Episode #67 - Free-Rider Friday - October 2015

Ed's Topics

New Apple TV New Features, but still no Amazon Prime App. 

Visitors to Karl Marx's gravesite resent having to pay. Wall Street Journal article.

Would you allow auto insurance companies monitor your driving habits? For example, Allstate.

Adidas now offers 3-D printed shoes.

Inventor creates a beer cup that fills from the bottom potentially ending the beer line as we know it. 

Ron's Topics

VW's Market Share Myth

Volkswagen's emission testing scandal was reported in The Economist, September 26, 2015, "A mucky business." One of the reasons cited was VW's desire to overtake Toyota as the world's largest auto manufacture.

The market share myth on parade. See our shows, The Top 10 Business Myths, Parts I and II, from September 26, 2014 and October 3, 2014 for more on this.

Interesting to note that cars carrying the VW badge make up 60% of sales but the profit margin on them is just 2%. VW obviously makes its profits from its other brands, including Audi, Bentley, Porsche, Lamborghini, etc.

Right to Try Laws Sweep the Country

Right to Try laws allow doctors to prescribe medication being safely used in clinical trials for patients diagnosed as terminally ill. These laws goes beyond the FDA's current "Compassionate Use" policy, allowing patients access to drugs that have passed Phase I clinical trials, since that exemption requires 100 physician hours of paperwork, hence only about 1,000 applications are approved annually.

Right to Try laws have passed in AZ, AK, CO, IN, LA, MI, MS, MO, MT, ND, SD, UT, VA, WY, and CA has a bill on the Governor Brown's desk. The FDA, so far, has not challenged these laws, and it's believed if it did, they'd lose in court--and in the court of public opinion.

Prediction Markets on the US Presidential Race

Check out the Iowa Electronic Market and PredictIt websites for, usually, more accurate predictions with respect to political races than pollsters.

eBay No Long an Auction Site

The Economist reported in its August 29, 2015 issue that eBay reports only 20% of its sales are made in an auction. Sixty percent are now a flat price and the rest are best offer.

Sage Small Business Awards US Prize Winner Interviewed

Michelle James, founder of Forever Cakes, is an entrepreneur with an inspiring story. Here is a picture of the cake she mentioned as here favorite. We have to admit, it is pretty amazing! 

Michelle James' incredible cake. 

Episode #66 - The Death of Standard Cost Accounting

Andrew Carnegie’s favorite saying might have been, “Watch the costs and the profits will take care of themselves,” but in an intellectual capital company, it should be,  “Watch your value and price, and the profits will take care of themselves. Management accounting is a thoroughly inward-looking discipline, from cost accounting to the DuPont return on investment (ROI) formula. One of the century’s most influential accounting academics was William Paton, who in a 1922 treatise described what he believed to be the cost accountant’s chief activity:

“The essential basis for the work of the cost accountant—without it, there could be no costing—is the postulate that the value of any commodity, service, or condition, utilized in production, passes over into the object or product for which the original item was expended and attaches to the result, giving it its value.”

Fortunately, Paton later repudiated this notion that costs attached to a product as it moves through the factory in a speech he gave at a conference in 1970:

“The basic difficulty with the idea that cost dollars, as incurred, attach like barnacles to the physical flow of materials and stream of operating activity is that it is at odds with the actual process of valuation in a free competitive market. The customer does not buy a handful of classified and traced cost dollars; he buys a product, at prevailing market price. And the market price may be either above or below any calculated cost figure.”

In their outstanding book, The Strategy and Tactics of Pricing (third edition), Thomas T. Nagle and Reed K. Holden offer the following indictment of cost-plus pricing:

“The problem with cost-driven pricing is fundamental: In most industries it is impossible to determine a product’s unit cost before determining its price. Why? Because unit costs change with volume. This cost change occurs because a significant portion of costs are “fixed” and must somehow be “allocated” to determine the full unit cost. Unfortunately, since these allocations depend on volume, which changes with changes in price, unit cost is a moving target.”

