Interesting, Irritating, and Ingenious in France (Long Post)

Having now spent some good time in France (in the Fontainebleu area south of Paris about one hour), I thought I would write down some business and cultural things I’ve run into as it compares to life in the U.S. This is my second time to France, and I think I am more in tune with absorbing some of the differences. I may have known some of these things before, but “living” in France for a longer period of time has made some of the things hit closer to home for me.

On my “interesting” list:

  • McDonald’s has a quite regional offering compared to what I remember in places like Hong Kong and Indonesia. It looks like you can get things like Croque McDos (a.k.a. McDonald’s version of croque monsieurs – basically ham and melted cheese sandwiches made with French toast) and poisson nuggets (fish nuggets). In the U.S., you can only get the Big Mac and the standard chicken nuggets whereas you can get these other options in France. Note that the french fries taste pretty universal to me. Note that the Big Mac is so ubiquitous that magazines like the Economist even have their tongue-in-cheek fun with purchasing power parity for hamburgers.
  • The INSEAD business school currently has information technology (IT) as a required course as part of its MBA degree. Faculty at INSEAD tell me, however, that satisfaction with the course is somewhat negatively correlated with whether it is a required course or an elective. Not unusual in that regard methinks. But I found it interesting that the course is a separate course as opposed to being integrated with operations, managerial accounting, or technology strategy courses (not that satisfaction with IT courses would go up by alignment in this manner). I personally thing IT has always had some trouble taking hold in business schools – probably an area for further innovation and improvement by the b-schools.
  • The INSEAD business school has some push to emphasize design skills as part of training. For those that follow Tom Peters or Seth Godin, you may have sensed a fundamental shift and common thread about emphasizing design skills as part of the new wave of business. I am going to work to keep my knowledge current in the design skills area. It is at the top of my list along with watching outsourcing. If anyone runs into any good books or practical ways to stay current on this subject, please feel free to let me know. I am going to investigate the new book called, “Blue Ocean Strategy” written by an INSEAD professors, W. Chan Kim and Renée Mauborgne.
  • The French system is much more of a socialist system compared to the U.S., but there are also some unique redistribution of wealth mechanisms I have not seen before. The highest marginal tax rate is about 50%. Another 24% is taken out for the social security system. Leaves about 25% in take home in pay for some. The government covers cost of education through the university level, plus the government provides healthcare insurance. Roughly speaking, the French have some interesting pro-family benefits such as the fact that each parent in a family can get paid half their pre-leave work salary until their child is three years old (wow cool – wonder what the cost is though!). Little odd though that, in some cases, families need to produce income statements for the schools. Based on one’s income level, a family may need to pay more for their children to eat in the canteen (i.e., cafeteria) on a per meal basis (say $10/meal versus $5/meal). Seems like it may a bit administratively burdensome, plus it also reflects fringes where the governmental system may not be efficient in redistributing taxes already collected. Unemployment at 10% or so with some areas as high as 30% (yikes!).
  • The passenger train system from the neighboring cities into Paris seems like it could be subject to a substantial annual revenue loss (guesstimate millions to tens of millions of dollars) literally because of “free-rider” problems. There’s infrequently a conductor to punch verify tickets. Nor are there ticket control gates. Effectively an honor system at approx. $10 fare per person. Perhaps the culture prevents actual losses from being great, but risk of leakage seems pretty steep.
  • Paris hasn’t changed much in the past 7 years. It probably hasn’t changed much in 100 years. It’s an awesome city. One of my favorite in the world.
  • I understand one can get raw mussels in Northern France. Perhaps the only place in the world. Sounds very unappetizing to me. Even some French my wife and I met thought it was gross.
  • It’s no wonder the French eat escargot. Practically every evening and morning snails are crawling all around outside the house. I’m surprised the Chinese never made moves to have these critters in the countryside areas and as part of the diet. Snails are fed rice as part of the cleansing process for eating, plus it would provide another food source for the Chinese.
  • We only get German television where we are living. Movies like “Groundhog Day” are as hillarious in a  language that you don’t understand as in one’s native language. Would have loved to have learned more through local TV about the French culture though. That said, it’s interesting to note that mobile phone advertising in Germany is very fashion conscious. You can get flashing and glowing ring screens 24 hours per day on some of the TV shopping networks.

