800-CEO-READ Blog

New feature

We are starting a new feature at 800-CEO-READ blog. We are going to start running excerpts from business books. We think it is a great way to get a taste for the book before buying it. Jackie and Ben call it giving out bite sized pieces.

The excerpts are going to run on a sister blog to this one. Why set-up another blog? The main reason is organization. We are going to run the blog in chronologically order vs. the typical reverse-chronologically. Stories are read from top to bottom, start to finish. We think they should be displayed that way. We are also going to use the categories function in the software and organize the excerpts by title. That way you can click on a category/title and get the whole excerpt displayed for you.

Some people might not call it a blog. We are not going to have comments or trackbacks turned on. We are really just using Movable Type to store and display information in a vaguely familiar way. You tell us.

The first books we are going to excerpt are a few new business fables. I like the idea of using a fable, because it is written as a story with characters and a plot. I think it works well for a staggered excerpt that runs over a series of days.

Our first book is Who Are 'They" Anyway? by BJ Gallagher and Steve Ventura (Dearborn Trade, August 2004).

If you want to take a sneak peek before Monday, you can check it out by clicking here.

Pachter on Persuasion

Richard Pachter's review this week was on three books about persuasion:

• Get Them to See It Your Way, Right Away: How to Persuade Anyone of Anything by Ruth Sherman (McGraw-Hill, June 2004)
• Maximum Influence: The 12 Universal Laws of Power Persuasion by Kurt W. Mortensen (Amacom, June 2004)
• How to Persuade People Who Don't Want to be Persuaded: Get What You Want -- Every Time! by Joel Bauer and Mark Levy (Wiley, June 2004)

P.S. Fast Company's Readers' Choice for July is 5 Paths to Persuasion by Robert B. Miller, Gary A. Williams, and Alden Hayashi (Warner Business, April 2004).

Tom Peters' Summer Reading

I was looking through Tom Peters' website this morning (still upset the blog has no RSS feed). Tom has been relaxing and recharging the batteries this summer. He just got done spending five weeks at Canyon Ranch/Berkshires.

Here is what he has been reading. If you read the post, you'll understand the list:

• Fire in the Belly: On Being a Man by Sam Keen
• The Little Book of Happiness by Patrick Whiteside
• The Instinct to Heal: Curing Stress, Anxiety, and Depression without Drugs and without Talk Therapy by David Servan-Schreiber, M.D.
• The Calm Technique: Meditation without Magic or Mysticism by Paul Wilson
• Meditation for Wimps: Finding Your Balance in an Imperfect World by Miriam Austin
• Creating Health by Deepak Chopra M.D.
• Ultra-Prevention: The 6-Week Plan That Will Make You Healthy for Life by Mark Hyman, M.D. and Mark Liponis, M.D.
• A Morning Cup of Yoga: One Simple, Balanced Routine for a Lifetime of Health and Wellness by Jane Goad Trechsel
• Freeze Frame: One Minute Stress Management by Doc Childre
• The Five People You Meet in Heaven by Mitch Albom
• Walden by Henry David Thoreau

A reminder

I just wanted to remind everyone that we have a variety of RSS feeds you can subscribe to. There is obviously the feed feed that gets you all the good stuff. We also have category-based feeds if you are only interested in a particular type of business book.

More Fortune

There are a couple other things in the July 24th issue of Fortune.

• A Term At The Fed by Laurence Meyer is reviewed by Nomi Prins.
• There is a new book out called "Golf Through the Ages" that claims France is the birthplace of golf, not Scotland. The book is a limited edition aimed at collectors ranging from $750 to $5,500 depending on the edition. The dispute is talked about in This Just In.
• Graham Scott and his book A Survival Guide for Working With Humans gets a blurb in the Ask Annie column.

More about Business Cycles

Our recent guest Lakshman Achuthan and his partner Anirvan Banerji are featured in the July 26th issue of Fortune. The article talks about:

1. Their work at the Economic Cycle Research Institute (their clients range from DuPont to the CIA)
2. Their book Beating the Business Cycle (the 20,000 copy first printing sold out)
3. And their current forecast ("The weekly leading index points to a slowdown in the U.S. 'We are going from above-trend growth to closer to trend - about 3%," says Achuthan. Meanwhile, he says, the future inflation gauge projects rising heat: 'Both core CPI and CPI are in a cyclical up-turn.' Oh, and housing prices are still headed upward.").

Crown Business' Fall Season

As we head into the fall, we are going to make you aware of the books coming out from various imprints. We are going to start with Random House's Crown Business imprint. I think Crown is a good example of what pundits like to point to when they say that business book publishing is in bad shape. Crown only has three titles coming out this fall. Their strategy is that they are backing known authors and are betting on blockbuster hits. I am not sure if that is a right or wrong strategy, but it is hard to argue when Execution has sold over 500,000 copies.

I am sure we will be talking more about each of these titles as they get closer to release.

• Confidence: How Winning Streaks and Losing Streaks Begin and End by Rosabeth Moss Kanter (August 31st)


• Confronting Reality: Master the New Model for Success by Larry Bossidy and Ram Charam (October 12th)


• Business at the Speed of Molasses: How Patience Produces Profits by Joey Reiman and Andrea Hershatter (December 14th)

Update: I type too slow. Jack posted below.

I wasn't aware of this,

I wasn't aware of this, but Amazon quietly started a program earlier this month encouraging reviewers to reveal their identities. It is called Real Names and the WSJ had an article today [sub. needed] about it. Their reviewer system has been under question for some time. The most notable incident was earlier this year when the Canadian version of Amazon had a gitch and displayed the real identities of all their reviewers. What was found was authors writing glowing reviews of their own books and books written by friends.

