Some Swedish researchers [.pdf] have apparently shown that American women were significantly influenced by price when judging the quality of red wine in comparative tastings, whereas American men were not.  Economics writer Chris Dillow has bravely extrapolated this to suggest it may explain why women buy cosmetics at outrageous prices. Mind you, I’ve heard the ladies make similar comments about blokes and cars, which of course is quite ridiculous, isn’t it, chaps?

I’d always understood it to be accepted folklore in the wine industry (makers and sellers), at least here in NZ, that price is a key influence on perceived quality.  I hadn’t seen the gender slant with wine before, but I don’t really believe that men are much more objective.  My gut feel is that more extensive study would show that men also can be significantly influenced by price vis-a-vis value in wine. I volunteer to be a guinea pig.

I’ve seen several letter-based descriptions of the economic recession:

• V - a sharp decline followed by an immediate and sharp recovery.
• U - a decline, a period of stagnation, and then a recovery.
• W - a decline, a short-lived false recovery, another decline and then a real recovery.
• L - a decline to a long-lived period of lower economic activity.

So what’s a Y recession?  The Financial Times explains:

According to [UK retailer] Debenhams, sales of Y-fronts have risen by 35 per cent since the downturn began, overtaking boxer shorts for the first time since the 1990s recession – attributed to the “greater sense of security” they provide. Instead of worrying about whether this will be a U-, L- or W-shaped recession, we can call it the Y-front recession.

US president Ronald Reagan once described the role of government in the economy: “If it moves, tax it; if it keeps moving, regulate it; if it stops moving, subsidise it.“  That certainly sums up government behaviour right now.

At at an Institute of Directors breakfast this morning, economist (aka. dismal scientist) Andrew Gawith spoke about the global economic crisis and the need for change. I had the mixed privilege of delivering the vote of thanks.  I say mixed because, while Andrew is a nice chap and a great presenter, he had me grateful that the windows don’t open in the 5th floor dining room of the prestigious Wellington Club; otherwise his audience might have been jumping out of them. (Update: I was wrong - they do open.  Eek!) Andrew’s presentation was  largely a summary of the scale and causes of the current global crisis.  He doesn’t offer much hope that we’re through it yet - 2009 will get worse and 2010 will be flat at best, he says. (One bright note for NZ readers - China and India’s demand for protein will keep climbing, and so Kiwi farmers will once again save the day).

I won’t rehearse Andrew’s case - you’ll be largely familiar with the themes by now if you read the financial pages of your morning newspaper.   I will paraphrase some points he made regarding the role of government and regulation.

• Deregulation arguably went too far (notably the repeal of the 2nd Glass-Steagall Act in the USA, the emergence of unregulated players in mainstream savings and investment everywhere, and the loosening of bank equity ratios).
• Regulation didn’t cover some of the more recent  “innovative” financial instruments.
• Even where regulation existed, the regulators were either woefully indifferent or incompetent.
• Financial institutions have become so big, at an order of magnitude dwarfing the largest industrial corporations, that governments have no choice but to prop them up, even if the cost will cripple future generations.  Yet no-one is looking seriously at how to address this “too big to fail” problem.
• Regulation won’t stop unethical behaviour.  You can’t legislate for morality.

Andrew concluded with a strong message for his audience.  The economic crisis wasn’t only a failure of regulation, but also a failure of morality. Boards of directors set and enforce the moral stance of their organisations; ethics, values and responsibility - old-fashioned virtues that are still highly relevant.
Disclosures: Andrew Gawith is a principal of economics consultancy Infometrics and of Gareth Morgan Investments, which manages part of my family trust’s investment portfolio. I am a member of the Wellington Club.

An interesting little battle is brewing (!) between venerable UK beer-maker Adnams and “activist” Kiwi investor GPG.  This developing scenario has several ingredients that appeal to me - Suffolk, real ale, UK, NZ, strategy, governance, ownership and activist investors.

