Planning, Startups, Stories

Distant, Contagious Neighbors

Last Saturday I sat in the front seat of a big white van headed from San Miguel de Allende, in Mexico, to the airport in Leon. It was mid morning. We drove through a bright, blue, dry high-desert landscape on a two-lane highway without much traffic. We were in plenty of time for our flight.

We talked about the economic storm coming. "For us it started just this month," he said. "We knew it was coming. Now we feel it."

I spent last week visiting my country-in-law, Mexico, a bright and sunny Christmas-week change from gray and cold Western Oregon, and a nice refresher for me. My wife is from Mexico City, we still have family there, and we lived there through most of the 1970s. Our three oldest kids were born there.

The recession wasn't really showing up yet. But people pretty much knew it was coming. I talked about it with several people. By chance, the New York Times had a good summary in a story published yesterday, When the U.S. Sneezes, Mexico Catches Cold.

On the surface, at least in San Miguel de Allende, things are still good. This is a small very picturesque town, popular with Americans, about three hours drive north of Mexico City, maybe four hours southwest of Guadalajara. It's beautiful. Town life revolves around the main square, called either La Plaza or El Zocalo. It was decorated for Christmas and full of people almost all the time. Lots of children.

It was particularly good for us because we got almost the whole family together. For a week, we didn't worry about activities, just which restaurant or where to get stuff to cook, taking pictures, watching the little ones around the pool, walking the cobblestone streets.

Things are tough in Mexico, though. We didn't see it, but we talked about it with several people, beginning with my in-laws who still live in Mexico City. Believe it or not, when we lived there 30-some years ago it was one of the safer cities in the world, certainly safer than most cities in the U.S. Not any longer. The talk of kidnappings and assaults is everywhere. Lots of people seem to wish the government wasn't cracking down so much on the drug trade, because that seems to have prompted a very well-trained and committed criminal element to move to kidnappings.

"It's like stirring up an anthill," one person I talked to said. "You quickly wish you'd just left them alone."

On the way to the airport we passed a very large General Motors plant, in Silao, which has been put on extended vacation. Several thousand workers are hoping they open back up after the holidays.

The peso is down against the dollar. Mexico is suddenly cheap. We had a good meal in a good restaurant for 14 people, with a check less than $200. Breakfast at an excellent organic home-grown place, on a deck with a view, ran about $40 for five people. A room for three in a gorgeous bed-and-breakfast was about $150, including breakfast.

Contrasts. Blue skies, cobblestone streets, the purple bougainvillea against the white walls. And talk of crime and unemployment. And good food, great views, nice people.

A reminder: having an economically healthy Mexico is good for the United States. Good luck with that.

It's Just the Media Scaring Everybody

I had an argument a few days ago with my younger brother, who says the real problem with the economy these days is the news media are scaring everybody. Without all the news channels reporting all the bad business news, he said, we'd be fine; or at least, much better.

He's not the only one, of course. I've heard that same idea around town, at the gym, and in the office.

Baloney!

Allow me to make a suggestion: when somebody says that the economic problem is really just the media exaggerating the bad business news, I'll bet that the person saying that still has a job, and a job that isn't threatened. Yet.

It reminds me of the old half joke about the difference between a recession and a depression, namely: if my neighbor is out of work, it's a recession. If I'm out of work, it's a depression.

Small Business Pain Meter

Does it hurt? The bailouts, major layoffs, stocks down, houses down ... so how is small business doing? I've posted some bad news here already. I've got more.

Almost one of every three business owners said they'd laid people off already. Almost one in two said they've also reduced hours. The average sales forecast for the group, looking at next year, was 49% less than this year.

I built a survey for the Huffington Post, asking people how they were doing. Here's a sample, from the comments that came in:

I cannot overstate how profoundly sad I am to have had to lay off staff members and reduce the hours of those who remain. I have been working like mad trying to figure out a way to survive in these enormously trying times. I've always provided our staff with health insurance benefits and year's end bonuses. Right now I am unable to even pay our monthly bills.

That's just one (an eloquent example) of the almost 600 responses to my small business survey earlier this week, in partnership with the editors of the Huffington Post. It started with meanwhile, back in the real world for the original post announcing the survey, and Survey Shows Bleak Outlook on Small Business for the results, including three maps, on of them interactive, and downloads of the full survey results.

Not everybody was in trouble. Although the overall impact is bad, and sad, there are bright spots. A business trading in live lobsters expects to double sales next year, it says because the lobsters are way less expensive than normal. An insurance broker expects to double business because people who were "too lazy to do financial planning" want to do it now.