I think it is great that Amazon is trying to improve their system. We decided from the start that all of our reviewers would have their identities posted. We chose for the most part to use bloggers, because you can find out a lot about them and their perspective going and reading their blogs.

It's all about trust.

Great book coming this Fall

Folks,

Larry Bossidy and Ram Charan have done it again.
First they wrote Execution which was and still is a huge best seller.
Now they have written Confronting Reality and it is also brilliant. It is due to pub in October of this year.
Remember, I told you about the 2004 business book of the year in July!

Fractal Finance

Yesterday, The Wall Street Journal ran an excerpt [sub. needed] from The (Mis)Behavior of Markets: A Fractal View of Risk, Ruin, and Reward by Benoit Mandelbrot and Richard Hudson (Basic Books). Here is an excerpt from the excerpt:

To [Richard Olsen], a financial transaction is like a small explosion. Conventional financial theory, as taught in business schools around the world, holds that prices change continuously, and that each investor is as unimportant as the next. Their trades are like the collisions of molecules in a gas chamber -- millions of tiny energy exchanges. Nonsense, Mr. Olsen says. His tick-by-tick data show plainly that prices jump. Quotes stutter. And investors vary greatly in importance and impact on the market. A more accurate metaphor is the chamber in an internal combustion engine: Millions of small and large explosions drive the car forward, as the sparkplugs fire and the pistons churn.

A question for all of you...

A couple of days ago, Shannon at shannonsays.com said (Sally sells seashells...) that she reads blogs for the conversations she can have with others. I do that same and I figured all of you do too.

So, I would like to hear from all of you today. Let's have a conversation about what good business books have you read lately. At 800 CEO READ, we are always looking for good books. Maybe someone else is looking for a book on the same subject. Maybe I can bring the author by to chat with everyone.

Who's first?

What if Everyone Talked the Same Way

This is a piece that Seth Godin wrote for our most recent Keen Thinker newsletter.

People in your organization have a common language. They’ve got shorthand that helps them communicate. Words like “drop dead date” and “defects” and “deadlines” and “No” are fairly universal. It’s easy to shoot stuff down and stall and denigrate and turn great things into mediocre products and services because we all have those concepts nailed.

What we need, it seems to me, is a way to talk about the great stuff. A common vocabulary that makes it easier for groups to do the right thing, to create things worth talking about.

My last two books, both national bestsellers and both available from 800 CEO READ aim to do just that. Here’s a short glossary of the sort of conversations I’m hoping your people will start having:

PURPLE COW: Something remarkable. Something worth talking about. A Purple Cow is a product that markets itself because people want to talk about it. “Make this a little more Purple.”

FREE PRIZE: The element of a product that makes a product Purple. Turns out that most of the time, the thing we talk about isn’t the performance of the item. We don’t buy a Hummer or a Mini because of the way it drives from here to Cleveland. We do it because of the way it makes us feel. We do it because both of them are easy to talk about. Same with the TV sets on Jet Blue flights.

The Free Prize is the gimmick, the clever thing, the thing that makes something remarkable.

“Where’s our Free Prize? Where is the gimmick that once we put it into this thing is going to make it Purple?”

CHAMPION: A champion is someone who makes things happen. She refuses to just follow instructions. Instead, she does whatever is necessary to get that thing out the door, to make it real, to make it magnificent. Champion is also a verb, as in, “This won’t work unless you champion it.”

Don’t bother launching something innovative without a champion.

SNEEZER: Someone who tells other people about your Purple Cow. Sneezers have influence.

AVERAGE PEOPLE: They don’t need anything new from you. They have what they need and they don’t want much. The people who want to hear from you are the geeks, the nerds, the early adopters.

EDGECRAFT: This is the way you dream up fashionable stuff. Not by brainstorming, but by choosing an edge and going all the way to it.

Is it silly to make up words? I don’t think so. Coining a new word or a new phrase makes the intangible solid. It ensures that everyone in your group knows what they mean, and it enhances the importance of the important stuff.

The only reason I wrote Free Prize Inside and Purple Cow was to help the people who “get it” (that would be you) create an environment and vocabulary to encourage everyone else to come along. Jack and the folks at CEO READ can cut you an amazing deal on bulk books—the reason is simple: if everyone gets a copy of the books, everyone can start talking like us.

So go, make something worth talking about!

Book Review: Emotional Design

Emotional Design: Why We Love (or Hate) Everyday Things, by Donald A. Norman, Perseus Books, 257 pages, Hardcover, January 2004, ISBN 0465051359.

If you’ve ever labored to bring something to market, you’ve probably been party to this daisy chain of blame: designers and engineers fight vicious battles over form vs. function; marketing and the ad agency bicker over on-strategy content relative to award-winning graphics and copy; and everyone loathes the fluffy “branding” ruminations of the chief marketer. As is the case in the fields of physics or economics, what we product developers really need is a grand unifying theory – a way to get these divergent viewpoints pulling together in order to make great stuff. Well, search no longer, for Donald Norman serves up a comprehensive theory of product development in his remarkable Emotional Design: Why We Love (or Hate) Everyday Things.

This outstanding book is by no means Norman’s first on the subject of design. In the 80’s, Norman authored another landmark book, The Design of Everyday Things, which argued for function over other considerations, such as aesthetics and meaning (or “brand”). In doing so, it established Norman as the curmudgeon of the design world. But in Emotional Design, a mellowed Norman arrives at a more balanced – yet revolutionary – conclusion: things that look and feel good work better for their user because human cognitive processes (which enable functionality in the first place) function more smoothly in the presence of beauty. For example, a beautiful computer interface puts us in a frame of mind more conducive to finding successful functional workarounds than does a nasty interface. Think Mac versus DOS. Rooted in scientific research, this idea would have made for a good book in and of itself, but in the course of outlining a model of human cognition to support this conclusion, Norman puts forth a unifying theory of great product development, and that’s where the fun begins.

