No Laissez-faire for Starbucks
Posted on April 8, 2008
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There was an interesting piece in the Wall Street Journal this morning about one customer’s experience with the Starbucks customizable gift card.
But when my friend Roger Ream, president of the Fund for American Studies, received a Starbucks gift card for Christmas, he found there was a limit to how personalized a card could be. His card required him to customize it on the company’s Web site. So he went to the site and requested that the phrase “Laissez Faire” be printed on his card. A few days later he was informed that the company couldn’t issue such a card because the wording violated company policy.
Starbucks’s company policy is this: “We review each Card before printing it to make sure it meets our personalization policy. We accept most personalization requests, but we can’t honor every one. Some requests may contain trademarks that we don’t have the right to use. Others may contain material that we consider inappropriate (such as threatening remarks, derogatory terms, or overtly political commentary) or wouldn’t want to see on Starbucks-branded products.”
But why should it be considered inappropriate? The phrase itself is an imperative. It’s French for “leave us alone,” more or less. And it comes to us through history as advice offered to Jean Baptiste Colbert, finance minister under the French King Louis XIV in the 17th century. Colbert is best known for his statement: “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.” When Colbert asked a group of merchants, “What do you want from us?,” the answer was, “laisser nous faire.” “Laissez-faire” is, then, an old piece of economic advice with an impeccable French heritage.
Maybe Starbucks considers the phrase inappropriate because it’s “overtly political commentary”? Certainly my friend regards it as a firm statement of political philosophy.
And so, at my suggestion, my friend went back to the Web site and asked that his card be issued with the phrase “People Not Profits.” Bingo! Starbucks had no problem with that phrase, and the card arrived in a few days.
I find it this entertaining. So I just put in an order with phrase ‘leave me alone.’
Policy-Making for Business and Entreprenuership
Posted on April 2, 2008
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The Kaufmann Foundation came out with an interesting paper about local and state policymakers targeting entrepreneurs rather than existing businesses. Typically there are big incentives, usually in the form of tax breaks, which are offered to an existing business to move its operations to the new state. The paper argues that this type of thinking is essentially a zero sum game. One state wins and the other loses. On the other hand, fostering a healthy and supportive entrepreneurial environment is a much better strategy for policy makers, and is also a positive sum game.
Likewise, policymakers at local and state levels increasingly recognize that entrepreneurship is the key to building and sustaining their economies’ growth. Although this is a seemingly obvious proposition, it represents something of a departure from past thinking about how local, state, or regional economies grow. Historically, state and local policymakers have put their energies into trying to attract existing firms from somewhere else, either to relocate to a particular area or to build new facilities there. Such “smokestack chasing”-or, in this cleaner era, simply “firm chasing”-often has degenerated into what is essentially a zero-sum game for the national economy. When one city or state offers tax breaks or other financial inducements to encourage firms to locate new plants or headquarters, and succeeds, some other city or state loses out in the process.
Local, state, and regional economic development centered on entrepreneurship, however, is a fundamentally different phenomenon. The formation and growth of new firms, especially those built around new products or ways of doing things, wherever this occurs, is clearly a positive sum game, not just for the locality, but for the nation as a whole. A brief look at the various “high-tech” or innovative clusters that have grown up around the country-from Silicon Valley to Austin, Research Triangle Park (N.C.), San Diego, Boise, Denver, Madison, Route 128 around Boston, and northern Virginia, to name just a few-demonstrates this. The U.S. economy as a whole clearly has benefited enormously from the innovative products and services the major companies from these various “hubs” or “clusters” have introduced to the country.
My Experience with the Capital One Autofinance Check
Posted on February 11, 2008
Filed Under Business & Entrepreneurship, Finance & Economics | Leave a Comment
I bought a used Jeep Commander last month and used my Capital One Auto Finance Blank Check. When I got to the finance guy I showed him my check, with a pre-approved rate structure guaranteed for 45 days, and I said if he could beat the rate then I would happily finance with him. Sounds like a fair request, right?
