The other day I was talking with my friend Heidi and she declared “flat is the new hockey stick!” talking about how many companies will be delighted to have the same profit they had last year, compared with just a year ago when we all still talked about hockey stick (angled) growth.  I thought that was a pretty smart observation.

So yesterday when Wal-Mart Stores  announced yesterday that for the first quarter ended April 30, it had a profit of $3.02 billion, or 77 cents a share, compared with $3.02 billion, or 76 cents a share for the period a year ago, it dawned on me that Heidi isn’t just smart, she’s wicked smart. Exactly the same profit yet it exceeded Wall Street expectations.

Wal-Mart Stores, the company that had so many consecutive quarters of consecutive growth they practically had to build a longer measuring stick, and today people are happy with flat?

I think this is just the beginning and  a lot of companies will be nothing short of delighted with flat in this economy.

As it turns out I think this is really bad news for Wal-Mart.

Why? Because even though they are a low cost store, they are too broad to shoulder this flattened economy.  When you do an internet search on them in my home of Seattle alone (not exactly the sweet spot of Wal-Mart by any means), the location pins practically fill up the map.  In the chapters about ING DIRECT and Eclipse Aviation in the book Rethink I talk about this idea, and for so many companies, right now is the time to focus on specific customer segments and know who they are and what they value (price, quality, trust, speed, etc.) and don’t value and really knock the cover off the ball (or slap that puck in this case) in delivering that to them.

Part of that requires turning your back on some customers, and Wal-Mart is too big to do that, so I think their success is married to the health and wellness of the economy, “in sickness, and in health . . . .”  Not many companies are that big, so I think a lot of you can do this and do it well – but do it now.

Think about it.  Rethink about it.  And if you have some time, pick up a copy of the 1977 movie Slap Shot, the Hanson brothers are still very funny, and it’s a bargain.

-Ric

I am not even sure I can pronounce his name correctly, and I haven’t ever met him, but J. Ronald Terwilliger  just did something off-the-charts great, and not only is it great, the timing is perfect, and, AND it’s the perfect way for someone to give to a charity.

First of all, he just gave $100 million to Habitat for Humanity, which they say will translate into 60,000 homes.  That helps so many people at such a key time, it’s just incredible.  I am all for giving to the arts and other causes, but at a time when things are so bad, WOW WOW WOW, what an amazing gift.   I hope to some day shake the hand of Mr. J. Ronald Terwilliger.

So why is it the perfect way to give to a charity?  Because it’s so perfectly aligned with his brand, or more accurately the brand of the company that enabled him to amass his fortune, the Trammel Crowe Residential Company, a developer.  In the book Rethink I talk a lot about business value, and brand, and this is such an ideal way to give to charity that makes so much sense for someone from the world of housing to essentially give houses to 60,000 families who cannot afford them.

Years ago I was talking with my friend George who runs a branding and marketing company called Modo-Group and he talked about the relationship between brand and charity, he used to work for The Coca-Cola Company, and he said that Coke spends a lot of their charitable dollars on water purification in third world countries and it makes sense because water is such a core part of their brand (he informed me that Coke uses more water than any other organization in the world – which makes sense if you think about it).  He added that if Coke were to give money to something like the arts, like The Kennedy Center, even though it’s a great cause, for them that would be a really transparent way to just get some great seats at events for some executives and that would irk some people and not make any sense for their brand.

So today is official J. Ronald Terwilliger day.  I encourage you all to clap out loud for him, as I did this morning while I read the paper.

-Ric

At home, at work, in the paper, and on TV, there are conversations almost every day about the current climate.  I have heard some really smart people with some very insightful thoughts (often with language that might make even Rahm Emmanuel blush) about why we are where we are and who is to blame as well as some ideas about the path to the solution, “how” we get there, since “what” we want seems reasonably clear to most.

“Stupidity” is a word that has  been absent in the conversations about how we got here, “hard work” as well.  Whether people are talking about auto manufacturers or banks, or insurance companies, not once have I heard anyone say the decision-makers were stupid.  Most frequently, I hear people talk about greed (banks and insurance), and neglect (autos).

But greed and neglect are not new by any measure.   So why now, in the early stages of the 21st century have they brought the global economy to its knees?

