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WEALTH
Where
Are All the Techie Jobs Going?
While
politicians decry large American businesses that outsource their
technical work to offshore locations, it is the smaller, start-up
companies that are leading the way in using the Internet to
employ cheap labor from the third world.
According
to a USA Today study, almost 40% of new start-ups employ "engineers,
marketers, analysts, and others in jobs created in India and
other nations." The newspaper studied 106 software firms
started since 1999 that got money last year from venture capitalists.
USA Today calls the rise of these "micronationals"
worrisome because they are promoting the decline of technical
jobs among U.S. workers. Indeed, the U.S. share of tech jobs
worldwide declined from 5% in 2001 to 4.4% last year.
I
don't see it that way. The availability of less expensive, highly
qualified overseas workers will mean more cash flow and eventually
greater success for U.S. start-up businesses. More successful
businesses equates to more profits. That means a higher tax
base, more spending, and eventually a higher standard of living
for all.
You
can't protect yourself by trying to freeze history. Prosperity
goes to those who are willing to let freedom reign and figure
out how to capitalize on change.
An
Alternative Approach to Health-Care Reform
What
do you think of this radically different approach to the issue
of health-care reform?
"Instead
of trying to cut health-care costs or ration services, David
Cutler, a Harvard economist, wants to reward doctors for doing
a better job. In the long run, he argues, patients - and the
economy - will be better off."
Here's
an example of the way Cutler's "paying for performance"
concept is already working on a limited basis...
"In
2000, G.E. and several other companies began a program to reward
doctors in certain cities on the basis of quality. Specifically,
the companies split with doctors the savings that flowed from
better care of diabetes and heart disease. According to G.E.,
the average cost of caring for diabetics who are properly treated
drops by $350 a year, even before factoring in the cost of the
long-term complications of leaving the disease untreated. Maybe
pay-for-performance won't work for an earache, [G.E.'s Robert]
Galvin allows, 'but we have found a business case for diabetes.'
Clinician groups that hit their quality targets can earn up
to $20,000 a year."
(Source:
Roger Lowenstein, writing in The New York Times Magazine)
WISDOM
Who
or What Freed the Slaves?
It
wasn't President Lincoln. His Emancipation Proclamation, signed
in 1863, applied to the Southern states, which weren't listening
to him. The Emancipation Proclamation itself allowed for slavery
where it benefited Lincoln and his crew: in parts of the South
that were under the control of the Union army, including the
48 counties of Virginia. Slavery was actually ended on Dec.
18, 1865 with the ratification of the 13th Amendment.
-
Michael Masterson
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TODAY'S
MESSAGE
How
to Avoid the Conceit of Outside Knowledge
by
Michael Masterson
One
of the most common mistakes we make in business is thinking
we know things that we don't. I'm thinking specifically of believing
we are capable of running a certain type of business simply
because we have been a long-time customer of it.
George,
an architectural designer I work with, buttressed a critique
he made of a restaurant I am involved with by telling me, "Although
I've never owned a restaurant, I've spent the last 40 years
eating in the finest places seven days a week ... ."
One
of George's suggestions was to double the size of the kitchen.
He wasn't alone in thinking it too small. I shared that view,
as did most of our other colleagues, none of whom had ever owned
or run a restaurant. But when I asked my friends AS and DS -
who have been running restaurants for 30 years - they said the
kitchen was large enough to handle three times the traffic we
were anticipating.
"You
don't need a bigger kitchen," they explained in a report
on the business. "You need to organize it better."
And then they provided a diagram that showed exactly where everything
- stoves, fryers, sinks, storage, etc. - should go. The arrangement
was counterintuitive. It didn't match my own inexperienced idea
of how a kitchen should work. But my intuition was based on
the kitchens I knew - household kitchens. A restaurant kitchen
capable of putting out 200 meals in three hours is a very different
thing.
George
is absolutely sure he could make a restaurant work if he had
the time to do so. And maybe he could. But I'm quite sure that
if he made it work, he'd have to abandon many of the ideas he
currently has - all the seemingly sensible ideas based on his
inexperience.
The
point is, George's confidence is based on his personal experience
- on "erfahrung" (air-FAR-ung) - and that is a good
thing. But it's based on outside experience (his experience
as a customer) as opposed to inside experience (the experience
of a restaurant manager). Because it is based on experience,
outside knowledge feels deep and certain. But it is nonetheless
specious.