Reflections on Bill Ayers' Reflections

Forty years ago things were really different. News came daily and it arrived on your door as paper, or fit into a half an hour on the black-and-white television. Telephones had cords and there was about one per household, with maybe an extension upstairs.  "Long distance" meant expensive, and talk quickly. "Made in Japan" meant cheap. The best cars came from Detroit. Racism was legal. Sexism was legal. Bigotry was common.

You think of us baby boomers as old people now, but back then we were still in college, we wore bell bottom pants, we hated our parents' music and they hated ours, and lots of us, including lots of the best and brightest of us, mistrusted people over 30 and opposed the war in Vietnam. Our parents believed in the leadership that had won the second world war. We mistrusted it.

Opposing the Vietnam war, at least among baby boomers, was the exception in 1965 and the rule by 1970. Civil disobedience made sense. Martin Luther King and Mahatma Gandhi were heroes.

To play time machine games jumping from 2008 back into 1968 and pulling the terms of today along with it (like "unrepentant terrorist," for example) is just so completely unproductive, and trivial spin, that it just doesn't apply. Doesn't make sense.

I just read William Ayer's New York Times piece The Real Bill Ayers, a thoughtful reflection in an after-the-storm mood. And I want to post about it here because I think he says it so well.

I end up feeling very sympathetic. Presumably you wouldn't think of me as any kind of terrorist; in fact I keep getting cold calls from the Republican Party, I assume because I own a business with 40-some employees, which is supposed to make me a Republican (but it doesn't). And I am fiercely proud of my business, and my MBA degree, and my business writing. But I'm also proud of my opposition to the Vietnam war way back 40-some years ago.

It comes up as William Ayers describes what he actually did, way back then, that ended up creating the fictional campaign icon that bore his name last fall:

I never killed or injured anyone. I did join the civil rights movement in the mid-1960s, and later resisted the draft and was arrested in nonviolent demonstrations. I became a full-time antiwar organizer for Students for a Democratic Society. In 1970, I co-founded the Weather Underground, an organization that was created after an accidental explosion that claimed the lives of three of our comrades in Greenwich Village. The Weather Underground went on to take responsibility for placing several small bombs in empty offices — the ones at the Pentagon and the United States Capitol were the most notorious — as an illegal and unpopular war consumed the nation.

The Weather Underground crossed lines of legality, of propriety and perhaps even of common sense. Our effectiveness can be — and still is being — debated. We did carry out symbolic acts of extreme vandalism directed at monuments to war and racism, and the attacks on property, never on people, were meant to respect human life and convey outrage and determination to end the Vietnam war.

Peaceful protests had failed to stop the war. So we issued a screaming response. But it was not terrorism; we were not engaged in a campaign to kill and injure people indiscriminately, spreading fear and suffering for political ends.

I cannot imagine engaging in actions of that kind today. And for the past 40 years, I’ve been teaching and writing about the unique value and potential of every human life, and the need to realize that potential through education.

I'm sorry, that just doesn't seem all that bad to me. Not bombs, of course not bombs, but I don't read the Bill Ayers quote above as him defending bombs. I do read it as making a very significant distinction between bombs that kill and maim people and bombs that damage property. There are degrees of bad. War is really bad, and racism and bigotry are bad. 

I suppose all of this could be just philosophical meanderings, particularly since the election is over now and the intended mudslinging didn't work; but I think it might be useful for all of us to see how truth and issues and human discussion gets too easily smashed up in the low-attention-span information-surplus world we now live in.

The memories of way back then are less important than recognizing the way they got mutilated and manipulated in this Bill Ayers case. He says it very well:

Unable to challenge the content of Barack Obama’s campaign, his opponents invented a narrative about a young politician who emerged from nowhere, a man of charm, intelligence and skill, but with an exotic background and a strange name. The refrain was a question: “What do we really know about this man?”

Secondary characters in the narrative included an African-American preacher with a fiery style, a Palestinian scholar and an “unrepentant domestic terrorist.” Linking the candidate with these supposedly shadowy characters, and ferreting out every imagined secret tie and dark affiliation, became big news.

I was cast in the “unrepentant terrorist” role; I felt at times like the enemy projected onto a large screen in the “Two Minutes Hate” scene from George Orwell’s “1984,” when the faithful gathered in a frenzy of fear and loathing.