My answer lies in the shadows of this obituary from last year.  William S. Stevens wrote a legal note in a law journal that changed the way people talked about laws, and he compared laws to the baseball infield fly rule.  The article describes this far better than I will, but basically, in many situations if a player catches a ball hit by a player on the opposing side, that player is out, but in some cases in the infield, it is easier to get more outs if the player drops the ball and then throws multiple base runners out. Even though it’s clever, it was considered unsportsmanlike, so the infield fly rule was added and it says that in the infield, the player hitting the ball is out whether the ball is caught or dropped, and that helped eliminate the temptation for some to be unsportsmanlike.   Stevens observed that each time a new law is added, it is often to close the door to the temptation for uncivilized behavior in much the same way the infield fly rule prevented unsportsmanlike behavior.

What does an obituary about baseball rules have to do with the recession?  A lot.  The greed and neglect that have been around forever have now run amok because these people have figured out that they can get away with it, even the Sarbanes-Oxley, the SEC, and congressional oversight.  And when I hear about seven and eight figure bonuses getting handed to some of the greedy and neglectful executives of companies, that’s simply a reward for bad behavior.  So all of the spreadsheets that are being used to calculate bank debt risk start to sound like “all the kings horses and all the kings men” but we are obviously talking about a lot more than a broken egg.

So what to do?  There need to be strict rules about board accountability with clear enforcement provisions.  There have to be stricter laws about lending and passing more transparent credit worthiness ratings.  Banks have to disclose to shareholders and regulators what their risks are (like debt risk) in terms that are clear and simple (after all, it is really just math in the case of the banks).  The bigger piece is that with the auto makers and a lot of the banks and the insurance companies, I really think we need to be more open to the idea of letting them fail and go into bankruptcy, because really, if no one loses, then no one wins, and that’s not going to last.

So to get to the outcome of restored trust in banks and corporate America as whole, we need to rethink how we get there, and I talk about this in the book in a chapter about following the rules, but this is deeper than that – the behavior is now beyond the reach of the rules, and we need more rules.  Yes I know this post oversimplifies some things, but I am tired of people not dealing with the underlying greed and neglect that got us here.  So let’s get some more infield fly rules, and let’s play ball!

-Ric

The central idea of the Rethink book is the ‘how’ trap, that people get so caught up in ‘how” they do something that sometimes a really simple alternative is just impossible for them to see.  The ‘why are we going this way’ conversation in driving to a favorite destination ((it rarely matters which route you take, ‘how” you get there as long as “what” you are doing, getting to the restaurant on time, is accomplished) is a good example of this totally human condition that spills into so many areas of our work and personal lives.  Generally people aren’t in these ‘how” traps because of stupidity or ill will, it’s simply that they have gotten so used to their ways, or so close to it, they don’t stop and ask “why can’t we do it some other way?”

So when I saw this article in the paper today paper today, talking about the risk of $186 billion in credit card losses among banks because of increased unemployment and the fact that credit card loss rate, which used to correlate to unemployment rates, is now growing faster than unemployment, I started to scratch my head and think banks are in a big “how” trap in looking at this debt.

After realizing just how numb I have become to banking numbers these days, thinking that $186 billion is just a fraction of the $800 billion that has been set aside for banks already, the part that left me scratching my head is why they are even talking about card losses right now? Why rush to write off the debt?

I know lots of people who went to college and graduate school that received financial aid to pay the tuition, and from time to time I will hear someone say that they are still paying off their college or medical school, or law school loans.  I am 43, and most of these people are around my age, which means some of these debts were incurred over 20 years ago.   I know several of my friends have gone for long periods of time without work, and they have simply worked it out with their schools to pay off the debt when they can.

Credit card debt is like school debt in that it already happened.  It’s not like it’s an asset like a house or a car that is appreciating or depreciating, or that occupies some land or something like that, it’s just a debt that has some sort of interest rate and payment terms hooked to it.  So why do the credit card companies not just work with the card holders and work it out with people like schools do for education debt.  If they change “how” they go about managing the debt, yes, it will take them longer to get the $186 billion, but they still should get most of it.  Most of these people will get jobs again and they should have to pay for the food, clothing, restaurant bills, gasoline, and running shoes, and so on that make up that credit card debt.

Please, rethink managing credit card debt, so taxpayers don’t have to pick up this tab.

-Ric

Treasury Secretary Geithner’s op-ed piece in The New York Times today, “How We Tested the Big Banks” fell far short of what was needed to explain where we are.  Add that to the billions in TARP funds he has approved with not enough strings attached (strike one), and I am on the verge of losing all trust and confidence in him.

