IceStat

The purpose of a contract

ContractPremise: The key to success is entering into a contractual agreement with your client, not working for free in the hope that something comes of it.

Many consultants fail to enter into a contractual agreement with their clients before engaging in work on his or her behalf in the hope that they will reap their reward later. What it does, however, is that it creates a lot of confusion and uncertainty down the road for both parties. A consultant that knows what he or she is doing should not work outside a contractual agreement for that very reason.

In Betting on Equity, I raised some issues regarding working for a stake in a business instead of operating on fixed fees and commissions. I am still in favor of the latter scenario as the former usually begins with the parties not entering into a contract in the first place. For some reason, many consultants forget that they actually invested in the process that enabled them to acquire their skills when approached by a potential client. This makes them literally avoid the contract issue altogether. Often, they start helping the potential client – a non-paying client is not an actual client – out for free, fantasizing that they will reap the rewards with interest later. That sets the stage for a major headache later on when the contract issue really becomes imperative. When that point is reached, this is usually what happens:

  • Seeing the business reap the rewards of the work done on its behalf, the consultant suddenly realizes that he or she is not sharing in the gains or even future prospects. That is a dreadful experience that often makes the consultant act erratically. In a worst case scenario, the consultant attempts to charge the client retroactively without realizing that the client has never agreed to pay for the consultant’s services to begin with. The relationship can go very sour very quickly if this is not resolved fast. Basically, we are looking at two halves of a boiled sheep head (“Many Icelanders consider the eye to be the best part of the head.”) wondering how they got on that plate.

  • The potential client offers the consultant a seat on the Board, a minor stake in the business and, perhaps, a promise of future work that will be paid for. In my opinion, a consultant should never be on any client’s Board as that is a major conflict of interest. If approached with that type of offer, the consultant should advise the potential client that doing so creates a volatile situation whereby the consultant can – and probably will – attempt to block competing consultancies using his or her Board member vote. It does not matter if the position is non-voting; having a consultant on the Board is an ethical violation that is likely to affect the company’s growth strategy by eliminating other – and often very competent – consultants.

  • Without a contract, no real work is actually done, especially in terms of business strategy. It is mostly talk and taking care of minor details. Without a contract, the client is not a client and the consultant is not really doing any solid work. A good consultant may help the business by making minor adjustments and suggestions, but he or she does not engage fully until a contract has been signed – be it for fixed fees and commission or equity (and I maintain that equity consultants do less for their clients than fixed fee and commission consultants; please do a study on that, market researchers – it would be great to have an actual measure to confirm or rescind my gut feeling on that).

When working outside a contract, entering into one is only delayed. Eventually doing so is unavoidable or the relationship fragments. I have detected two main reasons (there are probably many more) why consultants fail to present a potential client with a contractual agreement before doing any work:

  • The consultant is insecure. That does not mean he or she cannot do the job; on the contrary, the consultant is quite likely to understand own field far better than the potential client but lacks training in closing actual sales. That weakness will not interfere with the consultant’s work early on, but it can easily lead to a challenging situation later.

  • The potential client has insufficient funds to commit the company to such an obligation in order to secure the consultant’s services. If the consultant believes in the company and its offerings, he or she usually offers to work for equity. That translates to a consultant working for free for one client and having to sustain own operations and personal well-being by working for other, paying clients or even an employer. Another – and a very serious – problem that arises is that the consultant has no budget to work with which limits current and future activities and planning. Of course, this depends on in what field the consultant operates (I deal mostly with go-to-market and exit strategies which require a well-defined budget that needs to be allocated to the right channels at the right time) but having a contract frames the project and sets the rules of the playing field (and determines the playing field itself).

Waiting to enter into a contract is a bad idea due to the problems it creates at later stages. It also tells the potential client – although he or she may be consciously unaware of it – that he or she is dealing with a struggling business. And if the consultant is struggling, how likely is it that he or she can help the potential client succeed?

It would be great to get your experiences on both sides of the fence.

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The value of thought

ThoughtPremise: The key to success is thinking things through, not rushing into uncertainty.

