Tuesday, May 22, 2012

Sell Out and Become a Regular Man (or, The One Quality Every Entrepreneur Must Possess)

Frederic Tudor was born in Boston the day the peace treaty was signed in 1783 ending the American Revolution.  He rode the  earliest wave of American entrepreneurial activity, becoming one of the country’s first millionaires.  Tudor possessed all of the qualities we have come to treasure in our entrepreneurs, being described as “defiant. . .sometimes reckless in spirit. . .imperious, vain, contemptuous of competitors, and implacable to enemies.  While energetic in competition, he preferred legalized monopoly.”

(Wait—weren’t we all just given that biography for Christmas?)

What made Tudor successful, however, was his incredible, implausible, ungodly persistence.  Tenacity.  Resilience.  Obsession.

It’s a great reminder of what Peter Worrell told us in 2010:  Of all the qualities that a successful entrepreneur must possess, persistence is number one--and number two is so far behind it’s almost an afterthought.

(Pete actually used the term grit, which he defined as perseverance and passion for long-term goals, working strenuously toward challenges, and maintaining effort and interest over years despite failure, adversity, and plateaus in progress.)

Consider the classic entrepreneurial qualities.  Ethics are powerful, but there are plenty of famously unethical, famously rich entrepreneurs.  Brains are good, yet obtuse, successful entrepreneurs are not particularly hard to find.  Charming and amiable entrepreneurs who build happy teams are common, but so too are ogres and misfits and social buffoons who make those around them miserable.  We can find entrepreneurs who are wildly creative and others who steal ideas and have trouble inventing their own lunch.

But it is simply impossible to find a successful entrepreneur who quit.

At a time when Americans joked that New England had just two crops, ice and granite, Frederic Turner took the former and turned it into a multimillion dollar industry, creating a precious luxury item in markets from New Orleans to Havana to Calcutta.  He saw a market that was simply invisible to his fellow merchants, and he built that market by teaching people how to carry, store and use ice to preserve foods, cool drinks and make ice cream.  

We know Tudor was an entrepreneur because his fellow Boston merchants--who were happy to speculate in everything from coffee to mahogany to umbrellas--thought he was just plain nuts.  When he invested $10,000 in 1806 and filled the good ship Favorite with huge blocks of ice hacked from Fresh Pond in Cambridge, the Boston Gazette wrote, “No joke.  A vessel with a cargo of 80 tons of Ice has cleared out from this port for Martinique.  We hope this will not prove to be a slippery speculation.” 

Much to the delight of his skeptics, this first trip turned out to be a financial disaster.  While much of the ice miraculously made it to Martinique, Tudor lacked infrastructure (namely, an ice house) and consumer education (how to use something that had never before been seen), so that the ice melted away in six weeks and he lost $4000.  (The solution to insulation would prove to be sawdust, creating an important aftermarket for New England sawmills.)

Frustrated?  Of course.  Daunted?  Never.  For the next 15 years, Frederic Tudor shipped ice to ports from Charleston to Havana to New Orleans, building the trade, taking endless risk, suffering yellow fever, a mental breakdown, employee theft and government corruption, the Jefferson embargo, the War of 1812, the Panic of 1819, finding himself perpetually undercapitalized and, not once, but twice tasting the humiliation of debtors’ prison. 

Throughout his career--too much and too extraordinary to cover here--Tudor cajoled, implored, begged and borrowed  from every member of his family, and from his family’s impeccable network, including Revolutionary War heroes, Boston’s Brahmin community, and most of the East Coast merchant class.  (Frederic’s father had worked with John Adams, his brother with John Quincy Adams.)  Tudor took advantage of every tie offered him and every connection he could forge himself.

By 1833 Frederic Tudor had become the dominant player in the global ice trade, the nation's Ice King.  His crowning glory came that year when he sent the Tuscany with 180 tons of ice to Calcutta, crossing the equator twice and preserving its cargo for four months across 16,000 miles.  Indeed, the British in India knew what to do with ice, welcoming it with a celebration and immediately subscribing funds to construct a palatial ice house.