With the mainstream news media and the blogosphere caught in the pre-election excitement, I saw no viable path to a rational discussion. Rather than step clumsily into the sound-bite culture, I turned away whenever the microphones were thrust into my face. I sat it out.

It reminds me of the movie War Games. "The only way to win is not to play."  And, when we get into this spin and quick guerrilla wordfare warfare we participate in these days, there are very many ways to lose.

USA as a Restart

I just picked up USA as a Restart on Early Stage VC. Very well done. Provocative.

"The USA looks like a classic Restart ‘opportunity.’ What happens in a restart? First, existing stakeholders get wiped out; The $7T of ‘new money’ is accomplishing that. Second, management gets changed. November 4 did that. We now have new managers who have a four year ‘vest’ and, probably, a ~100 day cliff. They don’t have a new incentive model – that’s a problem – and we have a tier of managers, called Congress, closely resembling the old group, except for some changes at the edges among the most junior members.

"Managing this as a VC Restart is more than just throwing money and new executives at the situation and hoping it gets better. Success requires that you have a point of view of about how to rig the situation to win. Winning here means more than growth. It also means productivity. Productivity is the profit margin in an economy. A VC restart wouldn’t invest to do more of the same. It would invest to grow the kernel of value. I won’t get into what’s the ‘kernel of value’ in USA, Inc. That’s a debate unto itself. I simply point out that capital allocation should follow a market mechanism, like an auction, rather than a budgeting process like a bailout.

"A VC Restart would also look for alliance partners to strengthen the offering. Perhaps a merger with another competitor with complementary skills, e.g. China? Merging with China might resemble YHOO+ MSFT – distance and culture conspiring against success. We might also argue about valuation, as there are dramatic differences in growth rates between enterprises. Perhaps a more logical partner would be Canada. Proximity, history, and language work in our combined favor. Canada brings natural resources and we bring ‘value-added processing.’ (We may have to spinoff Quebec to make this work.)

"Above all, a VC restart would begin with a re-definition of the core competencies of the Enterprise. What they once were or might have been is irrelevant. What is paramount is what they are now and how they can be organized to create value in a larger competitive environment. A ‘Green Manhattan Project or Green Marshall Plan’ might be one such initiative. Another might be an initiative to reinvigorate biological research to find a genomic equivalent of Moore’s Law and become a dominant and low cost producer of therapeutics as the world ages. I am sure there are several more big ideas out there.

"The current discussions (December 2008) in Congress and the Press resemble the discussions original investors have about failing companies. How big should the bridge loans be? What are the terms? How deep are the cuts? Are they deep enough? Who's fault is this?

"Like it or not, we are all now VCs. We have a stake in the Restart of the USA. The discussion has to turn to What is the Affirmative Plan of Record and How will we know if the Plan is working? Let's start asking these questions from our new executive team. "

That's by Peter Rip, a partner in Crosslink Capital, on Early Stage VC.

What? Luxury Edition? Are they Kidding?

My wife came in the other day with the recently arrived TIME magazine luxury edition. I agreed with her sentiment, which was basically: "What, are they crazy?" It's hardly a time for talk about luxury.

Technically, I think it was the Style & Design special issue, which had a luxury theme. It's not the regular weekly TIME magazine. Still ...

The Sunday New York Times noticed the same thing, with a piece by Stephanie Clifford titled Celebrating Luxury in the Time of Melancholia:

Daniel Kile, a spokesman for TIME, said the magazine’s editors didn’t realize how bad the economy would get when they were planning the issue. “Most of the issue was closed in early October, before the severe economic downturn,” Mr. Kile wrote in an e-mail message.

Before the issue closed, the staff hastily added a few articles addressing the climate, including one about luxury shoppers who were indulging by buying virtual products at the site Second Life. (That is no cheap habit, though: a woman featured in the article had spent nearly $10,000 in the last two years buying virtual luxury gear for her virtual luxury self.)

Many luxury-magazine editors and publishers have been arguing that luxury spending will continue, but in the last few months, ad pages have started to plummet. The ad pages for this issue were flat from the issue a year earlier, Mr. Kile said.

No increase in ads? Really?

Really, by early October we'd already had the bailout and the stock market crash, housing prices had been going down for nearly a year, and more than a million jobs lost since January 1.

They're running TIME magazine ... aren't they supposed to realize?

The Girl Effect

Thanks to Garr Reynolds on Presentation Zen. I don't feel like I need to add anything, just watch the video. You can click here for the YouTube source page.