On my “irritating” list:

  • Gasoline seems to be about 2 to 2.5 times higher than in the U.S., whereas golfing greens fees in Cely were about half of what it was for a comparable course in Chicago. Filling a tank of gasoline for a mid-sized vehicle is $50 to $75! Took about $50 in gasoline to get to a golf course to play a round of golf where greens fees were $50. Pretty hard energy burden to those who may depend heavily on gasoline. I’m sensitive to some of this as my mother-in-law drives expedited freight, and wildly fluctuating fuel costs pose a direct threat to her livelihood and income flow.
  • Road navigation is ridiculous because interchange signage is overwhelming. Instead of simply having to know directions like East, West, South, or North for a particular road, one has to be familiar with the surrounding towns at each interchange point. Your geography better be real good in France – it’s one of my weakest subjects, and I can get by in the States. The French method  creates a bit of an operational issue as signage on the roads has to be much more extensive at each interchange point (not unusual to have 6-12 towns listed for a road going in one direction, say West).
  • Typically you have to bring your own shopping bag to the grocery store. Cuts down on waste disposal I’m sure, but it is not very customer-friendly when you are given four complementary bags, and the cashier gives you hard time for the fifth bag. How much can one of those cheap, plastic bags cost as part of sales for a $200 grocery visit?
  • Parking spots are even smaller than they are in Dallas, Texas (Note: parking spots in Dallas are the one exception to the general belief that everything is bigger in Texas). Of course cars are smaller in France too, but the spots seem disproportionately smaller. It’s no wonder that they have Smart Cars in Europe (even though these have not been as successful as originally hoped for).
  • I can’t find iTunes songs for most of the top 10 songs. Guess that Apple has some different licensing and software arrangement to support different areas of the world. Too bad. I have no clue what some of the French songs are about (I don’t speak the  language), but the language for some of the German and French songs is simply beautiful sounding. It’s like discovering a new musical instrument for me for some songs.

On my “ingenious” list:

  • One of the large supermarkets in France called Carrefour has an interesting mechanical device and coin collection gizmo clamped directly onto the handles of shopping carts to improve shopping cart operations from (presumably) two perspectives: to minimize both theft and labor to collect carts. Never saw this mechanism (Systec Variloc, perhaps no longer I think) in the States (although one could argue that the airports have something similar for their carts). The shopping carts are all chained together in the parking lot, and one needs to insert one Euro to release a shopping cart. When you return your cart and link your chainlink mechanism into the  daisy chain of other carts, you get your Euro back. In the States, the trend is to use return bays in the parking lot to encourage people to return their shopping carts. Other methods I have seen in some city areas of Chicago (e.g., off of Roosevelt in the South Loop) are to use wheel locking mechanisms that are somehow triggered by a magnetic or other mechanisms around the parking lot perimeter. The wheels basically lock into place and won’t turn anymore if shopping carts are brought beyond the perimeter. What Carrefour has sourced as a shopping cart device seems pretty effective as an alternative.
  • The INSEAD business school was venture by a Harvard Business School grad to fill the hole of a Harvard-style case school in Europe. Original classes were held at the castle in Fontainebleu. Coordinating the incubation of the venture from Boston was tough when ship travel was still predominant. Same guy that founded  Fontainebleu was involved with directing venture money that amounted to something like 70% in the original equity money for Olsen at Digital Equipment Corporation (DEC). Interesting to note that market timing and conditions were as important for a venture like INSEAD as it seems to be for many cases where viral spread of ideas are desired. There is a pretty lengthly book on the establishment of INSEAD for those interested in the subject. Too much for me to read the whole thing, but it is a very impressive work.
  • The French wine market is fascinating. A prior post by me on wines is here. Very historical and influenced by regulation. A lot of romance to it too. The cheese market is probably also fascinating, but I may have too sensitive of a nose to appreciate.

Magazine Covers As Market Predictors For The Future of Business Blogging

Steve Rubel and Om Malik have interesting posts here and here that may foreshadow the death of business blogging (motivated by the recent cover story by BusinessWeek on the subject of the power of business blogs). I really like the following chart by Paul Kedrosky where a BusinessWeek magazine cover depicts the death of equities against a plot of a subsequent bull market Dow.

All of this reminded me of a book I read in the late 80s called, "Winning on Wall Street" by Martin Zweig. While not a sole unpinning investment philosophy to the author’s fund, one of the measures as to whether to buy or sell a stock was to measure the number of bull articles versus bear articles in the newspapers. Part of the investment method philosophy was to trade against what the traditional print media was saying.

Well here’s how one of Zweig’s funds is performing.

(Note that Zweig’s book also covers many other economically-grounded measures than trading contrarian to print articles – so I’m not really being fair). Plus here’s another one of his funds that is doing better.

So whether there’s any correlation or not to using magazine covers to predict market trends (and the fall or rise of business blogging), well all of this discussion is entertaining but a bit neither here nor there.