But after I told him that, he proceeded to lie to me.He punched some numbers into a computer program that looked a lot like a maximized windows calculator, and came up with 8.75%. He told me this was the real rate Capital One was going to charge me. But, to ‘help me out’ he was going to get me a ‘special’ rate of 6.45%. My actual pre-approved rate was 6.35%, which is the best rate anyone could have got on the day I applied. I was a bit confused.
So I asked him how Capital One was going to change the agreement on the blank check and raise my rate. He said that after I signed the check I would get a letter in the mail stating a change in terms and conditions. This was perplexing to me. I asked if he [the ‘finance guy’] was saying that Capital One, one of the largest financial institutions in the world, was fraudualting consumers all over the globe. He said yes. I told him I found this hard to believe, but wanted to give him the benefit of the doubt and hear him out.
But he couldn’t explain how this could be happening. I trusted my gut, which told me to never trust anyone at a used car dealership, and told him I would be going with Capital One. He then proceeded to fill out my blank check with the wrong dollar amount, in what seemed like an effort to void the check, thus making me fall back on his 6.45% offer. Luckily I pulled the check out of his hands as he was filling it in and sternly asked him to please stop.
Even though my gut said don’t trust this guy, I still left wondering if there was an element of truth to what he was saying.
Last week I got a letter in the mail from Capital One. It thanked me for using their auto loan service and said it was going to change my terms…
Next month, Capital One will be LOWERING my interest rate .5%.
The lesson? Get a Capital One Auto finance blank check next time you buy a vehicle and no matter what, don’t ever trust the ‘finance guy’ at a car dealership.
How to Change the World: Social Entrepreneurs and the Power of New Ideas
Posted on January 24, 2008
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I just finished reading How to Change the World: Social Entrepreneurship and the Power of New Ideas by David Bornstein, the award winning author of The Price of Dream: The Story of the Grameen Bank. I loved the ideas and the general thesis presented, but I was unimpressed with the organization of the book (haphazard) as well as the way in which the stories of the entrepreneurs were told (still inspiring, but definitely not made to stick).
The economist Joeseph A. Schumpter observed that entrepreneurs are motivated not by profits, but by the ‘desire to found a private dynasty, the will to conquer in a competitive battle, and the joy of creating.’ Schumpter also characterized the entrepreneur as the source of the ‘creative destruction’ necessary for major economic advances. According to the management expert Peter F. Drucker, the term ‘entrepreneur’ (from the French, meaning ‘one who takes into hand’) was introduced two centuries ago by the French economist Jean-Baptist Say to characterize a special economic actor-not someone who simply opens a business, but someone who ’shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.’
What then, distinguishes social entrepreneurs from business entrepreneurs? The answer, according to Bornstein, is not in temperament or ability, but in the nature of their visions. In a question: Does the entrepreneur dream of building the world’s greatest running-shoe company or vaccinating all the world’s children?
Today, when most people talk about social entrepreneurship they are talking about a social venture that has some sustainable income producing component to it. One of the best examples of this is the Girl Scouts vs. the Boy Scouts. The girls sell cookies to raise funds and the boys just keep asking for donations. This income-producing type of social entrepreneurship, while immensely important, is not what Borenstein is talking about in How to Change the World. Instead, this book sees social entrepreneurs as transformative forces: people with new ideas to address major problems who are relentless in the pursuit of their visions, people who will simply not take no for an answer, who will not give up until they have spread their ideas as far as they possibly can.
Among the stories told of social entrepreneurs is that of Florence Nightingale, the author of the 1860 book Notes on Nursing: What it is and What it is Not. Nightingale is credited with instituting the teaching of nursing, and her book is still read by nursing students today. She was relentless in pursuing her vision, and she created a lasting change and impact.
Another notable profile is that of Bill Drayton, who created Ashoka.
There are ten stories of social entrepreneurs in all, and haphazardy spread throughout the text are chapters of the findings of Bornstein. While good, these tended to feel out of order and did not flow well together.