First of all, his explanation of sending “hundreds of supervisors to spend 45 days rigorously reviewing the banks’ detailed loan data.”  Really?!  Just what have the bank people been doing all this time, if not that?  We have been hearing about seven and eight figure retention bonuses for “key” executives at these banks and then we send in hundreds of “supervisors” in to run some basic spreadsheets and risk analysis?

But before I get too far into beating up “how” Mr. Geithner is going about this work, let’s back up and take a closer look and “what” he is trying to do, specifically his measures of success.  Give him, well credit, for addressing the need to stabilize the banks and their reserves and their ability to lend.  That’s banking 101 and we now know a lot more about how mortgage backed securities and other crazy high risk businesses blew up the financial markets including a lot of the banks.  What this is really about is getting a handle on debt risk.  That is the measure.

That “what” is in plain view and lots of people are talking about it.  I don’t know why it’s taking so long to get transparency on that, I think everyone has Excel, right?

The “what” part that I am not hearing as much about, which is also one of the bigger variables in this equation is displaced families, homeless people.  Homeless people are not new, and while that is in some ways a very complex topic in its own right, there is a “new” addition to that homeless community and that’s people who are losing their homes because of foreclosures – a big part of this current crisis.

Someone in the administration needs to provide some tolerance thresholds for how much additional risk a bank can take before foreclosing on a house, and that has to tie to some logical articulation of how much extra leeway homeowners will get before getting the boot.  There are car ads saying that if you buy a car and can’t make payments, you can just bring it back, we need something like that for housing, but also have some clear and specific messages about secondary housing options when friends and family are not an option.  The government needs to be specific about its role here, and how much it will help, and what’s the federal and state role here, and then also be very specific about how much more lenient banks can and cannot be.  Without that, there are still too many variables, and “how” we go about it is most assuredly going to fail.

OK Tim, last chance – let’s see what you can do.  We need you to hit one out of the park.

-Ric

Match.com, LinkedIn, and Twitter are among the long list of companies I hear people saying that Facebook will either crush or merge with as we continue to weave Facebook more tightly, and centrally, into the fabric of our internet lives.  But in the midst of FedExing  a bunch of copies of the Rethink book this week to press and other people, two things became very clear to me:

1) Trying to figure out the street address of some well known businesses is much harder than I expected in this day and age.  Not fun.

2) Reaching out to someone in e-mail, someone you have never met, has never been easier, because of Facebook.  In many cases I sent the person a message in Facebook explaining that I wanted to send them a copy of the book, and if they would supply an address, I would send it, and that worked really well.

This week I reached out to someone in The White House, a famous author, a famous book critic, and others and it took almost no effort even though I only knew how to spell their names and a I knew at least little something about where they work and what kinds of friends they have.  Searching for a name of Facebook, you will usually get several names in the result set, but if you can’t tell from the photo alone (which I can about 50% of the time), just looking at their friends is usually enough to figure out if it’s the person you are after.  From there, I usually send the person a message (instead of a friend request if I don’t actually know them), and nine times out of ten they turn around and send me a friend request.

I spend my days trying to help people get out of their various “how” traps, where the need to rethink “how” they do “what” they do, usually with dramatic results.  With e-mail, the “what” is pretty basic Communicate Message or something along those lines, and “how” it’s done today, whether through hotmail, gmail, our Outlook, we start out either by looking up the e-mail address of the person, or if they are already in our address book, just start typing their name and it resolves.  But I meet a lot of new people every week and I can’t help but think that the following things are going to be impacted by Facebook:

1) “How” we exchange information. Business cards become a big waste of money for a lot of people, even people who meet a lot of new people every day, if you can simply look up a name and connect and learn a lot.

2) “How” we search for someone. Why search for someone on Google, Live, or Yahoo if you can search for them, and verify it’s them, and message them in the same interface?  This is a huge advantage for Facebook now that they so deep in so many social networks.

3) “How” we choose which account to use.  I have four e-mail addresses, and I know some people who use several.  If you know the person is a regular on Facebook, they will keep their Facebook account connected to the account they want it in, so just send the message via Facebook and no more wondering which account to use.  I have been doing a lot more of that.

I would say that >50% of my social e-mail has been going through Facebook lately, and I have almost stopped using hotmail and gmail.  I have too many attachments and confidentiality issues to stop using Outlook for work, but while I would be very concerned if I were some of the companies named at the top of this post, but I wonder if the bigger impact is on how people search and message.

That will be a gigantic change if it continues.

-Ric