Over the past several weeks, I've been fuming and irritated about the whole health care reform debate.
Now, I'll leave politics aside (really) in terms of what I personally feel about the whole thing, but my gripe is in regards to HOW President Obama has been describing the problem… and even more irritating is how many people seem to be accepting his perspective without critical challenge.
You see the skill that the average person seems to lack and I'm coming to discover that many business owners either lacks or doesn't use is what I call the 2nd most useful, but boring, skill in business.
What is this skill?
It's what I call "root cause analysis".
Well… I did say the skill was B-O-R-I-N-G didn't I?
(There is truth in advertising).
The basic idea behind root cause analysis is simple. Everything you don't like in your business, in your life, or in your economy isn't really a problem at all. It's more commonly a highly visible symptom of an underlying (often hard to see) problem.
In business as in life, this is very important.
If you don't focus on the right problem, it is impossible to come up with the right solution.
For example, Obama has been characterizing the health care problem as health insurance companies are just too greedy. And we need to force them to be less greedy (but setting max price increases, etc…), creating a more competitive marketplace, etc…
And as an example, he points to Anthem Blue Cross's recent price increases of up to 40% for some customers as an example of how "evil" these insurance companies are.
But, using "root cause analysis" one has to ask WHY the health insurance companies consistently raises rates 10%+ each year and why a select few Anthem Blue Cross customers had their rates raised 40%?
If you factually verify the "they're a bunch of greedy bastards" theory, you find that the average net profit margin of the top 10 health insurance companies was about 3% – 4%. If you look at the top 3 – 4 carriers, they are at about a 7% net margin.
By point of comparison, the net profit margin (based on EBITDA) for Costco in 2009 was 3.5%. The net profit margin for Nordstroms was 13%.
So if a carrier raises prices by up to 40%, but whose net profits say increase from say 5% to 7%, where is the remaining 38% of the price increase going?
In a word… COSTS.
The REAL root-cause reason health care insurance prices are skyrocketing is because factually health care COSTS are sky rocketing.
Sure some of that price increase is going to the bottom line for carriers, but the increase in profits is a small percentage of the overall increase in rates to customers.
The big problem is costs.
This is being driven by a three factors.
First, the US population is getting older. Older people have more health problems. The more health problems you have, the more health care costs you incur.
Second, a lot of health people are opting to go without health care insurance either to save money or because they lost their jobs and benefits.
Health insurance companies make their profits on health people and lose money on sick people. When a lot of the younger, healthier people are going without insurance, the average cost per member that remains insured goes up.
Suddenly older, sicker people have to pay more to cover their costs because there are fewer younger, healthier people to do it.
Third, as a country we believe everyone deserves the best possible health care. While this is a nice sentiment, the problem is the best possible care cost a lot of money.
So as Americans we want the best, but you know what we don't actually want to pay for it. For example, at what price tag is a human life no longer worth saving?
When is a life saving treatment too expensive and as a country we're better off letting someone die instead? $1 million? $10 million?
I don't have the answer, but if you look at countries with Universal health care (like Canada)… there IS a cut-off price.
This is the brutal, honest reality of the situation… and you can see why no politician wants to touch it with a 10 foot pole. You would get absolutely demonized by the media.
(And it is for this reason, I would be a lousy politician 
So why am I explaining all of this to you?
Because in difficult times, the resources in your business are very limited. You can't afford to fight every battle and solve every problem (especially the wrong ones!).
In the health care example above, the Obama administration is focusing on trimming insurance company profits. There isn't that much to trim!
Even if they made every for-profit insurance company a non-profit, the problem would still exist.
There's a lot of energy being wasted on NOT actually fixing the problem.
In your business, you can't afford to do this.
If sales are down, WHY is it down?
Do your products stink? Are your prospects unable to grasp why they should do business with you instead of your competitors?
It's a cop out to say it's because there is a recession and there are fewer customers spending less money… because even in shrinking industries there are ALWAYS companies who are growing.
To be one of those companies, you have to be brutally honest with yourself and examine your own business with a critical eye.
You need to find the "root causes" of those "problems" in your business and fix them.
As you can see from my health care example above, dealing with the root cause of a problem is rarely a comfortable activity–but it is most definitely an effective one.
(And if you're curious as to what I think the single most useful, but boring, skill in business is… it's accounting. It is incredibly useful, but regrettable pretty boring. I'll save that topic for another day.)
Today's question comes from David:
I saw your email the other day about the people in the Olympics and your clients. Of your clients who are doing super well, are they able to take off lots of time and live the 4 hour work week or anything close to it?
