## On Mortgages and the Time Value of Money

I’m in an interesting situation. After discussing it with some friends, some folks over at Reddit, and a great mortgage calculator here. I’ve decided to share it with the Internet because a choice I make this weekend may mean saving or losing \$4,000 and I’m sure this information will be useful to other people as well. I’ll attach a spreadsheet at the end with the exact numbers I’ve used for these calculations.

In a nutshell: I bought a home last year. To make things simple let’s say the loan was for \$70k and payments started November 1st (30 years, 4.75%). In January I had to buy a car, auto loan payments started February 1st (\$10k, 5 years, 6.9%).

I happen to have \$200/mo that I can spare and I want to pay down my loans, so I started thinking. Conventional wisdom says to always pay down the loan with the higher interest first. “But I took some accounting classes in college!” So I probably know just enough to hurt myself.

One of the things you learn in accounting is the “time-value” of money. Tiny fractions can add up to millions of dollars when you compound interest over time, and the longer the time the more powerful it gets. Even though the home interest rate is lower I had a sneaking suspicion that paying it down would be wiser because of how long the loan is for.

Let’s say next month I start putting an extra \$200/mo towards the auto loan until it’s paid off. I’ll save \$920 and cut the term of that loan down by 28 months. The auto loan would end in May of 2015 (an important date we’ll come back to later). Will putting those 28 payments of \$200 towards my home loan save me even more money? Absolutely, because knocking down the principal on my home loan will change how interest is accrued for the next 30 years. Putting 28 payments of \$200 towards the principal on the home loan will save me \$12,978. A \$13,000 difference!?! That’s more than I paid for my car. Doing that alone would save me enough to get my car for free.

But here’s the thing: the question is bigger than what to do with those 28 payments of \$200. I could stop making additional payments at that point, but would I? Probably not. So I need to look at what happens after the car loan is paid off.  My options are:

•  Take the money I had been paying towards the auto loan and apply it towards the home loan (in which case I’ll now be paying an extra \$400/mo).
• Start paying \$200/mo extra towards the home loan and pocket the money I’d been paying on the auto loan.

Many people take life as it comes. In 2015 when my car loan is paid off I might be tempted (or have) to spend the money I’d been paying towards the auto loan on other things … but that actually puts me in a worse situation.

If I start paying \$200/mo extra towards the home in May 2015 I save \$29,316. If I start paying \$400/mo extra I save \$37,552. (When you add the \$920 I saved from paying down the car the savings add up to \$30,237 or \$38,472 respectively.)

But we’ve already shown that payments towards the house pay off better than payments towards the car. So what happens if I just pay \$200/mo towards my house from the start and not pay anything extra towards the car? That will save me \$34,093. That’s \$4,379 less than if I pay \$400/mo towards my home after the car is paid off … but it’s \$4,777 more than if pay off the car then put \$200/mo towards the home.

Let me say that again: If I pay \$200/mo towards the car and then \$200/mo towards the home I’m actually losing \$4,777 compared with putting \$200/mo towards the house from the start.

Once I’m done paying off the car loan I have to roll that money into the home loan payment or I’ll lose almost five grand. If I think I’ll want (or need) to use those funds for something else after 2015 I’m better off paying down the home from the start.

It’s a \$4k – \$5k decision, and I think I was right: the conventional wisdom is only perfect when applied to loans of similar length. If you have loans that are of greatly different lengths you need to look at it more closely. If you want to run some numbers of your own, I’d point you to  this mortgage calculator, and if you want to check my numbers you’ll need that and this spreadsheet.

## Good to Great – Part 7

This is the final installment of a multi-part blog, sharing my thoughts on the book Good to Great by Jim Collins.  Here are links to Part 1, Part 2, Part 3, Part 4, Part 5, and Part 6.  In this update I’m covering the last chapter of the book.

Chapter 9 – From Good To Great to Built To Last

Mr. Collins’ first book (Built to Last) focused on companies that were considered to be visionaries, lasting for 50 years or longer and well known by many people, even ones outside their industry sector.  In this last chapter he attempts to make some correlations between the findings of the two studies.  The two concepts I’d like to review are Core Ideology and Preserving the Core While Stimulating Progress.