Norman’s theory of great product development is built upon a tripartite model of human cognition: we breathe in the world via two channels, one Visceral, which is the realm of things like feel, looks, and smell, the other Behavioral, which is what allows us to create movement and take action. Operating on top of those channels is our Reflective processor, which Norman describes as the “… level that conscious and the highest levels of feeling, emotions, and cognition reside.” Most of what we call “branding” happens at the Reflective level. Imagine an iPod in your hand. Viscerally, you love the shape, the heft, its intense whiteness, the chromed back, the feel of the controls – even the look of the advertising and packaging delights you. Behaviorally, the Click Wheel gets you to any of your 20,000 bootleg copies of Wild Thing in three clicks or less – sweet! On a Reflective level, you can’t imagine living without all this music on your hip, and the iPod fits your self image in a deep way; you love the Apple brand. Norman’s Visceral-Behavioral-Reflective model of cognition explains nicely why Apple’s products just plain rock: great products fire at all levels of cognition, while bad ones fail at one or, in the case of the AMC Pacer, all three.

In my earlier review of Lovemarks, I noted how au courant it is for business thinkers to say we should all be marketers, that we’re all designers. And they’re right. But with his Visceral-Behavioral-Reflective model, Norman gives us a way to put that thought into action. Back to the iPod in your hand: that it is so compelling Viscerally isn’t just a function of great product design; it’s about Apple’s ability to go to market with ads and packaging whose aesthetic elements are as carefully designed as the product itself. That the iPod is now the digital music player speaks to Apple’s ability to market to our Reflective level (though advertising, packaging, and even its retail stores) with messages and images carefully selected to shape the meaning of the iPod within our culture.

And therein lies the Big Idea of Emotional Design: when marketing can’t agree with engineering who can’t abide the industrial design group, it’s because they’re each worried about only one of the three levels of cognition. But, as the iPod proves, it is possible to have a product where beauty, joy, functionality and crisp marketing positioning not only coexist but actually reinforce each other. The key is to get each discipline to acknowledge and support the successful design of the two cognitive elements it would otherwise never deal with. In doing so, we all become designers, engineers, and marketers, unlocking the key to creating great stuff.

I approached Emotional Design thinking it would be just another book from the often insular field of product design. It is anything but. There’s more here about the essence of branding than in any “marketing” spiel in recent memory. Norman’s lucid prose and elegant thinking combine to make Emotional Design a must-read for anyone who wants to create remarkable things, no matter your domain.

Diego Rodriguez loves creating great stuff. You can read more of his thinking on product development at metacool

Stellar Comment

I have been meaning to post this for a couple of weeks. Wolfgang from Namedesigner wrote an outstanding response to one of our Lovemarks reviews. The comment is a bit long so I have put it beneath the fold. He writes about how "some lovemarks refer to making love rather than being loved."

Is it legal? – Some lovemarks refer to making love rather than to being loved.

When Mitsubishi launched a new car with the name „Pajero“ on the Spanish market, it became obvious very soon that the name chosen was not optimal because it immediately was the subject of jokes due to its homophony with a Spanish expression related to masturbation. The same happened to Ford’s model „Pinto“(Portuguese for male genital) in Brazil where it was quickly renamed into „Corcel“(horse).

There is quite a long list of product names that give food to the dirty mind be they chosen accidentaly or deliberately. Obviously there seems to be a kind of tradition for this in the history of naming which originally started with place names. Some of our ancestors obviously were too innocent to realize what burden they place on their offspring when naming places like Pratts Bottom (Kent), Brown Willy (Cornwall), Lickey End (near Birmingham), Booby Dingle (Powys), Great Cockup (Cumbria). Even places such as Thong (Kent) seem to have revealed far too much for not being the victim of lewd remarks.

The European continent, however, is also challenging the innocent mind of the English speaking travellers. In Southern Bavaria they will come across a village with the name of “Petting” and about eleven miles from there, in neighbouring Upper Austria, the shock might be inevitable when they enter the village of “Fucking”. Inspite of the fact that the inhabitants of Fucking have had enough with English-speaking tourists swiping their sign, they refuse to change their name. It goes back to the ancient Bavarian settlement and although this area was christianized by Irish and Scottish monks in the 9 th and 10 th century, an amendment of the name has never been deemed necessary.

No wonder that in many countries there are restrictions regarding the choice of a place name as a trademark for goods and services. One way around these restrictions is to distort the name so that it becomes indisputable but on a subliminal level takes advantage of the fact that sex sells. A recent example of successful distortion are the products of a British based fashion retailer called French Connection Group plc with the trademark FCUK. Linguists tell us that
the power of a word depends on its context, and clearly the English word “fuck” falls into that category. To make it even more explicit, two new fragrances were launched named “FCUK Him” and “FCUK Her”. On its website, FCUK demonstrates a clear picture of its marketing strategy.

Whereas the linguistic allusions are close to Shakespeare’s bawdiness, the images remain subdued and innocent, which on the one hand is rather cynical but on the other hand tries to bridge the generation gap because most parents finance the quite conventional fashion attire that their children obtain from FCUK. Thus FCUK’s clients in each major market display a range of attitudes when confronted with the provocatively distorted four-letter mark. The American Family Association (AFA) promotes initiatives against FCUK such as
prefabricated emails protesting against the exploitation of youngsters in such a manner.