Whenever we perceive something, our brains immediately compare, categorize, classify, and evaluate it. We also project what will happen next and lay multiple contingency plans automatically. This ability is often lost when we engage with clients, especially when taking the first steps as business consultants. We tend to evaluate clients based more on wishful thinking than actual strategy, which means that our strategies rely on what we wish will happen instead of what the most logical course to the most optimal outcome will be.

When starting out in this business, my strategies were often influenced by how management wanted to do things, not how they could – and should – be done. An effective consultant will lay the best strategy he or she can as long as management overall expectations (usually growth and profit target) are met. A few years ago, I would present management with strategies that corresponded closely with how it wanted to run things but were largely ineffective as there were better options available. Today, my focus is on what will secure the operation in the long-term and secure its continued growth. Working with investors is slightly different as their primary objective is to recover their investment fast with interest. Securing that results in higher management salaries, a higher social status and the intoxicating effect of success. Management often attempts to resist strategies that are different from what it is used to seeing, but investors are generally more open for new ideas and pathways.

A strategy that does not result in increased wealth and status for management will be rejected and for obvious reasons. A strategy must therefore be shared in order for management to warm to it and be willing and even eager to participate. Laying everything on the table at once, however, is not recommended as it causes management impatience. Rather than revealing the entire hand, gradually unfolding the strategy piece by piece enables management to understand the main components and their sequential nature, and perceive that future that objectives can be achieved. The majority of this work is undertaken by thought, not working on a computer terminal.

When someone utters the word ‘work’, we immediately connect it to labor – that of physically doing something. Those that want to be laborers are encouraged to hold on to that image, those that do not are encouraged to alter what the word means to them. Some consultants appear busy all the time but have little to show for it; others appear to do very little but somehow get a lot done. A while back, I began perceiving this and decided to stay away from the computer and concentrate on human interaction instead (see ‘Selling your brain‘. The transformation was a game changer. Strange as it may sound, humanity prides itself on its ability to think yet appears to assign a greater value to physical labor.

Today, I spend my time speaking with investors, management, stakeholders, potential customers, partners and colleagues to gain a clear picture as to what the optimal strategy for any given scenario should be before drafting anything. It is a collaborative effort where each contributes valuable insights. I call it efficient laziness (that some misinterpret as over-delegating) that is based on creating the strongest core competency chain possible for each situation. Horizon 2020 consulting projects are particularly dependent on the ability to divide tasks among experts as they will eventually be evaluated by Expert Evaluators and EC Officials in Brussels. The first item on the agenda is to clearly understand what the client wants to do, formulate a plan as to how client objectives can be most successfully met, and then present the client with an outline that he or she can fine-tune if necessary. At this stage, we only compose a very short outline, usually half a page, that describes how client objectives can be accomplished. The majority of the work is done through thought and communication.

As with all these thoughts, this is my personal experience and journey through the business consulting world. Comments and counters are always welcomed.

Betting on equity

EquityPremise: The key to success is transformation, not free labor.

If you are an SME consultant, chances are that you would rather take an equity stake in a company rather than get a sales commission. You bet your time against the success of the venture and thereby condemn yourself to free labor. I did this for years until it dawned on me that I was working for the wrong client!

SME management is usually bootstrapped with little capital to spend on consultants. It is usually as delighted to get a consultant on board that will work for equity as the  consultant is to get that equity. While it looks neat on the surface, it really stinks like Icelandic skate (“… has a smell that can clear your sinuses from a mile away.”). The two parties have literally signed an agreement whereby the company will gain little from the relationship as the consultant is starving to death! If consultants aren’t paid, they won’t deliver; simple as that. They intend to, but the reality is that paid projects always take precedence leaving the client in the low priority category. The problem is easily solved but it takes a dose of confidence to do it (and that confidence is based on your own skills plus who is in your network).

Consultants that are new to the game want to prove themselves by taking a company from nothing to billions. The first month, they still believe they can do this and deliver excellent material that the client can use. The second month, the consultant realizes that the task at hand is actually more difficult than expected and goes into overdrive to prove him or herself to the client. Month three, the client begins inquiring when the consultant expects to deliver tangible results and the consultant snaps into defensive mode. Month four, this deteriorates into a situation where the consultant begins to regret having committed to a deal lacking cash inflow and starts looking for a way out. During this period, the company is relying on the consultant who is delivering nothing. This is why I advise against equity-linked consulting as a starting point for a consulting career; the consultant is committing financial suicide and is dragging the client down as well!