I guess that my view is that I think it’s too early to call business blogging dead or alive. There’s so few corporate bloggers out there, mortalities haven’t been measured, and the timeframe hasn’t been long enough yet. Additionally, bloggers like Bob Lutz (Vice Chairman at GM) show us that even if the business blogging trend dies that big corporations can capitalize and be opportunistic too.

Personal Account On Mentoring In The Moment

Some years ago I had the opportunity to sit down one-on-one
with a well-known CFO in the Valley who was with his firm from a run from like
employee #5 as a start-up to the time when the company became one of most
recognized software infrastructure firms in the world. The company is public
and in largest 200 of all software firms in the world.

It is pretty rare that someone can be with a firm from early
start-up through IPO and multiple capital market transactions. The different
phases of a company often require very different skills of its executives at
each point in the game.

While the original, more general introduction to the CFO was
made through a board director, it was the CFO that reached out to me to offer a
more personal one-on-one advisory meeting. A true statement of character. When
we finally had a chance to arrange our meeting, what struck me was that this
CFO (very senior to me by a number of years) covered a spectrum of mentoring-like
questions and perspectives. The areas started off broad but became very
concrete to the software space. Some topics covered:

  1. He asked me what I wanted to do professionally? Did I aspire
    to become a CFO of a large company?
    I
    recall telling him something to the effect that it might be difficult for me to
    pursue this as I have not spent significant time in large company finance (mostly
    entrepreneurial and project finance) nor did I have a CPA. He told me that prior
    to becoming CFO he didn’t have much of that experience either. As for my latter
    concern, he mentioned that he has had to manage accountants and the like with straight-up
    MBA training as well. He obviously has both been very successful and lived an
    unlikely path through multiple growth phases of a company. In any case, a key
    thing I took away from our meeting was that one should step back from
    time-to-time. It is sometimes very easy for one to get caught up in the
    day-to-day hustle, and prospects of a capital raise are a good time to reflect
    further on how the organization will shift around and where one wants to be
    professionally.
  2. He told me that as a start-up through growth-phase CFO,
    he got involved in all the operations like I did ranging from pricing strategy,
    legal contract negotiation, to sales force training.
    Not something you’ll find in most finance books on
    the formal division of labor in the finance and accounting area. He told me how
    as CFO he had to train salespeople how to represent the company’s product. Efforts
    not only included interpersonal stuff like handling sales meetings but also
    included implementing some nitty-gritty details like creating product value
    propositions cheat sheets for the backs of the badges of salespeople. We also compared notes about how legal IP terms could be negotiated for a software company,
    and how market terms for structuring international partnership deals. The CFO and I also batted
    around a few points like CPU-based pricing norms in the industry versus
    emerging pricing schemes. Nevertheless, my discussion with this CFO helped to
    reinforce a concept in my mind about CXO positions. Whether the positions are “gearhead”
    (e.g., CFO) positions or other (e.g., CEO), the style of management that
    resonates with me is grounded in leadership and general business skills.
  3. We compared notes on more detailed finance concerns like the need to
    report both natural P&L and functional P&Ls.
    Unfortunately, many accounting packages don’t
    necessarily make it easy for early-stage ventures to do everything they want to
    do (although they do frequently do things better than Tier 1 accounting
    packages). One area for me in the past has been reporting natural profit and
    loss (P&L) data (e.g., which rolls up things like travel & living
    expenses across all departments) versus functional P&L data (e.g., which rolls
    up data into the functional groups like sales & marketing so that one can
    compare information to competitive data from the 10-Ks of public companies).
    I’ve always hacked these different views together using Excel because it seems
    there are only so many ways to tag data in certain accounting packages. In any
    case, my discussion with this CFO helped to give me some other “hack” ideas as
    leveraged from large company finance (such as using formal account codes in the
    unstructured text fields [yikes!]).

In any case, although I have always looked to permanent
mentors at different phases of my career, I find it is also useful to gain
mentoring and peer input wherever you can get it. Variety is good, and there is
a lot to learn out there. No need to limit yourself to one or two people when
it comes to getting mentoring.

I thank both the board director and CFO for the mentoring
opportunity.

Update on Prior Post on Management Consulting Blogs

Reader Phil was interested if I’ve found out anything more about the lack of management consulting blogs. To bring everyone up to speed, I had an original post that questioned why there weren’t many management consultant blogs out there. McKinsey only happened to be cited by me to get people’s attention (because of its prominent reputation). It is noteworthy, however, that in my original post I found a public reference that indicated that McKinsey was encouraging its employees to blog, but I have found no blogs to date. Some factual updates on consulting blogs to consider:

  • I did find Mike Nevens (ex-McKinsey) is blogging at the Sand Hill Group from time to time (note my post here)
  • Sapient CTO has spoken out against blogging
  • PR consulting firms are making moves.

