The Challenge Dividend

Sheltering Girls Scouts from Rejection

I have written several posts in the last two years about the frightening rise of helicopter parents, who believe it is their mission to hover over their children in order to prevent bad things from happening to them.  Employers tell stories of parents going to job interviews with their college graduate children.  College professors regularly get angry phone calls from parents who are unhappy with a child's grade.   Little League coaches turn off the scoreboards when one team is beating another too badly.

But I heard another disturbing tale over the weekend: A friend of a friend admitted to emailing friends and neighbors to confirm that they would buy Girl Scout Cookies from her daughter when she made the rounds over the weekend.  The mother didn't email ahead because she wanted to drive fund raising (this would be bad enough); instead, she wanted to make sure her daughter did not feel the sting of rejection at the front door.

I believe this qualifies for a "WTF?"

Heaven forbid that dear Kimberly would meet a neighbor who had already purchased cookies from another girl down the street; or that she might meet a "mean" person who just didn't want any damn cookies that day.  Instead, Mom takes the initiative to protect her child's fragile psyche. 

Anyone who ever had to sell crap door-to-door, or ask for donations for a fund-raiser, will agree that these sometimes loathsome tasks build your character and confidence.  It's really not "fair" that kids today are being sheltered from this lesson - it is not fair that they will miss these life lessons.

My own daughter sold cookies in our neighborhood for the second year in a row.  I walked with her and helped coach her on what to say.  She was nervous at first, but I prodded her to take responsibility for her Brownie troop's fund raising needs.  We high-fived when she made a sale, and simply went to the next door when we got a "no" or unanswered door.  She learned to accept rejection and felt more proud of her success. 

Nearly all parents have an innate desire to make sure their children are as happy and successful as possible.  Unfortunately, some take this to believe that they should insulate their children from failure and disappointment.  Long ago I decided that my job as a parent is to expose my children to as many life experiences as possible, including both the good and the bad.  The more experiences they have, the better they will be able to handle what life throws at them.   And by feeling loss and disappointment, they will both fight to succeed and better appreciate their accomplishments.

I worry for a generation of children that is sheltered from even the tiniest of disappointments.  Not only will they flounder when real challenges come to their door, but there are billions of children in developing nations who know what real suffering is - and they are hungry to lead if we fall.

A Smart Move By Starbucks

After dogging Starbucks on Monday for holding back same store sales information, I wanted to give the company a little credit for a very smart, consumer-friendly move.  The company will begin providing free WiFi access in its stores.  Beginning in spring, Starbucks will move from T-Mobile to AT&T in its more than 7,000 shops. 

I like the move because it is a clear statement and a breakthrough benefit that Starbucks customers will appreciate.  It gives tangible proof that it is re-thinking its business in a way that will attract more, longer visits.  Compare that to the airlines, which typically cut back on service when their finances turn for the worse.

Visitors will get their first two hours of access free - which is plenty for most people - as long as they have a Starbucks card.  This, too, is smart, as it helps control abuse and provides a benefit to opting into Starbucks' relationship marketing program. 

The only negative I see goes back to my post from yesterday.  My gut opinion is that free WiFi will help increase sales at Starbucks' stores in a significant way.  But we investors won't know that because the company is hiding same-store sales figures. 

Starbucks Hides Behind the Veil

This morning a loyal reader pointed out to me that the best thought leaders constantly make bold predictions - and only remind others of the times when they happen to be correct.  So I'm proud to say that my prediction in June 2006 that Starbucks was headed for a fall has come true. 

Way back in that hot summer of 2006, Starbucks was on a tear.  The company's stock was at a record high of nearly $40 per share, and the company was benefiting from growth both through new openings and same-store sales.  But in a series of posts titled "The Spoils of Success," I made the point that the company's success was leading to arrogance, and in turn to bad decisions.  I mainly focused on its growing focus on selling music and movies - rather than coffee.  Founder Howard Schultz, who gave up his CEO spot in 2000, had big entertainment aspirations for the company; to re-quote from BusinessWeek in 2004:

"We are much more than a retail store. Much more than a coffee store," Schultz says. "We are becoming alternative distribution."

But now Starbucks has come crashing down to earth like so many of its customers off a caffeine high.  Its stock has lost more than half its value and now trades at $19 per share.  Sales are down, stores are under-performing, and the company was one of the first to claim a Recession had hit.  As a result, Howard Schultz has re-taken the CEO throne and is closing stores and clearing out breakfast sandwiches.  Schultz promises to restore the "distinctive Starbucks experience".