Core Ideology

Bill Hewlett and David Packard’s entire founding concept for HP was not what, but who – starting with each other.  They’d been best friends in graduate school and simply wanted to build a great company together that would attract other people with similar values and standards.  The founding minutes of their first meeting on August 23rd, 1937, begin by stating that they would design, manufacture, and sell products in the electrical engineering fields, very broadly defined.  But then those same founding minutes go on to say, ‘The question of what to manufacture was postponed…'”

This aligns with Good to Great’s idea of getting the right people on the bus.  They did that from the very start.  They fumbled around for a few years trying to define what we would call their Hedgehog Concept.  But aside from their contributions to the world’s technology they also influenced the management side of the business world:

The ‘HP Way’, as it became known, reflected a deeply held set of core values that distinguish the company more than any of its products.  These values included technical contribution, respect for the individual, responsibility to the communities in which the company operates, and a deeply held belief that profit is not the fundamental goal of a company.  These principles, while fairly standard today, were radical and progressive in the 1950s.  David Packard said of businessmen from those days, ‘While they were reasonably polite in their disagreement, it was quite evident that they firmly believed that I was not one of them, and obviously not qualified to manage an important enterprise.'”

This also aligns with Getting The Right People On the Bus, but it ties in with what Mr. Collins learned while writing Built to Last.  Namely, that Built to Last companies had some internal values that extended beyond the desire to make money.  Believing that corporations exist (as do people) to improve life for everyone is an important part of being successful long-term.  As Mr. Collins points out, “In a truly great company, profits and cash flow become like blood and water to a healthy body: They are absolutely essential for life, but they are not the very point of life.”

In a similar vein, Merck developed a cure for river-blindness, a disease affecting over a million people in poor countries.  Because the people suffering from the disease had no money Merck created a distribution system to get the drug to these people and gave it to them for free.  As the author states:

“To be clear, Merck is not a charity organization, nor does it view itself as such.  …  Yet, despite its remarkable financial performance, Merck does not view its ultimate reason for being as making money.  In 1950, George Merck 2d, son of the founder, set forth his company’s philosophy:

We try to remember that medicine is for the patient … it is not for the profits.  The profits follow, and if we have remembered that, they have never failed to appear.  The better we have remembered it, they larger they have been.”

To balance this, the book goes on to explain a bit of a paradox – that your company needs core values, but they don’t necessarily have to be good ones: “A company need not have passion for its customers (Sony didn’t), or respect for the individual (Disney didn’t), or quality (Wal-Mart didn’t) , or social responsibility (Ford didn’t).”  I think Mr. Collins misses some important points here.  I think maybe what he means to point out is that your values don’t need to be all-encompassing.

Each of the companies mentioned there do have values, but I don’t think it’s possible to cover every single value a person could hold.  So they pick which ones they want to focus on, and yes, that means some do get left out.  I don’t know of any company that has been a multi-decade success with the intent of killing people.  Even arms dealers phrase their business values as to say they’re helping people defend themselves and their property.  That is a value, whether you agree with it (or its sometimes faulty interpretations) or not.

Preserving the Core While Stimulating Progress

To explain one of the topics in Built to Last the author writes, “Preserve the core ideology as an anchor point while stimulating change, improvement, innovation, and renewal in everything else.  Change practices and strategies while holding core values and purpose fixed.  Set and achieve BHAGs consistent with the core ideology.”  (BHAG stands for Big Hairy Audacious Goal.)  Specifically, the author explained that an unanswered question from Built to Last was, “What is the difference between a “good” BHAG and a “bad” BHAG?”

We find the answer in Good to Great by understanding the Hedgehog Concept.  A BHAG that drives towards the center of our Hedgehog Concept is a good BHAG; a bad one does not.  “Bad BHAGs are set with bravado; good BHAGs are set with understanding.”  When you have that understanding your BHAG may seem daunting but it’s a worthwhile goal.  A bad BHAG turns into a flywheel stopper.

Packard’s Law

The last thing I’d like to share is Packard’s Law, which I learned of through this book: “No company can grow revenues consistently faster than its ability to get enough of the right people to implement that growth and still become a great company.”  I think this is a brilliant phrase. Time and again I’ve worked for companies that would swallow as many orders as they could without having the staff to fulfill those orders.  If you don’t have the staff and you’re not willing to get only the right people – not the best people, the right people – then there’s a very high chance you’ll wind up with the wrong people and your organization will suffer. At best, this leads to slow production; at worst, shoddy workmanship and costly errors to be dealt with.

The way HP overcame?  They didn’t wait for business to be created before they hired good people.  They snapped them up, and then found or made something for them to do – sometimes by simply asking them, “What would you like to do?”  In a lesser company that could lead to random projects going in every direction, but if that person’s project is aligned with your Hedgehog Concept then not only do you have a winning project, you also have good synergy between your company and your new employee.

