VII. Effectology in Business
"Money has no conscience, but it can talk."
Questions that will be considered:
What are the most likely accidents in business?
How to take an idea to the market?
What are the major risks in business?
Humans are among the few creatures with opposable thumbs. This particular anatomic design gave humans the ability to use their hands in versatile wayslike making tools. And with the discovery and invention of tools, Homo Farber/worker was on his way to changing Mother nature.
Each individual must earn a living. This need to work and produce is the foundation of business. Production involves a producer, people to supply the producer with goods and labor, and the distribution of the final products. It sounds like a simple process, but it involves a vast number of economical, social, and political factors.
Jean-Jacque Rousseau believed that humans were naturally inclined to be fair and good to each other, but once they engaged in agriculture, science, property, and commerce, they become corrupted. Hegel considered humanity creating everything, including their lives, through labor. Entire social systems, civilizations, and religions were shaped by the way goods were produced, and by how certain technological methods were used in certain times. Ceaselessly, men have challenged the forces of nature to exploit its potential for their own gains. In so doing, they created countless accidents.
Ten thousand years ago, the agricultural revolution began, dictated by rain and drought. Agriculture created an economy superior to the pastoral economy, with its many unreliable factors. Village and urban economies required specialized laborers, and many of them became entrepreneurs who invented new ways to control natural resources. The use of the watermill kept empires of slavery in place for thousands of years. Fifteen hundred years ago, the windmill advanced the feudal society.
Besides the omnipotent mill, which could move almost anything, many other technological inventions were scientifically or accidentally discovered, also advancing business and creating sophisticated societies. For thousands of years, wood and coal were humanity's main sources of fuel. In the beginning of the seventh century, however, the Japanese were already using "burning water," which was petroleum. Marco Polo noticed fountains of oil near the Caspian Sea, but its use came to Europe much later, when it was required by the engines of advanced industries.
Sand and water clocks were used since time immemorial, but in 1090, the first mechanical clock marked time in Peking. Two hundred-fifty years later, a mechanic clock struck the hours at the Strasburg Cathedral. Marking time using the sun's shadow was replaced by a more succinct method of keeping time, and the hourly pay rate was invented.
Large and numerous businesses were created in response to the new demand for glass windows in London's private houses starting in 1180, and by the invention of Gutenberg press in 1450. Glass changed the architecture and comfort of homes, while the press copied in one hour more pages than a scribe could do in a year. A new means of generating massive amounts of information was created.
In 1779, the first bicycles astonished Parisians, but it was Fulton's steamboat that revolutionized transportation in 1807. The steam engine reigned supreme for the next two-and-a-half centuries, and ocean liners kept breaking one speed record after another. Ancient lands were modernized by the railroads. Steam power moved passengers and commercial goods like never before, creating businesses in markets never dreamed of.
It was mighty electricity which, in 1880, lit the New York City streets and gave birth to the telegraph, telephone, radio, and almost every technology we enjoy in the present. However, even a small accidental invention like the zipper in 1891 proved to have a major practical and financial impact in almost every business.
The end of the nineteenth century Industrial Revolution set up the entire economic and political order of the capitalistic system we have today. Since then, humans have become increasingly dependent on and addicted to technology.
Karl Benz's first four-wheeled automobile, built in 1893, and the Wright brother's first plane, built in 1903, generated half of the industries we know today. From a circus curiosity they became huge business that changed the world forever. The automobile industry demanded asphalt roads and highways, which in turn created demand for gas stations, motels, restaurants, and so on. The plane changed the travel and communications industries, and continues to do so to this day. Instead of crossing the Atlantic Ocean by a sail ship in a few weeks, now we cross it by jet plane in a few hours.
By 1915, Henry Ford had produced one million cars. At that time, the Stutz car could drive at the incredible rate of 102.6 miles-per-hour. Before the Model T, the majority of people never traveled farther than twenty miles away from home. Now they were covering hundreds of miles in one day. The effects of this were a mixed blessing of more good and bad accidents. People built highways and traveled faster, but the new transportation routes bypassed small towns and villages, killing traditional businesses that revolved around the use of horse-drawn coaches.