Price is how the firm captures the results of its value proposition, and since a company is what it charges for, focusing on maximizing value is a better metric than maximizing profit, which is nothing but a lagging indicator, derived from value creation.

This debate between cost accounting and profitability is not over. Much work is being done in this area. In 1987, as mentioned before, H. Thomas Johnson and Robert S. Kaplan published Relevance Lost: The Rise and Fall of Management Accounting, which was named in 1997 one of the 14 most influential management books to appear in the first 75 years of Harvard Business Review’s history. The book is credited with launching the activity- based costing (ABC) revolution.

ABC always asks, “Does this process have to be done?” If so, what is the most effective way of doing it? This costing method has provided manufacturers with the information they need to cut costs substantially, but the real promise of ABC may rest with service industries. Peter Drucker makes this observation in his book Managing in a Time of Great Change:

Activity-based costing shows us why traditional cost accounting has not worked for service companies. It is not because the techniques are wrong.

It is because traditional cost accounting makes the wrong assumptions. Service companies cannot start with the cost of individual operations, as manufacturing companies have done with traditional cost accounting. They must start with the assumption that there is only one cost: that of the total system. And it is a fixed cost over any given time period. The famous distinction between fixed and variable costs, on which traditional cost accounting is based, does not make much sense in services.

But that all costs are fixed over a given time period and that resources cannot be substituted for one another, so that the total operation has to be costed—those are precisely the assumptions with which activity-based costing starts. By applying them to services, we are beginning for the first time to get cost information and yield control.

Toyota—No Cost Accounting?

Johnson’s later book, Profit Beyond Measure, is a seminal work, although not yet fully developed. Johnson profiles Toyota and Scania as two manufacturers that do not have a standard cost accounting system.

As Glenn Uminger, a financial controller at Toyota Motor Manufacturing-Kentucky (TMM-K) since 1988, says, “TMM-K has never had a standard cost system to track operating costs, and we probably never will.”

 So how do they do it? How can a manufacturing company run without a standard cost accounting system? Toyota understands price justifies costs, not the other way around. Here is how Johnson explains it in his book, Profit Beyond Measure:

“None of these comments is meant to imply that Toyota does not have accounting and production planning information systems. Of course it does. Toyota has a comprehensive array of information systems, accounting and otherwise, with which to plan, in advance of operations, and to report results of operations after the fact. But information from such systems is not allowed to influence operational decisions.

Toyota management discharges its responsibility for costs not by taking arbitrary steps to manipulate operations, but largely in the vehicle planning stage. During the design stage, long before the first penny has been committed to making a vehicle, Toyota has always placed enormous importance on setting and achieving cost targets.

To do so, over the years Toyota has developed a famous technique for target costing. Simply stated, target cost is the maximum cost the company can afford to incur to produce and sell a vehicle and still earn a required profit at the price customers are expected to pay.”

He notes Dr. Edward Deming’s observation that over 97 percent of the events that affect a company’s results are not measurable, while less than 3 percent of what influences final results can be measured:

“Managers who adopt the new thinking offered here will accept as second nature the idea that what decides an organization’s long-term profitability is the way it organizes its work, not how well its members achieve financial targets.

Management accounting simply takes accounting revenue, cost, and profitability information, which is appropriate for measuring the overall financial results of a business, and inappropriately attempts to trace it to the particular activities and products of the business that gave rise to those results. Assigning such quantitative measures to parts of a mechanistic system makes sense. However, the parts of a natural living system cannot be so treated. Accounting measures are unable to penetrate the organic, multifaceted union between customer and company that ultimately is the source of a company’s financial results.

Because cost and profit are not objects, but are properties that emerge from relationships, quantitative measures can only describe them, they cannot explain them.”

