Partnerships are Inefficient… And That’s OK.

I recently had the opportunity to travel to Brazil with other credit union leaders to study the SiCredi cooperative financial system (what we in the U.S. would call a credit union or credit union system). They have a federated model much like Quebec-based Desjardins caisse popular (also a credit union system) with a centralized “home office” that can build expertise and scale, but is owned and governed by individual financial cooperatives each with their own individual governance models. In a sense it is like a super-franchise – a common brand but the “franchisees” own the entire system rather than the home office.

SiCredi's president is a gracious man named Ademar Schardong who was instrumental in building the federated model in the 1980s as Brazil re-emerged from the military dictatorship that ruled the country since the 1960s. He spent a great deal of time with our study group explaining how their model works and their impressive growth trajectory in the last decade.

Frankly, I believe their model is genius not only for financial cooperatives but other types of businesses.

It leverages a single brand recognizable to the consumer with local governance of the financial cooperatives spread throughout the southern part of the country. It is very different than the United States where we have 7,000 credit unions and nearly 100 million members but have historically been an afterthought in the larger banking world. This type of federated model is clearly a best practice for cooperatives across the globe.

One of Sicredi’s strongly-held beliefs is that it is their governance model makes the real difference, not the brand or expertise or scale. But it is exactly that governance model that seemed inefficient to me. Each of the 112 cooperatives gets an ongoing say in key operating issues of the system through an assembly process. In some cases, two-thirds of the cooperatives must vote yes for a decision to move forward. Sicredi management explained that these decisions could take multiple years to work through the process. That struck me as out of place. After all, in today’s world, isn't it the fast that eat the slow? In the fast pace of the global economy, is it at all reasonable that a partnership would allow decisions to take that long just so everyone could have their say?

I think, yes.

Partnerships – whether in the form of a true cooperative, a federation, a joint venture, a marketing alliance or some other form – are inherently inefficient. The most efficient form of management is command and control. The old military and factory model is very efficient. One person decides, everyone else implements. “Ours is not to wonder why, ours is to do and die.” Clear. Concise. Easy. And yet, discredited in many ways.  Dictators and autocratic governments have been mostly disbanded or are on the ropes (see Venezuela). Even militaries and factories have moved to more collaborative models. It is possible that the only command and control systems left in operation are public schools, but that is another topic…

Today partnerships are the rage. Collaboration is the word of the day. Books are written and speaking tours engaged on the topic. But why is an inefficient partnership or collaboration better than consolidation and acquisition – thus ensuring one voice and one direction?

In 2001, we recast the mission of The Members Group to “Creating Successful Partnerships.” It was not so much a new concept but an articulation of what our cultural DNA was about. We endeavored to create successful partnerships with our clients, our employees, our business partners and our owners. When we rolled this new mission statement out to our staff, some responded with positive comments. Others said, every company says partnership are important. It was perceived by some as trite. “That's what you put on a trade show booth, not a mission of a company,” someone told me. Yet, in today’s marketplace, I believe a competency of partnership is critical to success.

Why?

Because no organization – not the largest company on the planet – can do it all alone. The days of complete integration, the Standard Oil model, are over in the global, technology-driven economy. If I need a data center I can build out one at great expense or leverage the Amazon cloud to be up in a day. If I outgrow that, there are many partners – many specialized in fields like financial services – that can take my business to the next level. I can leverage marketing distribution networks, outsourced manufacturing agreements, application programming interfaces (APIs), management agreements and the like to build a virtual company with real world assets in a fraction of the time it might take many years ago. Some of these are just vendor agreement. But others are much more than vendor relationships, over time they become important strategic assets of the company.

But they aren't efficient. So the question becomes: What level of inefficiency are you willing to live with to gain the advantages of a partnership? Partners have different priorities – often they are managing multiple partnerships. You are always not the biggest fish in the pond. Alignment becomes one of the most important things. We need to have “partnership meetings” or “steering committee meetings” to gain alignment. We create structures to navigate difficulties. And inevitably the cultures between partners are not the same. Strategic decisions take longer, more face-to-face communication is needed, and my way doesn't always win.

The funny thing about collaboration and partnership is this: If you want to partner with me, agree to all my ideas and help fund a portion of the development, THAT’S AWESOME! But usually decisions are a give and take, my ideas meshing with yours. Building on top each other’s ideas to find something that of can work in the market. A meritocracy of ideas where titles matter less and ideas matter more. Those are the successful partnerships.

And one other thing I have noticed. Partnerships are initially built on relationship. My experience is that a few people from each side open the dialogue based on mutual respect (but not always initially on mutual likeability). Without champions on each side, there are always reasons to say no. Someone must want the partnership to succeed. It is another case where it is easier to say no than yes. Without a champion, it is hard to break through the inertia of every day.

But once the partnership is formalized, it has to move beyond the personal relationship. It needs to become a competency of the organization – some companies are good at partnering, others are simply not. In the credit union industry, we are watching many partnerships formed many years ago on personal relationships disintegrate because the next generation of leadership never bought in the way the first one did and there was not a formalization of this competency within the broader organization.