Sex in marketing is bound to raise demand along with a few eyebrows which in addition either secure the necessary publicity or ban the product from the market. Branding an almost swear word in order to create a cash cow is, however, not restricted to fashion clothing and related products. On a recent visit to New Orleans I was surprised by the abundance of labels for their traditional hot pepper sauces. Besides the well known Tobasco, there are more spicy
brand names such as “Burning rectum” or “Hot shit”. It shows that name design must be ready to apply wit to anything that makes the blood boil and the label sell. Obviously this does not really work with other economic fields, for instance
with tourism, because the places mentioned above are not among the hot spots that travel agents propagate in their catalogues.

Catching Up

I am back in Brew City and trying to catch up.

To show you how far behind I am, I am going to point you to the Monday Special Section of the Wall Street Journal from two weeks. The topic was small business and there were a couple books that showed up. In the opening article Lessons of Success -- and Failure [sub. needed], there are quotes from two biz book authors:

...While these are problems [IRS, loss of financing, personal trouble of owner] that can plague any size firm, "for small businesses, there is simply less margin for error," says Dave Anderson, a leadership consultant in Agoura Hills, Calif., and recent author of Up Your Business.

Offense as Well as Defense

Meantime, doing things right -- as opposed to just avoiding pitfalls -- is equally critical to real success. From his vantage point, Mr. Anderson believes the enterprises that become great -- not just good -- are the ones that "keep the hunger and stay in attack mode even when they succeed," which, as he points out, "is against human nature." The leaders who prevail over the long haul, he says, don't become "immersed in paperwork" but rather stay in the trenches and keep innovating.

"You can't build a great company by memo or voice mail," Mr. Anderson says.

Patience, too, it seems, can separate winners and losers.

About two-thirds of new employer firms survive at least two years, according to the SBA, but only about half make it to four years. The fortitude it takes to keep plugging along in the early, lean years runs deep in survivors, says Doug Hall, host of Brain Brew Radio, a show about American entrepreneurs on Public Radio International [author of Jump Start Your Business Brain and Meaningful Marketing]. He believes that standing one's ground, even if failure seems imminent, can be the deciding factor in a business owner's ultimate success.

Overcoming Naysayers

"The challenge with entrepreneurs is that they don't stick with it," Mr. Hall says. "It takes too much energy because the naysayers are whispering, 'It doesn't work, it doesn't work.'"

However, at the end of the day, he suggests, the most important distinction between those who fail and succeed lies in the DNA of the original brainstorm. "To borrow a phrase: It's the idea, stupid," Mr. Hall says. "Did you have an idea that's meaningfully unique?" He believes the most thriving entrepreneurs are the so-called American dreamers -- the ones who see a void in American commerce and try to address it rather than haphazardly chasing any inspiration. For instance, the guy who can't find a printer cartridge on a weekend and is moved to open an office-supply store; or the entrepreneur who goes to a dirty theme park and decides he can do better. That, Mr. Hall suggests, is where the Staples and Disneys of the world originate.

"Money isn't the ultimate measure of their success" in the beginning, he says. "It's the fulfillment of their goal."

BTW, there is also a profile of Arthur Golden, author of Memiors of a Giesha, and his struggle with success.

The Heart of Brands

With so much talk today about brands, about their origins and their cults and so forth, I find it refreshing to go directly to the source—to read detailed accounts of the very specific practices and actions of companies that have built enduring brands. In that regard I recommend these books that share the nitty-gritty of well-known companies.

Brand New: How Entrepreneurs Earned Consumers’ Trust from Wedgewood to Dell by Nancy Koehn is one of the best books on this topic. This whipsmart HBS prof tells the story of six companies that have created enduring brands from scratch. Her entrepreneurs: Josiah Wedgewood, H.J. Heinz, Marshall Field, Estee Lauder, Howard Schultz, and Michael Dell. Koehn points out that powerful brands are built from the core and not through superficial attention-getting tactics. “In order to provide the benefits that their brands promised consumers, each of the six entrepreneurs had to create a range of organizational capabilities. Each of the six entrepreneurs worked with colleagues and employees to build not only a brand but a company.”

What better company to learn from than Procter & Gamble? Steve Case, Meg Whitman, Scott Cook, and Steve Ballmer are but of the few leading executives who cut their teeth at the company that is arguably the best in the world at building enduring global brands. The new book Rising Tide: Lessons from 165 Years of Brand Building at Procter & Gamble by Davis Dyer, Frederick Dalzell, and Rowena Olegario is by no means a critical look at the behemoth, which granted the authors significant access to executives and archives. Yet the lessons are out and out fascinating.

Finally, the forthcoming Wedgewood: The First Tycoon from Brian Dolan, is an extremely well-written and comprehensive look at this early entrepreneur. Dolan draws from many fields to highlight not merely the innovative business practices of this pioneer, but to shed light on the economic and cultural context of his venture.

Jack Covert Selects: Don't Think Pink

Don't Think Pink: What Really Makes Women Buy -- and How to Increase Your Share of This Crucial Market by Lisa Johnson and Andrea Learned, AMACOM, 224 pages, $23.00, Hardcover, June 2004, ISBN 081440815X

Women aren’t all about pastels and flowers. Everyone knows that, right? Apparently not or otherwise these two marketers wouldn’t have had to write this how-to-market-to-women-effectively book. But luckily they did. Written with style and wit, don’t think it’s only for girls. It’s for everyone who wants to sell something to women and understand the way they think.