Adnams, based in the small coastal town of Southwold in Suffolk, has one of those quaint share structures whereby the Adnams family’s shares carry double the weight of other shareholders - all well and good, as long as everyone knows that’s the deal.

According to The Times, Adnams’ 2008 operating profit fell by two-thirds,  and GPG (which controls 5% of Adnams but only 2.5% of the votes) has written to all shareholders (.pdf) prior to the upcoming AGM.  GPG describes Adnams’ results as “so poor as to suggest that the substantial expansionary investment projects sanctioned by the board since 2000 have actually weakened rather than strengthened Adnams’s traditional brewing and pub businesses in East Anglia”.  GPG is particularly scathing of the brewer’s launch of Cellar&Kitchen, a chain of shops selling kitchenware and wine. It describes that venture as “far removed from the company’s core competencies as a regional brewer and owner of pubs”.

GPG blames the company’s recent disappointing performance on poor corporate governance and calls for the dismantling of the “anachronistic dual share structure” that gives the Adnams family effective control.  Blake Nixon, GPG’s UK executive director, also led an ultimately successful campaign to dismantle a similar dual share structure at Youngs, another brewing firm.  Adnams’ chairman has, unsurprisingly, rejected GPG’s criticism (pdf).

Adnams makes Broadside ale (a very suppable beverage, I can personally attest) - “brewed to celebrate the Battle of Sole Bay in 1672″, That sea-battle, between the English and the Dutch, ended inconclusively, with both sides claiming victory.  I expect a similar outcome from Monday’s AGM (UK time); although, come to think of it, in the Glorious Revolution some years after the battle, William of Orange became king of England with the support of the English Parliament. Maybe Adnams should hold off brewing another commemorative ale?

People (and organisations) talk a lot about innovation, but often do so in very narrow terms such as product innovation. This is very limiting.  In reality there are many dimensions for innovation, eg:

• Product
• Service
• Market
• Promotion
• Process
• Information
• People
• Business

Most innovative thinking only explores one or two dimensions, while assuming the others are fixed. There are enormous opportunities when you start innovating in multiple dimensions at once.  Unfortunately, responsibility for innovation in these separate dimensions is usually fragmented between functional silos, with little joined-up thinking.  What new opportunities could open up for you, if you brought these dimensions together?

I recently criticised web search engine Ask for their dropping of the Jeeves character.  John Beverley advises me that Ask Jeeves Inc. was threatened very actively with litigation by The Wodehouse No.3 Trust (acting for the estate of P.G.), and only very recently have come to reasonable commercial terms to license the character. In light of this, I retract my criticism of Ask’s branding actions - the dropping of Jeeves; the impact on their brand was huge, but now I know not of their own making. There is however a valuable lesson here in securing approval to use someone else’s intellectual property before starting to use it.  I had wrongly assumed that Ask Jeeves had licensed the character.

Wired has given us a preview of MAD magazine’s 500th issue cover:

Those seeking angel or venture capital need to learn what’s in a term sheet - an agreement between investor and investee which spells out the key element of a funding deal. Guy Kawasaki has pointed me to leading Silicon Valley law firm Wilson, Sonsini, Goodrich, and Rosati, who offer a free online term sheet generator.  It’s designed for USA venture investments, but it’s still useful for other countries, since it captures many of the key elements. Have a go - you’ll see some terms you don’t understand, but that’s good.  Find out what they mean.  Understanding this stuff is important, so you know what you’re signing up to and why.

Update: Here are some handy NZ guides.

Brazilian President Luiz Inácio Lula Da Silva proclaimed last month that the global financial crisis had been created by “white-skinned people with blue eyes.”  Now Walter Russel Read, writing recently in Newsweek, has gone a step further and blamed it all on the Dutch:

The modern financial system grows out of a series of innovations in 17th-century Netherlands, and the Dutch were, on the whole, as Lula describes them.