Bad choices in the past and market struggles are challenges that are finally driving improvement at Starbucks.  But while many these moves to resurrect the brand and growth seem smart - there is at least one choice that brings a bitter taste to Challenge Dividend believers: Schultz has informed Wall Street that he will not be reporting same-store sales numbers while his turnaround is in progress.  This flies in the face of retail investors, as same-store sales results is the standard by which most chains' business is judged. 

Schultz claims that he needs relief from investors' focus on short-term results like same-store sales.  He reasons that this will be a long-term plan and such numbers are less important.  The problem is that same-store sales will continue to be an important number, and investors cannot compare how Starbucks is doing compared to, say, McDonalds or Panera Bread (both of which have rising stock, by the way).

Sharing financial performance information publicly is a type of challenge.  And by withholding same-store data, Starbucks is bucking the challenge dividend.  The results could be tough.  First, investors will automatically push prices down because the lack of information increases risk.  Second, company management will be under less pressure to solve its problems and fix broken stores and initiatives.  Third, investors will not be able to judge whether or not new choices are working. For example, the company is about to spend millions on its first-ever TV commercial campaign, and restaurant chains often judge TV success by same-store sales (just ask Saatchi/Wendy's).

I admire Howard Schultz for making tough decisions in a bid to return his company to glory.  But any decision that goes counter to the challenge dividend can only make the path more difficult.

Apple Needs a Challenge

Apple is a great recurring case study for The Challenge Dividend.  On one hand, the company is an example of a challenger that drove improvement in the computer/electronics industry.  It's a scrappy underdog that has succeeded through elegant design and user-loved features.  But on the dark side, it's success and lack of a close challenger has led it to make some bad choices.  A new blog post adds to the latter point and suggests that consumers and Apple itself need a rival to drive improvement.

Last summer I outlined a few examples of Apple's hubristic errors in the first of a series of posts titled "The Spoils of Success" (also see Google, Starbucks, Republicans, Gates Foundation, and the Chinese economy).  In November I found another blogger with a similar take on Apple.  The Daring Fireball blog, by John Gruber, outlines how Apple has won the gadget war because it is the only company that has decent design. 

But Gruber goes farther by calling out how other markets are advancing farther because more than one competitor has cracked the code through design.  In cameras it is Nikon and Canon; in cars, we have Acura, Audi, BMW, Lexus and Mercedes.  These markets are evolving and improving at a high rate on aesthetic lines, and they are differentiating with unique points of emphasis.

But in electronics all we have is Apple.  Laptops, cell phones, music players, etc. are still mainly black and grey with clunky software, feature bloat, and low gee-whiz factor.  Gruber points to Microsoft's Zune as the closest attempt to learn from the iPod, but the company has not gone fully into a passion for design. 

Later in his post, Gruber hits on one of my key themes:

"It's not just us - technology-obsessed consumers - who would benefit from at least one company stepping up and competing against Apple on Apple's own ground.  Apple would too, in that competition would push them to do even better, and act as a preventative against hubris."

The only companies I can think of that are close to Apple are Tivo, whose software runs rings around cable box DVRs, and Sonos, which has a nifty home audio network device.  But the market is still wide open.  I believe design will rise to prominence in the years to come, but it might take a little bit longer than we'd expect.  Design is highly creative, like artwork, which makes it difficult to survive layers of company bureaucracy and is non-existent in outsourced suppliers in China.  And while small companies may have the creativity, they lack the production and distribution scale of large companies. 

But a generation that grew up admiring Steve Jobs and his products is rising through society.  Stay tuned.

Rating Lawyers is Officially Legal

In a recent post I wrote about how the Internet is transforming the process of buying a car by eliminating haggling.  Open information has made consumers smarter and the slimy car salesperson is less and less effective.  And dealerships are finding that fixed prices help them reduce costs and increase loyalty.  In today's post I shed light on another way consumers are using the Internet to shed light on a profession that has been denigrated often in the past: lawyers.

The Wall St. Journal reported recently that a Seattle judge turned down two lawyers' request that he shut down Avvo.com, a lawyer-rating website.  The two filed a class-action suit claiming that their ratings were inaccurate, but Federal District Judge Robert S. Lasnik ruled that it was protected under First Amendment grounds.  (Interestingly, Lasnik is rated highly on a similar site called Lawdragon). 