Partnerships are a cultural issue. Are you good at it building them or not? Do you see partnerships as legal agreements and alliances or living, breathing organisms that need care and feeding. The vast majority of partnerships fail and it is rarely because the economic reasons weren't as strong as the day they were formed. Remember OS/2? Probably not. Microsoft and IBM tried to come together to build the next generation of computer operating systems in the late 1980s. But they never trusted each other and couldn't get past years of a distrustful, détente-based relationship. In the payments industry, this type of relationship is being formed in McX, the merchant-based payment network. WalMart is in the same room as Target, with Best Buy and others in the mix. Maybe it will be successful, but to get there they will have to overcome decades of competition and distrust.

So how do you identify whether you will be able to build a successful partnership? Here is my (surely incomplete) list.

Jeff’s key attributes of a partnerships:

• A win-win – economically and strategically. Do you agree what the definition of success is for the long-term? Can you both articulate using the same language?
• A history of successful partnerships within the organization. Can your culture accept a minority role as well as a majority role? Can you lead as well as follow? Can you do both within the same partnership?
• The ability to accept another way of doing something. Do you REALLY believe that your way is not the only way to do it? Does your partner believe the same?
• The ability to build relationships and navigate through difficult issues. Are you willing to discuss the brutal realities about the good and the bad? Are there people on either side who can mediate issues with the key points of the partnership in mind?
• A willingness to look to others for new ideas. Do you suffer from not-invented-here (NIH) syndrome, where ideas from the outside are looked at skeptically or does the best idea win, even if from another party?

Near the end of our visit to SiCredi, I said to Mr. Schardong that their governance model seemed inefficient to me. He was nearly offended at the suggestion. He defended the nature of their model as critical to their success. The culture of partnering and this cooperative governance model was ingrained so deeply in the organization that the benefits so outweighed whatever inefficiency might be associated with the process. It was basically a rounding error to him.

He said that “the only reason for the organization (the home office) to exist was to support the system.” Their model of partnership was beyond symbiotic – in that it helped each organism live and grow. It was more like a host-based system – if one part was removed, both would die. It was like saying that your liver really isn't very efficient, so you are going to go a different direction. To survive, it is critical. I left the conversation with a new thought to ponder - is the inefficiency I saw actually a strategic asset? As I have thought about this I believe the next challenge for a fast-growing organization like SiCredi is whether they can institutionalize that core belief beyond a “founder?” Time will tell but my bet is yes. It does seem a part of their culture.

So I turn the question to you: What is your definition of partnership? Does your organization really know what partnerships are about? Are you willing to fight for them, like you would a part of your own organization? Are they a strategic asset?

In a new connected world, I believe partnerships are vitally important. And hard. And most of us aren't very good at them. But with practice, we will be. And if we get better, we will be able to grow and succeed in ways that we might not have imagined.

Win One for the Gipper and Other Nuggets of Advice from Coaches

Now is a great time if you are a sports fan – college football bowl games having just completed (except for this BCS thing that drags on until mid-January) plus the NFL playoffs and the college basketball conference season getting rolling.

Over the years, I have had the great pleasure of listening to a number of college coaches from the state of Iowa talk about their teams and their approach to coaching. With each one of them, I ask one question, “What do you do between games to prepare your team for the next game?” It is a question about how a team moves from a win or a loss in its previous game to focus on the challenge ahead. I think it is a question that goes to preparation in any endeavor – sports, business, drama or music.

Nick Saban made business journal and blog headlines this past summer after a Sports Illustrated article talked about how Alabama prepared for games (click here for article). This was followed up with a sister publication, CNN Money, adapting this for the business world (click here for article). He is entirely focused on “the Process.” I remember watching an interview when he first took the job where he said, “the process will work here.” It was less about the location or the storied history of Alabama football than it was about his process. The process is so scripted that he eats the same thing for lunch every day so as not to distract him with one extra decision in the day that isn't about moving the team forward.

In early November, I had a chance to hear University of Iowa Basketball Coach Fran McCaffrey and his comments reminded me of “the question” I have asked coaches and their answers. I thought I would share some of their wisdom with you. Their comments are paraphrased from my memory and my notes.

Fran McCaffrey, Head Basketball Coach at the University of Iowa

Coach McCaffrey spent a few minutes talking to the YPO Iowa chapter on the floor of Carver-Hawkeye Arena. To be fair, I will probably remember his graciousness to a family group as much as his Xs and Os (Lisa and our kids were all there, and the kids got to shoot on the practice floor with Coach McCaffrey rebounding).

Iowa was in the middle of a five games in nine days stretch, including a tournament in Mexico. As we entered the arena, the team was working on a drill where they were down five points with two minutes remaining. It was a controlled scrimmage, focusing on executing, then teaching, then executing again. As Coach McCaffrey came over to talk with our group, I was amazed at his attention to the details of the game. Spending valuable practice time in specific situations and teaching game-specific tactics will prepare them for the season to come. I am quite confident there will come a time during this season when the work from that practice, plus the countless practices before and since, will make the difference between winning and losing.

Another thing struck me in his comments. Iowa had just beaten Central Michigan (coached by former Drake coach Keno Davis – see below). Central Michigan had played a five guard offense to throw off the Hawkeye game plan and had kept the game close with the unusual approach. McCaffrey countered with a four guard offense and a number of players that were expected to play significant minutes sat on the bench. He talked about how he would need to spend time with those players to boost their spirits coming into the next game. Handling players who have been successful in the game, and were most often the star on their high school team, is an underrated skill. Coach McCaffrey knew exactly that those players would be disappointed, but he adapted his tactics for that game and to come out victorious.