Wisdom Is Timeless

Henry Ford’s understanding of this topic is truly prescient, as demonstrated in his autobiography, My Life and Work, published in 1922. It is worth quoting at length for the historical lessons it teaches. The notion that price justifies costs was not foreign to Ford:

“If the prices of goods are above the incomes of the people, then get the prices down to the incomes. Ordinarily, business is conceived as starting with a manufacturing process and ending with a consumer. If that consumer does not want to buy what the manufacturer has to sell him and has not the money to buy it, then the manufacturer blames the consumer and says that business is bad, and thus, hitching the cart before the horse, he goes on his way lamenting. Isn’t that nonsense? But what business ever started with the manufacturer and ended with the consumer? Where does the money to make the wheels go round come from? From the consumer, of course. And success in manufacturer is based solely upon an ability to serve that consumer to his liking.”

Keep in mind that Ford’s primary objective was the mass consumption of the automobile, so he focused more on driving the price down in order to increase volume. In a growing industry this is a viable strategy. In mature markets, it is probably better to increase value, thus allowing higher prices. Nevertheless, with Ford’s objective in mind, consider his views on the importance of cost accounting and prices, which are profound:

Our policy is to reduce the price, extend the operations, and improve the article. You will notice that the reduction of price comes first. We have never considered any costs as fixed. Therefore we first reduce the price to the point where we believe more sales will result. Then we go ahead and try to make the prices. We do not bother about the costs. The new price forces the costs down. The more usual way is to take the costs and then determine the price; and although that method may be scientific in the narrow sense, it is not scientific in the broad sense, because what earthly use is it to know the cost if it tells you that you cannot manufacture at a price at which the article can be sold?

Notice Ford “never considered any costs as fixed.” He understood, in the long run, that all costs are avoidable, and by subjecting every cost to the test, does it add value to the customer?, he was able to increase the efficiencies in the factory:

But more to the point is the fact that, although one may calculate what a cost is, and of course all of our costs are carefully calculated, no one knows what a cost ought to be. One of the ways of discovering what a cost ought to be is to name a price so low as to force everybody in the place to the highest point of efficiency. The low price makes everybody dig for profits. We make more discoveries concerning manufacturing and selling under this forced method than by any method of leisurely investigation.

Disney’s Brilliant Price Hike

Our VeraSage colleague Kirk Bowman, The Visionary of Value, does his own podcast, The Art of Value. He interviewed Joni Newkirk, who used to lead pricing for Walt Disney World.

We highly recommend you listen to this show, then read her whitepaper on the price hike story.

It’s a perfect illustration how pricers have to optimize profits overall, not for each silo or department.

Yet cost accounting tends to atomize a business, under the false believe that maximizing each part results in a more optimal whole. This runs counter to systems thinking, where sometimes certain departments need to be less efficient (or profitable) in order for the whole to be more effective.

The Price-led Costing Revolution

By its very nature, cost accounting is a historical function, but what is important for pricing are planned costs, not past costs. Furthermore, cost accountants usually pay far too much attention to sunk costs, which should have no influence over pricing or value considerations.

As Henry Ford pointed out, no one knows what a cost should be. Yet, cost accounting has held hegemony for far too long over the pricing strategies of businesses everywhere, embedding the conventional wisdom that costs determine price. Merely because a practice is widely adopted and utilized does not make it optimal, not to mention true. Check out the debate on Ron’s LinkedIn post on this topic in the comments.

One of Peter’s Principles is bureaucracy defends the status quo long past the time when the quo has lost its status. Cost accounting, and its more modern cousin activity-based costing, does not deserve to be the apotheosis of pricing, let alone running a business.

No doubt, it has its role in any organization, but that role is very specific and historical, not one that should have a major influence in production and pricing decisions.

Innovation requires builders not bean-counters, and the last person who should be running something is the man who controls the costs. Sure, you need that man in there somewhere to keep a rein on things, but he shouldn’t be at the top.