If the role of car remained the same, in 1947 the transistor was invented, making the vacuum tube obsolete and giving birth to an entire electronics industry. Because business generates both individual and national wealth, as business changed, a peaceful revolution of progress occurred in society. As usual, social changes automatically follow the creation of advanced tools that alter society's lifestyle. The advent of electric refrigeration changed the entire way food products were stored, delivered, and sold. Consumers adapted to another way to buy and cook food, breaking with tradition.
Any business is better run than any form of government for a sound reason: business produces; the government spends. Unlike in government, there is no freedom in business and no room for laxity and laziness. But there is plenty of room to compromise, because everything in business is negotiable. Corruption and cowardice keep politics and business tightly together, as not too much morality or loyalty is found in either.
In political campaigns, the public is interested in one thing: how the candidate will provide more and better jobs with better pay. Politicians wrap themselves in the flag and talk mostly about solving international problems, but voters are keen to know how they will generate more business and employment. In fact the presidential elections were held in November because that was a dead season for farmers. Voters care about patriotic messages, but what they mostly want is to learn about specific plans for the future, and how the candidate will improve their economic and social lives. The main job for the candidates is to promise spectacular improvements, while the job for the voters is to try to separate rhetoric from real, lucrative action.
What the voters often don't realize is that every serious candidate is strongly endorsed by powerful businesses, whose future profits depend on the winning candidate. Campaign donations from business interests and lobbies shape the future of the political and economic life. Only years later do voters learn about it, when it is already too late to correct the corruption. Nevertheless, business and politics seem destined to feed on each other, sometimes at the expense of society.
The purpose of government involvement in business is to supervise its conduct and let it know what to expect from the law of the land. Basically, it is the government's responsibility to watch over how companies are run. Every industry is inundated with rules and regulations, from the way to escape a fire, to how to pay taxes, to how to avoid discrimination. The enormous waste of federal and state bureaucracies overflows into private businesses, forcing them to create their own bureaucracies. This is a must, because in this way each business lessens its liability in the event of an accident, insulating itself from many legal ramifications.
Just like in politics, it takes a winning personality to be a successful businessperson. Both are allergic to failure, addicted to success, and worshipful of money. Both are doers who project an image of confidence and success. But only the businessperson is entrepreneurial, with useful and productive ideas for others to benefit from. Indeed, to take an idea from the mind to the market is a task only a few people can do successfully. In doing so, businesspeople must be successful at overcoming accidental challenges of many obstacles.
At the individual level, the ideal business is when someone does something he or she loves to do and is successful at doing. In most cases, a successful business is born from a person finding a need for something out of pure chance, and competing to supply that need. Most businesspeople do not inherit fortunes, but are self-made, creating market needs and ways to match the public demand.
Just like politicians, not too many businesspeople can act in accordance with their true convictions or their consciences. Every business faces cut-throat competition, which strips many traces of humanity from the desperate entrepreneurs. However, a successful businessperson must retain a certain amount of dignity and ethics in order to command the respect and trust of his employees and customers.
Confucius determined a superior man by his moral standards. The inferior person was one with standards for profit only. Unlike the person who worships the power of the spirit, the inferior person values the power of property. Well, the truth is, as usual, in the middle.
Property is defined by individual ownership, which in its turn is the basis of business. There have been many definitions of ownership, and the capitalistic version that originated in England was pushed forward to modern times. For obvious reasons, it works only in democratic societies.
Capitalistic relationships began when management and administration moved from factories to separate buildings. Soon, factories needed to make technological improvements and were powered by energy plants, which were in turn financed by a banking system, and were supported by other numerous businesses, establishing true capitalism.