Learning: Practice must be about learning game-specific situations. Spending time preparing for inevitable scenarios will prepare a team to execute when the pressure is on. Also, adaptability in the face of a surprise game plan is important, but so is the care and feeding of players whose role changed based on the new strategy.

Mark Farley, Head Football Coach at University of Northern Iowa

Coach Farley's most memorable nugget was that his team's weekly preparation was dependent on their opponent for the coming week. He said that if his UNI team was likely better or more athletic than their opponent, they would work on putting in more new plays and schemes. This would make team focus on what they were doing and not get too complacent or overconfident as they were thinking and engaged in a new game plan. If his team was less athletic than their opponent (he mentioned playing a Big Ten team like Iowa), they would work on being crisp and fast by slimming down the playbook and focusing on execution. This provided confidence to the team as they felt they could master what the game plan was and they would go into the game focusing on execution and instinct, rather than thinking about what was coming next.

Learning: Staying fully engaged every week is important for a team and the coach should change the practice plan to keep the team engaged and primed for the upcoming game.

Paul Rhoads, Head Football Coach at Iowa State University

I had the chance to hear from Coach Rhoads at an event just before his first season at ISU. He was working with his players and was clearly focused on building a program. I asked my usual question on preparation and he launched into the answer with the enthusiasm he shows in many situation (see his post-game speech that was viewed more than 150,000 times on YouTube here). His focus was on planning the schedule for his players minute by minute for the entire week. He said that with restrictions on practice time from the NCAA and the complications of students’ schedules, it was important to manage every minute to maximize their preparation. He talked about the complex schedule that had sections for offense, defense, special teams, position meetings and even where coaches should be at every point in time. This discipline allowed ISU to exceed expectations that first year and now has been in bowl games three of the first four seasons for Coach Rhoads.

Learning: You never get back a wasted minute. Time is a precious commodity in preparation and planning is a key element in winning. The logistics of preparation are underestimated.

Keno Davis, Head Basketball Coach at Drake University (now at Central Michigan)

2007-08 was the magical season for Drake basketball. They were undefeated throughout much of the year and won the Missouri Valley post-season tournament. They lost a heartbreaking game to Western Kentucky on a last second shot. But during the season, Coach Davis (who was selected as the AP coach of the year that year) talked about this particular basketball team and the advanced basketball IQ of the team. He said time and time again that it was this particular team that allowed him to implement new offensive scheme, as well as wrinkles that kept opponents guessing. More importantly, they kept working hard, no matter what their record was and how many times they made SportsCenter (which is not a regular occurrence for a Drake basketball player).

The Drake team was not the most athletic on the floor most nights. Most of the players weren't highly recruited but they were a team that thirsted for more. Their enthusiasm for learning never stopped. While they didn't take a magical Hoosiers-like ride through the NCAA tournament, they will be recognized as one of the best Drake teams of all time.

Learning: An unquenchable desire for learning and improving can propel a team to greatness where the whole is certainly more than the sum of the parts.

Mark Phelps, Head Basketball Coach at Drake University

Coach Phelps replaced Coach Davis after the 2007-08 season. He was a well-regarded assistant coach from Arizona State and looked to take the underclassmen from the Davis team on to new heights. I had the opportunity to ask him “my question” shortly before the season started. As I reflect four years later, what strikes me is that most of his answers could have come from the movie Bull Durham, “We just need to get better as a team,” and “We continue to set our team goals and work hard to achieve them.” It struck me that there was no specific philosophy or program that was his at that point. It could have been an off-day, we certainly all have those. However, I would guess after four somewhat difficult years that Coach Phelps would probably answer the question differently today. Coach Phelps brought experience to the job as an assistant, but may not have brought "experiences" to his first head coaching job. I have always sought to distinguish between “experiences” and “experience.” Experiences are the learning events that create wisdom for future challenges. Experience can do this, but a repetitive role for many year doesn't always create the experiences that position a person to adapt to the challenges ahead. These past few seasons have certainly provided many experiences for Coach Phelps that likely have brought learning.

Learning: The top job is appealing to those not there. Most times it is a lot harder than it looks. Wisdom isn't something you can read in a book (or a blog), but the sum of many experiences.

Summary:

I love asking "my question" to successful coaches. Most often the coach will pause reflectively as the question isn't about the latest opponent, offensive scheme or player controversy. Coaches are experts at their craft, which often goes beyond the Xs and Os. The best coaches are the difference between a team that is a perennial loser and one that begins to win. To be sure, talent matters. But preparation and how coaches approach practices, player development and each game can make the difference.

I will continue to ask the question. In fact, someday I hope to spend a week or month with a team that is known for its preparation – maybe Nick Saban or Bill Belichick and the New England Patriots or Kirk Ferenz and the Iowa Hawkeyes (even as they are coming off a down year). I believe the focus on preparation is key to their success. The approaches of these successful coaches are all slightly different, but there is one commonality – they know exactly what THEY must do to prepare for the upcoming game. That focus radiates to the entire team and in the end facilitates their success.