Read’s brief history of modern finance looks like a review of Microsoft Windows:

This financial and political system is the operating system on which the world runs; the Dutch introduced version 1.0 in about 1620; the British introduced 2.0 in about 1700; the Americans upgraded to version 3.0 in 1945, and as an operating system, it works pretty well - most of the time… But the system has bugs - among them, a tendency to crash.

I’m kidding about the blame; Read’s article is titled “In Defence of Paleface Capitalism.”

The 300 years of liberal, global capitalism have seen an extraordinary explosion in knowledge and human affluence. Not everybody shares in these benefits, and there are environmental and social costs to the rapid progress. Still, not many of us would like to turn the clock back to 1610.

… Lula … understands that for all its shortcomings, the market isn’t the enemy of the poor. Brazil’s task, Lula believes, isn’t to make war on the market, à la Venezuela’s Hugo Chávez, but to harness its vast potential for the sake of the poor. This is new. Thirty years ago, Brazil, like most of Latin America, was polarized between a radical, antiliberal left and a radical, antiliberal right. Today Brazilian politics are different; both the left and the right are more committed to free politics and free markets than they used to be.

Brazil is better off for the change. Although the current crisis is beginning to bite, Brazil has overcome the stagnation and corruption that halted growth after the first oil shocks and the Third World debt crisis, and is now one of a handful of countries with the power to shape the new century. And this hasn’t just been the story in Brazil; more and more “developing” countries are turning into the pacesetters of liberal global capitalism. So Lula is right: the global crisis emerged from a system built, with all its many flaws, by blue-eyed palefaces. But if countries like Brazil can stick with their own versions of Dutch finance, the future of the system will increasingly be shaped by people who look more like Lula - and the palefaces are going to have to run hard to keep up.

I think Read includes China, India, etc.; but it’s still moot what capitalism will look like as they reach their full potential.

Courtesy of Capital Chronicle, here’s Global Finance magazine’s list of the world’s safest 50 banks.  I’m glad to see that the list includes all the ones in which I have an interest, directly or indirectly.  The list shows great variety in size and ownership. As Capital Chronicle observes, “public ownership or a cooperative structure certainly do not guarantee prudence.” In that light, NZ readers will note one notable absentee from the list - the so-called “people’s bank”, government-owned KiwiBank.

Thanks to those who enlightened me re the appeal of Sun for Oracle. I’d only focused on Sun’s hardware business, but, 24 hours after the news broke, commentators have homed in on Sun’s ubiquitous Java and MySQL software, in theory Open Source, but in reality very much controlled by Sun.  Like me, most observers expect Oracle to flick off the hardware business, which clearly doesn’t fit with Oracle’s other businesses and, indeed, conflicts with Oracle’s strategic relationships with other hardware makers.

Can anyone explain to me the strategic rationale for Oracle acquiring Sun? I can only think of one - it was cheap in today’s market, especially after IBM walked away, and may be worth a lot more to another hardware maker in a year or two, when the market recovery makes the price and the regulatory hurdle-jumping worthwhile.  In other words, a buy/hold/flick deal. I’m not sure I’d take the risk.

Update: now I get it!

IMPORTANT UPDATE: I recently criticised Ask for their dropping of the Jeeves character.  John Beverley advises me that Ask Jeeves Inc. was threatened very actively with litigation by The Wodehouse No.3 Trust (acting for the estate of P.G.), and only very recently have come to reasonable commercial terms to license the character. In light of this, I retract my criticism of Ask’s branding actions - the dropping of Jeeves; the impact on their brand was huge, but now I know not of their own making. There is however a valuable lesson here in securing approval to use someone else’s intellectual property before starting to use it.  I had wrongly assumed that Ask Jeeves had licensed the character.