When capitalism clashes with older forms of business, major social accidents erupt violently. In the case of the United States, the industrialization of the North just could not function along with the slavery system of the South.
While before 1700 there was a solid need for a slave market, because plantation owners wanted to replace expensive white workers with Negroes, after 1800 things began to change. Slaves became too expensive to buy, and too expensive and rebellious to keep. The sweat shops of the North proved profitable, because they could hire and fire the former slaves, and because they never had to deal with their large and unproductive families. The Civil War was the effect of irreconcilable differences between two antagonist business systems within the same nation. The efficient capitalism in the North defeated the bankrupt system of the South, and slavery was abolished for financial reasons.
Three hundred years ago, the steam engine sparked the creation of capitalistic relationships, republics, and Protestantism. Unlike previous systems, wherein entire families worked the fields near their houses, capitalism created a new class of laborers who worked away from their homes. Because they worked in a factory, they did not depend on the caprice of weather, and thus they became proletarians: highly profitable workers. Ultimately, the use of the factory worker created the capitalistic way of doing business that has lasted to our present days.
The modern industrial revolution in Europe was marked by the triumph of the Eiffel Tower, made of crisscross steel beams for the Paris World Exhibition in 1889. Four years later, a similar exhibition was held in Chicago, putting the United States on the map as a future industrial giant. In the same year, the first Ford car was manufactured. It was the beginning of a new century and of a new way to conduct the transportation business
It was the era in which Andrew Carnegie devised vertical production, which began with the iron mines, continued in the steel plants and factories, and ended up in training schools. It was the era when George Pullman, a third-grade dropout, became the king of a new way of transportation, and four transcontinental railroads were built. The fast, massive, and reliable transportation had spectacular economic effects on the American economy, in full march to its destination as a world's superpower.
Steam transportation proved to be a fast way to move huge quantities of materials over long distances. Because of the complex operation needed to produce and run it, rail transportation gave birth to the American corporation. It also put new towns on the map and led to a cross-country migration of people looking for better jobs and better lives. In short time, large cities were flooded with country folks learning new skills in order to integrate into the industrial world. Because farms lacked traditional manpower, the work of hands was replaced by machines. Farming equipment made a fortune for the entrepreneurial John Deere.
The fast pace of our modern era produces amazing, man-made environments like mega-cities, recreational parks, and other community spaces. The Empire State Building and the Golden Gate Bridge represent the power and glory of humanity over nature, true monuments of technology.
Ideas are the main ingredient of knowledge and come from books, visions, discussions, and, most importantly, from accidental experiences. Ideas always inspire action and are implicitly the source of most man-made accidents.
One of mankind's astonishing discoveries and scientific achievements is man-made electricity, an electromagnetic accident produced by friction, chemical reaction, or mechanical effort. Electric current is directed through metal wires towards designated outlets to produce its effect. Atomic energy is generated by controlled nuclear fusion or fission, skillfully captured to produce heat and other forms of energy.
These scientific discoveries made possible radio and television, cordless phones, air travel, manned space exploration. Manmade satellites orbit the Earth, and meteoric spacecraft have traveled around Mars. Powerful antennas collect messages from space, while powerful telescopes are used to avidly scan the depths of the universe. They send incredible photos and scientific information about our cosmic neighborhood to scientific labs. There has never been a more fertile time for cosmological and philosophical speculation.
As always, any successful biography has a surprise accidental twist in it. While for most people the premature death of their parents is an irreparable tragedy, in some cases it is a major favorable factor in dictating a person's success. Suliman S. Olyan, one of the world's wealthiest men, is such a case.
Olyan was born in a desert village in Saudi Arabia, and his parents died soon after. The six-year-old boy was forced to move with his older brother to the city of Bahrain, where he learned English in a missionary school. The ambitious young man worked for oil companies and ended up building the Trans-Arabian Pipe Line and its terminals in Lebanon. He also developed the first electric power plant in Saudi Arabia, along with a gas company and a chain of food stores. The Olyan Group extended into the U.S.A., Japan, Australia, and Europe.