An additional factor to consider, one that I did not explicitly address in my original post, is that it is important to think about how deal flow is generated in many management consulting models.

In management consulting, clients problems are generally confidential and they are infrequent (or at least do not follow as regular patterns as may occur in other services areas). Thus, a significant amount of time needs to be spent on marketing (as opposed to sales), because one needs to be at the top of mind, have relationships, and show up at the right time when a client calls. There are some firms that have more dedicated business development resources, but this is more the exception that the rule for the traditional management consulting firms.

To single out McKinsey, they have a very significant marketing vehicle around the McKinsey Quarterly. They provide world-renowned thought leadership there, and they already have eyeballs for their target audience. If one reads the book, "The McKinsey Way," the McKinsey Quarterly type of vehicle serves as one primary mechanism for staying at the top of people’s minds. The presence of this vehicle probably has a diminishing effect on the needs for blogs. Other consulting companies also have firm-specific publications – it is not unique to use these things for marketing in consulting firms.

Risk management is probably the strongest argument I can find to not wanting to adopt blogs in the management consulting firms. That said, I have seen a number of law firms that seem to be able to provide adequate counsel in the blogging area.

So if I were to update my hypothesis on why there are "no" McKinsey blogs, well there’s no urgent need to do so right now. Management consulting firms can afford to be second movers because the needs are diminished by a lack of CXO readers and other marketing vehicles already in place.

All said, I am a fan of Bob Lutz’s blog (Vice Chairman at GM). That’s a great example of what some companies are missing out on.

Update (1/4/07): Update on consulting blogs after two years …

What Is Triangulation?

I’ve wanted to write down information about the subject of “triangulation” for some time because it seems to be one of these things that is used in the investment banking and management consulting areas, but it is something that I have found used much less frequently when working with operating companies. It is also something that I have a hard time finding information about on the web or in books (for like the past 10 years!). I even had to manually confirm my definition with some investment bankers that I know because I couldn’t find any referenceable information on the net. Note according to Wikipedia triangulation is “…the process of finding a distance to a point by calculating the length of one side of a triangle, given measurements of angles and sides of the triangle formed by that point and two other reference points”, but this definition does not suit what I am thinking about.

My working definition of triangulation is “the systematic process of using multiple methods to gather a range of quantitative estimates for either an unknown or debatable value.”

Perhaps the least controversial, high-level example of triangulation exists in the investment banking area surrounding how the value of a company can be estimated. A classic example of how one could triangulate the value of a company is as follows:

  1. Estimate value of company using a multiples method of company value based on revenue (e.g., value of company equals 2.5 times revenue). Use market comparables to determine right multiplier (or low and high range of multipliers).
  2. Estimate value of company using a multiples method of company value based on profits (e.g., value of company equals 6.0 times EBITDA). Use market comparables to determine right multiplier (or low and high range of multipliers).
  3. Use discounted cash flow (DCF) method (e.g., adjusted present value [APV]) to estimate company value. This method involves taking current financials and projected financials (pro-formas) to value the company based on the free cash flows thrown off by the business.
  4. Layout the all of estimations on a “football field” type chart. Here the horizontal axis is the method used (so there are three points signifying multiples method #1, multiples method #2, and DCF method). The vertical axis is the valuation of the company. The plots would be floating bars with the high and low end of the bars signifying the high and low estimates for each valuation technique. (Sort of like how daily stock charts are plotted using a low, high, and close pricing data.).
  5. Apply any weighting technique you may have developed. Sometimes a company or practitioner may have methods of weighing one technique more than the others.
  6. Come up with your final range of estimates for the low, high, and average based on the football field.

The methods of triangulation are useful in many situations. In start-ups looking to raise capital, it can help one to be not only more rational about valuation but also more sophisticated when it comes to negotiating. Triangulation methods are not restricted to company valuations, and triangulation can be valuable in general management areas. For example, these methods can be used when trying to estimate a prospective channel partner's product demand, guesstimate job loading on a workforce, or analyze the potential penetration and growth rate of a competitor in a particular market).

In any case, although triangulation can be a bit of a mundane topic, it can be a powerful friend. Triangulation skills are something that many management consulting firms test for during the interviewing process. It takes some conscious effort to make it a habit, and it takes some creativity to come at things from different angles, but that keeps you on your toes too.