The root of this problem lies in targeting SME management. SMEs are financially starved – bootstrapped – and can’t really afford consultants. SME management will never allocate 30 – 40% of their budget to a consultant as it believes itself more than capable of delivering expected results. Subconsciously, management does not really believe in the consultant either as he or she operates outside the budget – anyone that works for free is basically sending a message that the work done has no value (there a exceptions to this). An equity consultant can rarely convince management to allocate capital toward specific channels to accelerate growth if those channels do not suit management. Working for equity therefore puts capital constraints on the consultant, which literally puts him or her in chains. In order to reverse this, the consultant should consider changing the target from SME management to SME investors.

Working for investors changes everything. Investors want to recover their investment and make a solid profit and have the power to override management when it comes to budget allocations. A consultant with the right network and has the ability to lay sound strategic plans concentrated on driving up revenue and profitability will get the funds required to execute. In return for a fixed fee and sales-based commission, the consultant is very likely to deliver as he or she has the funds needed to execute the strategy. The consultant that works for equity does not have that luxury. In addition, working for one investor causes other investors to pay attention (investors talk and word spreads quickly).

Equity consulting usually becomes free labor whereas commission-based consulting enables the consultant to quickly build reserves that will later be used to convert the consultancy into a hands-on investment firm that is already connected to investors. In my opinion, a consultant that works for equity is unsure whether he or she can deliver the expected results within a given time frame whereas the consultant willing to accept commissions instead of equity has complete confidence in own ability to deliver the results by managing resources – including human – efficiently. The reason is not that equity consultants are unable to do this; they simply have no immediate incentive to do so other than possible future gain which largely relies on company management. A commission consultant takes charge backed by investors, an equity consultant is unable to do so as management will not allocate capital in that direction.

I have a lot of very close friends who operate as equity consultants and are very good at it. Some have managed to build up a nice cash cushion which enables them to work for free, others are struggling. In my opinion, working against an equity stake is fine as long as the consultant has no need for a fixed revenue stream. If that is not the case, the consultant needs to step up the game and be sufficiently confident to take on projects on fixed income/commission-based terms. Do not confuse confidence with fixed income; if the consultant fails to deliver, the reputation goes down the drain,

This is just my opinion based on my personal experience in this field. I consider the consulting phase to be the preliminary phase to becoming a hands-on investor and am taking the transformation path. Once projects have generated sufficient reserves, our consultancy will transform into an investment agency and then fun begins.

Selling your brain

BrainPremise: The key to success is the ability to sell one’s own brain, not labor hours.

After spending a decade believing I was selling my brain, I recently discovered that I have not been doing that at all – I have been selling labor hours. It is very easy to start selling labor hours without being aware of it but there are ways to prevent it. Doing so requires unbiased introspection which may be difficult, but going through the following points can be very helpful:

Do you spend more time working on your computer than speaking with people? I did that, for I believed that it would be easier to close a deal with images, PowerPoints, Excels, Words and PDFs rather than just drafting a quick outline. I spent around 80% of the workday generating content instead of actually working with the client solving a problem. Once I reduced that to 20% – and that required quite an effort – business began to accelerate. While engaged with a project, I found myself forced to cut time to market for a client from six months to two and that meant that fat had to be trimmed. I nearly stopped drafting anything – basically mapped it out in my head using mental PowerPoints, Excels, Words – reduced meeting and meeting duration from 30 minutes to 15 and got the ball rolling at high-speed. Once everything was in place, partners, distributors, end-customers and investors, I pieced together a brief Word document (converted to PDF), a short spreadsheet and a 7-page PowerPoint, That is all it took to seal the deal. What I learned from this is that if you focus on selling your brain alone, you catch the momentum whereas going the document way may cause you to lose it.

Do you micromanage more than delegate? My issue here was that I did not trust anyone to deliver the message I wanted as I wanted – text, image, layout and format. Since I could not really delegate – although I believed I was actually doing just that – I wasted valuable time on what font should be used for headers instead of working with the client solving problems or laying growth strategies. As I am quite proficient at text, visual and numerical delivery, I preferred to handle that myself whether or not I had others do it. What happened was that I would superimpose how I would have done it over the material being submitted. That is not how to run an efficient operation. Micromanagement eats up time, creates discomfort for the ones working for you, and may cause a myriad of problems that slow down revenue generation. If you want to earn more faster, reduce – or stop – micromanaging.

