INTELLIGENT SYSTEMS

 

Volume IX, Number 2                                                                                                                   April, 2007

 

A newsletter for clients and friends of Chenault Systems

Copyright © 2006 Chenault Systems, Inc.  All rights reserved.

 


An Overnight Business Success Takes 20 Years

By Barry Moltz

One of the American dreams has always been to build a business from scratch and sell it for a not-so-small fortune. We had this same dream in the 1990s but we wanted to speed it up so the entire thing from start-up to sale could happen in a year or two.

In a few rare cases, that's exactly what happened for these “designer” businesses.  The battle cry from entrepreneurs then was exactly what my father had told me for years: “Patience is a virtue shared by fools and jackasses.”  As so many advertising campaigns reminded us: "Speed was not the only thing; it was everything."

The Internet bubble boosted that part of the American dream where we all want to get rich quick. This is the part where we look for every shortcut there is to avoid putting in the required time or effort to get there.

As much as an ethic of hard work and building something slowly over time is part of this American tradition, others have different ideas.  We want to somehow “leverage”" Lady Luck and strike it rich by taking any shortcut we can find.

Sometimes, as we have seen with Enron and Tyco, this leads to some people committing crimes.  Mostly, though, it leads to a model of unrealistic expectations about how to get there and over what period of time it takes to build a profitable business that can make you wealthy.

“There is a tendency to think that great businesses are built overnight,” said Jonathan Kalman, president and CEO of Katalyst, a Midwest venture capital firm.  “The reality is that "overnight" often means 10, 15 or 20 years.”

We have many well-known “overnight success stories” in the Midwest. In 1956, Jack Miller started an office supply business in his dad's chicken store.  Overnight (42 years later), he and his brothers (Harvey and Arnold) sold their company (Quill) to Staples for what became worth about $1 billion.

In 1974, Mike Blair founded Cyborg Systems, which developed and sold human resources software.  The company's first product was a payroll software package named VERS 80 Batch for mainframe computers. It was successfully installed in August 1974 at Reflector Hardware Corporation in Melrose Park, Ill.

Today, Cyborg's integrated workforce management software is used at more than 6,000 locations around the world. Overnight (30 years later), Blair sold the company to Hewitt in June 2003 for $43 million in cash plus other performance payments.

Other local entrepreneurs have been growing their businesses for a long time without a liquidity event. Jay Goltz has been building Artists' Frame Service for 25 years. Dave Ormesher at Closerlook has been building for 16 years. Steve Shadrick at SGS Net has been at it for almost 10 years.

Building a real and sustainable business takes a long time. If you want to get rich quicker, you should get a job. You will make more money over the first five years working for someone else than working for yourself.

This is the basic change we need to make in our thinking while we build our businesses. Think in terms of decades rather than years. This is hard for a society like ours that is built on immediate and short-term gratification through e-mail, cell phones and instant messaging.

So what does it take to build a business over a long time? Kalman characterizes it as resiliency. He added: “It takes time for a business to establish itself and to build the internal systems and processes. [It takes time] to determine the right personnel to make the business perform [and] to really understand the customer.”

This resiliency is for you to be able to weather the good and bad times.  You need to be able to ride the roller coaster up and down.  You need to be able to celebrate and remember the good times.  You need to weather the bad times.

You need not wallow in that hopeless feeling for too long but look for changes to make to improve the situation.  Mohnish Pabrai reminds us that “when things go very well, you learn nothing.”  During bad times, you need to remember that you have been there before.  You have survived and things will get better.

Finally, during the good times, we need to be humble and remember that every business person meets the same people on the way up as we do on the way down. Guaranteed.

Barry J. Moltz has been running small businesses with a great deal of success and failure for 15 years.  His book, “You Need to Be A Little Crazy: The Truth about Starting and Growing Your Business” describes the crazy ups and downs and emotional trials of running a business.  The book invites readers to fully experience the personal journey and to let go of myths and expectations that can hamstring them.  He can be found at www.barrymoltz.com.

