To be able to make more ethical decisions in the future, I think it is necessary to review past ethical decisions. To be honest with myself I think it is important to review both my good and bad decisions. This way I hope I can avoid the bad decisions and increase the times I make good decisions.
Good Decision
When I first came home from my mission, as I discussed in a previous article, I worked as a door to door sales representative for Winder Farms. At first I loved how upfront the company was and how honest the sale was. The stipulations were very clear, and I consistently had one of the lowest churn rate, a sign that my customer's knew everything upfront. Unfortunately, Winder briefly changed their sales program so that sales reps could not give a coupon as good as a customer could get online. An important part of the sale, is telling the customer that you are giving them the best possible deal. I decided to walk away from the company.
This was really difficult for me at the time because I was making a lot more money than I ever had before. I feel that I had the strength to make the right decision because I was still reading my scriptures every day. I feel that just reading my scriptures every day kept me from justifying an even slightly dishonest sales pitch.
Bad Decision
Last year I was preparing an income statement for a small local retail company. They told me that they wanted to estimate their ending inventory so that their cost of goods sold would be higher. They intimidated me by stating that it was their CPA's recommendation that they make the estimate. I justified it to myself, that I was just the bookkeeper and that I could only book the transactions they way that they asked. Finally, instead of booking just what they asked I acted as if their ending inventory was equal to their beginning inventory. This made their cost of goods sold equal to their purchases. This was not as good as they wanted, but neither was it honest. I should have been strong enough to walk away the second they hinted at anything dishonest. I think I allowed by self to be bullied and to rationalize my actions because I was busy during tax season and let my scripture study slide.
Friday, April 1, 2011
Friday, March 18, 2011
Misaligned Seven S's at Winder Farms
Everything about a milk delivery company portrays an aura of service. They come to your house, when you want, with what you want. Also, to justify their premium prices they offer premium products. After my mission, I worked for Winder Farms and was consistently impressed with how their alignment allowed them to offer superior service.
Their internet system allowed customers to change their order anytime before 8pm the night before a delivery. Shared values were instilled in every company meeting and at the corporate headquarters that still looks like an old barn. Their strategy was to become a farmer's market on wheels and they successfully increased their product offering to over 300. Their skills were to find local inexpensive organic/natural food. Structure allowed for a great delivery system. The style was impressive, tracing their roots back to John Winder who would deliver milk directly to local hotels.
Unfortunately, they had a misalignment with their staff. The customer service department was horrible and their incentive structure was not aligned with providing great service. The department was supposed to give out as few credits as possible thus leading to very stingy customer service representatives. I did not work in this department, but I heard of a rep denying a credit as small as 20 cents because, "if the customer can't afford 20 cents, they shouldn't be getting Winder Farms." I do not know if their have been any changes in the last few years, but at the time the churn rate for Winder Farms was a major impediment to their growth.
Their internet system allowed customers to change their order anytime before 8pm the night before a delivery. Shared values were instilled in every company meeting and at the corporate headquarters that still looks like an old barn. Their strategy was to become a farmer's market on wheels and they successfully increased their product offering to over 300. Their skills were to find local inexpensive organic/natural food. Structure allowed for a great delivery system. The style was impressive, tracing their roots back to John Winder who would deliver milk directly to local hotels.
Unfortunately, they had a misalignment with their staff. The customer service department was horrible and their incentive structure was not aligned with providing great service. The department was supposed to give out as few credits as possible thus leading to very stingy customer service representatives. I did not work in this department, but I heard of a rep denying a credit as small as 20 cents because, "if the customer can't afford 20 cents, they shouldn't be getting Winder Farms." I do not know if their have been any changes in the last few years, but at the time the churn rate for Winder Farms was a major impediment to their growth.
Five Forces For Barnes and Noble
Barnes and Noble recently declared that they will stop paying a dividend to focus on building their e-book presence. Their main competitor for many years, Borders, has entered bankruptcy protection, and may not last the summer. Below I detail my analysis of the Five Forces Model for the book industry, particularly for Barnes and Noble.
Bargaining Power of Suppliers
Positive. As there are not that many national retail chains for books, and their are many publishers and writers, the retail outlets have a better bargaining position. There is evidence of this in the recent bankruptcy of Borders. Months before Borders entered bankruptcy, they changed the payment terms on their accounts payable to be very unfavorable to the publishers, and there was nothing the publishers could really do about it.
