The Goldman Sachs Civil Suit

I usually don't like to get too far into disecting the news on this blog, but the decision to file a civil suit against Goldman Sachs for fraud is very unique. The firm brokered tons of deals where they sold complex CDOs filled with dangerous mortgages that would eventually default. What makes all this so incredible is that Goldman could create and sell these packages for huge money and have them all insured through AIG to hedge any potential risk. We know how that worked out for AIG. It's amazing how such a small percentage of your total business can take-down an entire company when things turn sour. Sure, Goldman also hurt for a few quarters in the heart of the meltdown but they have turned the corner quite easily since. AIG, on the other hand, needed a ton of money from the U.S. Government and still may not make it.

So, in the heat of the growing CDO/housing bubble, a few investors started investigating the possibility of shorting these securities and the firm allowed that too! They were essentially on both sides of a deal in which they knew at least one particpant was going to lose a lot of money. Being involved in the sale and the shorting of the same asset means one of your clients is going to make money and the other is going to get killed. It's a zero sum game. Goldman was so oblivious (or didn't care) in the beginning that they let the shorters cherry-pick the CDO's they wanted. These guys went after the most toxic of the group and made BILLIONS.

But, is Goldman really at fault here? There are definately some moral obligations that were not lived-up to in this scenario, but can you place the entire blame on the firm? I don't think so. Times were too good and large investors were willing to buy anything. You have to do some research and understand what you are buying. As a small-scale stock picker, I know how much due-diligence I do before spending any of my money on a company. I am sure the salesman were slick and the prospectus was glossy, yet I can't help but think there has to be some blame placed on the money managers looking to show-off big returns.

While it's not great to think about the pools of money the shorters made off betting against the American Dream, you have to applaud their intelligence and rebelliousness. These investors went against everything they read and heard on a daily basis and took the time to understand the asset and what comprised it. They saw a bubble and did not wait for it to pop.

The civil lawsuit could be a big turn. So many people are scrutinizing whether any sort of sustainable regulation was put in place since the financial crisis. The simple answer is probably not. Until the firms have to be completely transparant on every deal, especially complex combinations of debt, there will never be complete oversight. Now, at least, there is the possibility of financial penalties for being too good of a salesman (be it a deceptive saleman). The lawsuit may open the floodgates to many other civil suits. In the end, though, it will be business as usual for financial firms so large that they constantly have to come up with new forms of innovation to keep the revenue train moving forward.

Transition

I apologize to everyone for taking so long between posts. The last few weeks have been a time of transition for me as I moved to another position at my company. It occured to me there are a lot of business lessons to take away from periods of movement and the art of learning a new position. Here are the essentials:

Humble yourself. An ego has no place in a new job. You are making new friends and business contacts that need to respect you and your ability to function as part of a team. It takes time to earn the trust of those around you. Don't take that message as saying not to speak up and implement your ideas to make a process or product better. Simply use an extra amount of tact so you don't come off as a bull in someone else's china shop

Prepare to work on nights and weekends. You will naturally be slower than your predecessor at the new job, so understand that it will take extra time to finish a task. You need to use this time to prepare resources and study processes that will make you more efficient. Often, this will also be the time when you find problems with old systems and begin thinking of ways to optimize.

Ask questions. There is a certain understanding that goes along with being a beginner. Think of the breaks you allow a novice to a card game. The company hired or promoted you because they want to see you succeed. Understanding this basic thought should set your mind free to ask questions and seek help in excelling.

Don't loose your cool over a mistake. They are just going to happen and your focus needs to shift to correcting with minimal damage. It goes back to a general business principle: be proactive and not reactive. If there is a task you don't fully understand and no one around to ask than simply take steps to clot any damage that could occur. Your co-workers will understand, just be honest don't try to cover-up while digging yourself into a deeper hole.

Work as hard as you can. Most evaluators of future talent make a decision on the potential of new hires within weeks of starting. It is important to make that initial impression very positive and ensure that you are on the minds of the career-makers. It is certainly important to always work hard, but you first paycheck cycle could make a tremendous impact on your future.
Keep the ball moving forward and always put yourself in positions to succeed.

Be Productive

A lot of talk is devoted to the best way to be efficient and organized throughout the day. There are highly-paid professionals making money purely from teaching people to prioritize tasks and stop wasting portions of their time. For me, being productive is a personal idea and must be tailored to an individuals own ways of thinking and problem solving. With that being said, there are certain patterns used by successful people that must be examined and possibly integrated into your daily routine.

