Business Blog: Hoover’s Business Insight Zone

Item:

Ex-NYT editor Howell Raines joins Conde Nast

The 64-year-old Pulitzer Prize winning journalist will be a contributing editor and media columnist for Portfolio.

You remember Howell Raines: Pulitzer prize-winner, memoirist, etc. who became editor-in-chief of the New York Times and proceeded to alienate his news staff and grossly mishandle the Jayson Blair scandal.

Well, focus for a moment on the first part of that description — “Pulitzer prize-winner” — and you can hold out hope that Raines’s tenure at Conde Nast will be fruitful.

Meanwhile, if you want a sober account of the disasters of Raines’s NYT reign, you can do no better than to find a copy of Seth Mnookin’s Hard News. While you’re doing that, I’ll pop the popcorn.  I imagine the media’s claws will come out once Raines gets going with his column.

Apropos of our conversation the other day about Starbucks trying to regain its “founder’s mojo,” I recommend this Joe Nocera piece — written in the form of an open letter — from the New York Times. In it, he takes to task Howard Schultz, the once and current CEO, for his failures of leadership, and for failing to grasp the state in which Starbucks now finds itself. A sampler:

But revitalizing the Starbucks experience is not going to be enough. Not even close. You also have to accept certain realities that right now still seem beyond your grasp. You talked, for instance, about slowing the growth rate in the United States, and even closing some stores. That’s good — so far as it goes. But if you are just cutting back by a couple of hundred stores, that won’t cut it. “The basic model of opening stores and fueling expansion should stop in the U.S.,” said Marc Greenberg, an analyst at Deutsche Bank.

What was particularly discouraging was hearing you tell investors to look to the international markets, where Starbucks has “only” 5,000 stores, for accelerated growth. That suggests to me that you still don’t get it. You can’t fix a car going 60 miles an hour. If you are going to fix what ails Starbucks you have to forget about growth. And you have to stop thinking of your company as a sexy growth company. Those days are over.

It’s so very hard for anyone — Schultz or anybody else — to accept that the magic is gone. Confirmation bias tends to run rampant; it tells you that, yes, we’ve been doing the right things fundamentally, but we need to execute them better, and that, yes, I’m the person to do it.

Good luck, Mr. Schultz. I happen to agree with you that people need a welcoming “third place” to build community and to seek a haven from life’s pressures. Contra Mr. Nocera, I think Starbucks could actually still fulfill this role — if you make some big changes to what you’ve been doing. For that, you’d be well-served to take Nocera’s words to heart. If you can escape the silo of confirmation bias in which you’ve found yourself.

Somewhere in the Godfather epic comes a scene in which Tom Hagen (Robert Duvall) gets up from a dinner table because his host has given the definitive word that he won’t be acceding to the Godfather’s demands. I wish I could find the exact quote, but Hagen says something like this:

“My employer always insists on hearing bad news right away.”

So should we all.

Two things have me thinking about this:

1. Blogging pioneer Dave Winer posted two tweets on Friday in which he noted Microsoft’s change from “its early days, [when] they welcomed criticism, and used it productively” to its current incarnation, which he regards as “dilbert disease everywhere, 24-by-7.” Now, Winer might not be the world’s #1 expert on Microsoft, but Read more

Somewhere I dug up this story, published a couple of months back by MarketWatch, about the history of the IPO market during the past decade. Whether you were embroiled in the markets at the time or not, it’s a useful reminder of what happened and what it meant.

From Netscape to Google
The hottest of hot stocks — then and now

Particularly worth noting: the talk about the “story stocks” that started with Netscape and made IPO winners out of a motley band of companies including VA Linux Systems and TheGlobe.com.

Good speakers and writers have long known that human audiences respond much better to narrative than to analysis. Sure, we train ourselves to look at the facts, but our brains just love a good story. This helps to explain why so many smart investors (and many, many others who jumped on the IPO-investment bandwagon) went so far off the reservation in terms of the valuations they were willing to put on unproven companies.

It’s worth remembering the heady days of the dot-com boom, if only as an ongoing corrective to the temptation to invest hopes and dreams — a good story — into IPO offerings that can’t really support that weight from a cold, calculating business perspective.

What follows is a shameless plug for some hard work my colleagues have been doing:

Check out the new look of Hoover’s free company profiles — what we call 360° company information. This new 360° view gives you everything you’re used to seeing in a Hoover’s profiles — including our exclusive editorial analysis — but it’s reconfigured for ease of reading, and to allow room for even more good content — including your own discussions.