I can tell you, there is no way that I can do this at all. I have to show up daily and lead and inspire. I know if I slack others will slack.
I had some long conversations with very successful business people and they all had to work super hard for years. All said the key is doing something you love so you don't mind doing it all the time.
I asked them about work life balance and other stuff like that. Everyone laughed.
You were talking about the Olympics. I know for a fact that those that win train super hard. I have friends that dominate in body building, strongman, fitness, and football.
They put in a ton of time and never give up.
I wanted to see what your successful clients were like. I think half the reason so many people fail to make all those millions is because they don't show up to work enough. They don't put the time in.
My reply:
Of my clients with $1 million or more in sales who grew by 85% or more last year, I would say the majority work pretty hard.
I have one client who owns several businesses and works maybe an hour a month on the business that I work with ($2 million a year). But, he has a business partner that runs the business full time and his role is really as owner/investor/chairman of the board.
So here's my take on the whole 4 Hour Work Week idea (which is the title of a very good bestselling book by Tim Ferris who I've met on a few occasions and is a really nice guy).
Is it possible to have a 4 hour work week?
YES. But realistically limited to a few situations.
1) For a business under a million in sales where competition and customer demand are fairly static, yes I think this is possible.
It is predicated on the customer demand being stable, competitors being stable, and building a heavily systems driven business that is stable as well.
Think: snow cone stand on the boardwalk of the most popular beach in a resort town.
About 5 years, I did something like this myself. I didn't get down to a 4 hour work week, but I was able to get to a 15 hour work week and I experimented with partial retirement.
Incidentally, I think retirement is over-rated. I would go see a matinee movie and it would be just me and a few people from the local retirement home.
I decided to take up pottery (same deal, me and the little ole ladies from the retirement home). I'd call up friends to go hang out on Tuesday morning… they're all working!
So it ended up being a very boring experience for me.
2) Licensing – If you own intellectual property (trademark, copyright, patent/invention) or have a huge personal brand, it's possible to generate cash flow without hours.
The guy who invented the George Forman Grill (before they secured the George Foreman endorsement) made 2% – 3% royalty on $1 billion in sales (read: $20 – $30 million).
George Forman made a 5% royalty on $1 billion in sales ($50 million).
The Beatles make royalties off of their songs – both the lyrics to the song as well as when the song is played).
Richard Branson owns a part of 150 different companies using the Virgin brand. His business is primarily a licensing one. So it Ralph Lauren's business – very little manufacturing or retail, lots of licensing.
3) Investor – If your role in a business is primarily that of owner/investor, and NOT operator as in the case of one of my clients, then the "ownership" role is not very time consuming.
However, this requires the OPERATOR of the business to be working pretty hard in most cases.
Most small business are "owner operated". There is no law that that has to be the case. So it is possible to separate the ownership role from the operations role.
It's typically easier to do this in businesses that are a bit bigger (more than say $1 million in sales) so the business can generate sufficient cash flow to pay the hired operator of the business and pay the owner too.
Here's where I think the 4 hour work week doesn't work.
1) Any business that's growing very rapidly. With growth, comes change especially with internal operations. A hands fee business is predicated on stability.
I don't know of any business that is highly volatile that is owner-operated, profitable and hands free (baring the exceptions above).
This is especially true if the business is growing quickly and has more than at least a million or two in sales. When businesses surpass the $1 million, $10 million, and $100 million sales mark there is significant step up in complexity.
What gets you to $1 million doesn't get you to $10 million. And what gets you to $10 million definitely does not get you to $100 million.
Those shifts require someone to work very hard. (Again if you're the owner and have hired a strong operator, it doesn't necessarily have to be you that's working hard… but trust my in business with that kind of growth SOMEBODY is working very hard)
2) Any business where competition and customer demand is fast changing quickly. This is why you see the work ethic you do here in Silicon Valley where I live.
Everything is changing so freakin fast. Customers are changing. Technology and what it enables in changing. Competitors are changing.
And now with the recession impacting every industry in the global economy, the vast majority of businesses are facing significant change right now.
I saw this in my own business in 2009 and YTD 2010. Business has been very good in both years, but the level of difficult and pace of change in 2009 was just exhausting.
