Boulevard Beer

Last week the owner of our local Boulevard Brewery spoke to our executive class. Interesting story -- typical of entreprenurs and we have many in K.C. Timely also, as they Boulevard has been in the news for their expansion into St. Louis, right into the belly of the beast beer empires (or former beer empires). Over 20 years McDonald has built the company to be one of the largest micro breweries in the nation (8th I believe is what he said), employing dozens of local people. What caught my interest was Boulevard's foray into glass recycling and the start of their business Ripple Glass.

Although Boulevard prefers to sell draft beer, they sell a lot of bottled beer; McDonald was concerned about the byproduct of sales -- empty glass. He did his research, finding out that glass was better when recycled separte from other trash -- when combined inefficiencies cause only a fraction of the glass to be able to be recycled as opposed to being dumped in the landfill. McDonld's concern and interest is genuine, enough to invest his time and money in the Ripple Glass venture.

But here is what is interesting -- he sees the venture (which needs to scale up significantly to create any profit) as helping him sell more beer. And this is a great lesson for corporate social responsiblity. Business people like McDonald can give back in important social ways by trying to make their business better. Though McDonald is not a Rockhurst alum, but he fits well with the Jesuit tradition of service to others and solid business ethics.

A New Year

Tomorrow officially kicks off the new year for much of our Rockhurst community (though some of our MBA students started over a week ago). The Massachusetts senate race has caught my attention because of how it reinforces the paradox of power and how having a lot of it creates the conditions that surely leads to losing it.

Scott Brown (a republican) is the ultimate underdog trying to win a statewide senate seat in a state that voted for Obama by a margin of 26 points. He is also trying to win the seat held by Ted Kennedy for 47 years (and by Teddy's older brother for several years before that). 85% of the MA state legislature is held by democrats. And less than two months ago, Brown's democratic opponent held about a 30 point lead in this race. Yet, by the end the day it is very possible Brown will be elected and that democrats all over the country will feel very vulnerable in the 2010 elections. Of course, this has happened many times before (though some are still saying a Brown win is the biggest political upset in half a century and if you like underdogs this is a very interesting race).

Several years ago, an article titled "Why bad things happened to good companies" detailed the inevitable decline of once great companies. Three years ago business magazines were hailing the dominance of Toyota Motors -- see this NY Times feature. A few years before that Dell was hailed as having an impregnable position in the computer industry. Today neither of these companies are doing so well.

Several reasons for this. 1) The world changes. What resonated with people no longer does. Their priorities and tastes changes; it is easy for the one in power to not recognize that change. 2) The competition becomes better. The genius of markets is that they spawn innovation and innovation leads to better mousetraps and better ways to make and distribute the mousetraps. 3) Entrenched habits. Entropy is natural and when successful people let up and get caught in routines making them less likely to notice needed change. 4) Hubris. They fall victim to their own invincibility, which can lead to colossal mistakes of judgment.

About a year after the ascension of Democrats to political power these symptoms appear. In fact, companies and parties are more likely to be sharp and on their game when there is a strong competitor in their market. The last 3 years the republicans have been a very weak competitor -- all to the detriment of the Democrats. Their one bright hope: if the republicans are able to exploit the current vulnerability, they will surely fumble it away just as they did earlier in this decade.

Coach Iubelt

For my Christmas holiday I spent a week in Alabama at my in-laws-- where it was also cold. On the way back, we stopped by my wife's friends who live in Paducah, Kentucky. George Iubelt spent most of his life at Southern Illinois University and was an assistant coach for SIU when my wife's father was head coach in the 1970s. We had a nice visit with George and his wife, B.J. -- I found his stories fascinating.

First, he is a W.W.II vet; he was a radioman for fifty B-24 missions in 1944-45. Many servicemen died flying these missions. Stationed in Italy, he recounted his first mission where his plane was the only one out the squadron that made it back safely (1 out of 7 planes). He said he was fortunate to be able to get on a good crew. As part of my work I think about how important teams are, but in George's case a good crew meant the difference between living and dying.

As a basketball coach, George lived in an era where coach's did not have the profile (or high salaries) they have today. Yet, he had a tremendous impact on the lives of some of those students. When he was coaching, SIU was able to recruit a lot of black athletes from the South who were still not always welcome by the large southern universities. He and my wife's dad recurited many a player from Alabama, Georgia, and Mississippi -- some became pros such as Walt Frazier, Mike Glen, and Joe C. Merriwether (all from the South).

At times when players were disciplined, George could hold their meal card from them. He found out years later when one of the players named George's wife as the most important person at the University, B.J. was undermining her own husband's discipline by providing these same players a meal. In fact, George worried that some of the kindness shown these players might show up as an NCAA violation. Coaches like George changed people's lives.

George was a little down in the back when we visited and both of them are feeling the effects of age. But they were delightful hosts and it might have been the best hour I spent all vacation.

Projection for next year

Watching a news program last night, I heard a commentator call China the "Capitalist of the Year." There is little doubt that this might be true given that in a worldwide recession, China is projected to grow (economically) 9% in 2010. More interesting is the feeling of hope in a country that under Mao and up to the 1980s suffered devastingly poverty under the planned economies of the government.

