Month: July 2015

Dyson vacuum cleaners: the power of marketing?

by philg

A recent visit to the local vacuum cleaner store prompted me to ask the owner whether he recommended the Dyson products on his showroom floor. “Because they’re bagless they need a lot of service and cleaning,” he replied. “In addition to what you do at home you need to bring them in every two years for about $150 of professional service. Then they die after about five years. Compare that to $20 per year of bags for a Miele.” Consumer Reports rates the cleaning performance of the Dysons as far inferior to competitive products (a $550 “Cinetic Animal” machine scores below a $150 Hoover canister), except for their “Ball Multi Floor” upright ($400, albeit underperforms a $160 Eureka, a $180 Hoover, and a $200 Kenmore (all with bags)). How can they sell any machines at all then? “Dyson puts a huge amount of money into marketing,” said the owner. “Miele puts the money into the product and counts on the fact that once you buy a Miele you will be a Miele customer for a lifetime.”

He had scarcely finished this explanation when a guy walked in with a $500 Dyson upright. He plugged it in and there was an insane amount of noise but no suction. “You’re going to need some new filters and a thorough cleaning,” said the vacuum expert….

What do readers think? Is there anything to like about Dyson vacuums or does their success as a company prove that the best path to success is through superior marketing?

[Disclosure: I have a 20-year-old Miele that still works great.]

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Global douchebag circuit: Aspen Institute, Ellen Pao, and Buddy Fletcher

by philg

In sifting through all of the press coverage around Ellen Pao’s attempt to get $176 million out of Kleiner Perkins, I missed one salient feature: Pao met her husband, the then-gay Buddy Fletcher, at the Aspen Institute (Pao’s profile on the organization’s “Global Leadership Network” section; see also Fletcher’s page).

In case the various investor lawsuits against Fletcher motivate the Aspen folks to edit their site, I am cutting and pasting the most important parts here:

Alphonse pursues an uncommon investment strategy combining traditional investment management, corporate finance, quantitative methods, and social responsibility. Since 1991, Fletcher Asset Management has invested more than $1 billion in dozens of promising companies. In 1996, the company had about 25 employees, and there were days when Fletcher, this tiny company (by Wall Street standards), accounted for more than five percent of the New York Stock Exchange’s trading volume. Alphonse started working in the investment arena after graduating from Harvard in 1987. He first joined the Wall Street investment firm of Bear, Stearns & Co. and in 1989 was lured away by GE’s Kidder, Peabody & Co., a giant in the Wall Street-based investment industry. Alphonse soon became an active philanthropist. The recipients of his generosity have been the NAACP, Harvard University, Alvin Ailey Dance Theater, New School for Social Research, and the Joseph Papp Public Theater/New York Shakespeare Festival. In collaboration with other groups, Alphonse has launched a $50 million multi-year initiative in education which includes a fellowship program providing $50,000 fellowships to educators, lawyers, scientists, artists, economists, and others who work toward equality. Alphonse was named “Entrepreneur of the Year 1999” by Ernst & Young. He has an A.B. from Harvard University and a Masters degree from the Yale Environment School. Alphonse is a member of the 2007 class of Henry Crown Fellows and the Aspen Global Leadership Network at the Aspen Institute.

I guess we should give the Aspen folks credit for realizing that Fletcher had “an uncommon investment strategy.”

Can readers think of another love story that would be more consistent with going from Harvard to the global douchebag circuit? Here’s my personal entry: “We met at the Aspen Institute and then fell in love at dinner seated between the Dalai Lama and Desmond Tutu at Davos.”

[And separately, if these two are representative of America’s contribution to the current global elite is it any wonder that our economic growth is anemic?]

Related:

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Good reminder to brief a go-around and insist on stabilized approaches

by philg

Here’s a story on a Boeing 737 crash: “NTSB: Southwest Airlines captain in 2013 accident should have done ‘go-around’ rather than attempt LaGuardia landing” (NTSB release). As this was a major U.S. airline both pilots had to be very experienced (see “Foreign Airline Safety” for the career path). The full narrative shows that the captain had 8,000 hours of 737 experience (she had 12,500+ hours of total flight time). The first officer had 5000+ hours total time and 1,100 in the 737.

[According to standard airline protocol, the captain as the pilot monitoring was the person responsible for running all of the checklists and making sure that the plane was properly configured. So, although the first officer had his hands on the controls it was mostly the captain’s job to check that the flaps were set at 40 earlier in the approach.]

This shows the importance for pilots of fighting a persistent human frailty of overcommitment to a plan of action. Every landing should start with a brief about how to go-around and when to go-around (go-around = “add power and start fresh”).

Where else do we see this? Here are a few examples:

  • Entrepreneurs spend a lot more time in ailing companies than is rational. Why not have airline-style criteria before going into a startup about when you will admit failure, e.g., “If revenues are not at least $X by Date Y, I am taking a job at a Fortune 500 company”?
  • I attended a hearing on family law at the Massachusetts State House, Joint Committee on the Judiciary (sharing some data from a statistical study on divorce litigation in Middlesex County). One loser parent after another went up to testify about how they had gone broke paying lawyers (up to $2.7 million per case) to fight against a judge’s early ruling that their plaintiff would be the winner parent (getting the house, the kids, and the tax-free child support profits). All of them would have been far better off if they’d walked away from the situation (including unfortunately their children) after the first temporary order favoring the other parent. (They could have heeded the advice of a lawyer quoted in the Massachusetts chapter: “You know that the game is rigged. Why are you swinging at every pitch?”)
  • I had lunch yesterday with an executive from a mid-sized health insurance company. He pointed out that organizations as a whole can overcommit. “After Obamacare it doesn’t make sense to keep going as a mid-sized business. That’s what Anthem buying Cigna is about. Our company should be selling itself to United or Anthem but people can’t accept the situation.”