Great Writing, Sadly True

One month later, I still think one of the best, possibly the best, think piece that I've seen about the economic crisis is Paul Krugman's The Widening Gyre column in the New York Times in late October.

His first paragraph:

Economic data rarely inspire poetic thoughts. But as I was contemplating the latest set of numbers, I realized that I had William Butler Yeats running through my head: “Turning and turning in the widening gyre / The falcon cannot hear the falconer; / Things fall apart; the center cannot hold.”

He refers one of the few poems I know relatively well. Its last line is:

And what great beast, its hour come round at last, slouches its way to Bethlehem to be born?

Krugman also refers to the leadership crisis in the United States. His conclusion is:

What’s happening, I suspect, is that the Bush administration’s anti-government ideology still stands in the way of effective action. Events have forced Mr. Paulson into a partial nationalization of the financial system — but he refuses to use the power that comes with ownership.

Whatever the reasons for the continuing weakness of policy, the situation is manifestly not coming under control. Things continue to fall apart.

Paul Krugman was awarded the Nobel Prize a while back for his work in Economics. He's been chillingly accurate these last few months about our economic crisis. He should get a Pulitzer to add to his award shelf, not exactly for his work in economics, but for his writing about the economic mess.

Are Main Street and Wall Street Going Down Together?

Really interesting post yesterday by Stanley Bing called The Great Myth of Main Street on The Bing Blog. Furthermore, this is one of those posts that spurred really interesting comments as well.

He starts by quoting a "very hostile but articulate" reader who lays into him as part of corporate America:

You have no idea what you’re frigging talking about. You, and corporate America, are so far removed from the realities of Main Street America, that you continue to confuse your personal financial comfort concerns with those of middle America.

Bing answers that well. He's from Illinois, he's worked around, his 401K sucks, and, most important:

We don’t sympathize with the idiots who have gotten us all into such trouble. And we certainly don’t want THEM to benefit from any assistance that is given to these failing auto makers, banks, insurance companies, whatever. We just don’t want the entire ship to sink, taking the lives of all on board, because the captain and his crew are dolts, numbskulls and screw-ups, or because politicians, responding to the anger of their constituents, continue to follow instead of lead.

I say right on! We're in real trouble here, we have to stop fighting and start pulling together.

How Obama Can Clean Up the Mess

I'd like everybody who possibly can, to listen to 'Obama's Challenge': A Transformative Opportunity, a 38-minute interview, podcast, from NPR's Fresh Air which broadcast on Thursday November 6.

This seems really important to me. Hopeful as well, as if maybe there's a way out of this economic mess we're in; but also important in that I'd like you to listen to it too.

And read the excerpt that's included here as well.

Robert Kuttner, author of Obama's Challenge spells out a convincing argument for both the depth of the problem and the need of a Roosevelt-like, New-Deal-like solution. I hate to summarize something as important as this, but:

• The government has to spend billions to prop up housing prices. Too many of us link our wealth to our home value. The economy can't survive a severe hit to the home owners. Roosevelt, facing something like this, established the Home Owners Loan Corporation (HOLC to buy up bad mortgages, keep people in their homes, and support home prices. If not -- listen to Kuttner's very convincing explanations in the podcast, not me -- there will be hell to pay with the economic repercussions.
• The government has to spend billions to create lots of new jobs. People out of work will -- or might -- cascade into a huge problem. That's the worry. And, to prevent it, he has some brilliant answers about where to put government money to add new jobs to keep the economy afloat. His suggestions, which strike me as brilliant, don't fit into my bullet points.

"Yeah, right!" I was saying to myself, as I listened in my car. "Pipe dream. How do we pay for that?" I was muttering about deficit spending and the current administration and all, when, as I listened, I discovered that I've been wrong for a while on a very important concept. I just assumed, perhaps by instinct alone, that we can't afford a New Deal solution.

And that's where this interview caught me. Consider this, which Kuttner explained to Terry Gross. Our national debt has risen lately to 40% of GNP. To support the housing prices and create the jobs Kuttner recommends, he says, it would probably have to rise to 50% of GNP, maybe even more. But -- and this opened my eyes wide -- the debt rose as high as 120% of GNP during the New Deal. And, furthermore, that led to the most prosperous two decades in U.S. history, beginning with my birth in 1948 (not that I was the cause, but I enjoy the coincidence).

I don't like being wrong. But it's exciting to be wrong on this one because for the first time in months I see a way that the president-elect can dig us out of the mess. Hooray.