INC. profiled a few prosperous executives and entrepreneurs to see their strategies for executing the 'to-do list.' Let's look at a few highlights:

Jordan Zimmerman insists on daily phone calls. He has direct access to the heads of client companies and an understanding that they will take each other's calls to discuss strategy and progress in succinct conversations. Zimmerman also doesn't sleep and is routinely up at 3 AM to workout before starting his day (which he claims gives him energy for the day).

Kevin P. Ryan spends a great deal of time involved in HR for his company. He insists on doing a large amount of the hiring as he feels that the right people make his job that much easier. Ryan is in constant contact with his top executives and those identified as 'up-and-comers' both inside and outside the company in order to feel at-ease with delegation.

Barbara Corcoran makes her 'to-do list' for the next day before she takes of for the night using a rating system based on the importance of the task. This way, she hits the ground on the hard stuff in the morning and the day runs smoother. Corcoran also has a list of follow-ups assigned to people after each meeting to make sure that maximum time is spent executing as opposed confusion in responsibility.

Seth Priebatsch is most efficient during off-hours from work. He finds that large problems are much easier to solve when the office is empty and there is time to really think. Using the nights and weekends allow for his time to run smoothly when employees are demanding his attention.

Scott Lang always keeps large blocks of his day unscheduled. He likes to keep a cap at 50%, though admits that number can sometimes slip to 80%, to solve problems that come up during the day or be open for a last-minute client meeting or call.

While these are only a few examples, the major themes include the importance of exercise, keeping meetings to a minimum, and solving problems through unscheduled or open time blocks. Your productivity will always be based on the optimum use of your thoughts. Keep an open-mind and be on the lookout for ways to increase your efficiency but, remember, the goal is to always keep the ball moving forward any way you see fit.

Negotiation

This is a great example of negotiating from a Hollywood Mogul to a future Hollywood Mogul. Barry Diller, then a young executive at ABC on his way to running a few studios and, more recently, IAC, was approaching Lew Wasserman, head of MCA/Universal:

"I was purchasing films for ABC from Universal, and I went to his office, and I asked him - I said, given that we are buying sixty-four units at ,$600,000 each, couldn't you cut one little unit off the sixty-four? Two beats. He stared. He said, 'No.' Nothing more. Just, no. Silence. The stare. And I folded like the cheapest tent. But as I got up to go, dejected, knowing the fool that I was, he walked me out and in that very quiet voice of his he said, 'Next time you try this, be prepared to call it off if you don't get what you want. Because, otherwise, you never will.' And the door closed behind him."

-From When Hollywood Had A King by Connie Bruce.

The Corner Office MBA: Lessons In Leadership

By Lewis Collins

Leadership is a term of art. It has been defined and redefined over the centuries. Each leader has his or her unique leadership style and characteristics. The Reverend Martin Luther King once said: “A genuine leader is not a searcher for consensus but a molder of consensus.” This statement is a crystallization of what a leader must do to lead. Rudy Giuliani was once asked whether leaders are born or made. His response was that he believed that leadership is mostly a skill that people can learn. He indicated that the learning process begins when you are a child and sources of the “DNA” that leaders possess come from parents, friends, colleagues, teachers and clergy. Giuliani also believed that leadership can be honed by reading about great leaders. He believed that by reading about these great examples of leadership, one sharpens their understanding of how great leaders think and act. This article is inspired by, and loosely based on, Rudy Giuliani’s book: “Leadership”.

Everyone’s accountable, all the time. As a leader, it is your responsibility to be accountable for your actions. These actions must be based upon your core beliefs. You as the leader set the tone. Leading by example is not only a platitude – it is a platform.

Are you up to the Challenge? For a business leader to remain effective, he or she must continually challenge themselves. For a leader to lead, everything must be questioned. The most dangerous “infection” a business can experience is the virus of success. Success breeds complacency. As pointed out by the authors of Built to Last, the truly successful business is one that has an unchanging core belief yet continually reexamines itself in light of the changing business culture. Long-term success requires a business leader to hold true to his or her core beliefs and, at the same time, continually challenge themselves to change and adapt to the environment within which the business exists. You must remain vigilant by continually examining each component of the business to determine whether or not that component is in line with its core beliefs and goals. Continually challenge yourself and the business to determine the relevance of everything undertaken.

Bright people debunking your logic test the consistency and validity of your ideas. Being a leader does not give you a corner on the market of ideas. Great leaders surround themselves with bright people who are not “yes men or women”. Tom Peters, one of our nation’s most prominent management gurus, advocates at a leader should surround themselves with contrarians. He believes that contrarians help an organization test and shine a bright light on the dark corners of those ideas. A leader needs the insight of bright people who can look at all aspects of ideas and plans from a contrary viewpoint. In this way they will assist you in honing and validating those ideas and plans.