—James Dyson, Against the Odds: An Autobiography

Episode #65 - How to be a Price Searcher, not a Price Taker

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We simply must get over the false idea that there is one optimal price for a customer. There is a range of optimal prices, commensurate with the value being created. Dutch economist Peter van Westendorp developed the van Westendorp Price Sensitivity Meter (PSM) by posing five questions, to which I have added two more:

1. At what price would this service be so expensive the customer would not consider buying it?

2. At what price would the service be expensive, but the customer would still buy it?

3. At what price would the service be perceived as inexpensive?

4. At what price does the service become so inexpensive the customer would question its value?

5. What price would be the most acceptable price to pay?

6. What costs can we afford to invest in at the target price and still earn an acceptable profit?

7. At what price would the firm walk-away from this customer (Reservation price)? What is the firm’s Hope For price? Pump Fist price?

Commercial from IBM about achieving premium pricing at a hotel minibar. "Satisfying the right need at the right moment".

The Psychology of Price

There is strong empirical evidence—from both the rational and behavioral schools of economics—that offering customers different options can often times result in them purchasing more, at a higher price, than merely offering one take-it or leave-it option.

This simply recognizes that different customers have different value perceptions, and firms that engage in price searching are deploying a more optimal pricing model.

In his book, Predictably Irrational, MIT behavioral economist Dan Ariely illustrates the utility of offering options by illustrating The Economist magazine’s offerings. First, he presented the following two options to 100 students at MIT’s Sloan School of Management:

1. Economist.com subscription $59: One-year subscription to Economist.com, including access to all articles from The Economist since 1997—68 students chose this option.

2. Print & web subscriptions $125: One-year subscription to the print edition of The Economist and online access to all articles from The Economist since 1997—32 students.

Now compare those results to the actual ad that The Economist offered, which contained three options, not two:

1. Economist.com subscription $59: One-year subscription to Economist.com, including access to all articles from The Economist since 1997—16 students chose this option.

2. Print subscription $125: One-year subscription to the print edition of The Economist—0 students.

3. Print & web subscriptions $125: One-year subscription to the print edition of The Economist and online access to all articles from The Economist since 1997—84 students.

Ariely concludes that there is nothing rational about this change in choices. The mere presence of an option that was not desired affected behavior, leading to a potential 42.8% increase in incremental revenue for The Economist, or $3,432. You simply will not get that level of return by improving efficiency.

Offering pricing options creates the anchoring effect, whereby the customer is now comparing prices to your highest offering. This is why Prada stores always display one incredibly high-priced article that acts as an anchor for all the other products.

All of these high priced items act as an anchor, even if the customer never buys them—throwing a halo effect over the other offerings, allowing for prices to be higher.

The first lesson from the above is if you do not offer a high-end premium package, how could you customers ever select one? Second, list your most expensive option first. The third lesson is that by offering three options, you almost always sell more of the middle option, and less of the cheapest offering.

Once again this confirms what most pricing experts know: people are not just price sensitive; they are value conscious.

A snippet from Dan Ariel's TED talk. This is a great illustration on the psychological effects of options pricing.

Seven Generic Customer Segmentation Strategies

According to Tom Nagle and Reed Holden in their book The Strategy and Tactics of Pricing, there are seven effective segmentation strategies to specifically identify different types of customers in order to capture the consumer surplus:

1. Buyer identification. Senior discounts, children’s prices, college students, non-profits, and coupons are all examples of ways to identify different buyers with different price sensitivities.

2. Purchase location. Dentists, opticians, and other professionals sometimes maintain separate offices, in different parts of the same city, or in different cities, which charge different prices based upon the economic and demographic makeup of each. Coca-Cola and other soft drinks sell at radically different prices depending upon where they are purchased, from discount retailers being the cheapest price per ounce and bars and vending machines being the most expensive. With the increasing use of the Internet to make purchases, being able to segment by location is becoming more difficult, but still feasible.

3. Time of purchase. Theaters offering midday matinees, restaurants charging cheaper prices for lunch than dinner, and cellular and utility companies offering pricing based on peak and off-peak times are all examples of segmenting by time of purchase.