For a sample of what I’m talking about, check out this annotated example page that shows our reformatted record on General Electric. Since the 360° view has been implemented across our database, you can play with it for any of our records. Here are a few links to get you started:

• Ford Motor Company
• Berkshire Hathaway
• Whole Foods Market
• Royal Dutch Shell

Enjoy — and please feel free to leave feedback.

On this blog, October 24, 2007:

Merrill Lynch CEO Stan O’Neal better be glad that he’s been regarded more highly than Citigroup CEO Chuck Prince up to now, because Merrill’s horrific, embarrassing writedown of more than $8 billion in bad debt puts even Citi’s $5 billion-plus writedown to shame.

Ah, what a difference a couple of months makes! O’Neal was thrown out on his ear, Merrill hired John Thain to replace him, and now the firm expects to lose even more from bad debts:

Giant Write-Down Is Seen for Merrill

Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.

The article is worth reading, both to grasp the scope of Merrill’s problems and to get an idea of what Thain is doing to turn the tide — selling non-core assets, restructuring bonuses, and promoting teamwork, among other things.

We can hope — it may be vain, be we can hope — that future generations of bankers won’t make the risky gambles that Merrill (and its peers) made on mortgages, and that future CEOs will learn from the negative example of Stan O’Neal. Because for as bad as Merrill’s balance-sheet problems are, it’s the cultural problems in the firm that may be even more debilitating.

The other day I was talking with a friend who’s convinced the U.S. is headed for a serious energy crunch — a point where we hit “national peak energy” — a point beyond which various sorts of societal mayhem may ensue. My pal is hardly from the scaremongering wing of the Peak Oil movement, but he sees this as a serious threat.

My take: this sort of things implies that American consumers (and energy utilities, regulators, etc.) will continue to insist on having their cake and eating it, too — or, in other words, that they will continue to drive up their energy use AND insist on cheap energy rates AND worry about (but not act upon) U.S. reliance on foreign energy sources. I may be missing a couple of AND-conditions there, but I think you take my point.

More likely, in my view: if energy prices continue to climb, then at various points along the way energy use will change for broad groups of consumers (and utilities). Our current standard operating practices that rely on cheap energy will change, tier by tier, as pricing mechanisms (or, in some cases, new regulations) kick in and make them too costly. Individuals and enterprises alike will start to view more and more once-ordinary activities — flying off to meetings at the drop of a hat, express-shipping everything, commuting an hour each way in a gas guzzler, and so on — as being too expensive anymore.

Mind you, I’m not a subscriber to the Whig theory of history, so I do think some substantial dislocation are likely. Long-haul trucking, for instance, may suffer if many enterprises switch to relatively more fuel-efficient options like railroads and barges. SUV makers may suffer. People may steer away from buying the biggest boats, pickups, ATVs, and so on. But I don’t think it’s going to be a crash.

A possible datum in my favor comes from this High Country News item:

A little could mean a lot

The Department of Energy just released a study showing that if you give people digital tools to monitor their power use, they’ll cut their electricity consumption during peak periods by 10 to 15 percent — and that modest amount eliminates the need for $120 billion worth of new power plants and transmission lines over the next 20 years. . . .

At some point, the opportunity to save that kind of money — to avoid that magnitude of cost — should lead individual and enterprise power consumers to change behaviors. It will also create winners among the makers of equipment that helps consumers monitor their energy use.

When the California electricity market blew up in 2001, many people who previously showed no particular devotion to “green” living suddenly found that they could cut their energy bills by a third or more with little effort. They used simple expedients like hanging their clothes up to dry instead of running them through the dryer. They shut off the air conditioning during the day when they were off at work, and they slept with the windows open at night.

The point is, we’re adaptable people. And we’re helped enormously in this case by the power of the free market.

Countrywide has slid steadily toward the toilet over the past few months, notwithstanding the $2 billion infusion Bank of America gave it a few months back. Now BofA chief Ken Lewis is doubling down on his Countrywide bet — “doubling down” is the metaphor I’ve seen everywhere in the news stories on the deal — and the big (monster, ginormous) question remains:

Will the healthy part of Countrywide’s mortgage-servicing business — which Bank of America is buying at a steep discount — outweigh the gigantic subprime mortgage liabilities on its balance sheet?

My guess: no. But BofA will still come out more or less okay, since it’s frikkin’ huge and can absorb the hit.

But that doesn’t mean that Lewis was right to double down on a bad bet.

~~

For more, see this article (and video) from Mark DeCambre of TheStreet.com:

• BofA to Buy Countrywide for $4B

Our previous coverage on Countrywide:

• Mortgage problems are Countrywide.
• Countrywide prompts a heretical thought about CEO compensation.
• An appeal to Countrywide insiders: care to weigh in?
• Angelo Mozilo’s stock sales seem craven, but are they improper?
• Countrywide’s conniving ways?