If Olyan's parents were alive, he would never have left his village and probably would have tended to camels for the rest of his life. The unwanted accident changed him into the most competitive businessman of all times. By the time of his death in July 2002, Olyan's personal fortune was calculated at more than eight billion dollars.
In total contrast, lucky Edwin Drake struck oil in 1859, but felt no urge to pursue the golden opportunity. He gave up his rights and became a town clerk in Pennsylvania, filling out papers for the future oil rich entrepreneurs.
All parents wish for their children to stay in school in order to help them get better and more rewarding jobs. However, in one case, it was a college dropout who made his parents very happy and very rich. The young man started a business in a garage, and soon it developed into an international conglomerate that revolutionized the science of communication and information. He was William H. Gates III, who borrowed $800 from a neighbor to start a business that led him to become the Microsoft Corporation chairman, and the wealthiest man in the world. He reinforced the concept of American ingenuity in business to the world.
Many times a business is born out of a technological vision for the future, and Thomas Edison, Guglielmo Marconi, Lee de Forest, and Edwin H. Armstrong were pioneers of that kind. They knew little about electricity and close to nothing about radio. But they knew a lot about experimenting and correcting failures, fighting financial depravation, investing their money wisely, and persevering at trying new ways to improve their inventions and businesses. As proven above, the most important part of business is the skill to make money through a commercial venture. Commerce is based on surplus stock that can be achieved by extra productivity, or through the exploitation of others.
The ultimate goal in any business is to make money. As a rule, money is made by selling something for a profit. Money is important in business, because it represents a standard unit of exchange in gold. Thus, the amount of gold a business is worth is its value.
Money may not bring happiness, but it certainly can create opportunities to help look for it. For many people it ranks second in importance only to oxygen. For a businessperson to make money is both reward and sweet revenge for all the hardship he or she encountered before being successful. There is no better reading for a businessperson than a profitable annual report, or advantageous contracts, or letters of thanks for services provided.
Because money talks and everyone understands it, it is a door opener in any direction and at any level. Money is power and the only motivation in business. To play by the rules of profit is a must, and depends on knowledge of the market and financial education, obvious pluses for a businessperson.
The golden rule in business means that who has the gold, rules. It goes without saying that in any society, rich people make the rules from which they profit the most. If one cannot make a profit in business, he or she should not be in that business in the first place, because he or she does not belong to it. Cooperation, planning, and competition in any business require superior skills.
Because all individuals involved in a business want to share the profit and eventually get rich, the rules are subjected to countless accidents. It is natural for something to happen when money is involved, usually a bad experience. That was why early Christians declared money to be the root of all evil. Later, the Church itself became a very profitable business and blessed the donations.
Freud and Weber anticipated that modern civilization, driven by commerce, would be devoted to functionality and hostile to human sentiment. They were pessimistic about achieving happiness in the modern world, because the modern economic person was less spiritually sophisticated. Both of them were too entangled in complicated European politics and confused economic rules.
But before them, Benjamin Franklin (17061790), who was very much a practical philosopher, was very optimistic about the modern economy in America. Born poor, he valued money as a prime tool in building a society. It was he who, at age seventeen, arriving penniless in Philadelphia, used to say that to value money one should try to borrow it. With a good head for business, Franklin set down the basic rules to allow prosperity for all people. It became the root of American initiative and democracy: nothing could stop good men and women working together for a worthy cause like a rewarding business.
It was the restless and innovative Franklin who invented the lighting rod, bifocals, a better clock, an efficient stove, a glass harmonica, and even discovered the Gulf Stream in the Atlantic. He founded the best newspaper and almanac of that time, the guild of craftsmen, a reliable fire department, a profitable post office, and the University of Pennsylvania. At age 47, this self-made gentleman, with less than two years of formal education, was an accomplished philosopher and scientist, a respected political leader, a university professor, and the most famous American of his time. His practical philosophy was to judge people not for what they believe in, but for what they achieved in life.