By 1849 Tudor had become wealthy.  In many cities ice was an essential part of living, the ice box a common feature.  A bachelor for most of his working life, Tudor married and fathered six children after the age of fifty, living until age 80 in 1864, a wealthy man with a country estate in present-day Nahant. 

Occasionally, though, he must have thought back to Dec 1817, sitting in a cold, foul-smelling prison cell wondering how he might finagle funds for his release from friends and family.  It was then that Fredric Tudor wrote a brilliant discourse on the plight of the struggling entrepreneur, one that still resonates today:
Had you not better entirely abandon this ice business?  It is a subject which wears out body and mind while it prevents you from having the standing among your fellow men which you deserve.  It occupies all your attention and appears at best subject to great hazard.   
In the course of twelve years pursuit you have arrived at little certainty. . .You stand at best a well-intentioned schemer and projector when you might, with a more regular application to common mercantile business, become a more useful and respected member of society.  It is not too late, you are not yet 36 years old and you may yet get back into the old road. 
Sell out in the best way you can and become a regular man.    
Answer: The suggestions of doubt are too late. . .My reputation is now so far pledged that I must advance. . .I, therefore, throw away every discouraging thought and determine to push on with as much exertion as I can command and endeavor to deserve success.”

If you are a committed entrepreneur, you have just one plotline--one that involves grit and persistence and obsession. Let's hope you will never choose to become a regular man or woman.


Nicholas, Tom and Sandra Nicholas. "The Ice King." 9-808-094. Boston: President and Fellows of Harvard College, 8 February 2011.  Paterson, Carl Seaburg and Stanley. The Ice King: Frederic Tudor and His Circle. Boston: Massachusetts Historical Society and Mystic Seaport, 2003.  Pearson, Henry Greenleaf. "Frederic Tudor, Ice King." Proceedings from the Massachusetts Historical Society 65 (Oct 1932-May 1936): 169-215. Weightman, Gavin. The Frozen-Water Trade. New York: Hyperion, 2003.

Sunday, May 13, 2012

Tombstones and Donuts On Old Route 1

Every Monday morning I hop in the car and head south on Route 1, a highway that stretches from the Canadian border to Key West, Florida.  It parallels and was largely superseded by Interstate 95 beginning in the late 1950s.  To promote tourism and trade, Route 1 has become, in Libba Bray’s words, a great and terrible beauty.  For example, our particular stretch of road from the North Shore into Boston features, among other high- and lowlights, a giant orange dinosaur, the Hilltop Steakhouse (whose life-size plastic cows are regularly pilfered by local students) and the Golden Banana which, if you have to ask, you’re too young.

Route 1 on a busy morning
We also have a Dunkin Donuts every few miles and one, in particular, that I frequent on my Monday commutes.  This palace of pink and creamsicle, which recently relocated a few doors north, had managed to tuck in a drive-through round back, past the dumpster and in between the muffler shop.What struck me was not Dunkin’s ingenuity in getting town permission for what was more an obstacle course than a drive-through, but one lonely little grave that sat in the back corner of their parking lot.

I could not read the memorial, but I could tell by the flags it was a veteran, whom I began to refer to as Private Cruller.  Everytime I drove through I checked up on the Private just to be sure he was resting easy. Indeed, Dunkin Donuts did a great job maintaining the site.  Nevertheless, it always looked out-of-place back there next to the dumpster.

Last week I was passing by and decided, with Dunkin now officially departed the location, to take a closer look.

The monument is back and right.
A little closer
This turns out to be the gravesite of George Washington Flint.  A quick check on the Web revealed that George had been born in Peabody, Massachusetts, on 31 October 1846 to Sophronia Lamson Leadbetter (1831-) and Warren Augustus Flint (1822-1884), the second oldest in a family that would one day include eight siblings.  

Warren made his living as a cordwainer, or shoemaker.  I also learned that George, single and himself a shoemaker, had died 20/23 March 1873 of “congestion of brain” and was buried in “Watertown, Massachusetts then to Lynnfield.”  He had served in the Civil War, his headstone inscribed: "George W. Flint, Private, Co. C, Reg. 17" on 25 November 1884.