There are plenty of strong brands in the Internet business world, despite the naive belief by some in the websphere that branding and marketing aren’t important any more.  Before Google took over the search market, one of the more powerful players was a site called Ask Jeeves.  It was quite good for its time, but importantly it also had a loyal user base who related to the brand’s personality, based on PG Wodehouse’s fictional comedic character Jeeves the valet.  As Google took ever more market share, what did the owners of Ask Jeeves do? The considered response would have been to maintain and strengthen their user loyalty through Jeeves, while working hard to make their product relevant in a world dominated by Google.  But no; these guys dropped Jeeves and went for the shorter name Ask (purchased at great cost). They threw away their core brand personality - the one thing that still worked - and alienated their user base.  The business almost sank without trace.  Good brands can survive failing products, but failing products have no chance without a good brand.

Three years on, and guess what? Ask is bringing Jeeves back. Jeeves could always rescue Bertie Wooster from various blunders, but I suspect this one is beyond even him now.

Update: I forgot to mention that the new, improved product looked very similar to Google, which made the dumping of Jeeves an even more daft strategy.

There’s a terrible, yet powerful saying in business: “Kill your babies fast“. Usually applied to new product ideas, it’s also applicable to other areas of business innovation and expansion. As you develop those new ideas, they suck in resources - people, money and the most precious commodity of all, time. While strong determination , persistence and even sheer bloody-mindedness are important characteristics of successful innovators and entrepreneurs, the best also kill projects as soon as it’s clear that they are unlikely to succeed, both in absolute terms and by comparison to other projects in the portfolio.  That means you can concentrate your resources where they’ll have most effect; classic strategic thinking.

Killing projects is hard.  Once started, they seem to get a life independent of you. which gets stronger with every month and milestone passed.  The later the stage of development, the harder it is to cancel them.  “We’ve invested too much to stop now” and “It’s starting to show some promise” are phrases you’ll hear a lot, from the project team, the project sponsors, the CEO or the board.  No-one wants to admit to what others will think of as failure, and so the project continues in the vain hope that it might still pay off, ignoring the benefits of switching resources to more promising opportunities.  You end up with numerous projects on the go, all inadequately resourced, often getting in each other’s way, and probably too late for the market opportunities originally targeted. Or you’ll have made one big bet on Day One, which is even harder to kill.

Sometimes there’s an alternative to infanticide. At the risk of taking the analogy too far, you might consider adoption - selling the project to someone else with a better fit for what the project offers.  It might be another business, or the project team itself.  You might get paid handsomely for the effort to date; you might retain an investment in the new owner.  Indeed, being a “baby factory” is a legitimate business model for some innovators.  But be wary of investing too much time and resources on securing a new parent - that’s as bad as spending them on the project itself.

Today’s Vista Group lunch followed its usual pattern as we jumped from one idea to another in bewildering rapidity:

• Will kerning save the world? Every technical elite has its own jargon and in-jokes. Kerning is a graphic-designer term for adjusting the white space between letters.  Apparently, the question is a good one to have printed on a T-shirt to wear when talking to art directors at ad agencies.
• Didn’t they read what I wrote? We all had recent examples of how some people misread even the shortest communications only taking in words to support their pre-conceived prejudices and assumptions about the writer.  Of course, the use of deliberately-provocative headlines can increase that risk.
• How does Jack Yan get to be a judge in both the Miss New Zealand AND Miss Sweden beauty pageants?  Being a fashion magazine publisher didn’t seem to explain it to the other gentlemen present.
• How does Chanel manage to retain its cachet of luxury and exclusiveness, while Pierre Cardin, Yves St Laurent, Gucci et al have cheapened theirs?  “Expensive” does not mean “exclusive.”
• Does your market offer determine your target market, or does your target market determine your market offer?  This is a chicken and egg question.  You can go either way.
• Does branding only work on cattle? No, was our unanimous conclusion to the idea behind Jonathan Salem Baskin’s book. But we would say that, wouldn’t we?

You’ll have to take my word for it that the transitions were seamless and logical.

