Showing posts with label Billionaires. Show all posts
Showing posts with label Billionaires. Show all posts
Tuesday, January 19, 2016
Monday, September 14, 2015
4 lessons from the failure of the Ford Edsel, one of Bill Gates' favorite case studies
http://www.businessinsider.com/
- Sep. 5, 2015, 10:35 AM
The Edsel has new life today as a collector's item.
The 1958 Ford Edsel was supposed to be the new premiere car for middle-class Americans.
Ford was so confident in the product that it pumped $250 million into it. But instead of starting a revolution, the company lost $350 million on the unattractive gas-guzzler.
In the late John Brooks' book "Business Adventures," a collection of New Yorker articles from the '60s that was republished last year, Brooks explains what went wrong in the story, "The Fate of the Edsel."
"Business Adventures" is Microsoft founder and philanthropist Bill Gates' favorite business book, and he finds the Edsel piece especially interesting. He explains in his blog:
[Brooks] refutes the popular explanations
for why Ford's flagship car was such a historic flop. It wasn't because
the car was overly poll-tested; it was because Ford's executives only
pretended to be acting on what the polls said.
"Although the Edsel was supposed to be
advertised, and otherwise promoted, strictly on the basis of preferences
expressed in polls, some old-fashioned snake-oil selling methods,
intuitive rather than scientific, crept in."
It certainly didn't help that the first
Edsels "were delivered with oil leaks, sticking hoods, trunks that
wouldn't open, and push buttons that … couldn't be budged with a
hammer."
Here are some lessons from the failed launch that are still relevant today:Don't let egos trump research
Ford's designers and marketers began development on the car in 1955, with the intent of creating an automobile tailored to the desires of the American people, as determined through seemingly endless polling.Ad men got to work thinking up thousands of names and testing them in focus groups with civilians and Ford execs, and even consulted the Pulitzer Prize-winning poet Marianne Moore for the perfect name for the perfect car. (Moore suggested such absurd names as the Utopian Turtletop and The Intelligent Whale.) Despite endless hours of testing and consultation, the chairman of the board decided at the last minute that he was going to go with Edsel, the name of Henry Ford's son.
"As for the design," Brooks writes, "it was arrived at without even a pretense of consulting the polls, and by the method that has been standard for years in the designing of automobiles — that of simply pooling the hunches of sundry company committees."
Focus your vision
In the late '50s, American consumers had a limited choice of car models, and there weren't tremendous differences in performance from model to model, at least by today's standards. Edsel's designers knew that they were creating an image, a character, but instead of refining their vision, they decided to make it everything at once.In a lazy attempt to please everybody, they made the terrible decision to debut 18 variations of the car at launch. The academic S. I. Hayakawa dubbed the car the Edsel Hermaphrodite because it seemed as if it were explicitly trying to be masculine and feminine.
And, because it was 1957, Ford decided to have two media previews, one for male reporters and one for their wives. In the former, the Edsel was driven around a stunt course as if it were in a Hollywood blockbuster — at one point an Edsel almost flipped.
Gates mentions in his blog that the women's event, a fashion show, was one of his favorite passages in the story because the host was revealed to be a "female impersonator" (i.e. a man in drag), which was not only bizarre but, as Gates says, "would have been scandalous for a major American corporation in 1957."
Ford advertisement for some of the many variations of the Ford Edsel.
Don't put yourself in a situation you can't get out of
A year before launch, Ford began a teaser campaign for the E-Car, the code name for the Edsel as it was being developed. It gave customers the expectation that they were going to get an irresistible car of the future.Ford execs seemed to never once consider failure to be an option. They created an entire Edsel division and persuaded dealerships to order a certain number of cars before the Edsel was even finished.
Had they acted more cautiously and avoided betting so much on the car, they could have pulled back once the stock market took a nosedive in the summer of 1957, and people stopped buying mid-priced cars. Mere weeks before the car's launch in September, Brooks writes, "Automotive News reported that dealers in all makes were ending their season with the second-largest number of unsold cars in history."
If you fail, accept it and move on, all the wiser for it
At launch, the car was too expensive, used up too much gas, and was mocked in the press. A redesigned 1959 Edsel debuted to better reviews, but the damage was done. Nobody wanted an Edsel. A 1960 Edsel came out in limited production, but Ford president and future secretary of defense Robert McNamara finally pulled the plug in 1960.Brooks estimates that "every Edsel the company manufactured cost it in lost money about $3,200, or the price of another one."
Even though Ford recovered from the setback, the executives who led the project expressed to Brooks no recognition of their countless mistakes and even looked back fondly on their time developing and marketing the car.
J.C. Doyle, an Edsel marketing manager, even went so far as blaming the American public for the failed launch. He tells Brooks that he was flabbergasted that the American consumer dared to be so fickle.