Do you surround yourself with people better at certain things than you are? If you micromanage, you will correct what other people do. People that micromanage are usually perfectionists (I am) and accepting imperfection (according to own aesthetic threshold) is just as unpleasant as eating fermented shark (an Icelandic dish; “The single worst, most disgusting and terrible tasting thing I have ever eaten.” Chef Anthony Bourdain, Travel Channel). Anyone subjected to micromanagement will quickly begin to divert attention from the task at hand to a growing resentment toward you. That reduces efficiency and usually results in sloppy work. After all, if you know your boss will change everything you do, why bother?! When I stopped micromanaging, something spectacular happened: I transformed from laborer to leader. Now I expect things to be done properly, although I do not expect them to be done exactly as I would do them. The way to get to this point is to prioritize tasks and be willing to let go once they have been delegated to the proper personnel. Once I fully understood the value of doing this and was able to put a price tag on it (hint: compensation), company growth accelerated.

Do you prioritize or do you work on everything at the same time? In my book, multi-tasking means getting less done in more time. We cannot think two thoughts at the same time although the brain can switch so rapidly that we are deceived into believing that we can. We can’t, for instance, think of an oil tanker and a tomato at the same time without putting both in same mental image. We can switch rapidly between the two, but we can’t ‘see‘ both unless we put them adjacent to one another (and even then we can’t ‘see‘ both as our mind’s eye switches between them). Given the difficulty of this simple task, imagine the effect is has when working on multiple projects at the same time? In my case, I have to ‘rewire‘ my brain before changing between projects which is why I prefer to work on few projects at a time and preferably of very different nature. The greater the overlaps between projects, the higher the risk that mistakes will occur as we confuse the two.

Have you put yourself to the challenge of generating revenue using ONLY your brain? Last year, I asked myself that question and ended up staring into thin air. I had no real concept of what that meant. The method I used to test this theory was to operate only on email and telephone; no PowerPoints, Excels, or Words, only my mind and my mouth. The result was mind-boggling. Before I did this, my reach was limited to Icelandic businesses and a handful of US firms (I spent seven years there, so I had some contacts still intact). Today, I have a network capable of penetrating the largest companies on the planet exactly where I want it to penetrate. The epiphany came when I understood that people are not persuaded by documents but by other people. If you respect them and what they do, they will respect you and what you do. Once you have engaged in friendly talks and have formulated a project that creates a mutual gain, then you whip together the necessary documents and seal the deal. I have found that this leads to closer, longer lasting relationships than actually trying to sell someone something based on promotional materials or business plans. People like being sold something that they can gain from, and sometimes that gain is just interacting with another professional on the same level (that can lead to very interesting projects). I have been very fortunate to have met a lot of great people out there that hold impressive positions yet are very passionate about other things such as the preservation of the Amazon. Companies are not blocks of cement, they are people. When building a business, it is very easy to forget that which sets the stage for labor hour sales.

These are just my observations; there is no right or wrong when it comes to building a business. Or is there?

Market research goes nuclear

IIeX_banner

When the credit system collapsed in 2008, I was asked which economy I thought would recover first: the EU or the US. My answer: “The US because it is driven by people that want to succeed while Europeans prefer to be taken care of.” This week, I attended a market research and technology conference in Philadelphia, The Insight Innovation Exchange, where this observation was not only proven but greatly amplified. I used to live in Boston where I worked in the market research field and considered myself fairly up to date as to what was at the forefront of market research technology and insight generation. Little did I know what this conference held in store.

The first day, I was exposed to presentations that made me realize that I was not a little bit behind – I needed a landspeeder in order to catch up! The first presentation was ‘Fizzy Visuals: 12 Years Evolution of Reporting Insights with Coca-Cola‘ given by ace presenter Patricio Pagani of Infotools. He clearly demonstrated how large customers can be brought straight into the development phase that results in solutions and services that are tailored to customer needs. Infotools has not only done so for Coca-Cola; they also list Microsoft, Ford, Audi, BMW, Mazda and Viacom as their clients which proves that their method works wonderfully. Listening to Patricio was a great experience and of tremendous value to entrepreneurs and solutions providers of practically any size, type and geographic location.