Threat of New Entrants
Mixed. This used to be very high, but the advent of the internet changed everything for this industry. Brick and mortar stores required a lot of capital, but Amazon has become successful without being so encumbered. However, now that Amazon has such brand recognition on the internet, it is difficult to see another internet rival appearing.
Rivalry
Negative. Amazon continue to amass profits and sells. Online power gives resellers access to new markets. Even Apple has entered the E-book market.
Substitutes
Negative. Throughout history we have read books for information and entertainment. Never before have we had so many options to provide for these needs.
Bargaining Power of Buyers
Negative. With the ability to buy from other readers, I can't remember the last time I bought a book new.
Overall, this is a poor industry. It will be interesting to see if Barnes and Noble can turn it around, I doubt that they can.
Thursday, January 27, 2011
EAS Part #1: What We Did Right
My senior year I began a bookkeeping company with one of my friends. Though I am in the process of selling my interest in the company, I look back on my experience as some of the best business lessons I have learned. Below is an article about what I think we did correctly that allowed us to have a lot of initial success.
In our junior year, my friend had noticed that, in the Utah County market, small businesses only had two options if they wanted to outsource their accounting function.
Option 1: Small businesses could hire a free lance clerk who would often have years of experience using Quickbooks, but not an accounting degree. Without this foundational knowledge, it was more likely they would make costly errors. These freelance workers would charge $15 to $30 an hour, closely clustered around the $20 an hour mark.
Option 2: Small businesses could hire a CPA Firm. A CPA would offer exceptional service, one stop shopping, experience, and very few errors. These firms can also be very expensive, charging $50-$120 an hour for bookkeeping work. We also knew, that it was very rare for the CPA to actually do the bookkeeping work themselves, as they would usually hire an accounting student to do the grunt work.
We believed that there could be a better third option. We would hire only Brigham Young University Master of Accountancy students and provide bookkeeping for a mid range of $20 an hour. With our service, customers could gain from the experience and education offered by BYU, but pay what a free lance clerk would charge. The economics worked very well, charge $20 an hour and pay accounting student $10 an hour. Finally, the students we hired were excited to be gaining real world experience and had a real passion for making these little companies better. Even without knowing it, we were living the hedge hog theory from Jim Collins, "Good to Great."
Our activities supported each other in such a way that made marketing, recruiting and fulfillment fairly easy. Our customers were excited about getting inexpensive accounting services, and would give us referrals. Our employees were really excited about helping "real" companies, and would refer their friends when we needed new employees. They would often go the extra mile without being asked because they felt personally invested with these small companies. We worked out of my friend's apartment and as students had a knack of finding cheap or free office equipment. During our first year of business we averaged 32% month over month revenue growth, topping out at just under $7,000 in revenue and $3,000 in net income.
For more information, feel free to contact me or visit the company website www.exceptionalaccounting.com
In our junior year, my friend had noticed that, in the Utah County market, small businesses only had two options if they wanted to outsource their accounting function.
Option 1: Small businesses could hire a free lance clerk who would often have years of experience using Quickbooks, but not an accounting degree. Without this foundational knowledge, it was more likely they would make costly errors. These freelance workers would charge $15 to $30 an hour, closely clustered around the $20 an hour mark.
Option 2: Small businesses could hire a CPA Firm. A CPA would offer exceptional service, one stop shopping, experience, and very few errors. These firms can also be very expensive, charging $50-$120 an hour for bookkeeping work. We also knew, that it was very rare for the CPA to actually do the bookkeeping work themselves, as they would usually hire an accounting student to do the grunt work.
We believed that there could be a better third option. We would hire only Brigham Young University Master of Accountancy students and provide bookkeeping for a mid range of $20 an hour. With our service, customers could gain from the experience and education offered by BYU, but pay what a free lance clerk would charge. The economics worked very well, charge $20 an hour and pay accounting student $10 an hour. Finally, the students we hired were excited to be gaining real world experience and had a real passion for making these little companies better. Even without knowing it, we were living the hedge hog theory from Jim Collins, "Good to Great."
Our activities supported each other in such a way that made marketing, recruiting and fulfillment fairly easy. Our customers were excited about getting inexpensive accounting services, and would give us referrals. Our employees were really excited about helping "real" companies, and would refer their friends when we needed new employees. They would often go the extra mile without being asked because they felt personally invested with these small companies. We worked out of my friend's apartment and as students had a knack of finding cheap or free office equipment. During our first year of business we averaged 32% month over month revenue growth, topping out at just under $7,000 in revenue and $3,000 in net income.