"What they'd been buying for several years encouraged the industry to build exactly this kind of car," he says. "We gave it to them, and they wouldn't take it. Well, they shouldn't have acted like that ... And now the public wants these little beetles. I don't get it!"
Friday, August 14, 2015
How two of history’s greatest investors deal with losses
About
The Kindergarten
Josh is the CEO of
Ritholtz Wealth Management. He writes about the tomfoolery and childish
behavior occurring daily at the Kindergarten on the corner of Wall and
Broad. Pull up a nap mat and have a read.
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We’ve seen stuff like this before. There is a worthwhile lesson in considering how a pair of history’s greatest investors have dealt with this kind of thing in the past.
On the surface, Warren Buffett and David Tepper don’t have a lot in common. One runs a diversified conglomerate and reinvests the insurance premiums into both long-term common stock positions and outright acquisitions of great companies. The other manages a hedge fund and aggressively trades in the markets each day.
But they have something in common that is worth considering today: Both Warren Buffett and David Tepper know that volatility is where returns come from and the losses of today set up the outsized gains of tomorrow. They’ve “lost” some money on the way to earning tons of it.
In the summer of 1998, there was a currency crisis that originated in the far east and eventually wound its way around the globe, culminating in the devaluation of the ruble and the blow-up / bailout of the first systemically risky hedge fund in history, Long Term Capital. Both Buffett and Tepper took quite a beating during this so-called “Asian Contagion” event.
As Nick Murray explains, Warren Buffett was down quite a bit that summer.
$6,200,000,000Berkshire Hathaway’s “A” shares had dropped in price from roughly $80,000 per share in June to $59,000 by the end of September. These same exact shares just hit a high of $229,000 this year. Buffett knew that while the price may have been changing for his company’s shares, the value that his companies were creating would not be permanently impaired. This allowed him to wait out the ’98 episode rather than reacting to it.
A very large sum of money, wouldn’t you say? Now what, you ask, does it represent?
It is roughly how much Warren Buffett’s personal shareholdings in his Berkshire Hathaway, Inc. declined in value between July 17 and August 31, 1998. And now for the six billion dollar question. During those forty-five days, how much money did Warren Buffett lose in the stock market?
The answer is, of course, that he didn’t lose anything. Why? That’s simple: he didn’t sell.
Meanwhile, 1200 miles away from Omaha, David Tepper’s New York-based Appaloosa hedge fund was struggling with the same market environment. He had all the wrong trades on and it went against him severely. As Tepper himself related to us at the SALT Conference, it was a painful episode, despite how quickly things turned around for him:
Tepper tells us his fund has been down 20 percent or more on three different occasions. This includes the episode in 1998, where he was blown out because of the Asian Contagion and subsequent Russian currency devaluation. Tepper was heavily exposed to emerging markets and Russia, the combination crushed the fund. But then he made it all the way back to Appaloosa’s high water mark within 6 months.The lesson of 1998 for Tepper was that the massive market drawdowns are the biggest opportunities if you can stick it out. He (and his investors) learned to use these episodes to get even more aggressive. It was a tactic he would famously employ ten years later, during the even more difficult post-Lehman meltdown with Appaloosa down more than 20% from its high watermark.
“We did it two more times – people started flooding us with money whenever we were down big because counter-intuitively they knew it was good timing to get in.”
A million dollars invested with David Tepper in the mid-1990’s would be worth more than $250 million today. These gains would not have come easily for the LP, however. As Tepper once described his strategy, “We’re consistently inconsistent. It’s one of the cornerstones of our success.”
There is an equity risk premium in the markets. Over the long term, stock investors can earn average annual returns that are close to 5% above what they’d be able to earn at the risk-free rate. That’s a huge number when compounded over decades.
But it must be earned the hard way – battling through the worst the markets can throw at us. And, as both Buffett and Tepper can attest, its when stocks are treating us the worst that this premium is right around the corner.
Sources:
The First Casualty of a Bear Market (TRB)
The Apotheosis of David Tepper (TRB)
Image by Javier
Wednesday, July 29, 2015
Want to Be a Billionaire? Solve One of These 5 Problems
Warrick Page/Getty Images
With that in mind, looking for a problem to solve is often a huge hang-up for would-be entrepreneurs. After all, our modern lives are pretty cushy — most people don’t live in constant fear of being devoured by predators, starving, or really anything else life-threatening. Most of our problems have been taken care of, and with the advent of the Internet and mobile technology, almost anything we want or need is a few taps away.
So, for those looking to make a fortune, where to turn? How about some of the biggest, most mind-numbing and frightening issues facing the world today?
Well, potential world-savers, you’re in luck. Because there are a lot of them.
The problem is, some of these problems are so immense and complex, that even the world’s best and brightest have yet to come up with solutions for them. That’s not to say that there aren’t thousands of people working hard to find answers — just that they aren’t quite there yet. And that’s where the opportunity lies.