I
am not immune to this mistake. The reason I am involved in this
restaurant in the first place is because I had the hubris (see
"Word to the Wise," below) to think that my long and
wonderful dining experiences qualified me to run one. This is
a conceit not dissimilar to the common idea that one can write
a book simply because one has read so many of them. Or that
you can create a successful woman's fragrance business because
you are a woman and really like perfume.
You
are completely sure, given your vast experience buying or using
a certain product, that you could successfully produce and sell
it at a profit. Let's call this common mistake the Conceit of
Outside Knowledge. And let's say that it is not an entirely
bad thing. Even though it accounts for a great deal of confident
but stupid criticism (I shudder to think about how many times
I've suggested to others how to run their own businesses), it
is also the cause - perhaps the most common cause - of entrepreneurship.
How
many successful careers have been launched because of the Conceit
of Outside Knowledge? How many people have jumped into new businesses
because they incorrectly believed that they understood something
they did not?
A
small list of businesses that fail most often is a list of businesses
that begin with the Conceit of Outside Knowledge:
-
restaurants
-
travel agencies
-
vacation tour operations
-
bed & breakfasts
-
art galleries
-
antique stores
-
gift shops
-
coffee shops
-
bookstores
-
sports-related businesses
Here's
what I have learned from my most recent run-in with the Conceit
of Outside Knowledge - a few rules I should live by:
1.
When I have the urge to tell someone how to run his business,
I will express my suggestion in the form of a question. Instead
of saying, "You know what you need to get the coffee
out faster - you need to double the size of the kitchen."
I'll ask, "Do you think it's important to get the coffee
out of the kitchen faster?" And then, "If so, do
you think that increasing the size of the kitchen would help?"
By expressing my ideas, however certain I feel about them,
as questions rather than statements, I both increase the likelihood
that my suggestion will be heeded and avoid the likelihood
that I will look like another ignorant know-it-all.
2.
When I get the urge to start a new business based on the Conceit
of Outside Knowledge (in other words, get the urge to start
a business that is more than one step removed from what I
know - see "It's Good to Know," below), I'll remind
myself that much of what I'm likely to do in the beginning
will be wrong. And then I'll ask myself if I have the resources
- human, capital, and emotional - to push the business forward
after I've discovered how wrong I was.
3.
If I get the urge to start one of the 10 businesses listed
above (and I certainly will from time to time), I'll go back
and read this ETR message.
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TODAY'S
ACTION PLAN
Do
you sometimes feel that, if only you had the time and power,
you could take over and fix some business that you patronize?
Have you ever started a business based on the Conceit of Outside
Knowledge, only to find out later that many of the changes you
were sure would improve things didn't make sense after all?
Tell
us about your experiences on Speak
Out.
IT'S
GOOD TO KNOW
The
Principle of One Step Removed
One
of ETR's "11 Laws of Wealth" is that your chances
of success in starting a new business decrease with each step
you take away from the business you already know. For example,
say you have a successful neighborhood restaurant called The
Steak House. Your basic business is selling a certain kind of
eating experience to a local community.
Over
a few drinks with friends, you come up with two new business
ideas:
1.
The first is to open a local restaurant called The Fish House.
2. The second is to go into the wholesale
steak-selling business.
Both
of these businesses have several elements that relate to what
you are already doing. The Fish House is almost identical except
for one difference - you will be selling fish, not steak. All
other key aspects - how you attract new customers, how you create
a profit margin, and how you control your costs to deliver a
bottom line - remain the same.
Starting
a wholesale steak-selling business is about selling steaks.
And that's what you do. But in this case, there are many differences.
For one thing, the market is different. You are not selling
to local diners but to regional businesses. This means the selling
strategy is different. That means the profit margin is different.
And so on.
Opening
up The Fish House is an example of starting a new business that
is only one step removed from what you know. Opening up a wholesale
steak business is three or four steps removed.
The
first business has a good chance of succeeding. The only unknown:
Will there be a big enough local market for fish? The second
business has a poor chance of succeeding. There are simply too
many things you don't know about it... too many inside secrets
that are blocked from your view.
It
is possible, every once in a while, to succeed by taking two
or three steps away from your core experience. But as a rule,
you want to take one step at a time.
WORD
TO THE WISE
"Hubris"
(HYOO-bris) is overbearing arrogance or presumption. It comes
from "hybris," the Greek word for "excessive
pride."
Example
(as I used it in Today's Message): "The reason I am involved
in this restaurant in the first place is because I had the hubris
to think that my long and wonderful dining experiences qualified
me to run one."