Guest Post: Five Leadership Lessons Worth Remembering

From time to time I hear great stories from others that feel like they need to find their way out to the larger world. I wanted to share a post by April Schmaltz, who is our VP, Marketing at TMG Financial Services. I thought this was a great summary of her personal lessons learned at the Inc. 500 conference, where she picked up some hardware for us as one of the fastest growing private companies in America (shameless plug #1). Also, if this is your first time to PlanBPhilosophy.com, take a moment to view past posts and subscribe via email or RSS (shameless plug #2).

Jeff

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By April Schmaltz

Sometimes life is a little bit like the teacher on the childhood Charlie Brown cartoon specials.  All you hear is noise.  Noise that sounds remarkably like “Wanh, wanh, wanh,wuh-wahn, wahn” especially if it doesn’t help you cross a task off your to-do list.

But what if you take a moment to listen?  What do you hear?  What do you learn?

I have prided myself on being a life-long learner, with the ability to adapt and grow not only as a leader in our company, but also in my personal life.  However, with many responsibilities at home and at work, there can be a tendency to push off what doesn’t need to be heard or done right now until later. 

"Later" recently happened for me at the annual Inc. 500 conference, where TMG Financial Services received its official award for being one of the fastest growing companies in the United States.  It wasn’t necessarily the easiest time for me to step away, but it was an honor to be selected to attend and accept the award on behalf of our organization. So, I tried to close off my mind about what I was leaving stacked on my desk, and went to the conference to accept our award.  And, I came away from the conference with so much more than I anticipated.

With each speaker better than the one before, I found myself taking many notes.  And, when that wasn’t enough, I purchased a camera to capture some of the truly inspiring conversations and moments during the conference. While I was checking in with the office to make sure things were moving as they needed to, I made a conscious effort to focus on listening and learning.  See, I had an opportunity to listen to a group of distinguished speakers from across the country talk about their road to success and provide insight into their journey—possibly a once in a lifetime opportunity to hear some of them speak. I walked away inspired by so many ideas to apply to my own personal and professional leadership development, as well as a wealth of ideas that apply to how we conduct business at TMG Financial Services.

What I learned, or perhaps re-learned in some instances, are themes that we all inherently understand, and are relatively simple.  Below are some of my favorites.

Lead for Others. Take the time to ensure the people who work with you have the opportunity to grow (professionally and personally).  This is not easy when at times it seems tough enough to keep your own head above water, but empowering your team to accept more responsibilities ensures you are a high-functioning team that is efficient and effective.

"You are not a leader until you make it your job to look after others"-- Simon Sinek, author of Start With Why.

Good Vibes Are Contagious. There is no doubt that it is easy to get mired down in the day-to-day slog, especially if things aren’t going as you expected.  Step back.  Take a deep breath.  Re-evaluate, if necessary.  Focus on how you can make something work, not why it isn’t working. And, do it in a positive manner. We could all use a little more positivity in our lives!

 The CEO (Chief Executive Optimist) from Life Is Good, Bert Jacobs, said it best, "Optimism can take you anywhere."

Widen Your Decision-Making Process. "When you have a decision to make, fall in love twice. Push yourself to find two good options rather than fall into a rationalization trap. OR, run the 'Vanishing Options Test'. Make all of your current options vanish. What other options can you come up with?" -- Dan Heath, co-author Switch, Made to Stick and Decisive.

Another useful tool Chip Heath, co-author of Switch, Made to Stick and Decisive

stated was worth considering is Suzy Welch’s 10-10-10 approach. Decisions are often made on a short-term emotion.  Ask yourself, what are the consequences of your decision in 10 minutes? 10 months? 10 years? 

Enchant Others. "The key to success is to achieve the quality of Apple, the trustworthiness of Zappos (free shipping) and the likeability of Richard Branson (owner of Virgin Airlines)" -- Guy Kawasaki, founding partner and entrepreneur in residence, Garage Technology Ventures; author, Enchantment: The Art of Changing Hearts, Minds, Actions.

Have the Aptitude to Never Give Up. When Captain Mark Kelly spoke about his inspirational career, he emphasized the importance of aptitude and practice. In his first months as a naval aviator, he discovered that he was not a natural 'Maverick'. (In fact, he thinks Tom Cruise would have flown the plane better than he did at the time!) But with dedication and perseverance, he achieved nationally recognized success. Captain Kelly also talked at length at how he was able to apply his ‘never give up attitude’ to his personal life, as he and Gabby have faced many challenges on her road to recovery. -- Mark Kelly, retired astronaut, U.S. Navy captain and naval aviator; co-author, Gabby: A Story of Courage and Hope.

So now what?

There has been a lot of talk lately about remaining relevant, and while that has largely been in relation to keeping a business moving forward, perhaps we should also look at how we can remain relevant as leaders and employees.  Sure, we can still move forward if we put our heads down and blaze towards accomplishing the next task on our list.  But, it isn’t necessarily the most effective, efficient way.

Stopping and thinking (that involves listening and learning) helps us move forward with purpose and energy.  It helps us grow as individuals.  Take a break for a minute or two.  Get to that book, magazine article, conference or whatever inspires you.  You may be surprised at the results. 

April Schmaltz is the vice president of marketing for TMG Financial Services.  

Are you content with the status quo?