With Dunkin Donuts gone only a short time, things aren't looking so great.

Before I tell you how 24-year-old George Washington Flint, Civil War veteran (at the age of 16), came to rest in the rear parking lot of a Dunkin Donuts not far from a strip club and an orange dinosaur just off one of the busiest roads in Massachusetts, I want to tell you about a superb essay I read recently by Michael J. Lewis, Professor of Art at Williams College, and given by him at Hillsdale College in March 2012.  

Lewis’s essay is entitled The Decline of American Monuments and Memorials and starts by saying that this has been an extraordinary year for American monuments--Ground Zero opened last September in New York, the Martin Luther King Memorial opening in October in Washington, and on tap is the memorial to President Eisenhower.  All have been controversial.  

The King Memorial, for example, engaged a sculptor from Communist China, used Chinese instead of American granite, misquoted King by using a hypothetical statement, and pictured the civil rights leader not in a great speaking pose (as we might remember him) but looking aloof and, well, despotic, not unlike a Leninist-Maoist memorial. 
The new Martin Luther King Memorial

The proposed Eisenhower Monument will be of a 30-foot, dreamy country boy gazing out upon images of the Kansas prairie.  As Lewis says, this is rather unconventional “given that there were millions of dreamy country boys and only one Supreme Commander of Allied Forces in Europe in World War Two.”

Lewis also laments that fact that, in FDR’s memorial, his most effective visual prop--the ubiquitous cigarette holder--was removed by pressure from anti-smoking groups, while the thing he tried hardest to hide in public appearances, his wheelchair, is present.  “So the element he flaunted was eliminated,” Lewis says, and “the element he concealed was stressed.”

Professor Lewis reminds us that a monument is supposed to be a “single powerful idea in a single emphatic form, in colossal scale and in permanent materials, made to serve public life.”  Open-ended conversations in which various groups bring various interpretations to various forms, Lewis adds, are called schools or museums.  He suggests the spontaneous rise of roadside memorials to tragic accidents, a new form of folk art, rely on simple and traditional forms--crosses, handwritten signs, stuffed animals--to tell a powerful story.  This is a lesson our modern monument-makers should take to heart:  The creators of these roadside memorials “look for widely understood symbols, and they yearn for resolution and closure; they certainly do not aspire to an open-ended process.”

Professor Lewis closes by saying, “For more than a century and a half, we built monuments with spectacular success.  We have only been building them badly for a generation.  I look at these recent designs, which are perhaps an honest reflection of our divided and uncertain culture, and can’t help but think we can do better once more.”

George Flint left the army in 1865, suffering from poor health.  It's possible he was imprisoned at Andersonville in Georgia, and either there or elsewhere suffered sunstroke in the spring or summer of 1864.  This left him with chronic dizzy spells.  When he died in Watertown in 1873 he was moved to his parents’ farm in West Peabody along what would have been the Newburyport Turnpike (or present-day Route 1).  We might presume that the site of the Dunkin Donuts dumpster was once a quiet wooded setting behind the Flint’s farmhouse, perhaps even the start of a family graveyard. We now know that it was at least nine years, 1884, before George had a proper and fitting memorial--at least in the eyes of his fellow veterans.

Early 20th century Newburyport Turnpike photo--just to get traffic, donuts and dinosaurs out of your mind
In any event, when Sophronia sold the homestead to a 73-year-old farmer from Maine named J.B. Turner, she also promised to have her son’s remains moved.  She was never able to afford this.  The Turners  apparently allowed veterans to decorate Flint’s grave from time to time, but created a scandal in 1893 when--for whatever reason--Mrs. Turner refused to allow Grand Army of the Republic veterans on her land.  The report in the local press described the grave as “rank with weeds and unmarked by stone.”  Veterans were angry at “such an outrage on the honored dead, who had suffered the torments of Andersonville and died that his country might live.”

