booming; every day we are bombarded with advertisements for the latest trendy food truck or hand-made hipster shoes on Kickstarter or the local tech startup looking to make it big.

It’s easy to get caught up in the current enthusiasm for business. If you’re running a business, it’s easy to get caught up in the desire to double your profits or the need to keep your business afloat. It’s easy to find yourself working 50 or 60 hours a week and missing time with your kids or your spouse or your garage band. It’s easy to ask your employees to do the same things you’re doing.

So in the middle of all of this, it’s important to remember something we all know but that Henry Ford said well: “Business is not the reason why the United States was founded. The Declaration of Independence is not a business charter, nor is the Constitution of the United States a commercial schedule. The United States—its land, people, government, and business—are but methods by which the life of the people is made worth while.”

So how can your business make the life of the people it serves worthwhile?

We live in a world where numbers and statistics and big data rule. Over the weekend a friend of mine reminded me of that fact when I cornered him into a discussion about this blog over dinner with our wives. He’s been working with a venture capital fund and he’s all high right now on business plans, financial models, and return on investment. He’s also right. Especially in business, having a plan with good data and numbers that run the right direction is essential.  Ben Arment, who wrote the book Dream Year, captured the pith of this idea when he said:

A great idea is a spreadsheet with skin on. No dream can be sustained without a profitable financial model. And make no mistake – whether you’re profit or non-profit – the goal is to make a profit. Otherwise, it’s not a dream; it’s a hobby.

Ben’s right on to point out that if your numbers don’t make sense you’ll never get your business off the ground. Period.

The thing is, there are lots of really smart people who have written lots of really smart books, blogs and magazines about how to make your business become profitable and thrive. So while it’s important to learn and share as much of that stuff here, that’s not really what this blog is about.

Instead, I really hope to change the way you think about business. It’s the difference between facts and philosophy; between the data we use and how we use them. Another quote, this time from Henry Ford:

“Being greedy for money is the surest way not to get it, but when one serves for the sake of service—for the satisfaction of doing that which one believes to be right—then money abundantly takes care of itself.”

Now, there’s no question that Henry had a profitable product and a profitable business model. He helped usher in the age of the automobile, he relentlessly cut costs across his organization, and he made tons of money (quite literally). But he held tenaciously to the idea that he would be most successful by enabling his customers (and he viewed his employees as potential customers too) to easily afford his cars. He worked tirelessly to provide the best value to them he could, even if it meant he would take a bit less from every car he sold.

That idea’s at the heart of what I’m doing here. I know that profitability is essential if a business is going to work. But I want to harness the freedom and the power of profitable business so that we can do more with it. And the way to do that is to make sure that business serves owners, customers, and employees as much as it can.

I don’t know Dan Price, but I’d like to.

He’s giving up his million-dollar-a-year salary to make sure every employee at his company makes at least $70,000. Because he can.

That’s awesome.

Sharing my ideas is only half the reason this blog exists.

Nobody cares what some guy in small-town Utah has to say about business. While I’ve started a few businesses, they’ve all been fairly small affairs. Mostly hobbies really. So I understand that I don’t have a lot of influence when I start talking about how business should be run.

It’s really easy to sit back and say that “capitalists” should just share more of their money with everyone else. Or that it’s not fair when one person has so much money and other people don’t. I’m not here to join either of those choirs.

People listen to Richard Branson and Seth Godin and Marc Andreessen because they’ve proved their ideas. They’ve built things. Things that people wanted. Things that helped other people build other things that people wanted.

So even though I don’t know exactly how I’m going prove my ideas yet, I had to start somewhere. The real proof is yet to come. “Almost anyone can think up an idea. The thing that counts is developing it into a practical product.”¹.

In the final chapters of Give and Take, Adam Grant pulls together all the examples he’s given and briefly turns his attention to being otherish in business.

“In the mind of a giver,” he explains, “the definition of success itself takes on a distinctive meaning. Whereas takers view success as attaining results that are superior to each others’ and matchers see success in terms of balancing individual accomplishments with fairness to others, givers are inclined to . . . characteriz[e] success as individual achievements that have a positive impact on others.”

There’s not much question which approach Adam thinks is the most powerful, and his book has plenty of evidence that he’s right. Having set the stage with his new, otherish definition of success, Adam then crisply expresses the fundamental idea of this blog. He says: “[t]aking this definition of success seriously might require dramatic changes in the way that organizations hire, evaluate, reward, and promote people. It would mean paying attention not only to the productivity of individual people but also to the ripple effects of this productivity on others.”

Adam’s not the first person to have expressed this idea. In his autobiography, My Life and Work, which was published in 1922, Henry Ford said, “It is the function of business to produce for consumption and not for money or speculation. Producing for consumption implies that the quality of the article produced will be high and that the price will be low—that the article be one which serves the people and not merely the producer.”

Henry Ford understood the principle that business could thrive by serving the interests of its employees and customers. At a time when cars regularly sold for nearly $1,000, he slashed the price of his cars to less than $350 and doubled the wages of most of his employees. By the time he died in 1947, his net worth was estimated to be almost $200 billion in today’s dollars.

There’s no question that Henry Ford succeeded because he produced a high-quality product and marketed it well. But he also paid his employees twice what the market told him he had to and gave them back nearly 20% of their work week. In other words, he succeeded by being otherish.

Adam Grant says that by “shifting ever so slightly in the giver direction, we might find our waking hours [at work] marked by greater success, richer meaning, and more lasting impact.” Henry Ford said, “Power and machinery, money and goods, are useful only as they set us free to live. They are but means to an end.”

I think they’re right, and I’m out to prove it.