A real leader leads with a true heart and an honest mind and will not deny a belief simply because it makes him or her uncomfortable. Being a leader involves, on occasion, making tough choices. The tough choices must be made if they are consistent with the core beliefs of the leader and, of course, the organization. It is easy to make decisions when those decisions are popular ones – the true leader, however, makes decisions that are tough. Be your own person. A leader is chosen because the business trusts his or her judgment, character and intelligence. Do not put your finger to the wind of opinion and do the popular thing if it runs contrary to the vision you have laid out and your core belief.

Every decision must be made for the benefit of the business. When a decision is made, the business and its interests must be paramount – above those of your own. This must be a template for every decision that is made. Inspire confidence. It is a leader’s job to instill confidence by believing in his or her own judgment. Lead with ideas . . . and ideals.

Prepare relentlessly! Rudy Giuliani, a student of leadership throughout history, made a very striking observation. He crystallized what he observed as a very important key to making a leader. He wrote: “Preparation – thus eliminating the need to make assumptions – was the single most important key to success, no matter what the field.”

The importance of meetings. Meetings are a way to coalesce ideas, a way to brainstorm and refine. Meetings, however, are meaningless unless they are well-organized, focused and short.

Set the tone early on. When you begin to move forward as the leader of an organization, it is vitally important to communicate your vision, organization and plan early and often. The opening tone you set will motivate, inspire and focus others. Start with small successes. Giuliani tells in his book of one of his earliest “small successes”. This success was with a group of people he referred to as the “squeegee men”. These were people in New York City who would jump in front of cars stopped for a traffic light and squeegee their windshield. After the cleaning, the squeegee men would pressure the drivers for payment. One of the first things Giuliani did when taking over as mayor was to crack down on these “squeegee men”. In a short period of time he was able to eliminate their harassment. This small, tangible, success was a building block for the many large successes that he experienced later in his administration.

Surround yourself with great people. Great leaders have great insight. Great insight comes from a variety of sources. The best source for great insight is surrounding oneself with great people. Too many leaders believe that they are “anointed” through their election or appointment to a leadership position. This lack of humility and failure of perspective is one of the single biggest flaws of a true leader.

Servant leadership. A true leader realizes that he or she serves the organization. If a leader believes that they “rule” the organization, they will be an unmitigated failure. To paraphrase Psalm 19, great leaders ask to be free of presumptuousness. The servant attitude will place you in the right frame of mind to lead. It will give you the proper perspective and attitude. You will realize that you brief time at the head of the organization is one of service to the members.

Realize your weaknesses. A good leader realizes that he or she has weaknesses. No one leader has all of the traits and qualities needed for leadership. When a leader realizes this, they can balance their weaknesses with the strengths of others. I am not as good with budgets and financial forecasting. I am more of a big picture, idea man. I realized this shortcoming and, as a result, relied on the sound financial judgment of others to compensate. Leadership, therefore, requires the leader to be honest with themselves. Admit your shortcomings and be a leader by making sure you have a person or persons you can count on to fill the hole in your leadership void.

Motivate and Delegate. A great leader who surrounds themselves with talented people must take the next step by motivating those people to achieve. Allow the people you appoint to encounter challenges on a regular basis. Challenging talented people brings forth their true abilities and allows them to achieve great things. Create a sense of adventure in the job you task them. If highly driven people are not sufficiently challenged, they surrender to self-satisfaction and arrogance. Give them the vision of what you want to accomplish, the leeway to make it happen and the spark to ignite their passion for the project. Empowerment allows businesses to achieve great things. A team can achieve much more than an individual. If you delegate - and then empower the people you delegate - you show your true leadership character. Delegation without empowerment leads to the primary weakness of an organization – micro-management from the top. General George S. Patton once said: “Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity.” As the Chinese philosopher Lao-Tzu once said: “When the best leader’s work is done, the people say, ‘We did it ourselves’”. This is a great picture of what a leader does through empowerment.

Reflect, then decide. It is often said that the primary difference between intelligence and wisdom is experience. Experience provides you with the underlying facts that allow you to reflect. Experience teaches you what you need to determine the best course of action. It gives you the basis for making a more informed decision. Woodrow Wilson said, “One cool judgment is worth a thousand hasty counsels. The thing to be supplied is light, not heat.” Experience teaches that we should:

1. Be reflective. Consider all your options before making a decision.

2. Be ready to pull the trigger. After considering the options and the counsel of others, the time comes to make a decision.

3. Early analysis. You must begin the process of decision-making by analyzing all of the options at the earliest possible moment.