For more information, feel free to contact me or visit the company website www.exceptionalaccounting.com
Friday, January 21, 2011
United Auto Workers Tough Position
The UAW, once the bane of management and the superhero of the assembly line, is now in a fascinating position. An article this week in the Wall Street Journal, link at bottom of page, detailed the new pay pressures on the UAW. Below I summarize the article, share my feelings on unions, and then state my opinion of what strategy unions should take.
The big three auto workers would like to tie employee compensation to productivity, quality and the general well being of the company. UAW President, Bob King, (yes that is his real name) has declined to publicly state his opinion of the proposed pay structure, but the union has been historically been against accepting such deals usually pushing for higher base salaries.
I believe this makes sense for the Unions on a few fronts. Productivity and quality gains usually translates to fewer workers and layoffs. Also, I would assume that a variable income would be harder for factory workers to budget and such a payment system would encourage such workers to take on excessive debt.
The interesting twist with this round of contract talks is that now a union controlled trust owns significant stakes in both Chrysler and General Motors. Now, more than ever, what is good for the company will be good for the union. According to the Wall Street Journal, UAW has already compromised a little with the recession. They have allowed the auto makers to hire new employees at $14 an hour, which is half of what current employees were receiving. With Detroit's Big Three profitable, but still struggling, it will be interesting to see what further comprimises will be made. It will also be interesting to see if UAW gives more favorable contracts to Chrysler and GM, than to Ford, a company it does not own stake in.
My own feelings on unions are torn. I realize that they played a significant role in reducing poverty during the industrial revolution. I also realize that in Zion society, the workers would reap the full benefit of their labor as ownership of all companies will be shared in a Christlike manner. That being said, my experience at John Deere taught me that unions can make companies very inefficient. For example, the Waterloo, Iowa factory has a rule that employees can not be flexed. This means that if one factory line is under-producing, and the workers have nothing to do, they can not go help on a line that is running near capacity. It is my understanding that this inefficiency has made it difficult for unions to compete with non-unionized factories.
I believe that in a competitive free market world, unions need to realize that the personal success of their employees is inseparably tied to the success of the company, and that they should organize to help, not hinder, productivity gains.
http://online.wsj.com/article/SB10001424052748704803604576078224262665108.html?KEYWORDS=New+Pay+pressure+on+UAW
The big three auto workers would like to tie employee compensation to productivity, quality and the general well being of the company. UAW President, Bob King, (yes that is his real name) has declined to publicly state his opinion of the proposed pay structure, but the union has been historically been against accepting such deals usually pushing for higher base salaries.
I believe this makes sense for the Unions on a few fronts. Productivity and quality gains usually translates to fewer workers and layoffs. Also, I would assume that a variable income would be harder for factory workers to budget and such a payment system would encourage such workers to take on excessive debt.
The interesting twist with this round of contract talks is that now a union controlled trust owns significant stakes in both Chrysler and General Motors. Now, more than ever, what is good for the company will be good for the union. According to the Wall Street Journal, UAW has already compromised a little with the recession. They have allowed the auto makers to hire new employees at $14 an hour, which is half of what current employees were receiving. With Detroit's Big Three profitable, but still struggling, it will be interesting to see what further comprimises will be made. It will also be interesting to see if UAW gives more favorable contracts to Chrysler and GM, than to Ford, a company it does not own stake in.
My own feelings on unions are torn. I realize that they played a significant role in reducing poverty during the industrial revolution. I also realize that in Zion society, the workers would reap the full benefit of their labor as ownership of all companies will be shared in a Christlike manner. That being said, my experience at John Deere taught me that unions can make companies very inefficient. For example, the Waterloo, Iowa factory has a rule that employees can not be flexed. This means that if one factory line is under-producing, and the workers have nothing to do, they can not go help on a line that is running near capacity. It is my understanding that this inefficiency has made it difficult for unions to compete with non-unionized factories.
I believe that in a competitive free market world, unions need to realize that the personal success of their employees is inseparably tied to the success of the company, and that they should organize to help, not hinder, productivity gains.
http://online.wsj.com/article/SB10001424052748704803604576078224262665108.html?KEYWORDS=New+Pay+pressure+on+UAW
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