What do readers think? Are there more situations in life where on could apply airline-style stabilized approach criteria that, if exceeded, would call for a go-around? If so, what are they?

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Cognitive Deficits in Entrepreneurs

by philg

Starting your own company is, on average, economically irrational. If you work for a big enterprise you have access to their capital and their brand. If you become a dentist or physician (or have sex in Massachusetts, New York, or Wisconsin with a couple of dentists or physicians), you’ll probably make more money than the typical entrepreneur and with a lot less risk.

The Wall Street Journal piece “Why Some Entrepreneurs Feel Fulfilled—but Others Don’t” contains a hidden gem:

When it comes to schooling, for instance, more of it doesn’t always lead to greater satisfaction. Researchers in the Netherlands have found that entrepreneurs with high levels of general education—say, from an Ivy League university—actually end up less satisfied with the income their startups generate than those who had more practical, specific professional and educational experiences.

The reason: Many Ivy Leaguers overestimate their abilities, only to end up disappointed when they don’t find quick success or earn what they think they deserve. “People tend to have high expectations when they are highly educated,” says Ingrid Verheul, an assistant professor of entrepreneurship at the Rotterdam School of Management, who co-wrote the 2011 Netherlands study. “They expect to be good at things. They have higher opportunity costs, and often expect to be working higher-level jobs.” …

It isn’t that Ivy League types do any better or worse than people with more specific educational experiences, says Ms. Verheul. Rather, she says, income satisfaction is in many ways tied to how people think they stack up to their peers. In the Ivy League, peers may go on to earn huge salaries in high-level management, which could make the typical entrepreneur’s salary seem small. People educated in more specific fields see their peers go into similar businesses, so they set more realistic expectations.

A similar dynamic is at work with people who started businesses with lots of initial capital, Ms. Verheul says. According to the study, those who begin with a lot of money are likely to expect high financial returns. When their returns aren’t as high as expected, they aren’t satisfied.

Related:

  • Tips for Startup Companies
  • this post about Ellen Pao with a former co-worker’s comment: “… employers have continued to hire her for jobs with increasing responsibility, wrongly hoping that she will one day live up to the promise shown at Princeton and Harvard, only to be disappointed; and, Ellen still can’t accept that she can’t repeat her academic success in the business world, …”
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NYT Style Section: Divorce Saloniste for Women

by philg

“A New Cadre of Experts Helps Women Navigate Their Divorces” is an interesting July 18 NYT article. The amoral adult-centered world of divorce litigation is reflected in that the editors chose to put this in the “Style” section and that the negative effects on children are alluded to just once, in a “How are you going to help your children heal?” quote from an interviewee (the academic psychologists and epidemiologists whose papers are cited in Real World Divorce found that, in general, children do not heal after a typical U.S.-style divorce). The journalist does not mention that children effectively pay for 100 percent of the cost of a divorce, including for the consultants interviewed, because children will receive a smaller inheritance (and the time, energy, and money that their parents put into litigation is not available for parenting).

The profitability of divorce for a thoughtful American is apparent from the facts reported. The main interviewee runs divorce salons for women out of “century-old Brooklyn Heights carriage house that had been remade into the sort of place location scouts covet: an aspirational set for the next Nancy Meyers movie” with a “soaring glass-walled living room and backyard.” How did Elise Pettus, “trained as a journalist and filmmaker” (but whose name shows up in IMDB on just three films, the most recent of which is from 1990, and in low-level production assistant-type jobs), manage to obtain a multi-million dollar house in New York City? She herself is divorced…

The rest of the article is interesting because it shows what is on the minds of contemporary Americans who have sued their spouses or defended against a lawsuit by a spouse in New York, a typical winner-take-all jurisdiction (the victorious parent gets the house, the kids, and most of the cash; Census data from March 2014 shows that 91 percent of the winners in NY were women).

Related:

 

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Hanscom Field will be spared from Donald Trump’s 757 clogging up the ramp

by philg

The Boston Herald reports that the government will protect our tender ears from Donald Trump until he recants his thoughtcrime:

“I just don’t agree with him at all,” Boston Mayor Martin J. Walsh told the Herald yesterday. “I think his comments are inappropriate. And if he wanted to build a hotel here, he’d have to make some apologies to people in this country.”

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Uber regulatory risk: Politicians who will never use Uber

by philg

Uber continues to have a tough time with politicians and the government regulators whom those politicians appoint. I’m wondering if part of this difficulty is that politicians are now so segregated from the rest of the population (Marie Antoinette/Louis XVI) that they will never use Uber (and, since Uber is fairly new, never would have used Uber in their pre-success days).

Let’s look at Hillary Clinton, for example. The Daily Caller says that she can’t go anywhere on a plane smaller than a Gulfstream G450 (about $50 million factory-new, depending on how pimped out the interior is). One thing that one does not see is a Gulfstream G450 land at Teterboro and the passengers come out to summon Uber from their phones.

The mayor of a smaller city may not travel around in a G450, of course, but he or she probably gets a car and driver and hence will never have a personal need for Uber.

Readers: What else do politicians regulate that they never have to use personally? And should there be some kind of requirement that regulators also be customers of the industry that is being regulated? Otherwise, why wouldn’t it be trivial for a well-funded lobbyist to get rules established to eliminate competition?

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