business – Page 3 – Dearest Leader

How The Rich Create Jobs

After hearing a caller on Sean Hannity’s show profess that the rich never create jobs, I began to think about how this applies to the younger generation. Being born into Generation X gives one an interesting vantage point. We were born after the Baby Boomers and entered the work force knowing that layoffs are normal. The working relationship is no longer about loyalty, but to the benefit of the worker or the employer. According to a friend who works in HR the mentality has gone from working for one or two companies for life to the average Generation X worker staying at one job for 5 years and upwardly mobile workers only staying for 2 years or less. This frustrates Baby Boomer executives who expect people to stay under their hire for 10-15 years. If Generation X frustrates the Baby Boomers, what does Generation Y do?

One of the biggest problems that HR executives have encountered with Generation Y is that they don’t want a job. At first one may think that they are bigger slackers than GenX who defined modern slacking. Actually this is not the case. The biggest problem facing HR executives is that GenY has entered the professional workforce as freelancers while still in college. A large number of these young ambitious people already have Limited Liability Companies or Corporations they’ve started while in college. One complaint that HR executives hear is that taking a full time job means only 2 weeks of vacation and you have to show up for work every day even if there is no real work to do. GenY wants to be able to take 6 weeks off at a time if there is no work to do.

For those who have not experienced the bureaucracy of an extremely large company it is possible for there to be no work for anyone to do. If you’re a software engineer you can’t start work on a project until sales has settled on a price with the customer. That can take 2-4 weeks. Then the lawyers take another 2-4 weeks to agree on the contract. Then purchasing has to buy the equipment for the project, that has its own sales and lawyer cycle. During that time there is nothing to do for the workforce because you don’t have a customer to bill the work to, or you don’t have the equipment to actually do the work.

The end result is that getting a job for GenY means not taking a salaried position with a company full time, but working for themselves. If they don’t “get a job” then how do the rich fit into this? That’s the next stop in our education about how the world works today.

Angel Investors are individual rich people who invest their own money into other people’s businesses. Venture Capitalists on the other hand are companies who manage a pool of money and invest into companies. Usually that pool of money is from a group of individual angel investors. These are the rich people that create the jobs for GenY. Angel investors can contribute a small amount in the four digits all the way up in to the tens of millions of dollars. If you ask a friend or relative to buy a portion of your lawn service or convenience store, they are an angel investor. Many people in GenX and GenY whom I have worked with on launching their business ask the question early on, “Who can we find to give us money and how much can we sell our idea for?”

For example, lets look at advertising firm trueAnthem. I picked them because they were the most recently listed in CrunchBase, a database of start up companies that tracks investment and other facts. They received $2 million in angel funding on 7/28/08. They have 10 employees. If they pay each employee $50,000 per year, they can afford to pay salaries for 2 years and still have $1 million left over for office rent and other expenses, assuming they make no money. They managed to survive long enough to receive another $2.88 million in Series A financing at the end of 2010.

What happened here is a rich person gave someone a job by providing $2 million in start up capital, who then hired a several employees. In the world of GenY, to say that a rich person never gave you a job is inaccurate. The average person may believe that because a wealthy person did not hire them directly they did not get a job from a rich person. Once you follow the money trail it usually leads back to someone with extra money to spare. In a future article I will cover why taking money from a rich person for a job is better than going to the SBA or your local bank to get a loan.

High Speed Rail not the Solution

Today on Hardball with Chris Matthews, Jim Cramer and Robert Reich discussed unemployment and getting the economy back on track. Matthews eventually brought up the idea that America should make a large capital investment and amortize it over a very long time. He then proceeded to pitch high speed commuter rail as the solution because they’re state of the art. Cramer on the other hand said we should build new roads using US made steel and Caterpillar equipment. Cramer touts US Steel and Caterpillar stock all the time so it isn’t surprising. Matthews speaks of a north east corridor where a maglev train system could ferry people to DC, NYC, Boston, Philadelphia, etc. instead of being tied up by airplanes and terrorists.

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Business and recreational travelers do not want to be stuck on a 300mph train when a Boeing 717 can go 600mph. Most tickets on Airtran and Delta start at $49 each way. To make the train reasonably priced, it would have to be in the $5-15 range each way. Matthews also forgets that terrorists can blow up trains just as easily as planes. This would mean putting the TSA in every train station, which would be expensive and inconvenient for the traveler.

A much better investment than high speed rail would be to invest in slow rail for cargo. Freight train is more efficient than moving goods by 18 wheeler to distribution hubs where the 18 wheelers can then pick up the cargo and deliver it to the final destination. Trains are 2-4x more fuel efficient than trucks per ton-mile and emit 1/3 the NOx of trucks per ton-mile. Cramer’s picks of US Steel and Caterpillar are right on target with slow trains, high speed trains, or roads for trucks, but we need something sustainable after the construction is over.

Another reason high speed commuter rail is not the solution is the use of technology to eliminate the need to commute. GenX and GenY are more comfortable with running a virtual office. Whether these groups are business owners or executives at established businesses, they will influence the workforce to become more decentralized. Instead of meeting in person in a conference room, you can use GoToMeeting, WebEx, or the open source tool DimDim. The last time we ordered a nifty IT appliance a Sales Engineer didn’t come out to set it up. We placed the device in the server room with an IP address. Then the Sales Engineer took control of our PCs through WebEx Remote Support and did all of the configuration from California. They could have sent a real person, but why do that when it’s more efficient and green to do work over the internet? Skype and SIP based calling allow workers, vendors, and customers to communicate across the world for the same price as it would cost to call across town. In the near future there will be no reason to go to the office which is good for workers, good for the environment, and bad for high speed commuter rail.