I was most excited about the conclusion of the book, which I would recommend reading first. Bornstein talks about the rise of the citizen sector (social entrepreneurs/non-profits/NGO’s etc.) and the one very large problem facing these organizations. The problem with a social business is that they are often difficult to measure and monitor and they mostly survive on donations. So, unlike a business entrepreneur, so long as the social entrepreneur can continue raising donations, it doesn’t much matter whether he or she is effectively ’shifting economic resources out of an area of lower and into an area of higher productivity and greater yield.’
That is precisely the problem with nonprofit institutions - there is no mechanism to keep them in check and there are no easily attainable metrics for donors and potential donors to use in order to evaluate a social organization’s effectiveness (as the price system does in for-profit businesses). And, I would argue (as would Bornstein) that we should all be much more selective with the money we give away, and apply the same type of diligence as we would in choosing our investments.
Bornstein’s solution is to create research organizations that examine these social institutions and provide written reports, much like stock analysts do for publicly traded companies. These reports would go to great lenghts to measure the effectiveness of the instution and make recommendations for donors (buy, sell, etc.). Initially these rating companies would be funded by the larger philanthropic organizations, and eventually by individuals who purchase the reports to guide their own giving.
I think this is brilliant. And with the help of Google, I was able to find some former Goldman Sachs employees who are doing this very thing.
One Dollar Starbucks
Posted on January 23, 2008
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Sir James Mackintosh said “the powers of a man’s mind are directly proportional to the quantity of coffee he drinks.”
I saw that quote above the Urinal in the bathroom of a Panera Bread. And how true it is.
Too bad I don’t like Panera coffee. The Starbucks blends are much better and that is why I buy them. Unfortunately a grande coffee is $1.98 with tax. That is why I got excited when I read in the Wall Street Journal this morning that Starbucks will be offering $1 short cups with unlimited refills:
Starbucks Corp., the company that popularized the $4 cup of coffee, is testing a $1 cup and free refills of some of its offerings.
The Seattle coffee giant is experimenting with selling the $1 “short” brew in the Seattle area, spokeswoman Valerie O’Neil confirmed.
The eight-ounce short size isn’t on Starbucks’s menu but has long been ordered by in-the-know patrons. Typically, a short, brewed coffee would sell for around $1.50, although that can vary by several cents depending on the store. Starbucks is also testing the offer of free refills for traditional-brewed coffee in the Seattle area.
Now if they could just get that free wireless internet figured out…
Honest Garage: Getting Paid to Keep Mechanics Honest
Posted on January 17, 2008
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A couple of weeks ago I read an good paper in experimental economics (http://forum.johnson.cornell
Henry Schnieder, the author of the paper, did a field experiment by rigging his car with a few simple problems that any certified mechanic would be able to diagnose (such as a loose battery cable which causes a car to not always start). Before he did this he had the car checked out by a good certified mechanic to make sure the rigged problems were the only problems.
His findings were interesting in that only 27 of the 40 garages told Henry that he had a loose battery cable. And 10 of the garages recommended costly and unnecessary repairs such as replacing the starter motor or battery cable. His study shows that while reputation matters, there is still incentive for expert car mechanics to rip you off (25% of the time!).
Naturally this research leads to creating a venture that acts as a mechanism to keep the mechanics honest. By setting up good field experiments you can provide a comprehensive ranking of certified car mechanics for one particular city. The ranking could be done an an annual or semi-annual basis and could be provided online in a web based format.
Of course, the obvious flaw with this model is that there is no inherent mechanism to prevent people from buying a subscription and then giving it away to his or her friends and family, thus reducing the profitability and sustainability of the project.
One potential solution to this probelm is to lower the price appropriately, perhaps $5 or $10, which would effectively reduce the cost, and in turn reduce the inventive to give it away.
I was discussing this reasearch and the opportunity for a sustainable business with one of my old economics professors, and she wisely pointed out that while a high price might encourage people to give a subscription away because of the cost, a low price may also produce the same incentive, since it might not be seen as a big deal. Her thought was that if you were to create an “us versus them” mentality, then you could put the pricing somewhere in the middle (between high and low) and remove the inventive to give away information.