In March, The Economist published a special report on entrepreneurship. I meant to write about it sooner, but forgot (an increasingly common trait in my behaviour, complains SWMBO).  Anyway, I read the article again this morning while browsing an old copy at my gym during a session on a cycling machine (note references to worthy reading, exercise and multitasking). It lists 5 myths about entrepreneurs:

1. Entrepreneurs are outcasts or social misfits:  In reality, while most entrepreneurs have high independence of spirit, they also have excellent social skills - selling their idea to others, leading a team, and generally building networks of relationships.
2. Entrepreneurs are young:  While some entrepreneurs start young in software and web businesses, Harland Sanders started franchising Kentucky Fried Chicken when he was 65; and Gary Burrell was 52 when he left Allied Signal to help start hi-tech GPS company Garmin. “The Kauffman Foundation examined 652 American-born bosses of technology companies set up in 1995-2005 and found that the average boss was 39 when he or she started. The number of founders over 50 was twice as large as that under 25.“
3. Entrepreneurs rely mainly on venture capital  In reality, most entrepreneurs start out with minimal funding, mortgaging their own homes, raising funds from “friends, family and fools”, and bootstrapping business growth. Angel investors play the next most prominent role in funding growth, while VCs invest in relatively few businesses, and usually in very narrow fields such as high-tech.
4. Entrepreneurs succeed by inventing world-changing new products:  While occasionally someone does invent a better mousetrap completely new product or service, most entrepreneurs succeed through better ways of doing existing things (better mousetraps or new ways of making and selling old-style mousetraps), or simply executing better.
5. Entrepreneurs cannot succeed in big companies:  While many entrepreneurs achieve success by setting up their own operations, there are numerous large organisations who provide supportive environments to grow dozens and even hundreds of entrepreneurs in-house: 3M, GE under Jack Welch, Johnson & Johnson, to name but a few.

The article closes with this further encouragement:

Microsoft, Genentech, Gap and The Limited were all founded during recessions. Hewlett-Packard, Geophysical Service (now Texas Instruments), United Technologies, Polaroid and Revlon started in the Depression. Opinion polls suggest that entrepreneurs see a good as well as a bad side to the recession. In a survey carried out in eight emerging markets last November …, 85% of the entrepreneurs questioned said they had already felt the impact of the crisis and 88% thought that worse was yet to come. But they also predicted, on average, that their businesses would grow by 31% and their workforces by 12% this year. Half of them thought they would be able to hire better people and 39% said there would be less competition.

I mentioned recently that I’d been interviewed by a PhD researcher on business blogs.  I was particularly struck by two questions (paraphrased):

Does a corporate blog make your business more open and transparent?
A blog is just another communication channel; it does not of itself make you more open and transparent unless you choose to reveal more.  It depends on your topics, how you write about them, your audience (eg. customers or staff), whether you allow comments (I don’t subscribe to the view that allowing comments is essential), what are the house rules regarding comments, how you moderate (filter) them and how you respond to them. A blog is a valid tool even for a “closed” organisation, if it restricts itself to those matters that it wants to communicate. However, there have been several attempts to gain credibility with audiences by starting blogs to appear more open, but usually this don’t last long if the underlying new openness isn’t real and permanent.

Does a corporate blog make your business more trustworthy?
As with my earlier reply, you might try to gain greater trustworthiness by producing a blog, but if it isn’t deserved (as demonstrated by your actions and behaviour in the real world as well as the blog), then a blog can be just as bogus as any other communication channel.  Spin is usually exposed for what it is - deceptive communication - which implies that the truth is unsavoury.

I like to think I’m open and trustworthy in what I write my blog, but I don’t write about everything people might want to know. I can’t say whether a blog is a valid tool for your organisation; but if you do decide to use one, you need to be clear about who you’re trying to reach, why, and how. Blogs seem to work best when they are personalised and not overly formal.  Nevertheless, a blog, like any business communication channel, should be consistent over time and consistent with your market offer, brand, style and corporate ethos.

The winner of En Avant’s Business Language Competition is (drum roll) - Nobody!