In 1996, with a century of commerce having turned the Newburyport Turnpike into Route 1 and the Flint's farm into a Dunkin Donuts, George Flint's gravesite was again at risk. Four years previously a snowplow had upended the gravestone and some believed it had been deposited in a nearby dumpster.

In October 1996, a group of about fifty people rededicated Flint’s final resting place, a result of the efforts of the Peabody Historic Graveyard Coalition (PHGC) and the support of local businesses.  “In a ceremony marked by military honor guards and musket volleys, the sound of a solitary trumpet playing  'Taps'  and a  rendition of a hymn, Flint’s new marble headstone was unveiled.”  Dressed in nineteenth century Union uniforms, members of the Lawrence Light Infantry Honor Guard participated, as well as members of local veterans organizations and the PHGC. Viewing the colorful assemblage of flags and witnessing the ceremony to honor one of his ancestors, was Frank Flint, formerly of Beverly and now residing in Dracut.   Dunkin Donuts provided the landscaping for the grave and made a commitment to maintain the site.”  A brass plaque was also mounted near the stone.

So what happens now, I wonder?  It’s hard enough for many cities and towns to keep their graveyards maintained, much less a forgotten single stone in the wrong place with scattered family.  It would be nice to see it moved to a more appropriate location. It would be easy to see it forgotten.  We can only assume that George Washington Flint--like all of us, Professor Lewis says, when we create spontaneous roadside memorials--must “yearn for resolution and closure, and not an open-ended process.”

We decided in 1884, 1893 and again in 1996 that the site was worth preserving.  What Professor Lewis said in 2012 about our grand monuments should hold no less true for our smaller memorials: "I can’t help but think we can do better once more."

A Few More Sources

Even if you learned nothing else, you now know that Dunkin Donuts' colors are pink(ie) and creamsicle here.

You may remember that we originally tackled the topic of good and bad statues in 2009 here.

More than you could want to know about Route 1 is here.  

Some good history of the Newburyport Turnpike here.

Professor Lewis’s entire lecture, and worth reading, is here.  

PIctures of some of the monuments Professor Lewis mentions are here.

The only web source I could find on the George Flint story was here.  Further research would no doubt yield more information.

2016 Update: The Hilltop has closed and is gone, the ground along Route 1 awaiting its next venture. I stopped and took these pictures in June 2015.

Monday, May 7, 2012

Some Companies Just Need to Go Away (Yahoo? RIM? Kodak?)

End-of-life spending in healthcare has been a blistering topic for years.  In the US and Canada we spend about one third of our overall healthcare resources in the last year of life.  Medicare paid $55 billion in 2009 just for doctor and hospital bills during the last two months of patients' lives--more than the budget for the Department of Homeland Security, or the Department of Education.  An MD writing in Daily Finance watched his father-in-law’s final six months, reporting “More health dollars were probably spent. . .at the end of his life than were spent on the rest of his 75 years combined. Despite all that money and effort, he was miserable.”

While the stories are heart-rending and the economics upside-down, all this effort comes from a noble impulse.  Doctors wants patients to live and are willing to make heroic efforts to save them.  Many patients expect those efforts, and even when they do not, their families often do.  End-of-life medical spending appears to be one of those frustrating loops where everyone is trying desperately to do good and the results are somehow coming out sideways.

But this isn’t a post about end-of-life medical spending.  It’s about that same heroic, often misguided impulse that forces a management team to save the life of a once successful company that is in the final throes of its life cycle--noncompetitive, increasingly irrelevant, and unsalvageable.

Take Yahoo, which is an especially interesting case because it’s the kind of patient that doctors dread most--no one ailment is life threatening, but in the “whack-a-mole” race to address each one the patient is unable to withstand the cure.

Last month, Yahoo announced it was laying off another 2,000 employees, the sixth major layoff in the last four years under the sixth CEO in the last five years.  Facebook and Google are stealing Yahoo’s revenue.  The company has a huge proxy fight looming over board seats.  Yahoo charged Facebook with patent infringement a few months ago and Facebook countersued last week with the charge that 80% of Yahoo’s revenue last year violated Facebook patents.  Things are a mess for Yahoo in China and Japan, where it cannot extract value for its holdings.  Right Media, its ad exchange, and its search alliance with Microsoft are both considered failures. 