I have had the great pleasure of spending some time with credit unions outside of the United States in the past few months. First, I was honored to speak at the World Credit Union Conference in Gdansk, Poland. I met many amazing leaders of credit unions throughout the world. This past week I spent time talking with three different groups of Irish credit unions about their challenges to gain scale and their hope to look to collaboration through credit union service organizations (CUSOs) to build a better future.

Through these conversations I have met many great, dedicated people. However, I have noticed a trend that I think is not unique to credit unions. That trend is that people can often be sorted into those that are satisfied with the status quo and those that intolerant of that same status quo.

This seems like a dramatic observation. To be clear, it is not like making a distinction between Nelson Mandela and those that protected apartheid in South Africa. While there are similar reasons that cause people to protect the status quo, most of our lives are not defined by such clear distinctions of black and white. Most of our lives are the subtlety of shades of grey (come on, not those shades of grey…).

Credit unions in Ireland face a clear choice. There are more than 400 credit unions serving a country of a little more than 4 million people. As a contrast, the state of Oregon has a few less than 4 million people and about 75 credit unions. The banking system is in shambles as the government has essentially nationalized the two major banks. Credit unions, for many years the “bank” of the people, are facing challenges that will force them to radically change their business model going forward. A government commission report suggests that mergers may be the answer and has appointed a “restructuring board” to facilitate the future. It is clearly a transformational time in Ireland.

With some colleagues from the U.S., I was fortunate to spend some time with three different groups over the course of a week. While there are as many opinions as there are credit unions, from my perspective the groups were separated into those who knew that change was necessary but were waiting for someone to bring it to them and those that were clear that they had to take charge to create the needed change (pardons to President Obama for borrowing his idea that “we are the change we have been waiting for”).

I think that history, business and life is most often (maybe only) changed by those with a true intolerance for the status quo. Not those that suggest, “It is what it is” but those that can add, “it becomes what you make of it.” Truly the world is only changed by the few who in the words of RFK do not look at things the way they are and ask why? Instead they dream of things that never were and ask why not? 

The Irish credit union system is remarkable to me. About two-thirds of Irish citizens belong to a credit union. They are clearly a part of Irish cultural life – as much as the football or hurling teams (maybe even the Church). Yet they have not captured the vast majority of their members’ financial lives. Some of the issue is regulatory – alas the regulators will always be with us – but many are stuck in the glory days of the founding of credit unions in the 1950s and 1960s. Surely they were glory days, but it is a new world.

Every industry can be like this. Credit unions in the United States are often like this. We remember the glory days when every employee of the “company” or the “plant” were members. We wonder why our new members don’t have the same affinity as those on the plant floor from yesteryear. Communities can be like this, remembering the “good old days.” School districts that refuse to face the fact that they are too small or too isolated to compete in a global marketplace are like this. In my home state of Iowa, we have 99 counties, to make sure that the average citizen could ride his horse to the county seat within a day’s ride. Really.

But those that are intolerant of the status quo are unique. They often live on the edge. Sometimes they don’t look like us – they have tattoos or piercings; they are a different color; they have weird ideas; they just seem different in our status quo world. They say things that are rude, brash and uncaring. And they are essential in order to create the future. The greatest leaders I have known in my life have had an acceptance for this diversity – not the type defined by law (gender, race, religion), but the type defined by thought or a way of being. It is those unique souls that  challenge something without wondering whether they might look stupid or offend someone. They challenge it simply because they thought it could be better.

So my learnings from my time with the Irish credit unions:

1. It is always easier to suggest transformational change from the outside, than the inside. We are all better fixing someone else’s problem than our own. It is as true for me as anyone.
2.  It takes courage to do something significantly outside the status quo, no matter what that status quo looks like. The inertia is heavily weighted towards doing what we already do today.
3. There are a brave few that will change the reality of today, against the conventional wisdom.
4. Those brave few remind me of those brave few I know from my own past. There are common traits. I met people this past week who I know will succeed in bending the future and making a lasting impact on the future of their industry. Their passion, dedication and persuasiveness will win the day. A continent apart, the traits are the same.
5.  The journey of a thousand miles begins with one step. The hard part is knowing exactly what must be done and taking the risk. It would be easier if someone would do it for you. But that isn’t the way the world works. It takes an individual to take the first step.

I am anxious to see the progress of the people I met this week. They have all the tools to be fundamental forces in rebuilding the Irish economy. They have the soul to care deeply for every Irish citizen. And they have the spirit to succeed. When we were touring the West coast of Ireland during a day off, we saw how the Irish overcame the potato famine to build a successful future. Comparatively this banking thing is a piece of cake.

But it will take leadership. Like any dramatic change there are those that rise to the occasion. They rally those around them to see a different future. I mentioned to a veteran of the Irish credit union movement that you can’t take your political capital with you. He smiled knowingly. I know he will be a part of leading the future – respecting the past that he clearly helped to build since the early 1980s, but also to lay the foundation for the next generation.

You may think this issue is unique to credit unions or to Ireland, but I suggest it is the primary issue of our day. In America we have an election coming up. Without getting into politics, both sides of the aisle could clearly do better if we would have leaders that would lead based on addressing the issues of the day head on. In politics as well as business, we limp along day-to-day with the hope that someone (anyone) will fix it. We all know the issues and nod knowingly. And then we go through the rest of our lives.