On the next several pages, you’ll read about some of the world’s biggest issues and what’s being done to solve them. If an idea were developed to tackle these problems head-on, it’s clear that it would probably result in a large pay day, or at least in unequivocal fame and respect.
Sound like something you’d be interested in? Put on your thinking cap, because these five problems are about as big and complicated as it gets.
1. Energy storage
Source: iStock
If we had the storage technology, it’s likely that wind and solar power would quickly become the dominant form of energy generation.
The good news for the world is that we’re getting there. Tesla has made big strides in developing batteries, and other companies, like Solar City, are putting considerable resources to work as well. As soon as the ultimate breakthrough is made, everything is likely to change. But there’s still time, because we haven’t made it yet. For the person or company that ultimately figures it out, they will undoubtedly leave a lasting mark on the world for generations to come.
2. Artificial intelligence
Source: Paramount
What the world needs is AI safeguards, or protocols to make sure AIs, or rogue AIs, can be contained. From drones to autonomous robots used for soldiering, there is a lot to be concerned about. And if some of this technology were to fall into the hands of those who wish to do harm to large amounts of people, things could get very, very ugly. This is something that we’re still not properly dealing with yet, though we continue to build new and advanced AIs at a record pace.
3. Space exploration/resource capture
ESA/Rosetta/MPS for OSIRIS Team MPS/UPD/
LAM/IAA/SSO/INTA/UPM/DASP/IDA/Getty Images
But that’s the catch — we have to get there, and bring it back. Some companies are working on it, like Planetary Resources. But we’re still a long way off. Whoever is able to put together an actionable plan and then execute it will be rolling in more space cash than they know what to do with.
4. Water scarcity
Tony Karumba/AFP/Getty Images
Right now, there aren’t many viable solutions to the problem. There are ideas, sure, but not much traction as far as implementation. We may need to wait for some crazy new technology, or do what we can to stave-off climate change, but water scarcity is likely going to be a big impediment for world development for generations to come.
5. Food Production
Fred Tanneau/AFP/Getty Images
Luckily, there are some strides being made. Indoor, vertical farms are being developed, as is lab-grown meat. While that may sound unappetizing, meat grown in labs is a big deal — because raising animals takes a huge amount of energy and space, and is incredibly destructive, if not completely unsustainable.
What does that mean for you, intrepid entrepreneur? Opportunities to make money. Either investing in or developing new and efficient ways to produce food, in mass quantities, indoors using less resources? That’s a ticket to the billionaires’ club.
Follow Sam on Twitter @SliceOfGinger
Tuesday, April 21, 2015
Tuesday, August 26, 2014
Legacy Wars: Steve Jobs vs. Bill Gates
Posted:
Updated:
As surprising as it seems, Gladwell might be right. To investigate what shapes a legacy, researchers Scott Allison and Dafna Eylon led a series of studies. They found that when judging leaders, we care as much about their generosity as their accomplishments.
In his time, Andrew Carnegie was best known as a steel tycoon; today, he is remembered more for building a university, a public library, and a music hall. In the same way, the Gates name won't stand for computers; it will symbolize advancing health, fighting poverty, improving education, and creating access to information technology in the developing world -- as well as motivating other billionaires to become philanthropists. Beyond what they achieve, leaders and entrepreneurs are remembered and revered for what they give.
Many great entrepreneurs don't wait until they've succeeded to start giving back; they give right from the start. But for those who don't begin their careers as givers, there's still hope. Research shows that the motivation to help others tends to spike around midlife. By that point, we've accumulated the expertise, influence, and resources to feel that we can make a meaningful difference. It's also when we become especially concerned about future generations.
Instead of paying back the people who have helped them, entrepreneurs dedicate their energy to paying it forward to those who aspire to follow in their footsteps. As network experts Wayne Baker and Nat Bulkley found in a new study, people "pay it forward by using a simple rule: 'What has the group done for me'?" When entrepreneurs are grateful for receiving help in the past, they help younger entrepreneurs by mentoring, making introductions, sharing ideas, and investing. Along with building a legacy, this transforms the communities around them.
Consider Argentina, which is ranked 126 of the 189 countries in the World Bank's index that measures the ease of doing business. It's one of the hardest places on earth to start a company, deal with construction permits, register property, afford taxes, and trade across borders. Yet Buenos Aires is one of the most productive hubs of entrepreneurship on the planet, boasting a tech sector that may be the best in all of Spanish-speaking Latin America.
To find out why, Linda Rottenberg, the cofounder and CEO of Endeavor, studied more than 200 entrepreneurs in Argentina. Her team asked tech entrepreneurs who inspired them, invested in them, and mentoring them, and mapped the network. Endeavor's director of insight, Rhett Morris, sums up the results: "One of the drivers behind the growth of the tech sector in Buenos Aires was that successful entrepreneurs were paying it forward."