 As one member of the family of investors noted, “Cutting headcount is not executive genius.  Margins are not the issue, revenue is.  Is Yahoo going to grow?  Or is this a downward path to zero?”

All of which allows us to asked an indelicate question of Yahoo that we are unable to ask of our great-uncle: If Yahoo went away tomorrow, would anyone care?  If Yahoo Sports dies, we’ve got ESPN.  Missing OMG?  Try TMZ.  Search?  Not hardly.  In fact, gone tomorrow, I would submit that Yahoo would be a distant memory in a month, joining the hallowed ranks of Mosaic and Prodigy. 

Why take extraordinary measures to save this patient?

Teaching Business Leaders Palliative Care
Many hospitals have begun disciplines around palliative care, helping very sick and often terminally ill patients simply stay comfortable so that their quality of life is optimal and they are allowed to die with dignity.  Perhaps there should be a course taught in business schools, just as we develop start-up and turnaround specialists, that teaches end-of-life “palliative care” to leaders who will be asked to carefully unwind dying companies in a way that optimizes investor wealth.  Nobody is suggesting that we give up early.  Nobody is suggesting that if a miracle drug in the form of a merger or acquisition or new product comes along we wouldn’t take it. 

But the idea that we can innovate ourselves out of any mess underestimates the power of the market, the presence of competition and the inevitability of life cycles.

Take, for example, Research in Motion’s BlackBerry.  It revolutionized the way workers communicate, had a fantastic run--a product life cycle for the ages--but was simply overtaken by Apple and Android.  Market share shrank from 50% in 2009 to 17% in 2011. A make-or-break announcement of its new, life-saving platform (BB10) last week fell completely flat.  Its stock has been in a death spiral.  

"We don't see any scenario where BB10 can compete meaningfully against the three major smartphone operating systems: iOS, Android, and Windows Phone,” one analyst said. "Our longer term view is that RIM will be forced to focus on the low-end, emerging market opportunity, as we believe that segment remains the only jump ball the company and its products will be able to grasp."

Does that sound like much fun?  And, if Blackberry went away tomorrow, would anyone miss it?

That sounds to me like a job for a business expert in palliative care.  End-of-life should be as profitable as possible, which means an immediate cease and desist order on developing new products and throwing good money after bad. 

Life and Death: Kodak and Fujifilm 

One of the strongest defenses for heavy end-of-life medical spending is that some patients actually live.  Doctors just don’t know which ones and therefore feel compelled to treat them all.  

Can we apply that concept to a business scenario, when two outstanding companies appear to have reached the end of their natural lives and management takes heroic measures, actually saving one?

Kodak and Fujifilm may provide some clues.

Kodak filed for Chapter 11 bankruptcy in January 2012 and last month reported a Q1 $366M loss, saying it would retreat from digital cameras and picture frames to focus on retail and desktop-inkjet printing.  Management claimed “Kodak is focusing on opportunities” hoping in 2013 to have a 'leaner, stronger and sustainable business.'"  Does that seem very convincing to you?

Think back to 1988.  Kodak had 145,000 workers worldwide making cameras, motion picture film, floppy disks and pharmaceuticals.  The company finished the year with profits of (the current equivalent of) $2.5B.

Digital photography, invented by Kodak in 1975, exploded in the market shortly after its 1988 banner year, as did film competition from Fuji. Unable to adjust, Kodak shares began a steady decline, falling from $25 to pennies in five years while worldwide employment declined to below 19,000.

In its prime, Kodak had more than 70% of the US film market and was one of the world’s most valuable brands.  Its business model was successful for a century.  So it’s almost offensive when a marketing “expert” steps up to give us the Marking Myopia pablum, as one did recently, opining on how Kodak failed at marketing: “The company," he wrote, "had the nearsighted view that it was in the film business instead of the story-telling business.”