4. Purchase quantity. Quantity discounts are usually based on volume, order size, step discounts, or two-part prices. Customers who buy in large volumes tend to be more price sensitive but less costly to service, and they have more incentive to shop for a cheaper price. Thus, they are offered volume discounts. Two-part pricing involves two separate charges to consume a single product. Night clubs charge a cover at the door as well as for drinks and food.

5. Product design. Offering different versions of a product or service is a very effective way to segment customers, either by adding more features, or taking some away.  Premium gasoline, for instance, only costs the oil companies approximately 4 cents more per gallon to refine but sells at the pump for anywhere from 10 to 15 cents more. Pricers call low-end products a flanking product, a signal to competitors to not start a price war in the higher-value segment.

6. Product bundling. Restaurants bundle food on the dinner menu as opposed to à la carte, usually at cheaper prices. Symphonies, theaters, and sports teams bundle a package of events into season tickets. IBM and Hewlett-Packard bundle hardware, software, and consulting services to increase the value of their respective offerings.

7. Tie-ins and metering. Before the Clayton Antitrust Act of 1914, tie-in sales were common. American Can, for instance, leased its canning machines with the requirement they be used to close only American’s cans. Since the passage of the Clayton Act, the courts have refused to accept tying agreements, except for service contracts where it is essential to maintain the performance and/or the reputation of a new product. While using the tying method with a contract may be illegal, opportunities still exist to use this strategy without a contract. For example, Rrazor blade manufacturers design unique razors requiring customers to purchase its blades for refill, and a certain toner must be used on various leased copy machines.

In addition to the above seven generic strategies, other characteristics that can be used to offer different options to the customer include:

• Guaranteed response time; start time; and turnaround time

• Access to specific talent within the firm

• Bundling education and training

• Inclusion of the firm’s newsletter, special events, seminars, and so forth

• Automatic upgrades or updates (relevant if changes in the law or technology are significant to your customer)

• Offering older technology to achieve a lower price

• Historical data conversion included or excluded

• Prior tax or other government compliance requirements (e.g., bundling in five year’s worth of prior tax return filings)

• A systems review, risk audit, or other Needs & Diagnostics your firm offers

• Attendance at the customer’s board meetings

• Intellectual Property ownership belongs to firm rather than customer (mostly for advertising agencies)

• Different risk-sharing methods based upon the outcome the customer achieves

• Offering warranties, guarantees, and other forms of insurance

• Varying payment terms

• Various financing options—purchase, lease, rent, etc.

Once again, the above is not an exhaustive list of criteria that a firm could use to offer different levels of options to its customers. The process of creating these options is one of creativity and innovation; there are literally an infinite number of combinations, limited only by a firm’s imagination. 

Listener Questions

On Twitter, BJ Lee asks about payment terms, e.g., half paid upfront and half on completion.

Payment terms are pricing, and must be considered upfront. The general rule is: the lower the price, the fast you get paid, including 100% pre-paid (similar to a hotel’s best internet rate being pre-paid, no cancellations).

Another question we received, via email, was from Bryce, a practicing CPA:

Ron and Ed,

Love the show. I have a situation that I'd love to hear your opinions on.

We work with many HVAC and Plumbing companies. Most of them do not do hourly pricing/billing. Instead, if you need a repair, they charge a flat diagnostic fee and, once they've found the source of the problem, give a flat price for fixing it upfront that the customer has to sign off on.

This seems to be a way of pricing you would advocate for.

However, many of them run into questions about 'fairness' when the job is shorter than the customer expected. The customer often looks up the price of the parts online, subtracts that from the price they paid and divides the remainder by how long it took the company to fix the problem, arriving at what they perceive as the hourly rate. This number seems too large to them and they complain of being overcharged. (I've attached a screenshot of a recent complaint like this.)

What are your thoughts on this? How would you go about responding to these complaints? How would you educate the customers ahead of time to avoid these complaints? Would you change how these companies are pricing?

This is partly an educational opportunity: we must simply reeducate the customers away from thinking time spent = value. The airlines, cellular companies, etc., have been able to reeducate customers, so we know it’s possible.