Just take a quick look at what pink thinking is. It’s a “recipe” they start off with in Chapter One, and it’s not only very funny, but spot on if we think about ads targeted at women for a minute:

One part dated assumptions and information.
Two parts superseded stereotypes.
One part limited staff and budget
Two parts internal resistance to new ideas
Three parts fear of turning off men and making expensive mistakes
A generous dollop of pastels, butterflies, hearts and flowers
And a double shake of good intentions and sincerity
Do not stir or integrate with other departments. Serve to women customers.

But more importantly of course is not thinking pink. A very valuable lesson in this book is choosing the correct method of marketing: visible or transparent. Visible marketing refers to products that are physically marked for women like women’s vitamins or razors. Transparent marketing however is much more sophisticated and relies on a thorough understanding of the target market and their needs. You truly need to understand what makes women tick. Yes, it’s more work, but it pays off in the end. They illustrate the difference aptly: the difference between a tailored suit that fits perfectly, or an off the rack mass produced item that is not tailored to your specific needs. This type of positioning is what all marketers who hope to sell something to the vast majority of women buyers out there, will have to become skilled at. It’s the future.

Great chapters with useful information, but the chapter I got most miles out of was Chapter 10: connecting with women online. Simply because this is such a large market, and they give simple hard facts about online women shoppers which all marketers should be aware of. An example:

“Women are online for both community and shopping. In December 2002 alone, women’s online couminites reached approximately 30 percent of all female Internet users age 25 to 64, attracting a total of nearly 35 million visitors. The segment of the online population that shops there, will grow 29 percent tot 121 million in 2005.”

This book will help marketers target women more effectively, whether it involves selling cars, coffee or clothing. Get to know how woman’s minds work, get to know your brand, and be authentic; and remember that women can smell bull a mile away.

Crime Always Pays

With so much business news taken up this summer with news of arrests and handcuffs, what better beach reading than a selection of titles from the new Library of Larceny series? This spiffy, perfectly realized series of retro-pulp paperbacks from Broadway Books re-introduces great book from the past on corporate crime, both large and small. The first five titles include: Ponzi: The Incredible Story of the King of Financial Cons by Donald Dunn, Con Man: A Master Swindler’s Own Story by J.R. “Yellow Kid” Weil, Where the Money Was: The Memoirs of a Bank Robber by Willie Sutton, McGoorty: A Pool Room Hustler by Robert Byrne, and The Telephone Booth Indian by A. J. Liebling

The Ponzi title is such a treat that I’ve asked the author, Donald Dunn, to answer a few questions about his book and the lessons it carries to our economy today. Pardon the length, but he’s just too much fun! By the way—what’s your favorite tale of corporate misdeed? Please comment.

Q) This week we saw Enron former CEO Kenneth Lay in handcuffs, and anyone with email receives numerous pitches for untold riches. Does the core message of your book have any lessons for these current trends, and if so, can you share them?

A) Despite Ken Lay being called “the most accomplished confidence man since Charles Ponzi” by Sen. Peter Fitzgerald, there’s a world of difference between Lay and his predecessor. Lay headed an actual company with billions of dollars in revenues, thousands of employees, worldwide offices and other real assets that Enron investors could point to as assurance that their money was well-placed; Ponzi’s victims had only his word that his “secret scheme” would return 50% or 100% for each dollar. And where Lay can defend himself by saying that others – Jeffrey Skilling, Richard Causey, and nearly 30 more already indicted – caused all the company’s problems, Charles Ponzi sought nothing less than full credit for his skill at bilking some 30,000 people out of $15 million in the first six months of 1920. “I knew human nature,” he wrote. “I was a better salesman by instinct than others are by training.”

So, yes, the core message of the book is that anyone -- anyone at all – may lose money in a criminal enterprise unless he or she is continually on guard. And even then, especially when the investment opportunity comes via a trusted friend’s “inside tip” or a “get rich quick” chain-letter email that promises a big return for a relatively small sum, the odds of getting burned are great.

Q) Do you believe investors learned something from Ponzi?

A) If by investors, we’re talking about the public in general, the tremendous prevalence of Ponzi schemes during the 85 years since his rise and fall in Boston would indicate that, no, people are supremely susceptible to a “con” at any time. That most basic vice, greed – the desire to make more money than a bank or insurance company or the stock market might return on an investment – assures the con artist of a steady supply of victims. Countless Ponzi schemes are flourishing all over the world at this very moment.

Ponzi’s investors, on the other hand, did learn something. A few lucky ones – and these included certain public officials, police officers, and the like who willingly and knowingly lent their names to the “soundness” of his enterprise – cashed in their promissory “notes” early on, and doubled their investments. (In some cases, they had not actually put in their own money; Ponzi “loaned” them the investment sum so he could proclaim that “Judge So-and-So” believed in his venture.) And then there were the 30,000-odd other investors who learned that their hard-earned life savings, grocery money, “rainy day” funds, etc. could disappear almost overnight. After several years of bankruptcy hearings and court rulings, many grim-faced investors got 30-cents for each dollar invested.

Q) Were there any healthy outcomes from the Ponzi scandal?

A) Perhaps the most important development was the creation of the U.S. Securities and Exchange Commission in 1934, some 14 years after Ponzi’s operation opened the decade of the Roaring 20’s. In that period, some 20 million investors large and small snapped up $50 billion worth of securities – only to see half that value vanish in the 1929 Wall Street collapse. (It can be speculated that if Ponzi hadn’t been busy in 1934 fighting deportation to his native Italy he would have asked payment from the government for the name bestowed on its new consumer-protection organization, the SEC; Ponzi’s infamous firm was, after all, the Securities Exchange Company.)

Another healthy outcome, perhaps, was the Pulitzer Prize given the Boston Post for exposing Ponzi’s scheme. (A cynic might note that the paper’s expose came only after it had run a series of articles about the mysterious millionaire who was making people rich -- articles that sent crowds waving fistfuls of dollars into Ponzi’s clutches.)