The story-telling business?   Seriously?  How about this more practical reading of the situation: Kodak was in the film-making and film-processing business, boasting dominant distribution and market share, and generating in excess of 70% gross margins.  When that business model began to be overtaken by digital, it owed its investors a much better option than “the story-telling business,” which looked in every direction suspiciously like a small, fragmented industry with low barriers to entry, massive garage-entrepreneur competition, and sub-20% gross margins.  The digital camera business, facing some of the world’s finest electronics companies, had all the makings of a fiercely contested commodity business.  And neither fell neatly into Kodak’s competencies, one of which involved being the best in the world at rendering gelatin efficiently from the bones of cows.  That, dear marketing expert, is a long, long way from story-telling.

A former director of new product development at Kodak echoed this view: "The digital business was not going to be nearly as profitable as the film business in any respect. The film and chemical business was one of the all-time great business models. A lot of the change was going to come whether Kodak aggressively embraced digital business or not."

Technologies advance.  Business models end.  But don’t we owe investors something better with their returns than dumping cash into inferior business models?

Our palliative care business leader would have been tasked at Kodak with milking the film business for all it was worth, using the profits to fund as much of Kodak’s pension program as possible, experimenting cheaply with Kodak Gallery and the like just to see if a miracle cure was available, retraining workers for other emerging industries, selling its patent portfolio, offering its hoard of Brownie cameras on ebay, and having as his or her central mission bringing a world class company and American icon to a dignified end.

Of course, the family of Kodak investors expected heroic efforts and now can blame the doctors for not having the “vision” required to save the patient, but we know the truth: There was no good option, no matter how the business was defined.  Kodak needed to be unwound as profitably as possible, thanking its stars everyday for a hundred years of dominance. Live a grand life, make us all happy for a century, and you should be allowed a dignified end.

"There are no indications I can point to that management did not attempt to find additional innovative products,” the former Kodak executive said.  “But it just never worked."

Welcome to life in the American cathedral of innovation, where many prayers are offered but only a few answered.

Now for the good news, the patient who lived, Fujifilm.  "Both Fujifilm and Kodak knew the digital age was surging towards us," Fujifilm Chief Executive Shigetaka Komori said in a recent interview. "The question was, what to do about it."

“What Fujifilm did,” the Wall Street Journal reported,  “was to look further than simply moving to digital photography from analog. Instead, the company tapped its chemical expertise for broader uses, such as drugs and liquid-crystal display panels. Cosmetics, as well: It seems the process for stopping photos from fading can be used on skin, too.”

In the process of saving the Fujifilm patient, manufacturing facilities were shuttered and thousands of workers lost their jobs.  The company took what it knew about chemicals and pharmaceuticals to develop an LCD-panel component business and a skin-care line.  It also spent billions to acquire healthcare companies.  Never as dependent as Kodak, Fujifilm now makes about 1% of its revenue from photographic film, down from 20% ten years ago.

Mr. Komori’s conclusion: “Fujifilm was able to overcome by diversifying.”

A great success, right?  The patient lived.  Except, of course, with a few clicks of a keyboard, the average investor could have dumped Fujifilm stock and invested in leading, world class pharmaceutical, LCD-panel and skin-care companies without having to suffer through the extraordinary “end-of-life” machinations.  The patient lived, but it’s not clear members of its extended family weren't wounded by the cure. (It's also unclear if the patient, like the Six Million Dollar Man, had any of his original body parts left.)

There are many unanticipated consequences to a business culture that worships at the altar of innovation.  One is the tendency to spend bad money after good trying to evade the end of a business life cycle.  We leap from our comfortable, profitable life cycle curve to an inferior position on a new curve that’s already well populated with smart competitors, often in a smaller and less attractive market--and then squander the riches of our old model to try to recreate its glory.

Blackberry is coming to the end of a brilliant product life cycle.  Kodak already has.  Both had the great misfortune of showing other smart people what’s possible, and then having the students exceed the teacher. That happens.  It’s called competition.  

The apostles of Myopia and disciples of innovation believe that it’s all about defining the business correctly and generating the next great idea.  Sometimes, though, a thoughtful, orderly shuffle from this mortal coil seems like the wiser, kinder, and more profitable decision.