What’s Next?

Thank you all for reading my notes on this book, I hope you’ve found them helpful.  I may take a few weeks off from posting.  I’m going on a trip and closing on my house sometime in the next two weeks (EDIT: I already have – that’s the reason for the delay posting this), and I need to decide what I’d like to post next.  I started taking notes on Charles J. Givens’ More Wealth Without Risk but there’s so much that’s either completely false or only partially true that it’s really, really difficult to get through the book.  With Good to Great I was able to sum up 150 pages in about 20 pages of notes, with More Wealth I have almost 40 pages of notes and I’m only a quarter of the way through the book.  At this rate I’d have enough material for 28 blog posts.

Another possible direction I’ve been thinking about is to create some serious How to Sell on eBay videos.  I had a business for five years selling RAM on eBay and have a lot I could share.  The other videos I’ve seen on the market are so overly simplistic they’re almost insulting.

## Good to Great – Part 6

This is part five of a multi-part blog, sharing my thoughts on the book Good to Great by Jim Collins.  Here are links to Part 1, Part 2, Part 3, Part 4, and Part 5.  In this update I’ll be covering chapters 7 and 8 from the book.

Chapter 7 – Technology Accelerators

Much of this chapter talks about how everyone in business (and society at large) is caught up on technology and fears that if they don’t keep on top of it they’ll be left behind.  However according to their study, technology was not that significant:

“We were quite surprised to find that fully 80 percent of the good-to-great executives we interviewed didn’t even mention technology as one of the top five factors in the transition.  Furthermore, in the cases where they did mention technology, it had a median ranking of fourth, with only two executives out of eighty-four interviewed ranking it number one.”

Considering how important technology was to some companies this may be surprising, but most CEOs focused on other parts of their company – either their people, their culture, their organization, etc.  The author then sums it up well in two sentences: “Like the Daytona 500, the primary variable in winning is not the car, but the driver and his team.  Not that the car is unimportant, but it is secondary.  Mediocrity results first and foremost from management failure, not technological failure.”

They also gave an interesting non-business example: Vietnam.  The US was technologically superior, but technology alone wasn’t enough to win the war.  We could spend days talking about businesses who thought some technology was going to be their ticket to untold millions, only to fail miserably.

In short, the question goes back to your company’s Hedgehog Concept.  Your Hedgehog Concept may not have anything to do with technology once you really get to the heart of it.  It may be that technology is simply being used to leverage your approach toward your Hedgehog Concept.  The book shares a great example of this with Walgreens.

Walgreens decided they were in the business of being a convenience store.  They got rid of their lunch counters and moved stores from the middle of the block to the intersections in order to increase traffic flow (even if the move cost them millions of dollars up front). Most importantly, Walgreens came up with a system to connect all their pharmacies so customers could pick up prescriptions at any Walgreens location, nationwide.

The technology required to connect all their pharmacies was a game-changing event.  There was no other company in the world that had anything like it at the time.  But the technology was being driven BY their Hedgehog Concept – not the other way around.  Their aim was to be the best convenience store possible, not to revolutionize technology.

I particularly liked this passage from the book: “This brings us to the central point of this chapter.  When used right, technology becomes an accelerator of momentum, not a creator of it.  The good-to-great companies never began their transitions with pioneering technology, for the simple reason that you cannot make good use of technology until you know which technologies are relevant.”

Again, this reminds me of celebrity CEOs who had grand visions of technical revolutions that didn’t pan out.  Heck, it’s even true of the ones that do pan out.  A quick Google search will find thousands of articles discussing how iPod and iTunes aren’t revolutionary technology, and how the key to Apple‘s success has been their marketing (Link 1, Link 2, Link 3).  That makes sense, when you think about it.  I don’t know what Apple’s Hedgehog Concept is, but I’d be willing to bet it’s centered strongly on how their customers feel when using Apple products – and that’s tied much more closely to marketing than it is to MP3 technology.

Again, the technology was used to leverage what was in the Hedgehog Concept, not the other way around.  Once you know what you’re trying to achieve then it’s much easier to look towards technology and ask, “Which technologies will help us reach our goal?”  If you don’t need a certain technology (or you don’t need it to be cutting edge to get the job done) that relieves a lot of tension and fear of being left behind.  Who cares about being left behind if that’s not the direction you want to go in the first place?