Q) Your book shows Ponzi to be less of an out-and-out and unscrupulous rogue than an ambitious man who responded poorly to events beyond his control. Is it fair to say that? And how, ultimately, would you characterize Ponzi?

A) The question reflects the views of a particular reader, or perhaps is a welcome comment on the author’s writing talents. Another reader might see things quite differently. The facts are these: Charles Ponzi was an out-and-out crook who evidently never worked an honest day in his life, and never wanted to. He stole millions from thousands of people, stole money from his own wife and her family, bribed judges and the police, forged checks, smuggled illegal immigrants into the U.S., and blithely told of many other criminal acts in his privately published autobiography. And yet, he seemed to be a thoroughly likeable character – a smiling, happy-go-lucky weaver of amusing tales, a person able to convince himself and others that his fertile mind would devise one “out” or another, so that in the end everyone would prosper. With millions of ill-gotten gains in his 30 bank accounts, he took out a life insurance policy that would pay off the creditors if he died before he found a way out of his big scheme. Boastfully, he spoke at luncheon meetings of New England financiers, double-talking his way through elaborate explanations of how he could afford to pay investors huge profits, or how he would use his investors’ money to buy a fleet of steamships. (In present-day bizspeak, it’s “diversification” or “synergy.”) His primary defense at his various trials was his contention that if the governments of the U.S. and Commonwealth of Massachusetts had not closed the Securities Exchange Company when they did, he would have – via one scheme or another – eventually made enough money to pay the profits he had promised to those who believed in him. How can any writer not like a person who has so much hope, so much faith in himself, a person who never doubts that tomorrow will be better? Oh, yes, and he dearly loved his mother and his wife.

Q) How much of the explosiveness of Ponzi’s tale can be attributed to the mindset of the average investor at the time, and to the prevailing economic and cultural climate?

A) As the SEC points out on its informative website (www.sec.gov), there was a great surge of investment opportunities in the wake of the First World War as the 1920s dawned. Easy credit was available, “rags to riches” stories abounded in the unfettered press of the day, and a public shrugging off wartime restrictions and shortages wanted to get in on the action. It’s been said that Ponzi schemes flourish in periods when inflation is high, wages are static, and typical returns on investments are low – such as banks offering just 2% or 3% on deposits. Then, individuals might look for alternative ways to make their savings grow. But it’s also true that Ponzi schemes flourish when wages are high and inflation is low, and investors feel that they can safely put any “excess cash” into what might be deemed as higher-risk opportunities. In other words, Ponzi schemes can – and do – operate at any time, anywhere. (This author helped to expose the “Access to Capital” scheme in Zimbabwe in mid-1990’s, testified in the 1977 trial of a Ponzi operator in Long Island, NY, and watched in disbelief as the government of Albania fell in 1997 after it endorsed a dozen disastrous pyramid programs.)

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In conclusion, yes, there are books and pamphlets and guides and websites and “consumer reporter” folks on TV and radio that can provide helpful hints on how to recognize a Ponzi scheme. Some basic warning signs: The return-on-investment is “guaranteed,” and markedly higher – 10%, 50%, 100%, perhaps – than obtainable almost anywhere else. And investors are encouraged to tell others about the potential for profits that they’ve discovered.

But the schemes surface in tremendous variety – some appearing very simple, like Ponzi’s “secret” method of profiting from the purchase and sale of postage stamps, and others as complex as Enron’s far-flung operations in 30 countries. Some investors quickly recognize a Ponzi scheme, but put their money into it anyway – figuring that the people who get in on the pyramid early can take their profits (from cash paid in by later investors) and run. The trouble, of course, is that only the originator of the scheme knows which investors are early ones and which are the latest suckers. And at all times, the beauty of a pyramid scheme – beautiful, that is, to the originator – is that the person who puts money into it often makes it his or her job to bring in the next investors. The “customers” truly become the “salespeople.”

BBBT winding down

Today, the Business Blog Book Tour stops at Jon Jantsch's Duct Tape Marketing. What is cool today is Tom Ehrenfeld's answers are in an audio format.

Tomorrow and Friday, Tom will be here hosting the blog.

I am off you San Francisco to attend BlogOn.

Spread the Wealth

Since Microsoft made their little announcement yesterday and lots of people are going to have some extra money in their pockets, we thought we'd give you a couple of ideas on how to spend it.

Of course, our ideas are going to be books and we thought we would highlight some about the company giving out this mother lode of cash:

• There is a new title from Portfolio called Microsoft Rebooted: How Bill Gates and Steve Ballmer Reinvented Their Company. It is written by Robert Slater (Jack Welch and the GE Way, The Wal-Mart Decade) and will be shipping August 5th.


• They say it is all about people. Here is the book to tell you how Microsoft selects theirs - How Would You Move Mount Fuji?: Microsoft's Cult of the Puzzle--How the World's Smartest Companies Select the Most Creative Thinkers by William Poundstone. I have heard good things about the book. Jeremy at Ensight wrote a few entries about it (here and here).


• There are many books written about the founders. Paul Allen has The Accidental Zillionaire. There's Bad Boy Ballmer about Steve Ballmer. And of course, Mr. Gates himself has authored two books - The Road Ahead (out of print) and Business @ the Speed of Thought. We found all of these titles to be average.


• Microsoft even wrote a book about itself. The book was called Inside Out and it was published in conjunction with the company's 25th anniversary (it is out of print).