Biodiesel Producers Lose Tax Credit

Biodiesel manufacturers will have to make serious cut backs in 2010. A $1/Gallon tax credit for manufacturers of biodiesel expired January 1. The House of Representatives voted to extend the tax credit, but the US Senate was not able to come to consensus on extending the tax breaks for American business. There are approximately 180 biodiesel producers in the US that could benefit from extending the tax breaks. In addition the European Union has implemented a high tariff on imported biodiesel which has hurt US exports. The largest refinery in Houston sits idle and many producers will likely shut down as a result of the higher costs.

Unfortunately it was the Democrats that indirectly torpedoed the extension. According to Charles Grassley (R-Iowa), the Democrats tried to bring back the estate tax along with the tax credit for biodiesel producers. They also decided to put it into a defense bill for some strange reason. Something as divisive as the death tax was sure to not win support from the Republicans. By taking this approach the Democrats have shown that they are not committed to green energy reform. Since this would be a tax break for small business any Republican would be behind the bill if that were the only topic. Democrats can show their commitment to renewable energy by creating a bill that brings back a minimum of $1/Gallon tax credit for biodiesel manufacturers. This bill should carry out no other actions than the tax cut.

Republicans want to see lower taxes and less dependence on foreign oil. Democrats want to protect the environment and bring manufacturing jobs back to the US. Passing the tax cut will benefit Democrats and Republicans. It’s time to drop the red state/blue state partisan bickering and get to a green state. Write your Democrat Congressman and Senators and tell them to support renewable energy in a way that brings the Republicans to the cause.

Protecting Your Customers and Profits From Your Employees

When operating business it is important that line management understands the direction executive officers and board have set for the company. This includes high level policies and strategy which is communicated down to middle management, who in turn oversees business process and execution of work. In order to properly operate a business the strategic, tactical and operational policies should be communicated and have signatures from all levels of employees. Individual line managers should not be encouraged to “do their own thing” since this can endanger the company’s reputation and subject it and the executive suite to legal liability.

Today’s case study in poor corporate governance comes from Muvico Entertainment, LLC in Fort Lauderdale, FL. At a theatre in Rosemont, IL Samantha Tumpach was arrested and held in jail for two nights. What was her crime? She was filming a birthday party at one of Muvico Entertainment’s theatres which isn’t a crime. Filming her friends while the movie was running was the crime. According to police she had less than 4 minutes of footage total. Management at the theatre called the police and insisted that Tumpach go to jail for a felony. The police seemed to think the theatre manager had overreacted, but apparently their operating policies do not allow them to refuse to arrest on the scene if the officer thinks the issue is trivial. In such cases accuser must obtain a warrant have the suspect arrested later. The judge handling her case released her on her own recognizance, which indicates he thinks it was a minor incident. She may be facing up to 3 years of prison for having her camera on. I doubt she will face any prison time since crimes involve motive and intent, neither of which exist here.

I would consider this to be a corporate bail out at the expense of the taxpayers. Rather than sue Tumpach for damages using the company’s own funds, they decided to hoist the costs off on to the taxpayers. Muvico Entertainment just gave the government an excuse to raise taxes on the surrounding businesses and residents. Property and sales taxes fund the judicial system and the police department. This adds one trivial case to the court system where police and judicial time could be used to fight violent crime. Either you cut back on police and judicial services for trivial matters, or you hire more cops and judges to deal with both trivial and serious matters. Muvico Entertainment is not the kind of neighbor I would want to have as a business or a resident, and certainly not one I would be a patron of.

The damage done to Muvico Entertainment’s reputation has mainly been in the media and on the internet. People have been giving them 1 star ratings on Google Maps and Yelp which is going to hurt their sales when someone reads the review and sees a ton of 1 star ratings. If they actually read the reviews they may dismiss the ratings or they may boycott the business based on poor decisions made by management. There is nothing Muvico Entertainment can do to make these 1 star ratings disappear from Google or Yelp. There is also nothing they can do to silence the blogosphere or the mainstream media. In the end this may not hurt them financially, but their executive management has a large rotten egg splattered on their faces.

How do you prevent this kind of embarrassment in your business? Define your company policies and train your employees. In this case a policy stating that all arrests on behalf of the company must be approved by middle or executive management could have avoided this situation. There is also a question of ethics involved here. Executive management of any company should have a code of ethics policy which forbids employees from taking payoffs from vendors. In most cases your company may have a policy prohibiting employees with buying authority from taking free lunch, golf games, or sports tickets from their suppliers. If you don’t have a code of ethics policy in your business, you should get one approved. Many publicly traded companies publish their code of ethics policy. You can use one of those as a starting point.

The MPAA is offering a $500 bounty to any movie theatre employee that calls the police on a person operating a video camera in the movie theatre. The MPAA bounty presents an incredible opportunity for a public relations nightmare and conflict of interest. If you have a code of ethics policy it would be a good idea to use this situation as another example of prohibited behavior. It definitely creates a conflict of interest between your employees and your customers and in my opinion is no different than a buyer taking a bribe from a supplier to become the vendor of choice. Businesses should place the customer at a higher value than their suppliers. Customers provide revenue, while suppliers contribute to expenses. If one movie studio goes out of business due to bootlegging there are others to buy your content from. If your customers organize a boycott because you value your suppliers more than them you may be the one out of business.

UPDATE: After checking some MSM sources it appears that Muvico Entertainment is encouraging its employees to screw over their customers.

"The motion picture industry has encouraged theater owners to adopt a ‘zero-tolerance’ policy prohibiting the video or audio recording of any portion of a movie," Muvico Entertainment, which oversees the theater, told HLN’s "Prime News."

What happens now? Muvico Entertainment says it’s up to local police to determine Tumpach’s future.

Zero-tolerance equals zero-commonsense. I guess they collected their $500 bounty and are proud of themselves for it.