Next up was a presentation by Nick McCracken, Product Innovation Research Manager at Ford, titled ‘Creating a Truly Global Marketing Research Function‘. He began by illustrating what the condition of Ford was once the crash hit and car sales plummeted. For many companies, such a sudden decline in sales means downsizing upon downsizing until nothing is left and the company evaporates into thin air. Nick, however, showed how Ford managed to regain market trust and loyalty through groundbreaking market research techniques and attention to customer expectations, wants and needs, and succeeded in bringing sales back to pre-crash levels. One example that really hit home was the observation that we usually have our hands full when attempting to open the trunks of our cars. How about this concept?

ford_handsfree

There is much more going on at Ford that can be directly traced back to effective market and consumer research and this conference really brought it all out. If other conferences are hits, the IIeX is a ‘Best of‘ album. Gasping for air, I both dreaded and looked forward to what was to follow. I also realized that the US is not years ahead of Europe; it is decades as these selected presentation titles show:

  • The Power of “Wow”: Emotional Valence in Social Media (David Johnson, CEO, Decooda)
  • It’s Not The Size Of The Data, But What You Can Do With It (Zachary Nippert, Chief Marketing Officer, MotiveQuest)
  • Technology Frontiers: Text, Sentiment, and Sense (Seth Grimes, Principal Consultant, Alta Plana Corporation)
  • It’s Not Mobile Research, It’s Research In a Mobile World (Bob Yazbeck, Vice President, Digital Methods, Gongos Research)
  • Listen In: How to Gain Insights from Conversations (Frank Cotignola, CIM, Global Analytics and Digital Insights, Mondelez International)

This box of confectionaries was of course followed by a main course: ‘Expert Panel: Big Data or Big Brother? Ethics & Regulations in a Data-Rich World‘ featuring:

  • Peter Milla, Principal Consultant, Peter Milla Consulting/CASRO

This was only the first half of day one; there were two more days of this! The entire schedule is available here so you can see what you missed if you were elsewhere occupied. This is only beginning, however, so keep an eye on the IIeX; it will only get better. Now, attempting to summarize this great event in a blog is like attempting to describe the picture below using a typewriter (if unsure what a typewriter is, click here):

nebula

Each day ended in a networking event hosted by various firms involved with the IIeX conference. These events were held at bars or restaurants and enabled a free-flowing dialogue between solutions and service providers, potential customers (usually in the Fortune 500 category), VCs, consultants, and visionaries like Ari Popper, who gave an incredible lecture on how science fiction can project the future and then sent us through an exercise that forced us to really consider what the future may hold in store for us. Most of us have gone through such exercises before, but few have completed them with Fortune 500 managers on their team. The World Bank also had a presence there which indicates that market research and related technology is taken quite seriously at the highest levels and for good reason; the better we can project the future, the better our growth strategies will be (and I personally believe it will culminate in ‘individual choice‘ as opposed to ‘economic means‘).

So, to spiral back to where I started, the IIeX conference is a prime example why the US will, in my opinion, maintain its leadership position as far as innovation and market drive are concerned, at least in the foreseeable future.  Where else in the world can a blender like the IIeX be established that allows businesses to form partnerships, seek mentors and advice, forge strategic alliances, meet privately with major corporations, interact with VCs, give presentations to a highly receptive audience, and become a part of something much larger? This is a new model that creates energy of a type I have never experienced before. It was as if the air itself was electrified and when conference came to its conclusion, I not only felt up to date; I felt as if I had gained a vision of what is to come over the next 3 years (I want to say 5 but that is an eternity given current pace of things). To finish, this entire concept is cooked up by a handful of visionaries that have both the ability to envision it and to execute it to perfection!

It is the US that will propel the world forward through futuristic thinking and innovation while Europe hesitates to take risks and overthinks everything. Life is about taking risks for safety leads straight to stagnancy (as Kyle Nel, International and Multicultural Research, Lowe’s Home Improvement, pointed out during our panel titled ‘Data Philanthropy: Channeling Information To Drive Public Sector Innovation‘. That is where I fear Europe is heading unless the Horizon 2020 EUR 80 billion EC fund is deployed with actual monetization strategies and growth targets as leading concerns. Play is safe and those billions will be wasted. Bring in that market savvy and business drive from the US as part of the free trade agreement between the two regions, and Europe may find itself with more business intelligence firms than just SAP. Europe has slept for too long; it is time to wake up.