• The rest are just a list of titles we ran across as we were researching


• Microsoft Secrets: How the World's Most Powerful Software Company Creates Technology, Shapes Markets, and Manages People by Michael Cusumano (Free Press, 1998)
• Hard Drive: Bill Gates and the Making of the Microsoft Empire by James Wallace (Harpercollins, 1993)
• The 12 Simple Secrets of Microsoft Management: How to Think and Act Like a Microsoft Manager and Take Your Company to the Top by David Thielen (Mc-Graw Hill, 2000) - out of print
• Selling Microsoft: Sales Secrets from Inside the World's Most Successful Company by Doug Dayton (Adams Media, 1997)
• Microsoft in the Mirror: Nineteen Insiders Reflect on the Experience by Karin Carter (Midpoint Trade, 2003)
• World War 3.0 : Microsoft and Its Enemies by Ken Auletta (Random House, 2001) - out of print
• The Microsoft Way: The Real Story of How the Company Outsmarts Its Competition by Randall E. Stross (Perseus, 1997)
Posted by Todd S. at 3:03 PM | Comments (1)

Kottke reviews Surowiecki

Jason Kottke reviews James Surowiecki's The Wisdom of Crowds.

Surowiecki visited our site back in May and wrote the following entries:

• Guest Appearance
• Think Different
• Solidarity vs. diversity

More Ries and Trout

The guys at Marketing Playbook discuss Ries, Trout, and some things from their upcoming book.

Another author blogs

Laura Ries has started a blog. It is titled The Origin of Brands Blog to go with the new book. It has been going for a couple of weeks.

You can also read another Q&A about The Origin of Brands at The Start-up Chronicles [via Brand Mantra]

Tuesday and the BBBT

Go check out today's stop at Wantrepreneur. So far today, Tom has talked about finding your calling and books for entrepreneurs.

Jack Covert Selects: Guerrilla Travel Tactics

Guerrilla Travel Tactics: Hundreds of Simple Strategies Guaranteed to Save Road Warriors Time and Money by Jay Conrad Levinson & Theo Brandt-Sarif, AMACOM, 270 Pages, $15.00 Paperback, June 2004, ISBN 0814471706

If you travel either for business or for pleasure, I have the perfect book for you. This book has given me countless ideas for making my next trip easier and less expensive. According to the authors, the key is to go guerilla:

“Guerilla travelers achieve conventional goals using unconventional means. This means you’ll get where you need to…or where you’ve always wanted to visit, only now you’ll learn new ways of getting there, ways that can save you scads of money, avoid inconvenience, prevent frustration.”

The design of the book is about as perfect as possible. The chapters are very simple and straightforward and all the chapters are divided into subcategories which makes navigation of the book much easier, and helps to access the relevant information faster. Another feature which is super helpful is the numerous tips, with fast facts, as well as the “Alerts” which informs the novice traveler of inside information he/she might have been unaware of. If you are in a time crunch there is a summary at the end of the chapter, which is concise and comprehensive .

On a personal note I am planning my first trip in some time outside the US this fall and my copy of this book already has post-it notes and Hi-Liter all over it. For example, I thought that sitting in an emergency row was smart because you have more leg room, but the book provided me with the website: www.seatguru.com; -a nifty web site that has details on all airline configurations and seating details - which pointed out that the seats don’t fully recline and that the emergency seats have no under seat storage and sometimes they are chillier because of the door. I bet you didn’t know that!

The Appendices list every major and minor airline, hotel chain, travel consolidator, credit card company, and car rental agency. Each entry has the name, phone and website. So obviously this is the book to have when you start planning your trip, and to take along for the ride.

BBBT Monday

Tom E. is with Anita C. on the Small Business Trends Blog for the Business Blog Book Tour.

Dear Readers's Book of The Week

Dear Reader's Business Book Club is doing Ideas Are Free by Alan G. Robinson & Dean M. Schroeder.

You can also find a great article about in the July issue of Inc. Magazine [pg 34, 37].

Here is the gist that I have for the book:

• It is not about the big ideas; it is about small ones.
• Lots of small ideas are harder to copy than one big idea.
• It about working with employees to gather them.

It's moved up on my reading list.

Update: Dana talked about Ideas Are Free a couple of weeks. You can also go back and see what coroners at Brand Autopsy said in May.

Don’t Confuse Business Networking With Mingling

Twenty- five years ago the word ‘network’ applied to CBS, NBC and ABC. My, how the world has changed! In 1993, The Secrets of Savvy Networking was published by Warner Books and much of what is written still applies to our success about a process that is critical to our business and personal success. But it is not working a room. Most of the articles I read use the term networking but they are talking about how one mingles at events. It’s time to give each skill its just due.

It's important to know the difference between ‘working a room’ and networking. They are different activities and draw on different strengths. Unfortunately, too many people lump them together and confuse one for the other. Working a room is the mingling required at any event where we meet, converse and connect with others. An exchange of business cards FOLLOWS a conversation… does not precede nor supplant it. Networking is a mutually - beneficial process that occurs overtime, whereby we exchange leads, ideas, information or support and is based on reciprocity. Some great networkers are lousy at mingling and vice a versa.

In order to be more comfortable and effective, we need to prepare before we attend any business or social event where mingling is on the menu. Having an idea of who will be there by name, position, profession, interest or expertise, is helpful. In order to feel more comfortable and prepared, spend time to assess what we have in common with the other attendees. That will help us figure out topics of conversation that are of mutual interest rather than focusing on those that only further our goals.

Knowing our purpose is important, but we need to be guided, not blinded, by it. Let’s not act as if our agenda is etched in our foreheads. Meeting, greeting and making small talk is the task at hand. You may think that ‘small talk’ is not important or it’s beneath you but it’s what leads to big talk and is the way we establish common ground and interests while connecting us with other attendees, potential clients and business matchmakers.