It is those that are intolerant that change the future. Those that may seem on the fringe. Acceptance of the status quo leads to complacency. Complacency leads to laziness. Laziness is a fundamental element of decline.

Transformational times call for transformational change. That’s a call to all of us. Sometimes it takes seeing it somewhere else to realize it in ourselves. Maybe we are the change we have been waiting for.

Insanely Great... Steve Jobs in His Own Words

I have been an admirer of Apple. Not a fanboy, but an admirer of their simplicity, design and consumer focus. So I read the Steve Jobs biography. I am not a big fan of those that quote Jobs incessantly, but I found the last bit of Isaccson's book riveting - when Jobs spoke in his own words. Many of you have read it. Some of you haven't gotten to the end. I have re-read this part about five times in the last few weeks. I thought I would share it.

Jeff

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My passion has been to build an enduring company where people were motivated to make great products. Everything else was secondary. Sure, it was great to make a profit, because that was what allowed you to make great products. But the products, not the profits, were the motivation. Sculley flipped these priorities to where the goal was to make money. It’s a subtle difference, but it ends up meaning everything: the people you hire, who gets promoted, what you discuss in meetings.

Some people say, “Give the customers what they want.” But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, “If I’d asked customers what they wanted, they would have told me, ‘A faster horse!’” People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.

Edwin Land of Polaroid talked about the intersection of the humanities and science. I like that intersection. There’s something magical about that place. There are a lot of people innovating, and that’s not the main distinction of my career. The reason Apple resonates with people is that there’s a deep current of humanity in our innovation. I think great artists and great engineers are similar, in that they both have a desire to express themselves. In fact some of the best people working on the original Mac were poets and musicians on the side. In the seventies computers became a way for people to express their creativity. Great artists like Leonardo daVinci and Michelangelo were also great at science. Michelangelo knew a lot about how to quarry stone, not just how to be a sculptor.

People pay us to integrate things for them, because they don’t have the time to think about this stuff 24/ 7. If you have an extreme passion for producing great products, it pushes you to be integrated, to connect your hardware and your software and content management. You want to break new ground, so you have to do it yourself. If you want to allow your products to be open to other hardware or software, you have to give up some of your vision.

At different times in the past, there were companies that exemplified Silicon Valley. It was Hewlett-Packard for a long time. Then, in the semiconductor era, it was Fairchild and Intel. I think that it was Apple for a while, and then that faded. And then today, I think it’s Apple and Google— and a little more so Apple. I think Apple has stood the test of time. It’s been around for a while, but it’s still at the cutting edge of what’s going on.

It’s easy to throw stones at Microsoft. They’ve clearly fallen from their dominance. They’ve become mostly irrelevant. And yet I appreciate what they did and how hard it was. They were very good at the business side of things. They were never as ambitious product-wise as they should have been. Bill likes to portray himself as a man of the product, but he’s really not. He’s a businessperson. Winning business was more important than making great products. He ended up the wealthiest guy around, and if that was his goal, then he achieved it. But it’s never been my goal, and I wonder, in the end, if it was his goal. I admire him for the company he built— it’s impressive— and I enjoyed working with him. He’s bright and actually has a good sense of humor. But Microsoft never had the humanities and liberal arts in its DNA. Even when they saw the Mac, they couldn’t copy it well. They totally didn’t get it.

I have my own theory about why decline happens at companies like IBM or Microsoft. The company does a great job, innovates and becomes a monopoly or close to it in some field, and then the quality of the product becomes less important. The company starts valuing the great salesmen, because they’re the ones who can move the needle on revenues, not the product engineers and designers. So the salespeople end up running the company. John Akers at IBM was a smart, eloquent, fantastic salesperson, but he didn’t know anything about product. The same thing happened at Xerox. When the sales guys run the company, the product guys don’t matter so much, and a lot of them just turn off. It happened at Apple when Sculley came in, which was my fault, and it happened when Ballmer took over at Microsoft. Apple was lucky and it rebounded, but I don’t think anything will change at Microsoft as long as Ballmer is running it.

I hate it when people call themselves “entrepreneurs” when what they’re really trying to do is launch a startup and then sell or go public, so they can cash in and move on. They’re unwilling to do the work it takes to build a real company, which is the hardest work in business. That’s how you really make a contribution and add to the legacy of those who went before. You build a company that will still stand for something a generation or two from now. That’s what Walt Disney did, and Hewlett and Packard, and the people who built Intel. They created a company to last, not just to make money. That’s what I want Apple to be.

I don’t think I run roughshod over people, but if something sucks, I tell people to their face. It’s my job to be honest. I know what I’m talking about, and I usually turn out to be right. That’s the culture I tried to create. We are brutally honest with each other, and anyone can tell me they think I am full of shit and I can tell them the same. And we’ve had some rip-roaring arguments, where we are yelling at each other, and it’s some of the best times I’ve ever had. I feel totally comfortable saying “Ron, that store looks like shit” in front of everyone else. Or I might say “God, we really fucked up the engineering on this” in front of the person that’s responsible. That’s the ante for being in the room: You’ve got to be able to be super honest. Maybe there’s a better way, a gentlemen’s club where we all wear ties and speak in this Brahmin language and velvet code-words, but I don’t know that way, because I am middle class from California.