I started the year down 50% (ugh), and ended the year just scratching and clawing my way to my highest net income year… but it was absurdly exhausting. And keep in mind I used to live in NYC did the 75 – 104 hour week thing… and gotta tell you 2009 was harder for mentally that the NYC grind). So last year I had a business that was at first shrinking, then growing really fast, that was also changing absurdly quickly (mainly because I was forcing it to) and so I most definitely did not have a 4 hour work week in 2009… and I know a lot of other business owners did not either.
It's been a while since my last post as I took some time off to enjoy the birth of our third child over the holidays and to manage a recent doubling of my client base.
In looking at my clients, I've made a few observations which I'd like to point out — observations that tie into the current Olympic games as you'll see in a moment.
Roughly half of my clients grew around 80% – 100% in 2009. I have two clients pacing at 200% – 350% growth in 2010 (from low 7 figures to high 7 figures/low 8 figures).
In looking at my clients growth and the growth in my own business, I've noticed a distinct pattern that few people talk about.
The people that achieve this kind of sales and profit growth in this kind of economy are, well, not normal people.
It's not that they exceptionally talented (though they definitely do have their talents).
Rather, it's that they are so freakin stubborn!
Seriously.
Yes, in my humble opinion, this one trait is arguable as important, if not more important, than talent, IQ, or EQ.
Here's why.
The persistently determined will always find a way to win.
I've been watching the Olympics these past few days and it has been utterly fascinating to watch the human drama and psychology of what is normally considered an athletic event.
You see it is not the most physically gifted athlete that wins Gold at the Olympics. It is the most mentally tough and determined that does.
When they stakes are high, when you have dreamed for your entire life for the next 30 seconds… it comes down to who is able to relentless focus at the task at hand.
My wife loves, just absolute loves, to watch the figure skating events. I loved how the Chinese pairs skaters FINALLY won Gold after an 18 year career, lots of world championships, but no Olympic medal… heck, they even came out of retirement at the age of 31 and 36 to do it!
And to boot, to win Gold that had to end a 46 year Olympic Gold win streak amongst the Russians… and they did. Amazing!
They wanted gold REALLY BAD. And they got it. I love it.
In more recent drama, I've been watching how in the men's figure skating event, the Russian skater is totally talking smack to the American skater.
Basically, the Russian guy (currently first place) is apparently famous for landing quad jumps – 4 rotations in the air or something along those lines.
The American (currently 2nd place) has opted to not include any quads in his program – he has difficulty hitting them consistently and last time he did one he broke his foot. So he's aiming to hit everything else perfectly.
So the Russian is totally trying to psych the American out… in as polite a way as possible (it is figure skating after all) he's basically calling the American a wuss for not throwing a quad.
We'll see who's mentally tougher, but I gotta say the Russian as annoying as he is I think has the edge. We'll see who wants it more tomorrow.
If you're watching the Olympics, I definitely encourage you to pay attention to the whole psychological aspect of the games. It really is quite instructive and can be applied to your business.
The last month has been such a whirlwind of activity for me.
In addition to working with existing clients many of whom are having record sales years, I've been working with several new clients getting them ready for having a big year in 2010.
In addition, I've been doing the road warrior thing giving speeches across the country. I started a month ago in Baltimore, then moved on to Dallas, Las Vegas, Seattle, Boston, New York City and I'm off to San Diego in about an hour.
Business owners everywhere are concerned about the economy and how to do well in it. I suppose it's good to be the "recession guy" in the middle of a recession. (There is a really big lesson in that last sentence if you read it very carefully a few times. Hint: I was NOT the recession guy BEFORE the recession.)
What has been interesting to me is to get feedback from business owners across many different cities in America.
In my speeches, I talk about the importance of finding the overlooking opportunity in your business that is growing despite the fact that it is being ignored and under-resourced.
When I mention this idea, the initial reaction is often "Ha! like I'd overlook that kind of gift."
Towards the end of my talk, I often ask people in the room how many have some portion of their business (often it's a small portion of the business) that is either growing or has not been negatively impact by the economy as much as other parts of the business.
For some businesses, it's a particular product or service line. In other, it's a particular customer segment that continues to buy despite the economy.
But what I have noticed is that in EVERY audience I speak to, about 10% – 15% of the businesses owners in the room, when prompted, acknowledge that this phenomenon happens to describe their business.
Then I ask the "killer" question… the one that "shames" people into action… I then ask, "Over the past 12 months, have you increased your personal focus, staffing, or funding to further develop this particular revenue stream?"
And 95% of the team the answer is a very sheepish, "No."
The owner of a very successful business up in Seattle said it best, "Ya know, I'm almost ashamed to admit. But you know, we actually do have this one service that has been growing month-over-month for the past 15 months in a row."