~~

Ben McConnell of the Church of the Customer Blog has made a habit of collecting his junk mail and weighing it at the end of each year. This year’s tally: a record 21.5 pounds! You can read his comments about it here:

Weighty marketing ‘07

. . . Until the industry seriously considers enforcing a permission-driven system, rather than its favored opt-out model, the tide against snail-mail spam will probably only get stronger.

Agree/disagree?

I agree. Consumer/citizens will tolerate all sorts of nonsense up to a point, and then if they can’t get relief from companies, they will turn to regulators or the courts. (It’s the same thing that’s going on with the airline industry’s refusal to establish a maximum time that airliners can wait on the tarmac before offering passengers some relief.)

For myself, I certainly understand it when I get offers to re-up for things I’ve done before (charitable contributions, magazine subscriptions, etc.). I don’t mind straightforward advertisements by mail when they put their value proposition plainly. (GEICO, I’ve found, is pretty good for this: I don’t use them, but I can respect straightforward messages like “You could save up to 20% on car insurance. See inside for more information.”) But I also get a lot of nonsense. Me personally, I just open it all while standing over the recycling bin, and while I regret the waste of paper, I don’t let it get under my skin.

But there are surely others who take it much more seriously, as McConnell’s reference to pending legal fights against direct-marketers makes clear.

What about you? Does junk mail direct marketing mail anger you? Disgust you? Amuse you? Delight you?

Steve Jobs might be more famous for returning to Apple and rescuing it than for founding it in the first place. At the very least, it was his prodigal-son’s return that helped move him from being a Very Interesting Executive (VIE?) to being regarded as a mogul among moguls.

Michael Dell may be hoping to do the same thing at Dell, where he retook the CEO reins in 2007 after several years serving as chairman-only.

Now Howard Schultz is joining the club, taking over from Jim Donald as CEO of Starbucks.

Starbucks Replaces CEO With Chairman

SEATTLE (AP) — Starbucks Corp. fired Chief Executive Jim Donald on Monday, handing the reins back to Chairman Howard Schultz as part of a major restructuring initiative aimed at pulling the company out of a downward slide.

The move, coupled with plans to close some U.S. stores and slow down opening new ones, comes as the world’s largest chain of coffee houses has seen its stock plummet 50 percent over the last year amid declining traffic in its domestic stores.

This reminds me of stories I read a few years ago, about how Donald and other high-level hires were supposed to help Starbucks as it continued to scale up around the world. In the story just quoted, Schultz acknowledged that those expansion plans may have helped to create the tough conditions that Starbucks now faces:

Schultz acknowledged the competition has gotten fierce and said the company will focus on making changes that will differentiate Starbucks from its growing field of rivals. But he argued competition, rising dairy prices and a faltering economy aren’t the company’s main problems.

He told The Associated Press that Starbucks has spent the last several years “trying to invest ahead of the growth curve — in people, process, infrastructure, roasting plants, coffee buying,” and that focusing so heavily on that has taken attention away from the experience customers are having in its stores.

“This is a problem that I think we’ve created, and as a result of that, that we can fix,” Schultz said.

Some analysts have questioned whether the company has saturated certain markets as it opens an average of six stores a day. Schultz brushed that theory aside, even while conceding it has grown too aggressively.

“I think perhaps we stretched the real estate too far during this economic time, and we’re going to dial it back. But we’re not going to dial it back with the purpose of changing the growth trajectory of the company,” Schultz said.

Here’s what I think: Both Dell, Inc. and Starbucks are facing fundamental shifts in their markets. PCs and coffeehouses were around long before these companies started ramping up their efforts, but Dell and Starbucks took advantage of — indeed, created — new market models. For Dell, that meant fast, direct delivery of customizable PCs; for Starbucks, it meant the rollout of chic and consistent Seattle-style coffeehouses on the McDonald’s model of “one on every corner.” Both of these models were new when they were rolled out.

Now the business models aren’t new. Many invasive competitors have figured out how to emulate and improve upon the key insights that Michael Dell and Howard Schultz first implemented. And just like McDonald’s today — or Ford Motor starting a few decades after it was founded — those conditions imply very different challenges for the companies in the years ahead.

What Schultz, Dell, and Jobs have in common: beaucoup smarts, energy, and competitive drive. But whether either Dell or Schultz will be able to pull off the renaissance that Jobs has at Apple . . . well, I’ll be stunned if either of them pulls it off.