Another possible solution is to not make this a standalone business. Instead, it could be part of a not for profit/research group that does this type of research anyway. The findings could be sold to larger companies, such as Consumer Reports or AAA, instead of individual consumers. Of couse this would require a much larger scale of operation: Instead of a city it would need to be a State or a region and eventually the nation. Nonetheless, it could provide a significant amount of income to a university or other non-profit research group.
I like the last solution the best. Mostly because it would be a good social business. It is similar to how the girl scouts sell cookies while the boy scouts just keep asking for donations.
Living and Eating in IKEA For a Week
Posted on January 9, 2008
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Now here is an entrepreneurial idea. Mark Malkoff needed a place to stay for a week while his apartment was fumigated. He couldn’t convince any of his friends to let him crash in their studio apartments and the hotels in New York City are much too expensive. So, he decided to approach IKEA and ask to live in their store for the week if he promised to document his experience on film. He didn’t expect them to agree, but they actually said yes! Mark moved in last Monday and will be living and eating in IKEA 24/7.
Netflix Rental Downloads on Your TV
Posted on January 3, 2008
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I used to love the Netflix business model because it was such an improvement over the brick and mortar rental business. Then Blockbuster answered by offering essentially the same service, except with the option of returning and renting from its physical locations.
I thought for sure Netflix was going to be left behind, but it seems like they may have cooked up another competitive advantage, at least in the short-run. Today, Netflix announced a partnership with LG Electronics, Inc. to offer a branded device for your TV that will download DVD quality movies. The service will be included with the regular Netflix subscription of $17 per month. This could be quite useful, at least until digital cable and satellite companies answer the call.
How Smart People Buy New Cars
Posted on December 31, 2007
Filed Under Business & Entrepreneurship, Finance & Economics | 1 Comment
New Vehicles are a commodity and should be bought and sold as such. Dealers will try to convince you otherwise and will use lots of sales tricks to get you to buy from them. Don’t let them fool you. You should make the dealers compete with each other to give you the best price possible, just as you would with any other commodity.
Most manufactures offer incentives to dealers for reaching specific sales targets. These are in addition to the customer incentives that you and I know about (rebates and low interest rates) and are undetectable by us. This is why some dealers are able to sell a car at a much lower price than others. They might be more concerned with reaching a certain sales quota in order to receive their big incentives from the manufacture. The only way to weed out these dealers from the rest is to get price proposals from a handful of dealers in your area. This can be easily accomplished by sending out a few emails or making a few phone calls.
Here is a process for buying a new car using this method, along with other useful advice about trade-ins, financing and negotiating. I have spent hours and hours researching all of this over the past few weeks, and this is what I have learned.
- Figure out exactly what you want. Go to the manufacture’s website and configure the exact vehicle you want with desired options.
- Find the real invoice price for your exact vehicle. Go to fightingchance.com and get the reports for your vehicle. This gives you all of the latest industry and market data for your particular vehicle as well as detailed invoice pricing. This is a very valuable service and well worth the price (fewer than $50). I just bought a report from them last week on a Nissan Pathfinder, and it was very informative in my negotiations.
- Contact 10-15 dealers in your area using phone or email and get them to compete with eachother. Get online and find a handful of dealers located near you and email or call the sales or fleet managers directly. Alternatively you can use free online services to get in touch with dealers in one simple step. Some of the better services are Yahoo!Autos, InvoiceDealers, CarsDirect, and Edmunds.com. Note that by using these services you will most likely be routed directly to an internet sales manager, and will not be dealing with the sales or fleet manager (who has the authority to cut better deals). However, even when calling or emailing these managers directly, you will often handed off to the internet guys anyway.
- Let the dealers know you are a serious buyer and that they are competing against other dealers for your business. When you call or email them, tell them that you are a serious customer who will buy a vehicle in the next few days. Explain that you are contacting a select number of dealers (10-15) for price quotes and that you would like to receive a quote from him too. Say that in order to respect everyone’s time, only the first price proposal will be considered and that you would also like an itemized ‘out the door’ price as well, including everything. At this point you are only concerned about the price of the vehicle, so do not mention financing or a trade-in. If the sales manager doesn’t want to participate (not likely), don’t worry, you will still have a number of quotes to choose from. Thank the sales/internet manager for his time and give him a few good ways to contact you.