Chapter 8 – The Flywheel and the Doom Loop

Think of a fully loaded eighteen-wheeler – once it’s up to 60mph it’s really hard to stop suddenly.  Now imagine the weight of a fully-loaded eighteen-wheeler going 60mph compressed into a circle six feet around.  That’s a flywheel.  A flywheel is a way to store that energy in one place, instead of having it driving down the street.  When it’s stored in one place you can take a little out, or put a little in as needed without too much effort.  Meanwhile you have a whole lot of energy available if you need it.

Getting the flywheel up to speed is like getting the semi up to speed: first you start off in low gear, moving very slow.  As you pick up speed you change gears.  Doing this multiple times you’ll eventually get up to great speeds.  Good to Great companies come about by building up the same way.  One step at a time, each decision, each action building on the one before.

Now imagine what it’s like to work at a place where you spend a week getting the flywheel up to speed spinning in one direction only for your boss to come in and stop the wheel.  Then you’re told to spend the next week getting the wheel up to speed in the other direction.  Again your boss comes in and stops the wheel, and tells you next week you’ll be getting the wheel spinning in the first direction again.   This keeps momentum from building, and keeps a company from going anywhere.  Even if each change of direction is accompanied by a kickoff party, media, and fanfare the effect is the same.

Good to Great companies have the discipline needed to get their flywheel up to speed, but it comes from having done all the steps discussed earlier in the book.  When you get your Hedgehog Concept crystallized, that tells you which direction you need that flywheel to spin.  When you get the right people into the right seats (and the wrong people off the bus) that gets everyone aligned to spin in the same direction.  Once you get the flywheel spinning in the right direction you can look for technology that accelerates you.

Aside from internal pressures there are also external ones: customers and shareholders.  The book only mentions shareholders, but I’d like to mention customers too.  Customers can’t tell you what your Hedgehog Concept is.  Only you can do that.  As the old saying goes, if you try to please everyone the only thing you’ll succeed in doing is driving yourself crazy.  The important thing is to dig deep and find your Hedgehog Concept.  If you want to change from a hot dog stand to a taco stand, you’ll lose some customers and gain others.

The book tells the story of Gillette, who revolutionized the shaving industry when they introduced the Mach 3 with three razor blades.  Before Gillette finalized the product and released it to the world they fought off a hostile takeover that was so enticing to shareholders that CEO Coleman Mockler and other officials in the company spent time personally calling the largest shareholders and basically saying, “We’ve been working on a secret project that’s going to increase Gillete’s stock price far above what these people are offering you.  The project is nearly complete, just hold out until next year and you won’t regret it.”

Shareholders can be a source of pressure too, but the important thing to remember is that shareholders were a pressure to both Good to Great companies as well as companies who didn’t make it.  Again, it goes back to having the discipline to hold your course.  The book gives a number of examples supporting this that I don’t have space to go into – feel free to buy the book or check your local library if you’d like to read more on that.

A Word About the Misguided Use of Acquisitions

This book also gives example after example of companies that made acquisitions that put the company belly up.  Growing for the sake of growth itself will lead to failure.  Making an acquisition as a way to spark new growth or motivate people leads to failure.  The CEO may increase the value of the company in the short-term, cash out, and be gone in 3-5 years, but then the deck of cards will fall when everyone realizes the acquisition was a bad decision.  Hold off on making acquisitions until after you have your Hedgehog Concept figured out, and make choices based on how it strengthens your core goals.  Your chances of success will be much improved.

That wraps up Chapters 7 and 8.  Next week I’ll post the last installment of this series, covering the last chapter in the book.

## Good to Great – Part 5

This is part five of a multi-part blog, sharing my thoughts on the book Good to Great by Jim Collins.  Here are links to Part 1, Part 2, Part 3, and Part 4.

Chapter 6 – A Culture of Discipline

I’m going to start off with one of the best quotes of this chapter, and maybe the entire book: “The purpose of bureaucracy is to compensate for incompetence and lack of discipline – a problem that goes away if you have the right people in the first place.”  He continues, “Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, this in turn drives away the right people on the bus, which then increases the percentage of wrong people on the bus, which increases the need for more bureaucracy to compensate for the incompetence and lack of discipline, which then further drives away the right people.

I could probably write an entire blog about that one quote and all the different ways I’ve seen it play out in my career.  You probably could too.  This particular chapter is pretty long though, so rather than get caught up on the one quote, let’s see what other interesting thoughts Mr. Collins brings up.  Actually, before we do that let me provide some context.  The quote above comes a few paragraphs into the chapter.  Prior to that Mr. Collins is describing a startup company growing into a more professional organization.  That process often involves hiring management; these managers often start with instituting process controls.  Then we see the quote above.