It is fairly obvious that a lawyer rating site is not only legal, but helpful for consumers.  Hiring a lawyer is not something we do everyday - yet when we need their services our world is at their mercy.  We have little ability to "try them on for size" and refunds after a poor performance and lost case do not happen.   And since we didn't go to law school and lack the skill to argue in court, we have to put enormous trust in the hands of people we do not know.  This information asymmetry puts more power in lawyers' hands, and consumers can be taken advantage of.

But just as I recently described a new site where entrepreneurs can rate Venture Capitalists, these ratings open up the market for legal services in a way that challenges lawyers to perform better, or pay the price.  The best will be rewarded with more business, the worst will have to move on to new professions.  Consumers will also feel better about a very stressful decision and tend to trust the highly-rated lawyers' guidance more.

It is unfortunate that some lawyers' first response would be to sue - rather than just addressing their negatives directly and improving - but I guess that's more evidence that they are poor lawyers in the first place.

Call me a dreamer, but the opening, challenging light of the Internet, and ratings sites specifically, just might elevate the standing of professions like car salespeople and lawyers.  For centuries, the worst of them took advantage of their customers - and spoiled the reputation of all.  But we are starting to see more pressure on the worst, and incentive & reward for the best.  Challenge from new Internet models could lead to improvement for customers - and for those who chose to practice these professions.

Now I've got to work on something to elevate the standing of advertisers...

Building the Perfect Alarm Clock (?)

Back in December I wrote three posts that showed tools that meant to improve behavior by challenging you to re-think your actions.  They included fake fat for weight loss, a live miles-per-gallon gauge, and a death countdown.  Well, my next example might top them all.

A site called ThinkGeek is offering SnūzNLūz, an alarm clock that is WiFi enabled and linked to your credit card.  If you fail to wake up and stop the clock, the device automatically makes a contribution to your most hated special interest organization.  Some examples from the site:

Are you a butcher? Set your SnūzNLūz to donate to PETA
Are you a republican? Set your SnūzNLūz to donate to the ACLU!
Are you a land developer?  Set your SnūzNLūz to donate to the Wilderness Society!
Enjoy your freedom? (Blue state version) Set your SnūzNLūz to donate to the GOP. or
Enjoy your freedom? (Red state version) Set your SnūzNLūz to donate to MoveOn.Org
Are you a hippie? Set your SnūzNLūz to donate to the American Coal Foundation.

While ingenious, to be fair, I cannot tell if the product is legit or not.  ThinkGeek claims to be taking orders, but the order form says available is "presumably", and some fine print says that 50% of the donations will be routed to ThinkGeek.

Either way, this novel idea is another great example of how forcing one to feel the pain of a negative habit can have positive consequences.

Life Lesson from Tony the Barber

I love going to the barber.  No, not because I'm a John Edwards, obsessed about my appearance.  Actually I look forward to the monthly chat with my barber, Tony.  I have gotten my hair cut with Tony for as long as I have lived in Cincinnati (about 8 years), and although we only speak 10-12 times per year we have gotten to know each other fairly well.  Tony is in his mid-50s, was born in Italy but grew up in the U.S., was in the Army, has a couple of brothers (also barbers), three children and a growing number of grandchildren.  His background and perspective is much different than mine but we agree on many issues. 

I don't know what he talks about with his other customers, but when I hit the chair we quickly get past the "how's your family?" questions and dive into philosophy.  The other day we got into a good discussion about getting older and Tony shared a personal story that it great fodder for The Challenge Dividend...

Tony told me that his bowling game is one way that he has tracked his aging and fitness over time.  He has been playing regularly in a league since 1967.  For decades his average score per game hovered around 200 (pretty good), but about 18 months ago he saw his scores decline to an average of 193.  After suffering through half a season at this score, Tony asked the bowling alley pro to look at his game.  The pro watched him bowl a few frames and said:

"Well, I see what you're doing wrong, but guys in their 50s usually can't make the changes that you need to make."

The pro explained that Tony had errors in his form for years, but younger people can make subtle adjustments at the last second to overcome minimize their impact.  As we get older, it's harder to make these adjustments, and it's very hard to change a bad, decades-old habit.

As Tony heard this explanation, he said: "Great, that's all I needed to hear."  He proceeded to spend hours focusing on changing his routine and form.  Instead of giving into the norm of aging, Tony chose to fight it - even gaining motivation from the comment that "guys in their 50s usually can't make the changes."

Sure enough, Tony improved.  His average shot from 193 to 198 by the end of the season, and this year he has started off with a 206 average.

Overall, this story offers me further personal motivation to turn The Challenge Dividend into a successful world-moving idea.  Just tell me it's not possible, and I might get the extra motivation I need!