Also, managing customer expectations upfront could also be deployed. A great example (example to our VeraSage colleague, Dan Morris) is Waters Plumbing Heating and Air. The explanation of its Flat Rate Pricing plan is brilliant.

Notice how they discuss how the customer has choices: repair the item, replace the item, or upgrade the item. They also waive the diagnostic price if they are hired to do the job.

We believe another strategy is to offer the customer options on when the work will be done. We’ll do it today for $x, tomorrow for $X - $Y, or next week for $X - $Y - $Z.

Obviously, this will change with the nature of the job (emergency, etc.), but it’s another arrow in the quiver that could be used in the right circumstances.

Episode #64 - Famous Last Words

Clarence Darrow once said, "I have never killed anybody, but I have read many obituaries with delight!"

With that schadenfreude in mind, join us for a look at some of the funniest, poignant, and insightful last words spoken by famous, and infamous, people throughout history.

Last words allow us to catch a glimpse of the entire life that preceded it.

Hard to authenticate last words: witnesses distraught, or they are revised for posterity. For example:

“Tell them to go out and win one for the Gipper.”

This was never said on the death bed of “George Gip.” In fact, he was never known to his teammates as “the Gipper.”

Last Words—Famous People

“I’ve never felt better.” Douglas Fairbanks

“I wish I had drunk more champagne.” John Maynard Keynes

“Am I dying or is this my birthday?” Lady Astor (Churchill’s sparring partner).

“Don’t cut the ham too thin.” Fred Harvey, restaurateur, Harvey Houses across the west.

“That was a great game of golf, fellers.” Bing Crosby, just finished a round, fatal heart attack, 20 yards from the clubhouse

Berg, Morris (“Moe”) (1902-1972) American athlete, spy. Professional baseball player. Catcher for Boston Red Sox. Spied for U.S. during World War II. Died at age 70 of injuries sustained in a fall at his home. Last Words: “How did the Mets do today?” Spoken to his nurse.

“Goodbye, I’ll see you in heaven.” John D. Rockefeller, Sr. to Henry Ford, who replied, “You will if you get in.”

“I love your company, gentlemen, but I believe I must leave you to go to another world.” Adam Smith’s last words to his friends (on his gravesite in Edinburgh)

Hope, Leslie Townes (“Bob”) (1903-2003) British-born American comedian. Stage, screen, radio and television actor. Grew up in Cleveland, Ohio. Starred in popular radio and television programs. Won many awards including Emmy, Golden Globe, People’s Choice. Entertained American troops in World War II and subsequent conflicts. Died at age 100 at Toluca Lake, California.

Last Words: “Surprise me.” His response to his wife who asked where he wanted to be buried.

Last Words—Infamous People

“Well, folks, you’ll soon see a baked Appel.” George Appel, put to death, electric chair in 1928 for killing a NY policeman

Anastasia, Albert (1902-1957) American gangster. Executioner for Murder, Inc. Killed at age 55 in a gangland-style execution while sitting in a chair at the Park Sheraton Hotel barbershop in New York City.

Last Words: “A quick haircut.”

Burris, Gary (1956-1997) American murderer. Shot and killed a cab driver in Indianapolis in 1980. Executed at age 40 by lethal injection in Indiana.

Last Words: “Beam me up!”

Chubbuck, Christine (1944-1974) American television news reporter. Committed suicide by shooting herself in the head during a live telecast. Died 14 hours later at age 29 in a Sarasota, Florida, hospital.

Last Words: “In keeping with Channel 40’s policy of bringing you the latest in blood and guts, and in living color, we bring you another first, an attempted suicide.” Statement she read to viewers just before shooting herself.

Glass, Jimmy L. (1962?-1987) American murderer. Convicted of killing a couple in their home on Christmas Day. His case is notable in that he petitioned the U.S. Supreme Court claiming execution by electrocution is cruel and unusual punishment and a violation of the Eighth and Fourteenth Amendments to the U.S. Constitution. The Court ruled 5 to 4 that electrocution was an acceptable form of execution. Glass was executed by electric chair in Louisiana at age 25.