 

New Climate for Global Energy Policy

By Patrick J. Michaels

The U.N. Intergovernmental Panel on Climate Change released a slim summary today trimming down thousands of pages of its massive overall Fourth Scientific Assessment on global warming, which will be released in May.

It is hoped that the "Summary for Policymakers" will be an accurate distillation. Hundreds of scientists have been involved in the review process, and it is safe to say that means hundreds of bored scientists, because there is very little in it that is scientifically new. For example, it will report with increasing certitude that humans are responsible for most of the surface warming that began in the mid-1970s. That's been pretty obvious for years.

Graphs in today's summary will show that the rate of global warming has been remarkably constant -- about 0.18 degrees Centigrade per decade -- since 1975. So, any news report that "U.N. panel says the planet is warming at an increasing rate" (and there will be many) will be dead wrong.

For more than a century, it has been known that increasing the atmospheric concentration of carbon dioxide will eventually lead to a warming of surface temperatures, concentrated more in winter than summer, and more in mid and high-latitudes over land. That's exactly what's been observed for years, as is a global cooling of the stratosphere, another prediction of greenhouse theory.

More interesting, and, again, less newsy, is that the communal behavior of the dozens of computer models for future climate also predicts a constant (rather than an increasing) rate of warming.

That means that unless the collective conclusions of all of the models is wrong, we can confidently estimate a warming of about 1.8 degrees Centigrade from 2000 to 2100. That's very near the low end of the range of projections released today. The fact that the most logical distillation of observed and predicted warming yields such a modest heating should be reassuring, rather than alarming.

The new estimate for maximum rise in sea level, assuming a middle-of-the-road estimate for carbon dioxide changes, is going to be lower than in previous IPCC reports. The last figure I saw was around 17 inches by 2100, down 40 percent from their previously estimated maximum.

A small, but very vocal, band of extremists have been hawking a doomsday scenario, in which Greenland suddenly melts, raising sea levels 12 feet or more by 2100. While this forecast enjoys no real support in the traditionally refereed scientific literature, it is repeated everywhere, and its supporters are already claiming that the IPCC -- the self-proclaimed "consensus of scientists" -- is now wrong because it has toned down its projections of doom and gloom.

But the integrated warming of southern Greenland (the region that sheds ice) was much greater for several decades in the early and mid-20th century than in the last decade. In fact, with the exception of one year (2003), Greenland's recent temperatures aren't particularly unusual, nor is its rate of ice loss.

As measured recently by satellite, and published in Science magazine, Greenland is losing .0004 percent of its ice per year, or 0.4 percent per century. All modern computer models require nearly 1,000 years of carbon concentrations three times what they are today to melt the majority of Greenland's ice. Does anyone seriously believe we will be a fossil-fuel powered society in, say, the year 2500?

In summary, what's not new in today's IPCC report -- that humans are warming the planet -- will be treated as big news, while what is new -- that sea levels are not likely to rise as much as previously predicted -- will be ignored, at least by everyone except the extremist fringe.

This article appeared in the San Francisco Chronicle on February 2, 2007.

Reprinted with permission of the Cato Institute www.cato.org, copyright 2007

Patrick Michaels is senior fellow and author of Meltdown: The Predictable Distortion of Global Warming by Scientists, Politicians, and the Media

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Quotes Worth Noting

 “Beware of assuming that credentials establish intelligence.” – Steve Allen

“Many of the great ideas are not precipitated by the customer.  While the customer knows what he wants, he doesn't always know what's possible.  And that first dawned on me in my earliest days in business.  When I was new at IBM, working in sales and taking a management training program in Sleepy Hollow, New York, I came back to my room grumbling about the lack of speed and reliability of the tape drives, and wondered why the engineers couldn't do something about it.  My roommate stared at me with a look of total exasperation.  ‘Boy, you guys in sales are all the same,’ he said. ‘You remind me of the farmer in 1850.  If you asked him what he wanted, he would say he wanted a horse that was half as big and ate half as many oats and was twice as strong.  And there would be no discussion of a tractor.’”-- David Kearns, former CEO of Xerox