I grumpily decided that no entry met my unpublished criteria of novelty and comic impact.  In other words, there was nothing new and I didn’t laugh.  However, Lance Wiggs receives a “Commended” and a drink on me for his non-compliant entries on:

• Social marketing: He has no idea what it means, and suspects that most social marketing experts have no coherent idea either.
• To fire: An archaic verb meaning to lay off, make redundant, to make someone leave to pursue other opportunities, restructure, realign, let go, downsize, consolidate and so forth; strange old word - not often used but very effective.

I worked really hard yesterday.  I spent 4 hours outdoors in the autumn sunshine, picking grapes and taking them to the winery, and then was rewarded with a fine meal washed down with plenty of wine and some of the excellent 2006 vintage to take home afterwards.  A tough job, but someone had to do it.

Sei Cento is owned by Rex McIntosh and Emily Loughnan from Click Suite.  According to their blurb, “The Sei Cento Pinot Noir is hand crafted, basket pressed wine that is reminiscent of cherries and dark plums and is delicious with red meat and mushrooms. The vineyard is made up of only 600 (”sei cento” in Italian) vines, each year a very limited release of numbered bottles is made, so it’s ideal for people with an interest in wine who like to bring something quite unique out of their cellar occasionally”.

You can only buy Sei Cento’s wines if you are on the list.  With such tiny production and such a quality product from the renowned Martinborough wine region, the list is almost full, but there are a few places left if you get in quick.  Don’t leave it too late, or you’ll have to wait for someone to die, I imagine!

Disclosure: I am non-executive chairman of Click Suite, and I have been bribed with Sei Cento products.

 ‘We do not take Isambard Kingdom Brunel for either a rogue or a fool but an enthusiast, blinded by the light of his own genius, an engineering knight-errant, always on the lookout for magic caves to be penetrated and enchanted rivers to be crossed, never so happy as when engaged … in conquering some, to ordinary mortals, impossibility.’
–The Railway Times

It is Isambard Kingdom Brunel’s 203rd birthday, and to mark it, I thought I’d look at one of my hero’s failures.  Oh yes, he had them.  Contrary to what commentators with perfect hindsight might have you believe, you need to take risks to be a successful entrepreneur and innovator, and sometimes those risks go wrong.

By 1844, Brunel was highly respected and admired for his Great Western Railway, his steamships Great Western and Great Britain, and his wonderful bridges and tunnels.  He began work on his next project, a new railway in South Devon, England.  Because of the rugged terrain - always challenging for railway route design and motive power - he decided to adopt a radical technology developed by Clegg and Samuda. Instead of self-propelled steam-engines to move rail wagons, they used air pressure from a pipe laid along the track. A fixed air pumping station at either end of a short railway track in Ireland created a vacuum in the pipe ahead of the train. One wagon was attached to a piston inside the pipe, and the air pressure difference moved the piston and the train forward.  The system was very powerful, meaning steeper gradients could be climbed, and the trains were very quiet and clean.

Unfortunately, Victorian materials were not up to the task.  The connection between the piston and the train passed through a slot which ran the length of the pipe. To maintain vacuum, the slot was covered by a greased leather flap which the connector pushed put of the way as it moved forward.  Unlike in Ireland, the flap quickly deteriorated in Devon’s warm coastal air, needing frequent repair and disrupting train schedules.  Also unlike the short Irish track, the much longer South Devon railway needed multiple pumping stations. Because of vacuum loss through the flap and not knowing when the next train would enter its section of track (a telegraph was not initially installed), each pumping station ran far longer than planned, consuming more fuel and requiring more maintenance.  Instead of being competitive with conventional rail operations, Brunel’s Atmospheric Railway cost 3 times as much to run, and switched to conventional self-propelled steam-engine traction.  Of course, the newspapers of the time lambasted Brunel for this failure.  Brunel shrugged, and moved on to his next venture.

Air-powered public transport is an idea whose time may yet still come.  MDI in France has developed a range of vehicles driven by compressed air, including a road train. Ahead of your time as usual, Isambard. Happy 203rd birthday.