4. Use creative tension. As pointed out earlier, the contrarians in your organization are very valuable. Use their contrary views, thoughts and ideas as a catalyst to making the right decision. F. Scott Fitzgerald said that the “test of first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function” – to make a decision.

5. Chart it, outline it, understand it. Most innovative thinkers understand the importance of reflecting before deciding. His “chart it, outline it, understand it” way of thinking helps a leader make the right decisions. This method of thinking allows a leader to: organize the steps to completion; factor in accountability; use creativity to solve problems and, think outside the lines and decide what’s best for the organization.

6. Establish priorities and stick to them. Once a goal is set, the steps to achieving that goal, within a reasonable time frame, must be established to provide a guidepost of achievement, a horizon of accomplishment.

Conclusion. Leadership is the most important ingredient that enables a business to achieve great things. In his book, Good to Great, James Collins underscores the importance of leadership in developing great organizations. A leader must possess many vital character traits. While no leader has all of these characteristics in equal measure, great leaders possess most of these core ingredients. Character, courage, compassion, vision, wisdom, conviction and doggedness are all aspects that a leader must draw upon if they are to lead an organization from “good to great”. Whether that “organization” is your family, or your business – you must be able to tap into these elements to achieve greatness.

I end with the reflections of Alexis de Tocqueville. de Tocqueville, a French writer, poet and historian, came to America to observe, first-hand, what made this country “tick”. He observed:

“I sought for the greatness and genius of America in her commodious harbors and her ample rivers – and it was not there . . . in her fertile fields and boundless forests – and it was not there . . . in her rich minds and her vast world commerce – and it was not there . . . in her democratic congress and her matchless constitution – and it was not there. Not until I went into the churches of America and heard her pulpits flame with righteousness did I understand the secret of her genius and power. America is great because she is good, and if America ever ceases to be good, America will cease to be great.”

About the author: Lewis is a Partner in the Tampa, Florida office of Butler Pappas Weihmuller Katz Craig, LLP. He has served as President of the Federation of Defense & Corporate Counsel (2005-06) and is Past President of the Florida Defense Lawyers Association. Mr. Collins currently holds the position of President of Lawyers for Civil Justice

SIFTABLES - The Future Of Toys

As chips get smaller, computers get smaller and take on different forms. The technology allows for a greater combination of the what used to be purely physical that can now incorporate a digital component.

Davis Merrill created SIFTABLES, a fascinating technology that takes a basic block and transforms it into a mini-computer with the ability to sync and connect with other blocks to form a network. The toy may never be the same. This demonstration shows a very preliminary examination of the possibilities. Child development will be particularly affected by the technology as it creates greater interest from the young user and combines tangible usage as a new learning medium.

Clif Bar - A Model Of Growth

Gary Erickson had a problem. He was an outdoor enthusiast in need of nourishment but stuck with a stale tasting Powerbar he could not bring himself to eat.

A seemingly simple problem, but one that becomes much larger for an entrepreneur. You either accept the mediocre product dominating the market or you get up and challenge Goliath with one of your own. Erickson, then the owner of a bakery, went to his mother's kitchen and created a great tasting energy bar for athlete's like himself. He turned his homemade creation into a nutritional powerhouse sold nationwide. The most amazing aspects of Clif Bar's ascent in the market is it's lack of outside funding, slow and organic growth dictated by the founder, and a rich pay day from Quaker that was refused.

As I have mentioned before, listening and selling directly to your customer is essential in discovering the best product. Erickson and his wife went to marathons, triathlons, and bike races talking to the very athlete's who needed their bar most. Great taste was the kicker but the functional value of the bar is what sold. Using little advertising, the company chose to grow organically with the founder keeping control throughout the process. Word of mouth is the most powerful form of marketing that exists and it can be very fast in certain circles. Athletes proved to be one of those circles.

There was a little luck involved in Clif Bar's success as the company started getting big just as a national demand wave started sweeping the country for nutritional foods and supplements. The company now found their product featured prominently in supermarkets as well as the small specialty stores to which they owed their start. Everything came to fruition through revenue. Erickson cut deals with his distributors for discounts in exchange for cash on delivery and was able to pay suppliers out of incoming revenue. It is because of this excellent money management that he found the coveted control.

When QUAKER came calling with a big buyout offer, temptation certainly struck but the offer was ultimately turned down. There seem to be two types of entrepreneurs. Some want to start a business to cash-out while others want to run the company as long as they are able. There is nothing wrong with either type it just comes down to a matter of personal preference. If the business is successful, money will be made in both scenarios. Ultimately, you are either OK with prolonged gratification or not.

Clif Bar is a rare example of this level of success but one that is as good a case study as any on small business growth into national brand. The expansion was slow, controlled, and done on revenue.