I want to thank my good friend Lenny Murphy for igniting this torch and the Gen2Advisors and Greenbook teams for making it all happen. You guys simply rock! It is an honor knowing you.

5 keys to 500+ LinkedIn contacts

inmapGetting your LinkedIn network to 500+ is important. It gives you greater reach across sectors and regions, enables you to quickly pull together teams or panels if the need arises, send direct queries regarding specific issues directly to people that may answer them, or call in professionals to help with a project. Getting to 500 also makes your profile appear stronger.

I began using LinkedIn October 27, 2008, or just when the Icelandic economy came tumbling down. Until 2013, my network grew at a rate of 1 per week which, toward the end of 2012, translated to around 200 contacts. January 2013, I merged IceStat with the Iceland Development Agency and assumed the position of Marketing Director. In order for me to take the company to the next phase, expanding my contact network became imperative.

In less than 3 months, I broke the 500 contact barrier, which equals a growth rate of approximately 275%. The majority of these contacts are of value either as direct contacts that I may interact with at some point – if I am not doing so already – or they are people of interest that post interesting content on their profiles or in group discussions. Having a solid network is more valuable than a large one since this is a professional network unlike Facebook and Twitter that are basically mass-market advertising channels.

If you want or need to expand your network beyond the 500+ limit, the following Keys may help (I assume you already have a basic professional LinkedIn network in place that consists of 200 connections or less):

KEY 1: Actual contact

Use email or even the phone to make key connections. The higher up in the pecking order these people are, the better. Stay clear of cold invites at the outset; few people accept invites without checking the one requesting the connection. If you want to connect with someone, ask yourself why. Then simply transform that why into email or a phone call and end it on the question: “Would it be OK for me to add you to LinkedIn?” Very few say no to that. They now know you, have interacted with you, and perhaps even see some future value in having you in their network. Key 1 is only used on specific, high-profile targets and to get your head focused. You are not selecting key contacts at random; they are the cornerstones of your professional network so handle this with great care. Once you master this key, move on to:

KEY 2: Outliers

Outliers are wonderful. They work with – or for – your key contact whom you have already connected with, so you use that as your weapon when sending out a batch of cold invites. Whenever you manage to connect with a key individual within an organization, you can connect to at least 10 people he or she works with without saying anything at all – they check your profile, see that you have him or here as a contact, and that is sufficient for most. Do not, however, randomly select your targets; pick those that are of relevance to what you are actually doing. Key 2 is all about piggybacking off Key 1 and get you to …

KEY 3: Groups

Groups are party platters filled with a wide range of potential contacts. Participate in the conversation, pick out the conversation leaders and engage them until they check your profile. Once they do, engage them once or twice more and then send an invite. Most leaders have egos and want to be asked instead of asking themselves. The more power you gain, the more this will begin to act in the same way. As with selecting key contacts, select groups that match their sector, industry or interests. Your professional network should basically belong to the same groups as you do; if not, you are doing things wrong and wasting time. If you are too lazy or afraid to communicate in groups, feel free to skip to …

KEY 4: Ping pong

Pick someone of interest – again someone who belongs in your professional network – and check their profile. Do this until they check you out. Wait a few days, then check them again. If you manage to send the ball 3 times back and forth, send this: “Hi [NAME], I’m very interested in [A SUBJECT THE OTHER LISTS] and am wondering if you would mind me adding you to my LinkedIn network?”  It’s always a good idea to retain the ‘LinkedIn’ part of the invite. First, it brings the recipient into the LinkedIn realm with its own set of rules; second, it does not appear as spam. These four keys work well but are rather slow. The fastest way is …

KEY 5: The Uzi

The LinkedIn smartphone app is the fastest way to get a network past 500 in a matter of days. The behavior of the app differs from the web version in one very important way, but be very careful exploiting it … it can get you permanently banned from LinkedIn. Try it and you will soon learn what Key 5 is and why it is so effective.