That quote allows us to segue into how important it is for an entrepreneur to have discipline, and how future employees or partners may not have that same discipline.  Finding partners and employees with a high level of discipline enables a company to go farther before needing the red tape of bureaucracy.  I particularly enjoyed a chart presented in the book, which contrasts the axis of Discipline and Entrepreneurial Spirit:

I thought it interesting that an organization with a lot of discipline but little entrepreneurial spirit was labeled hierarchical.  It reminds me of the military, where they achieve balance by compartmentalizing discipline and entrepreneurship.  I’ve heard a few examples of military inventiveness that started in the rank and file, but from what I’ve seen and heard that doesn’t seem to be the norm.  The rank and file experiences mostly discipline, and then some groups are created specifically to experiment.  If those experiments pan out the results are spread to the rest of the organization.  As mentioned earlier, Churchill created a channel for obtaining information from outside his political bubble to work around these kinds of limitations.

Mr. Collins mentions Responsibility Accounting (an accounting framework created by Bernard H. Semler at Abbott Laboratories in the 1960s) as a good example of innovation that tied together Discipline with Entrepreneurship.  When managers are responsible for the returns made on the expenditures of their departments they have a good reason to keep track of costs and profitability.  The idea is to have controls without being too strict.

The rest of the chapter gives details about the next five concepts:

• Build a culture around the idea of freedom and responsibility, within a framework.
• Fill that culture with self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities.  They will “Rinse their cottage cheese.”
• Don’t confuse a culture of discipline with a tyrannical disciplinarian.
• Adhere with great consistency to the Hedgehog Concept, exercising an almost religious focus on the intersection of the three circles.
• Equally important, create a “stop doing” list and systematically unplug anything extraneous.

Freedom (and Responsibility) Within A Framework

The book gives an example of an airline pilot attempting to land in rough weather.  The plane almost lands but then the passengers find themselves thrust backwards into the seat as the plane accelerates back into the sky.  There were some bad crosswinds and the plane lands on their second attempt.  The analogy here is that the airline industry is extremely regulated, but there are certain freedoms in the right places to enable a pilot to do the right thing – extremely important when the pilot is ultimately responsible for many lives.

There is another point well-made in this subsection of the chapter, written clearly enough that I have to include it verbatim (emphasis added by me):

“In a sense, much of this book is about creating a culture of discipline.  It all starts with disciplined people.  The transition begins not by trying to discipline the wrong people into the right behaviors, but by getting self-disciplined people on the bus in the first place.  Next we have disciplined thought.  You need the discipline to confront the brutal facts of reality, while retaining resolute faith that you can and will create a path to greatness.  Most importantly, you need the discipline to persist in the search for understanding until you get your Hedgehog Concept. Finally we have disciplined action, the primary subject of this chapter.  This order is important.  The comparison companies often tried to jump right to disciplined action.  But disciplined action without disciplined thought is a recipe for disaster.

That paragraph does an excellent job of underscoring points made earlier in the book about having leaders that lean too much on discipline, or bringing in celebrity CEOs who have a great vision that doesn’t align with the company’s core.  It’s great to have discipline, but it can destroy an organization if it’s not being used in the right place or right time.

“Rinsing your cottage cheese” is a phrase the author uses to refer to extreme discipline.  The phrase refers to Dave Scott, six-time winner of the Hawaii Ironman Triathalon:  “In training, Scott would ride his bike 75 miles, swim 20,000 meters, and run 17 miles – on average, every single day.  Dave Scott did not have a weight problem! Yet he believed that a low-fat, high-carbohydrate diet would give him an extra edge.  So, Dave Scott – a man who burned at least 5,000 calories a day in training – would literally rinse his cottage cheese to get the extra fat off.”

I liken it to that phrase, “You miss 100% of the shots you don’t take.”  It’s the willingness to take those extra shots that made the difference, even if some of the shots you took were misses.  This man’s dedication meant that he was willing to take a few extra steps in order to achieve his goal.  Even if that specific step wasn’t what gave him his winning edge, it was part of an overall package.  He took those extra shots, and some of them scored.

A Culture, Not A Tyrant

“Whereas the good-to-great companies had Level 5 leaders who built an enduring culture of discipline, the unsustained companies had Level 4 leaders who personally disciplined the organization through sheer force.” (Emphasis in original.)