Last Words: “I’d rather be fishing.” Spoken while he was sitting in the electric chair waiting to die.

Grasso, Thomas J. (1962?-1995) American murderer. Convicted of double murder. Executed at age 32 by lethal injection in Oklahoma.

Last Words: “I did not get my Spaghetti-O’s; I got spaghetti. I want the press to know this.”

Harris, Robert Alton (1953-1992) American murderer. Convicted of the murder of two teenage boys. When he died in San Quentin’s gas chamber in 1992, he was the first person to be executed in California since 1967.

Last Words: “You can be a king or a street sweeper, but everyone dances with the grim reaper.” Recorded by Warden Daniel Vasquez.

French, James D. (1936?-1966) American Murderer. Claimed his constitutional rights were violated because he was forced to wear prison clothes and was surrounded by prison guards during his trial. Murdered his cellmate. Executed by electrocution in Oklahoma.

Last Words: “How about this for a headline? French fries.”

Last Words from the Titanic

“We have been together for 40 years, and we will not separate now.” Ida Straus, refusing lifeboat on Titanic to stay with husband Isidor, NY Dept store magnate.

Astor, John Jacob, IV (1864-1912) American businessman. Great-grandson of John Jacob Astor I. Served in the Spanish-American War. Victim ofTitanic disaster. His pregnant wife Madeline survived. Eyewitness reported that Astor grabbed onto the sides of a raft. When his feet and hands froze he let go and drowned at age 47. Different

Last Words: “The ladies have to go first—Get into the lifeboat to please me—Good-bye, dearie. I’ll see you later.” Spoken to his wife Madeline.

Harris, Henry B. (1866-1912) American theatrical producer, theater owner and operator. Victim of Titanic disaster. Produced more than 60 shows on Broadway. On the Titanic, Harris went to the side of his wife before the lifeboat was lowered away. Upon hearing “Women first” shouted to him by one of the ship’s officers, Harris made his last known statement.

Last Words: “All right. Good-bye, my dear.” He hugged and kissed his wife goodbye then climbed back to the deck of the Titanic where he drowned.

Episode #63 - Entrepreneur Heaven - October 2015

On this show, Ed and I profiled four entrepreneurs:

1. George Eastman        

2. James Cash Penney

3. The Wright Brothers

4. Anita Roddick

George Eastman

Eastman (July 12, 1854 – March 14, 1932) was an American innovator and entrepreneur who founded the Eastman Kodak Company and popularized the use of roll film, helping to bring photography to the mainstream.

He was a major philanthropist, establishing the Eastman School of Music, and schools of dentistry and medicine at the University of Rochester and in London.  

1976 Kodak = 90% of all film sold in USA, 85% of all cameras. The irony is Kodak invented digital camera!

January 2012 Kodak filed bankruptcy.

Make the Camera as Convenient as the Pencil, 1920 Essay

“You press the button and we do the rest.”

“What we have made an advertised and sold has always been the embodiment of an idea rather than a piece of photographic apparatus.”

He was a pessimist at heart: “Tell me the worst you know,” his approach to getting at problems.

He liked the letter K, strong, incisive. Start and end with K: Kodak.

First Kodak on market July, 1888—10 years after start of business.

100 Exposures, 2.5” picture diameter, $25 = $700 today. New roll = $10, but you had to develop pictures with Kodak.

Eastman Kodak lost major antitrust suit: “he did not understand the antitrust laws and did not know anyone who did.”

He did believe business was war, but no trace of cruelty (unlike Charles Revson).

1925, final year of active engagement, told employees:

“What we do in our working hours determines what we have in the world. What we do in our play hours determines what we are.

In his final two years, Eastman was in intense pain caused by a disorder affecting his spine.

On March 14, 1932, Eastman shot himself in the heart, leaving a note which read, "To my friends: my work is done. Why wait?"