Steve Shu

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Update 2/12/09: Here is another triangulation example (with graphic).

Fordham’s Graduate School of Business Starts Mini-Course on Business Blogging

Charlie O’Donnell, analyst for Union Square Ventures (yes, the firm was part of the recent investment round in del.icio.us via Fred Wilson), is going to be another pioneer in the business blogging area at Fordham’s Graduate School of Business. Charlie will be teaching a mini-course there, and he has a course overview posted here (note: Word document). Also noteworthy is that del.icio.us (one of my prior posts consolidating info on del.icio.us is here) will be part of the course. I would guess that Charlie may have some good leverage to get a couple of guest speakers in that area …

Also noteworthy is that Fordham will be using to blogs to help build alumni relations. I think this is a great idea. Alumni networks are natural communities, and universities should consider blogging as a way to connect with their alums outside of traditional magazine, local event, and fund raising/telemarketing activities.

Update (4/25/05): Charlie’s full post about the Fordham course is here. Sorry I forgot the original link the first time around.

Understanding Wine Better Makes Me Demand Wine More

I’m no wine connoisseur, but if you are looking to
understand French wine better, a book that has helped increase my knowledge is
Windows on the World,
a book named in parallel with and connected to the restaurant on the 106th
and 107th floors of the former World Trade Center
.
From the link I provided:

Until 8:48 a.m., on September 11,
2001, [Window’s] sold 10,000 bottles a month and had 1,400 bottles on its list.
Now, 78 of 450 employees are presumed dead. Others are out of work. A
50,000-bottle cellar is atomized.

… On Windows’s final business day,
its $37 million annual revenue made it America’s top-grossing restaurant.
Stuffy types shunned the dining room, calling it a corral for Midwestern
tourists, but democrats enjoyed the non-elite style and Executive Chef Michael
Lomonaco’s imaginative menus.

Now I only happened to read through the French red wines
section of the Windows book (an earlier version of the book that my wife picked
up back in college during the eighties). The book puts a nice, quick, and layered
structure around how to tackle wines. The layered structure allows one to dive
deeper as needed and as your brain capacity will allow. I’ve tasted hundreds of
wines. Never really had a way to hone in on what kind of wine to buy after all
of that drinking other than by type of wine (e.g., Cabernet Sauvignon, Zinfandel).
Now I have much more of a structure for appreciating red wines from this region
of the world.

The Windows book has helped to formulate in my mind *very
rough* mental shortcut maps for French red wines (note the maps are rough and
not precise) such as the following:

  • Bordeaux – Blends of Cabernet Sauvignon, Merlot, or Cabernet Franc grapes
  • Burgundy – “100%” Pinot Noir or Gamay grapes
  • Cote du Rhone – Blends of Syrah or Grenache grapes.

As an example of how the information is layered, if one looks within the Burgundy wine
family, one can get a proxy for quality (e.g., where other designators are not
there) by using some simple, but powerful shortcuts on reading the labels (listed
from higher quality to lower quality) as opposed to memorizing geogrpahy or every single wine and vintage:

  • Grand Cru wine – only the name of the vineyard is on the label
  • Premier Cru – both the village and the vineyard is on the label
  • Village wine – only the name of the village is on the label.

In any case, by understanding how to select French wine
better, it has increased my demand for French wine more. (Of course, being in France right
now also increases my demand, but that is beside the point!)

I still think I prefer California over French wines, but the
Window’s book has really helped me to appreciate the depth of the French wines
and their history. I now contemplate things like why it is that French wines
and California wines (or US wines in general) taste so different to me. In the hundreds of
wines I have tasted, it only hits me now that I have never had a California
wine that tastes like a French wine (if there is such a thing as a wine being in
the French style). As the climates don’t seem too divergent to me at a gross
level, it seems as though it might have more to do with the grapes then. I
would think that the wine-making process itself is much easier to replicate
(say if a French entrepreneur wanted to start a business in California) than carrying over the vines and
grapes. Perplexing to a layman.

In any case, I am thankful for the opportunity to discover
the Windows book. The book, in the context of the significance of World Trade
Center events, also gives
me moment to reflect on the knowledge captured within.

Inside Acknowledgements

Wanted to put up a quick post to acknowledge some of the bloggers associated with business schools that my wife (Suzanne Shu) and I are directly connected to. The business schools are INSEAD (France), Southern Methodist University, and The University of Chicago. Haven’t met any of the bloggers here at INSEAD yet, but perhaps that time will come for me.

More business school blogs can be found at The League of MBA Bloggers.