I was hard on people sometimes, probably harder than I needed to be. I remember the time when Reed was six years old, coming home, and I had just fired somebody that day, and I imagined what it was like for that person to tell his family and his young son that he had lost his job. It was hard. But somebody’s got to do it. I figured that it was always my job to make sure that the team was excellent, and if I didn’t do it, nobody was going to do it.

You always have to keep pushing to innovate. Dylan could have sung protest songs forever and probably made a lot of money, but he didn’t. He had to move on, and when he did, by going electric in 1965, he alienated a lot of people. His 1966 Europe tour was his greatest. He would come on and do a set of acoustic guitar, and the audiences loved him. Then he brought out what became The Band, and they would all do an electric set, and the audience sometimes booed. There was one point where he was about to sing “Like a Rolling Stone” and someone from the audience yells “Judas!” And Dylan then says, “Play it fucking loud!” And they did. The Beatles were the same way. They kept evolving, moving, refining their art. That’s what I’ve always tried to do— keep moving. Otherwise, as Dylan says, if you’re not busy being born, you’re busy dying.

What drove me? I think most creative people want to express appreciation for being able to take advantage of the work that’s been done by others before us. I didn't invent the language or mathematics I use. I make little of my own food, none of my own clothes. Everything I do depends on other members of our species and the shoulders that we stand on. And a lot of us want to contribute something back to our species and to add something to the flow. It’s about trying to express something in the only way that most of us know how— because we can’t write Bob Dylan songs or Tom Stoppard plays. We try to use the talents we do have to express our deep feelings, to show our appreciation of all the contributions that came before us, and to add something to that flow. That’s what has driven me.

Risk and Reward

With my absence in writing for a couple of months, you could believe that I haven’t been thinking much about the ideas that I write about here at Plan B Philosophy. In reality, there is nothing further from the truth. I have so many ideas for blog posts that sometimes I don’t know where to start.

But a few events during the past month have spurred me on to write. The event I want to focus on is multi-billion dollar trading loss by JP Morgan Chase and subject of risk. This loss happened as a result of a highly complicated trading scheme that had JP Morgan trying to mitigate risk in their portfolio by taking a bet on the European economy.

The media was *shocked* by this event. It was seriously reported for about a week and JP Morgan Chase CEO, Jamie Dimon, testified in front of Congress. With an upcoming election and the political implications of the Volker Rule, we will probably hear about this for some time to come.

Putting aside the actual issue, the media reaction amazed me. While Dimon called it a colossal mistake because of oversight reasons, let’s be clear - the job of a bank is to take risk. It borrows money from its customers in the form of deposits, and makes loans and investments that need returns which exceed the cost of deposits. While the global financial markets are obviously more complicated than that, JP Morgan takes an assorted amount of risk every day. Its losses from this event equal less than 1 percent of capital and .01 percent of deposits, and apparently no insured deposits were used in the trading. They were clearly on the wrong side of the risk, but the risk itself wasn’t huge in relation to the assets and capital of the bank.

To JP Morgan’s credit, they faced down the issue, admitted they lost on a bet (even if Dimon said it was stupid and a few billion dollars is a real number to people like me that don’t work in “billions” very often) and vowed to move on.

In my experience, people (especially the media) want to talk and celebrate the reward of taking risk but are rarely prepared for the downside. We celebrate the risks people take. We celebrate those on the edge and then just as easily look at them sideways when risks turn out to be real and some sort of failure ensues. The first impulse is to explain just how inept these people were because they took a risk and failed.

I work in a highly regulated industry – financial services. It should be highly regulated as we all need to be confident that our money is safe and sound. But let’s face it – companies and industries that don’t take a little risk won’t survive very long. When someone hits it big, they call that innovation. When they take a chance that doesn’t pay off, it gets called “risky.” Victory has a thousand fathers, defeat is an orphan. Few people talk about Steve Jobs at NeXT, but they glow about his work at Apple. Or as they say in the banking business, “No one has ever made a bad loan. They just go bad after you make them…”

And it is certainly easier NOT to take a risk  -  just to say “no.” You never have to face the second guessers, the Monday morning quarterbacks who say, “I knew it would never work, but (fill in the blank) just wouldn’t listen to me.” But the world is only changed by those that don’t freeze up in the face of risk but try and find ways to smartly manage it. America would have never sent a man to the moon without the chance that the rocket that would take us there could blow up. Every astronaut has faced that reality when they stepped into the rocket. History shows other examples as well. Many of the inventions and breakthroughs that we take for granted took an individual or small group stepping out into the risky unknown to try something new that people thought would never work. Those that succeed are famous; those that did not succeed are not. Yet the effort and courage between both are many times the same.

So that brings me back to JP Morgan. They took a risk and lost. In fact, they lost a lot of real money. But think if this hedge had been successful. Few people probably would have ever known and maybe a small team would have seen a larger bonus at year-end. In the end, JP Morgan might have had sloppy procedures and oversight. But they admitted it and moved on to protect against risks that are outside of their tolerances. They were in the financial position to weather the storm and will hopefully not overreact and discourage risk taking that is within their tolerance.

Risk is easier to evaluate in finance and sports than in the rest of life. When New England Patriots coach Bill Belichick decided to go for it on fourth down a couple of years ago to keep the ball away from Peyton Manning and failed, there was plenty of second guessing. But if he goes for it and succeeds, he is a genius all-around. The play is the same. The outcomes are clearly different. But the courage that it took to make that strategic calculation in that moment didn’t change based on the outcome.