James Cash Penney

James Cash "J.C." Penney, Jr. (September 16, 1875 – February 12, 1971) 1902, founded the J. C. Penney stores.

First venture: butcher shop failed.

He refused to supply meat to hotels that sold liquor.

Penney’s father was a Primitive Baptist preacher, Missouri farmer with 12 children.

Insisted his employees never touch tobacco/alcohol.

Why a Buyer’s Market Hasn’t Changed Our Plans, 1921 essay

Store managers had to own 1/3 of the store.

In 1918, he personally interviewed 5,000, hired 100

Centralized bookkeeping, cash receipts @ Mother Store. Easier to teach a man merchandising than finance

After the 1929 stock crash, Penney lost virtually all his personal wealth, and borrowed against his life insurance policies to help the company meet its payroll.

The financial setbacks took a toll on his health. Penney checked himself into the Battle Creek Sanitarium, where he was treated.

In 1940, during a visit to a store in Des Moines, Iowa, he trained a young Sam Walton on how to wrap packages with a minimal amount of paper and ribbon.

He remained as chairman of the board until 1946, and after that as honorary chairman until his death in 1971.

The Wright Brothers

Born:

• Orville: August 19, 1871, Dayton, Ohio

• Wilbur: April 16, 1867, Millville, Indiana

Died:

• Orville: January 30, 1948 (aged 76), Dayton

• Wilbur: May 30, 1912 (aged 45), Dayton

Education: Orville 3 years high school; Wilbur 4 years

The Wright Brothers, David McCullough. This is a fantastic, short volume on their lives, extremely well-written.

Fascination started with toy helicopter brought home by father, Bishop Milton Wright.

Orville was more cheerful, optimistic, mechanical ingenuity.

Lifelong bachelors, Republicans. Two older brothers married, had families.

Spring 1893 opened Wright Cycle Exchange, earned $2-3K/year ($55K today).

Answer to inquiry from Wilbur to US Weather Bureau in Washington, DC, about prevailing winds around country: Outer banks of North Carolina, Kitty Hawk, 700 miles from Dayton.

December 17, 1903: flipped a coin to see who’d fly. Wilbur won. Four flights that day.

May 1912 Wilbur typhoid fever, died May 30 at 45.

Orville flew 1910 at 80MPH, had to give up flying in 1918.

July 20, 1969, Neil Armstrong carried small swatch of the muslin from a wing of the 1903 Flyer.

“The best dividends on the labor invested have invariably come from seeking more knowledge rather than more power.”

Anita Roddick

23 October 1942 – 10 September 2007

Founder of The Body Shop, a cosmetics company producing and retailing natural beauty products that shaped ethical consumerism.

Ron read Body and Soul, 1991, on Paul Dunn’s recommendation.

The company was one of the first to prohibit the use of ingredients tested on animals and one of the first to promote fair trade with third world countries.

In 2003, Queen Elizabeth II appointed Roddick a Dame Commander of the Order of the British Empire.

In 2004, Roddick was diagnosed with liver cirrhosis due to long-standing hepatitis C.

By 2004, the Body Shop had 1980 stores, serving over 77 million customers throughout the world. It was voted the second most trusted brand in the United Kingdom, and 28th top brand in the world.

On 17 March 2006, L'Oréal purchased Body Shop for £652 million. This caused controversy, because L'Oréal is involved in animal testing.

Four-Letter Words! (essay), 1998

Love, give, care, feel, hope, fair, soul, and true all found in my work (my all-time favorite word).

We can bring our heart to work.

For me, the workplace is an incubator for the human spirit.

Enthusiasm cannot be managed; it cannot be taught.

Sign above her office door: “Department of the Future”

Allowed ½ day per month for community service.

Merged politics and business—activism must be incorporated.

Quotes:

If you think you're too small to have an impact, try going to bed with a mosquito.

If you do things well, do them better. Be daring, be first, be different, be just.

I want to work for a company that contributes to and is part of the community. I want something not just to invest in. I want something to believe in.