"It's a service that I think is kind of lame. I personally find it annoying. But, when I think about it our customers must really like it because it continues to grow despite our best efforts to ignore it.
We originally offered it on whim, but customers keep buying each month. And ya know, we haven't done anything with it at all. Geez… that's just so embarassing."
This is reaction is extremely common. Many very successful business owners overlook these growth areas because the growth does not match their mental model of their own business.
If they think they are in the business of selling "Product A," they interpret any growth in Product B as an accident… and they're slow to recognize it as an opportunity.
One of the reason I insist that all of my clients look at their dashboard numbers regularly and for making major strategic decisions is to use facts to blow away any assumptions they're holding about the business.
The facts describe reality. What you choose to do with it is an entirely other matter.
For example, I also met a former General Motors executive who was probably one of the top 50 in all of GM. He described to me how GM would look at their monthly sales figures and compare them to Toyota regularly.
They noticed that monthly sales had shrunk steadily 240 months in a row (that's every month for 20 years). During that same time, Toyota and Honda sales grew steadily 240 months in a row… in the exact opposite trend of GM.
How did other GM executives interpret these market facts?
They concluded that Toyota didn't know how to make "real" cars. They didn't know how to "push iron" like the folks in Detroit.
Geez 240 months in a row of declining sales for GM vs. 240 months in a row of increasing sales for Toyota. There is a message in dashboard metrics if one is willing to look at it objectively.
See the real problem was DENIAL. GM was unable to accept the brutally harsh reality that Toyota was doing something right–at least by customer's standards. It never occurred to the executives at GM to deal with reality and to learn from it.
This is a mistake. Don't let happen in your business.
Business metrics tell a story… if you care to look. If your business stinks, it stinks. Deal with it. But whatever you do, don't just stick your head in the sand and deny it.
Similarly, if the runt of your product line is selling well… don't deny and discount it's successes. Often times, you will stumble upon doing something exactly right in your marketplace. When you do, it's important to be smart enough to realize you just got lucky, and capitalize on it.
Of course, it helps a LOT to be deliberately experimenting with new ways of generating revenue. Lots of disciplined trial and error will eventually allow you to stumble upon an opportunity.
The trick is then to realize you just got lucky and to capitalize on it.
This is how you find growth in virtually any business. It's the process I used with all of my clients to find ways to grow their businesses when their competitors are shrinking.
Unless you've been hiding under a rock, you've probably noticed all the buzz around Tiger Wood's many alleged indiscretions.
What has surprised me (but shouldn't have) is how many people have been following this "train wreck is slow motion" story.
The more reporters dig, the more dirt they find… and apparently there seems to be an abundant supply of it.
I too have been following this story out of a morbid curiosity to watch a great American brand get destroyed.
In the early 1990's, I was the photography editor for my college paper – The Stanford Daily. During that time, there was a student on campus who was supposed to be a pretty good golfer.
His name was Tiger Woods.
This was a few years before he became famous. I had a few chances to photograph him, but thought photographing golf would be too boring — so I handed out the assignment to other members of my staff.
I forget the exact timing of what happens next, but a year or two later I realized I probably should have taken that assignment myself.
In Tiger's Junior or Senior year he decided to go "pro" and was eligible to take endorsement money. And in his first endorsement deal he got something like a $120 million deal from Nike or something crazy like that.
And with that a great American "squeaky clean" brand was born.
And more recently that brand has been getting demolished.
I think Tiger's PR team is taking the wrong strategy. They have been trying to lay low hoping the whole thing will blow over… Ahem… I don't think it's working.
Now in our society infidelity is sadly nothing new. But what is new and shocking is infidelity tied to the guy with the cleanest image in sports.
People are not gawking a any old indiscretions, they're gawking at Tiger's indiscretions.
His fans are frankly quite disappointed in him… and I'm sure his family is that much more disappointed.
Personal time and space aside, I think laying low is the wrong approach. His fans trusted him and he has violated that trust.
Just like when a major company's product has a major problem (Think: Tylenol in the '80s), the right thing to do is be super pro-active about it, communicate about it frequent and often… until people are so bored by the updates they stop paying attention.
The hiding from the public has only caused enormous speculation and buzz. By staying so quiet, it looks like he's hiding something… and I guess he actually IS hiding something.
So here's my message to Tiger and to anyone else who screws up and disappoints customers. Come clean, get control of your own message, and set the record straight – no matter how ugly the record.