If you found this helpful, please share with others that might benefit from it. Also, if you have discovered effective methods to grow LinkedIn networks, that’s what the comments section is all about – I’d love to learn what you find most effective. I have been asked to write something about how I use LinkedIn to drive business forward (over 90% of my business happens over LinkedIn and has done so since 2008  despite the network being considerably smaller) and that may well be the next post here. If we don’t share our bits and pieces of understanding, we learn less.

Iceland Social Democratic Alliance shipwrecked

is_government_1999_2003Five years after Iceland’s economy imploded, austerity-weary voters looked set Saturday to return the parties widely blamed for the disaster to power.” This is the opening of an article by Jenna Gottlieb and Jill Lawless. How, we may ask ourselves, can this be? Icelanders are generally considered to be intelligent and boast of a good educational system; still, they want the parties back that sent the country to the brink of bankruptcy and caused hundreds of highly educated individuals to leave the country. How can this be?

One reason is the lack of long-term vision/strategy and short-term tactics to deliver it. Elections follow rules of warfare (in this case market warfare) and there are two ways to lose a war:

  • Deploying worse strategies than the opponent.
  • Failing to have a strategy in the first place.

Not only did the Social Democratic Alliance (SDA) show lack of adequate strategic planning; tactical mistakes were made that directly contributed to the political massacre witnessed today. These mistakes include, but are not limited to:

  • Changing the party leader too close to elections. Any change in leadership is disruptive and it takes more than a couple of months for a new party leader – or corporate CEO – to settle in. Both the SDA and the Left-Green Movement (LGM) changed their party leader far too close to elections. If the new leaders had pushed for that change individually they would have been better prepared to take the reins, but as the situation was forced upon them, they were not ready.
  • Party leaders traveling to China when they should be here driving the campaign. One of the reasons the SDA won by a landslide in 2009 was its strong leadership that had incubated and evolved for years. Current leaders have not had the time to build the type of following necessary, which put them in a very unfavorable position at the start of the election campaigns (that were not really campaigns at all). The LGM, however, fared better, and the reason is:
  • Focus on a specific issue. While the SDA attempted to push too many messages across, the LGM’s newly elected party leader turned the attention to education. This internal focus countered the SDA’s external – EU – focus which happened to be more relevant in the minds of voters, resulting in minimized loss whereas the winner of the 2009 election – the SDA – was slaughtered. And that despite the fact that tax raises on households and businesses can be traced directly to the LGM.

is_government_2005The SDA appeared to wake up only days before the elections and by then it was too late. Without a strategy, the party had no way to reach voters – the target audience – with effective messages. The SDA has since 2009 become more and more isolated from the Icelandic people as it fails to keep track of what voters really want and need. The party leader of the Progressive Party (PP) exploited that weakness very skillfully; the team behind it have earned the respect of both marketing and PR communities.

This is not to say that the teams behind other parties – notably the SDA – were at fault; the party leaders are to blame for what happened as they created these problems by mistiming events and not doing their homework properly. We see similar sloppy marketing work throughout government agencies, many of which are responsible for external marketing and are making blunders that may end up costing the economy billions and result in permanent loss of market territories. Many of the so-called marketers in Iceland have only superficial understanding of how marketing really works in the big world and have little insight into the economic and market-driven layers necessary to prepare and execute international long-term strategies.

WHAT MAY HAPPEN NEXT?

The PP and the Independence Party (IP) directly caused the crash of October 2008 by irresponsible and short-sighted activities that led to a wave of bankruptcies, foreign exchange restrictions, and general economic turmoil. That they will fix it is perhaps doubtful but possible. IceStat was part of the Special Investigative Commission responsible for tracing the actual causes of the collapse (it was actually established because of it), and these two parties were instrumental players. Therefore, what we expect will happen following these elections is that:

  • Major companies that bankrupted almost immediately following the banking system collapse (and the sharp weakening of the currency – ISK) will be listed on the stock exchange again. Domestic banks are already lending 70% toward purchase of shares in these companies, which is exactly what happened in 2001 – 2008 and fueled the bubble.
  • One of these banks, Landsbanki (currently state-owned), will participate and  fund 70% shares in registered companies which leads to the formation of holding firms. This artificially inflates bank balance sheets which in turn inflates Central Bank balance sheets (fractional reserve banking is quite the monster when let lose as 2008 demonstrated).
  • Landsbanki will be privatized by the same parties that privatized it and Kaupthing (by merger with Bunadarbanki) in 2002 (Landsbanki and Bunadarbanki) and possibly merge with MP Bank. This will eventually lead to the exact same situation Icelanders faced in October 2008 when the bubble burst. This second crash, however, will be so much worse as it will compound Iceland’s already fragile financial position and that is a scenario voters may not have considered when they went to the ballots.