- Line up your financing before you step foot in the dealership. If you are going to finance your new car, apply online for auto financing at Capital One Auto Finance and HSBC Auto Finance. You will be pre-approved in minutes and will be able to use this money for your new car. Or you will be able to use the rate and terms to negotiate with the dealer when they offer you financing. I used Capital One Auto Finance last week and was approved in less than 10 minutes. The nice thing about Capital One is that they send you a blank check to use at the dealer. You can fill it out for any amount up to what you were approved for, and when you sign it you automatically agree to the terms and conditions of the loan, which are on the back of the check. Also, be sure to check the rates at your credit union or personal bank.
- Get quotes on your trade-in before you step foot in the dealership. If you have a trade in, look up the value on Kelly Blue Book and find the trade in value. Then, call up a couple of used car lots near you and ask to speak with the person in charge of buying cars. Tell him about yours and ask if he would like to see it. Go in and see one or two of theses people and get quotes on your trade in. Take these with you to the new car dealer when you purchase your vehicle as a negotiating tool.
- If you want to haggle, do it on the phone or by email on your terms. Once you get the bids back from all of the new car dealers, call them all back, starting with the highest bid and thank them for giving you a proposal and let them know you will be buying from another dealer who provided you with a lower price. Sometimes they will want to match or beat this price and sometimes not. Often difference in price will only be a few hundred dollars at most, so it may not be worth your time to try and get all of the dealers to bid against each other one last time.
- Go test drive and buy the car. Call the dealer you are going to buy from and ask them to get all the paperwork ready and ask them to have the car ready for you to test drive when you show up. If you get there and the car or paperwork isn’t ready leave and tell them to call you when it is ready. After a satisfactory test drive, buy the car. If you have a trade in, show it to them (clean it up first) and see what they will offer you. If it is less than the other bids from the used car lots, let them know (have your quotes with you). They will most likely match it and if they don’t then sell it to the other lot. Also, if you are going to finance you vehicle, see what the dealer will offer you. If it isn’t better than what you got online, then let them know (have these quotes with you too). If they can’t give you a better deal then use your loan from Capital One Auto or HSBC Auto Finance.
Remember, at the end of the day, a new car is just like any other commodity and should be bought and sold as such.
Liars Poker by Michael Lewis
Posted on December 29, 2007
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“Wall Street,” reads the sinister old gag, “is a street with a river at one end and a graveyard at the other.” This is striking but incomplete. It omits the kindergarden in the middle. -Frederick Schwed Jr.
Liars Poker by Michael Lewis is not only a fantastic picture of the nature of investment banking, but it also details the creation of mortgage backed securities and junk bonds during the 1980’s. This is fascinating to read about since the combination of the two gives us subprime mortgage backed securities which have been giving us a lot of trouble lately.
Lewis details his life starting as a Princeton undergrad where he studied Art History while his friends chose economics in order to get into banking. After Princeton Lewis came around and went on to the London School of Economics. While at an event with the Queen of England, he met a wife of a Solomon Brother’s executive who promised she would get Michael a job. And she did.
He recounts his journey though the training program, the competition among new hires, and the evolution of his career in selling bonds. His first sale wasn’t really a sale, but more so a ‘jam’ which meant that he sold a bad investment one of the traders at Solomon made to one of his customers: He jammed the losses into someone else’s portfolio. Eventually Lewis learned not to trust the traders, and few others at the bank, and details much of the politics and behind the scenes motives during the era (which of course still apply today). Perhaps most striking is that indeed billions of dollars were being made by 23 years olds.
The book will give you a great deal of insight into financial innovation, why bad investments are bought and sold, and a lot of perspective on banking culture. It is an easy read and well worth it if you are remotely interested in investment banking.
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