Here's the network map. Connections are lines; companies are bubbles:
The larger the bubble, the greater the founder's contributions to entrepreneurship. "What this graphic shows is that most of the companies trace their inspiration -- and in some cases their existence -- to a handful of more established companies," explains Rottenberg (whose forthcoming book, Crazy is a Compliment, is a terrific read on high-impact entrepreneurship). "Fewer than 10 entrepreneurs helped spawn a community more than 20 times their size."
This is the stuff that legacies are made of. And it's why Bill Gates will be remembered: He has opened doors for many entrepreneurs and individuals to contribute to their own communities.
If Jobs had lived longer, would he have given more? Maybe. Is it possible that he was already a philanthropist but did it anonymously? Maybe. With the limited window that he had, was inventing and perfecting new technologies a more important contribution than giving his time and money away? Maybe.
When 1,000 Argentinian entrepreneurs identified the person who inspired them most, Bill Gates came in third. Steve Jobs was first. But research demonstrates a death positivity bias: Our evaluations of great leaders become more favorable when they're no longer alive. I'm willing to bet that over time, their positions will reverse.
Sunday, March 9, 2014
Public unions are out of control
http://protohuman.blogspot.com/
A labor union, a collection of like-minded workers banded together to use their collective leverage to garner equitable wages and treatment makes a certain amount of sense in a labor intensive commercial enterprise. At one point in the history of America unions may have even been absolutely essential. Many of the benefits all "workers" take for granted today were brought about by men and women demanding a fair shake and we would be remiss in not recognizing these truths. However, once the world opened up for business beyond the U.S. borders private sector unions began disappearing at an incredible rate. They are not coming back.Not to worry there are plenty of public sector unions...
It was President Kennedy, whom I'm told acquiesced against his better judgement to allow Federal workers to form unions. This is when the seeds of our current fiscal crisis were sown. Cities, counties and states all over the fruited plain allowed unions to form inside their work forces and during the good times when economies and tax receipts rose year after year no one batted an eye. Let the good times roll.
Getting a "government" job use to mean decent wages, though not great, but very good benefits and some measure of job security. When the economy began to change in the 1970's it was lower skilled manufacturing jobs in the private sector that disappeared and with them union membership. The industries that remained saw their unions lose power, wages stagnate and benefits cut. This was as much out of necessity as it was good old fashioned corporate greed - or they would see the industry leave entirely. In the meantime public sector unions became more powerful, demanding and receiving better pay and much, much better benefits. After all, the money was still rolling into state and local coffers.
While the paradigm shifted for everyone else the promises of excellent wages, wonderful pensions and marvelous medical insurance for public unions continued on unabated. The political machines responsible for them were rewarded time after time with generous campaign contributions and re-election.
So here we are today. The private sector has done away with unions for the most part - the worldwide labor situation dictated it and it became so. Now state, local and federal governments are broke and it has come like a monumental slap in the face just how much these outlandish contracts and promises are costing all of us. It is clear to everyone who is not in one of these privileged unions that it can't continue this way, it just can't. There is no more money.
Instead of going quietly along so that state and local governments can balance their books (they rely on tax receipts and can't print funny money like Uncle Sam) the unions have thrown a tantrum. The rest of us watch our measly 401k's tank as our PTO hours disappear on December 31st while learning our health care contribution and co-pays are going up again and look on incredulously at these babies who might have to pay a lousy $5 co-pay to visit the doctor's office.
These unions are bankrupting the country and they don't care. How many stories are we going to see of teachers and sanitation technicians and social workers retiring at 55 or 60 with 100,000+ pensions and full medical while the rest of us face working into our 70's to pay for them. Many paid nothing out of their wages for their own retirement. Just because they worked for a government employer instead of a private sector employer they somehow deserve and have the right to these generous retirement lifestyles.
We've learned recently that the Postal Service - which is a quasi governmental organization - is bankrupt. It has made extremely generous promises to it's union workforce and now that the paradigm has shifted they can't meet these obligations. The USPS's fate was sealed when Congress ordered them to fund a $5 billion pension obligation by the middle of next year. The Postal Service is going to have to lay off tens of thousands, close thousands of branch offices and lobby Congress to change the mandate from 6 days of door to door delivery to 5 days. The union will lose thousands of dues paying members, but those generous benefits will continue - and you and I (taxpayer) will end up with the bill, again.
Most of those who work or did work for a government employer worked hard and did necessary jobs that made our lives better, I'm certain of it. Still those of us in the private sector work hard too. What we do is important too - we help make lives better by creating and delivering products and services people need. Why are government employees deserving of worry-free retirements?
Plain and simple fact for you public unions - something's got to give.
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