Men of this superior caliber of thinking and business conduct created the United States, which could be just as well be named the United States of the Dollar. In fact, the first minted American coins featured the phrase, "In Money we Trust," instead of "In God we Trust." It was a logical mistake for the engraver, who accidentally outlined the heart of why money was needed: to buy trust. Then and now, the American concept of glorifying money and comfort remains stubbornly unchanged.
But most of all, the dollar created capitalistic society at its best. It was American society and its thriving business into which a seventeen-year-old Jewish immigrant from Bavaria named Joseph Seligman (meaning "Holy name" in German) entered. His story is too good not to be told. He arrived in New York in 1837, and after peddling for a few years, he owned stores from coast to coast. It just so happened that it was one of these stores into which First Lieutenant Ulysses Simpson Grant happened to enter, looking for a wedding present for his bride. A friendship was struck between the two men that lasted a lifetime.
Seligman and his brothers became rich men while Grant was in charge of the Union forces during the Civil War. The Seligman brothers sold Federal security bonds worth more than $60 million. They also sold goods to the military establishment, and the booming business of war made them even richer. Seligman's influence in politics as well grew so strong that after the war he invited the former deadly rivals General Grant and General Pierre Beauregard of the Southern Army to a dinner and saw them leaving as friends, walking arm in arm.
American business history is filled with similar success stories, all based on the same principle: making and selling things to build capital. Capital is accumulated wealth to produce more wealth, while capitalism is the private ownership of goods, sold in a competitive market. One particular businessman, Cornelius Vanderbilt, was living proof of that principle. He started his capitalistic venture with one hundred dollars borrowed from his mother, and became the tycoon of the American railroad. One hundred years later, things had changed not in principle, but in method.
America's business is business. Nothing happens in America unless somebody sells something. Attracting customers is probably the most important part of success in business. The advertising and public relations industries were invented to help businesses create successful sales pitches and attractive public images.
In their race to sell more, businessmen were eager to take risks and even sell their products to customers with no buying power. They simply established lines of credit to be paid back over time
the principal plus interest. The credit card system revolutionized the selling business, due to a small accident long forgotten. It happened in 1950 when a New York lawyer Frank McNamara lost his wallet and could not pay his restaurant bill. He started the Diner's Club policy by issuing the first credit card to be accepted as payment.
Today, credit cards make it possible for almost anyone to have almost anything and pay for it later. The accident in this case is called "accumulating debt" which increases with interest to be paid back. Paying only the minimum required payment makes a substantial debt almost eternal. For the seller, the accident occurs when the buyer defaults on payments and simply disappears as a customer.
Dreams made of hard work motivated businesspeople to create new environments for shopping, which culminated with the temples of our civilization: the malls. A totally different concept from the general store, the mall is an engineered environment structured to create an accidental mood in the shopper to buy more, even that which he or she does not need. It succeeds because everything inside the mall is big, impressive, glamorous, and appealing to all senses, encouraging the customer to stay inside. Wall to wall displays of goods artistically arranged, food courts, lavish bathrooms, indoors alleys done in marble or plush carpeting and bordered with exotic plants, soothing music, and entertainment for children all keep the customers there to buy more. Once inside the mall, the visitor enjoys being seen with multiple shopping bags, which justify his or her presence there.
It is hard to believe that an industry we do not think about as serious, the toy industry, has 125,000 products on market and generates sales of $30 billion dollars in the United States alone.
Strong markets create strong businesses, but it is rarely the other way around. More sick people require more doctors, but building more planes does not force people to fly more often. "Efficientology" should be the name of the course offered in any business school, teaching future businessmen how to run their companies.
One rule has never changed in the business world: if we build it, they will come. That rule generates offers and demands. Ultimately, it generates competition, which generates accidents and effects, as an acceptable ways of doing business.