If these elections told us anything, it is that Icelanders learn nothing from past mistakes. The blame is not with the voters; it is with the SDA and LGM that completely failed to take decisive lead and walled themselves in illusory ivory towers that have now come crashing down. The new regime comprised of the PP and IP will undoubtedly start with a bang by lowering taxes and getting the investment market back on track, but the methods used have to be closely monitored or Iceland may well be facing the end of its era of independence. That is what may happen; it is our responsibility to make sure it doesn’t.

Problems and the Petri dish

GoldfishWhy do we persistently transform simple issues into complex problems? Most of us agree that the world becomes more complicated as we move through the terrible teens into adulthood, but just ask anyone over 70 how complicated the world really is. To our elders, the world is not as complicated as we experience it for their perspective – as is that of a child – is different: it is detached.

Complication arises from our inability to fully concentrate on a given subject. No external distractions are necessary; we are fully capable of generating them as we go along. The greatest enemy of focused thought and clarity are choices and this is why:

  • We may know what we want, but acquiring it may mean we cannot get something else later. Once we commit, other options close. Options trading literally means we can commit without really committing; it just costs us a premium.
  • We are taught that few options are unfavorable, so we automatically resist committing. We fear that we may make the wrong choice and therefore postpone making one. This is why deadlines were invented; without them, we would get nowhere.
  • Once we limit our options and commit, we begin to dread that we may have made the wrong choice and do everything in our power to find escape routes in case everything comes tumbling down. Hedging is exactly that; if you lose on the left hand, you (supposedly) gain on the right which usually results in no gains at all over time.

To put this in perspective, who has not experienced the dread of a multiple choice exam? These infernal inventions force us to commit against a tight deadline and there are no hedging of bets or alternative options available; once that choice is made it is fixed! Fortunately, the standard use of pencils in these tests allows us to change our answers before turning them in, else most of us would probably run out of time resulting in a considerable failure rate.

Fewer choices accelerates our decision-making process. Ford built his entire empire on that concept: “Any customer can have a car painted any color that he wants so long as it is black.” On May 26, 1927, he watched the 15 millionth Model T Ford roll off the assembly line. More colors would have slowed down the sales process as potential customers would have been bogged down with choices. Ford was obviously aware that people wanted choices of color but decided against meeting that demand. Another fine example of limiting consumer choices is Gillette, which maintained a limited range of models of the safety razor until 1934. During World War I, the U.S. government ordered 3.5 million razors and 36 million blades to supply all its troops. Pretty good results for limiting consumer choices.

When we face a problem, we immediately over-complicate it by dragging choices and contingency plans to the table. That is not the way to solve a problem; it only makes the problem more difficult to see. When dealing with a problem, forget all contingencies and concentrate on the problem itself. Before long, the problem will shrink so that it fits nicely on a Petri dish. Everything not directly related to the problem is outside that dish and is to be ignored; smart as we may think we are, our brains simply cannot work with more data than is present on that small plate.

Once we have the problem confined, we can begin to examine why it is a problem. What makes it a problem and what variable has to be removed or changed in order for the problem to become an opportunity? Once we manage to identify that, we find ourselves staring the solution in the face and it is usually much simpler than we ever dared hope for. Usually, it is just a matter of rearranging the problem parts but we cannot do that if our heads are busy finding options and alternatives in case we are wrong. Contingency planning comes later; first we must pin down the problem itself and the component(s) that makes it a problem.

We humans keep complaining that the world is a complicated place. If that was true, how can an amoeba with no brain survive? And goldfish, who can only remember things for 3 seconds and operates on basic primal instincts? There are more amoebas and goldfish in the world that humans, so how complicated can it be?

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