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You can find out more about Susan RoAne at www.susanroane.com.

Beating the Business Cycle - Thanks!

I have to run. I will be back after the interview (CNBC 2PM EST) and we talk about the business cycles if you like. Leave a comment and I will be happy to respond. Thanks again for having me join your discussion, and here’s to getting the best of all those cycles to come.

Beating the Business Cycle - An Excerpt

If you want to read an excerpt from the book you can do so from our website here.

If you purchase Beating the Business Cycle you also receive a three-month subscription to our weekly Recession-Recovery Watch report.

Beating The Business Cycle - What it means to you

The main message that I’m trying to give is that recessions are not simply the result of unforeseeable shocks, but rather part and parcel of free-market economies. Most people do believe that recessions are not forecastable, and therefore they don’t even try. I think this is a big mistake. Most major bear markets are associated with recession, as are many of the most difficult times in the job market. Having a clue as to the risk of recession in the near-term can help people make much better decisions in both their professional and personal lives. I recently wrote an article that speaks to this issue for Optimize magazine.

Beating the Business Cycle - Our Record

Our record of forecasting cyclical turns is pretty good. But I must say it’s not because we are particularly “smart.” Rather, it’s because we have quite a bit of faith in the fundamental theory behind our leading indexes, and therefore we don’t try to second guess them. Housing prices are a good example. Typically, when the economy turns down, home prices follow. 2001 was the first global recession in a generation so surely home prices should fall, right? Well, I sure thought so until I took a close look at what our Leading Home Price Index (LHPI) was doing. In past recessions it had turned down signaling the aforementioned declines in prices. But this time it kept growing. We checked our skepticism and forecast a continued rise in home prices in spite of the recession. In early 2003, when people were calling for the home price bubble to burst, the LHPI started continued rising strongly, and our outlook reflected this. Currently the pace of increase in the LHPI has eased, but it is not falling. So, while there almost certainly is a decline in home prices somewhere in the future, it is not imminent.

Beating the Business Cycle - Our Method

The Challenge

Economic forecasting deserves its bad reputation in predicting recessions and recoveries. As a recent 63-country IMF study concluded, "The record of failure to predict recessions is virtually unblemished."

The reason for this failure is simple. Most economists forecast by extrapolating economic trends. While this methodology has its merits, predicting turning points is not one of them. Why is that so?

One key reason is that these forecasting models assume the recent past to be a good guide to the near future (see chart below). Most of the time this is a good assumption. But as we approach economic turning points, by definition, the pattern changes. The gap between such forecasts and reality balloons, resulting in large forecast errors.

A Better Way

Unlike econometric models that project from past trends, these cyclical indicators are specifically designed to predict future changes in the direction of the economy. They turn before the economy does. The focus is on the timing of a change in direction (see chart below).

But even the best leading indicators sometimes give conflicting signals. The key is to glean from their collective wisdom the signal that the economy is headed for a turn. This is why ECRI develops composite indexes of leading indicators using state-of-the-art proprietary techniques.
However, even a single composite index is not enough for the purpose. Therefore, ECRI uses an array of 14 such specialized indexes to monitor the U.S. economy alone, and over a hundred proprietary indexes to monitor the global economy.

This brings up another point. There is a lot of data out there. A data vendor we use maintains a database of 4,000,000 time series, but most of them are useless for forecasting cycles. We use maybe 400 series to monitor the U.S. and most major international economies – that’s 0.01% of the data available. Still 400 series is a lot, and many times some individual indicators are rising while others are falling. Leading indexes like the Weekly Leading Index (WLI) sum up all the “on the one hand this is rising, and on the other hand this is falling” and provide a simple direction that we should expect the economy to follow in coming months.

Beating the Business Cycle - The Book

Todd - thanks for the plug for my CNBC interview.

Todd thought you would be interested in hearing about the process of writing the book. I didn’t just wake up one day and say “I want to write a book.” Rather, I got a phone call from a book agent who typically does Hollywood type books. He had an office in New York and had seen me do a few interviews with Lou Dobbs on CNN. This was in early 2002 and people were still stunned by the 2001 recession. He was intrigued by our take on the whole thing, and appreciated the way that the explanation provided by our various leading indexes was understandable to him, a non-economist. He asked us to write-up a one sheet description of what we thought would be of interest to the man on the street and then he showed it to the people at Doubleday. Business books were doing horribly at the time, but our story was so outside the mainstream that they offered us a deal. I have to say, I underestimated how much work goes in to writing a book.

Our Guest Host is busy today

Our guest host Lakshman Achuthan is very busy today. Not only is he here with us, but he will also be on CNBC this afternoon at 2:00PM EST. If you have the opportunity, you check it out.

Martha, Martha, Martha

Well, Martha got 5 months in Club Fed and $30,000 in fines. While she is appealing, we thought we would recommend two books: Martha Inc. by Christopher Byron (for the highs) and Who Moved My Soap? - The Ceo's Guide to Surviving in Prison by Andy Borowitz (for the lows).

Beating the Business Cycle - The History

Our research group represents the third generation of business cycles researchers. My mentor was Geoffrey H. Moore whom the Wall Street Journal called “the father of leading indicators.” He headed up the second generation of research, building on the work of his mentors, Wesley Mitchell and Arthur Burns, who founded the National Bureau of Economic Research in the 1920s. Dr. Moore, who passed away in 2000, felt it was very important for our research to be independent from any special interest. That is why, after directing the NBER, serving as the commissioner of labor statistics in D.C., and housing our research at Columbia University, he decided it time for us stand alone, and that is the ECRI that we have today. All funding