The difference is certainly the integration of capitalism, which has jump started the growth. But they still live under a very centralized communist regime that is politically autocratic. The image of Tiannemen Square in 1989 is still vivid for many. The government still routinely suppresses information and news (such as, pictures of the famous Tiannemen Square incident).

Yet, a greater number of Chinese are as well off and hopeful as ever because of the freedom that economic capitalism causes. The engine of business, in fact, can be more liberating than all the political freedoms we associate with democracies around the world. Admittedly, democracy is preferable to dictatorship, but the former without a robust market economy can be less appealing than an autocratic regime that employs a thriving, market-based economy. It is popular to decry the faults of the market, but despite these faults (and there are some), it is still better than the alternatives. Ask China.

Taking Risks

In the throes of this current recession (or jobless recovery, if you like) the operative work is risk. In the case of the sub-prime meltdown excessive risk was the culprit that contributed heavily to the current crisis. Yet, it is the risk takers that make our economy go. This past Friday, our Executive MBA class had the pleasure of hearing Adam Bold, CEO of The Mutual Fund Store, tell his story.

You see Bold traded in a secure job in the financial field to try out his idea of starting a mutual fund business that served customers other investment firms mostly ignored. And in 13 years he has built a successful company of about 350 employees. His story was inspiring to our students because he talked about personal risk and the burden of leadership. The consequence of his "risky" move has been to provide a significant number of quality jobs in this area, St. Louis, and beyond. Furthermore, he is building a business that he hopes will live beyond him -- something very difficult for many entrepreneurs to do.

The name fits Mr. Bold well. I wish him well -- and am glad for the risk-takers.

Medical Tourism

My colleague Dr. Martin Stack teaches among other things international business and has particular expertise in how healthcare is reaching into international markets in ways that might be surprising. Yesterday he taught on this very subject to our Executive Fellows class and coincidentally the WSJ had a front page feature (The Henry Ford of Heart Surgery) on a surgeon, trained in London, who has taken his practice back to India and has built a practice serving hundreds of people who otherwise couldn't afford heart surgeries.

This video does a good job of explaining how it works.

What interests me is how this happened as it seems like another example of business entrepreneurship. Dr. Shetty saw a gaping need in India (and other developing countries) of people needing surgeries but not affording it under normal business models. So he changed the business model to adopt the same "innovations" that Henry Ford did over a hundred years ago. He created a large hospital (and is looking to expand) employing over 40 surgeons allowing them to create scale efficiencies on the various high tech equipment needed. Size also allowed the hospital to negotiate great deals on supplies and equipment -- right now they do 12% of the cardiac surgeries in all of India. As Dr. Shetty says, "What health care needs is process innovation, not product innovation."

The pricing is strategic as well. Poor nationals who are in the State insurance system are charged only $1,200 for a heart procedure -- less that the $1,500 needed to break even. Since these are 30% of their patients; they make it up on the rest where they charge $2,400.

Quality seems to be quite good -- in part because the surgeons are well trained (usually in the U.S. or Europe) and very experienced as they do many more surgeries in a week than those in the States. A good test of quality is that now more Americans looking to save money are travelling to Bangalore to get bypass surgery. So now this business model could disrupt health care in developed countries.

Wine Tasting

Among the many things that confuse me are pizza menus (too many choices) and wine lists (arcane literature). Last week I decided instead of buying one bottle of wine I would buy two so I could compare and learn what was good. Anyway, many wine drinkers have favorite brands of wine; wine connoisseurs have real expensive favorite wines. Yet, an article today (WSJ, "A hint of hype, A taste of illusion") casts doubt on the idea that wine tastes can be objectively discerned -- some wines brag of having 8 different flavors. In fact, it is very difficult for even experts to evaluate wine tastes or accurately discern flavors.

The wine industry has its own rating system for the taste of wines. In addition, high stakes taste testing contests are held frequently with some wineries spending over $1 million dollars trying to win or "medal" in at least one of these. The problem is that there is a lot of evidence that wine testing suffers from poor reliability; for example, a medal winning wine is as likely to be a bad loser in another contest, even one with the same expert taste testers! Empirical tests where the taste tester does not know the actual wine brand confirm their is little objective basis for wine tastes.

A few decades ago, Pepsi took on Coca Cola by sponsoring a number of taste tests that showed consumers preferred Pepsi over Coke. Well, in the 1980s Coca Cola got spooked and started believing the taste tests and decided to change their formula in order to compete with Pepsi, coming up with New Coke. Well, its loyal drinkers reacted swiftly -- it was unAmerican to do that. It didn't take long for Coca Cola executives to reverse course and bring back the old drink (Coke Classic).

You see it was not about the taste; Coke learned quickly they were selling an experience. Taste is a subjective thing. The consumer brings all kinds or perceptions and attitudes to the tasting. Changing the formula was changing the experience -- the consumers determine the taste.

So back to wine . . . since my wife and I are amateur wine drinkers and I struggle deciding among the MANY choices on the shelf, I simply have to convince myself that that $5.99 bottle of Beringer Merlot or White Zinfidel is simply exquisite. And I would be right . . . as long a my wife agrees, that is.