One of the most famous quotes on risk taking is from Theodore Roosevelt. You have all probably read or heard it at some point:

“It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.”

In my mind, the most interesting part of the phrase is, “who errs and comes up short again and again, because there is no effort without error or shortcoming... and who, at the worst, if he fails, at least he fails while daring greatly” That is the essence of risk-taking, success and competition – the willingness to step on the field or in the arena with a very real probability that you could lose but all the while focused on daring greatly.

In the end I suppose, history will always be written by the winners. Those who take a risk and win will be exalted; those that take risks and lose will be written off as substandard in some way. But I think a more accurate picture of the truth is that there is often only a narrow difference between success and failure, and often it is determined by circumstances beyond our control. We take risks and sometimes fail. I believe to invent the future we must have to have a tolerance for risk and the potential for failure.

What is Your Legacy?

On February 15 the world lost a great man. Warren Morrow, my friend and co-worker, unexpectedly passed away of heart failure. He was 34. And he left an incredible legacy.

Warren accomplished so much in his short life. He was the CEO of Coopera, a company devoted to helping credit unions reach the Hispanic marketplace. Out of college he co-founded the Latino Leadership Project that helped Latino high school students strive for and reach higher education. Beyond his roles or titles, he was a tireless champion of the double bottom line – doing well by doing good. His funeral lasted more than two hours, as there was a chance for people to come forward and talk about the impact Warren had on each of them and their life. It was an amazing experience for me to witness. Person after person came forward to talk about how his positive attitude, his encouragement and his persistence impacted their life. Certainly Warren impacted my life in many ways.

I became a board member of Coopera when the Iowa Credit Union League became an owner. I have helped the company with strategy and how to reach into the credit union marketplace. In turn, Warren taught me many things about the Hispanic marketplace and how truly multi-faceted it is. He also provided many great life lessons to me.

One of my favorites is how he reminded me that my world-view was not always complete. While I have a number of roles, primarily I work in the credit card business. When we engage with new credit card issuing partners they sometimes have expectations that as soon as they launch their new credit card program, there will be a flood of applications and their program will be a resounding success. While there are programs that have that level of immediate success, most often it is because of careful strategizing and hard work. My short hand for this viewpoint is a relatively sarcastic statement that, “No one comes home, sees a credit card offer on their kitchen table and says, ‘Wow, a credit card offer! I’ve never seen one of those before.’” The point is that in a saturated marketplace, each offer needs to be unique and tailored to that individual to gain action.  

Well, I repeated that at a board meeting Warren was at and he stopped me afterwards to note that in the Hispanic community there may be individuals who would see that envelope and truly say they had never seen a credit card offer targeted to them before. I was appropriately chastened – he was right, of course. I have tried to change my language since that day and we are looking at how we can broaden our offers to other populations.

His one comment completely changed my point of view around how I think about marketing credit cards. His legacy to me was to broaden my views as we run our businesses, realizing that my perspective is not universal. And I believe he left a legacy to almost everyone he interacted with.

Couple Warren’s passing with my upcoming birthday that ends in a zero, and I have been thinking about legacy a lot these days. Usually legacy is associated with someone as they near retirement or after they have passed away. But I believe legacy is, like leadership, the sum of hundreds of interactions each day. Each day we have a chance to leave a legacy on those we interact with.

Each day we impart a legacy on our children, spouse, colleagues, friends, neighbors and others. What is the legacy you leave each day? The comment you make in the hallway at the office, as you run out the door at your house, talking to your kids in the car – how is that impacting your legacy on them? If you were to die tomorrow, do you know what your legacy would be with those around you?

More importantly, are you waiting for “just the right time” to make the impact that you know you can?

Some days I tell myself that I just need to get through the day. We've all had those, right? Certainly those around me will understand. And, in fact, they usually do understand. But that day that I “got through” was one day that I squandered the gift given to each of us – to positively impact another person, a business, a community and the world. I see this reflection most often in my three children, who can remember with precision actions and comments that were offhanded at best.

When Steve Jobs was recruiting John Sculley from Pepsi to be the CEO of Apple in the 1980s he asked,

“Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?” 

While I thought (and still think) that was a bit of hyperbole for what was then a computer company, in fact Jobs did change the world. My belief is that his legacy was inspiring a generation of people that they could design new things that could change how we interact in our everyday life (as I sit here listening to music on iTunes, with my iPhone next to me).

Certainly we will not all have the opportunity to do what Jobs did on the scale he did it on. But I am reminded of one of my favorite quotes by Robert Kennedy, 

“Few will have the greatness to bend history itself, but each of us can work to change a small portion of events. It is from numberless diverse acts of courage and belief that human history is shaped. Each time a man stands up for an ideal, or acts to improve the lot of others, or strikes out against injustice, he sends forth a tiny ripple of hope, and crossing each other from a million different centers of energy and daring those ripples build a current which can sweep down the mightiest walls of oppression and resistance.”

Certainly my friend Warren Morrow sent forth many ripples of hope and even started to bend history itself. It is worth each of us thinking about our own legacy and the ripples we send every day. I hope each of our legacies can be as impactful as Warren’s.