The unsustained comparison companies failed to sustain their excellence because they didn’t make it part of the organizational culture.  When the leader left they went back to their prior level of experience.  This section also contained another note I enjoyed because it was exactly how I felt when I read the material in my own college Ethics class:  “It kind of reminds me of Lawrence Kohlberg’s stages of moral development that I learned about in my college Ethics class.  Doing the right thing because it’s the right thing to do is higher on the moral development chart than doing the right thing out of fear of being punished.”  If you want people to keep doing the right thing after you’re gone you have to teach them the value of doing the right thing because it’s the right thing to do.

Fanatical Adherence to the Hedgehog Concept

This section can really be summed up by these two quotes:

“The good-to-great companies at their best followed a simple mantra: ‘Anything that does not fit our Hedgehog Concept, we will not do.  We will not launch unrelated businesses.  We will not make unrelated acquisitions.  We will not do unrelated joint ventures.  If it doesn’t fit, we don’t do it.  Period.’”

“In contrast, we found a lack of discipline to stay within the three circles as a key factor in the demise of nearly all the comparison companies.  Every comparison either (a) lacked the discipline to understand its three circles, or (b) lacked the discipline to stay within the three circles.”

I liked one of the supporting statements, which spoke about leadership being faced with “once-in-a-lifetime opportunities” – specifically, that if you stay true to your Hedgehog Concept you may come across more of these opportunities than you’d expect.  As an aside, in my personal life I’m finding things like this more and more as I get older.  I’ll only have a limited number of hours in my life and I’ve had to accept that certain things on my “to do” list may never, ever get done.  That’s not to say it wouldn’t be nice if I could do something, but that I really have to start being aware of the choices I make with my time now.

The seven bullet points that follow are taken verbatim from the book, discussing steel producer Nucor.  I’m pulling out the most important lines, and then I’ll discuss below.

• This notion of fanatical consistency relative to the Hedgehog Concept doesn’t just concern the portfolio of strategic activities.  It can relate to the entire way you manage and build an organization.  Central to the Nucor concept was the idea of aligning worker interests with management and shareholder interests through an egalitarian meritocracy largely devoid of class distinctions.
• When we interviewed Ken Iverson, he told us that nearly 100 percent of the success of Nucor was due to its ability to translate its simple concept into disciplined action consistent with that concept.
• It grew into a \$3.5 billion Fortune 500 company with only four layers of management and a corporate headquarters staff of fewer than twenty-five people – executive, financial, secretarial, the whole shebang – crammed into a rented office the size of a small dental practice.
• Executives did not receive better benefits than frontline workers.  In fact, executives had fewer perks.
• But when Nucor faced difficult times, everyone from top to bottom suffered.  But people at the top suffered more.  In the 1982 recession, for example, worker pay went down by 25 percent, officer pay went down 60 percent, and the CEO’s pay went down 75 percent.
• Nucor had no union and enjoyed remarkably good relations with its workers.  In fact, when union organizers visited one plant, workers felt so ferociously loyal to Nucor that management had to protect the union organizers from workers who began shouting and throwing sand at them.
• But the union argument begs a crucial question: Why did Nucor have such a better relationship with its workers in the first place?  Because Ken Iverson and his team had a simple crystalline Hedgehog Concept about aligning worker interests and management interests and – most importantly – because they were willing to go to almost extreme lengths to build the entire enterprise consistent with that concept.

I was very impressed with the example of what Nucor did.  I’ve been a supporter of running a lean company for a long time, and a supporter of the idea that when employees see their bosses living and acting like normal people instead of kings and queens they are much more motivated by that than by anything else.  Employees know when their employers are loyal to them, and when they’re being given lip service.  If Nucor can build themselves a \$3 billion business with employee loyalty like that there’s no reason other people can’t do it as well.

Start a “Stop Doing” List

Once you’ve determined your Hedgehog Concept and you whittle away all the distractions from it pursuing that goal is almost easy.  Indeed, doing all the study and preparation necessary to come to your Hedgehog Concept is where the hardest work seems to be.  In one section of the book Mr. Collins mentions the leaders of the Good to Great companies were often confused by the interview questions.  They considered the work of finding their Hedgehog Concepts to be common sense, a part of the process that was so intuitive they couldn’t imagine not doing it.

From that perspective, once that’s done everything that comes after is easy.  So the leaders just chalked all their success up to luck.  More specifically, what they felt was lucky was getting a group of people who could work on this process – getting the right people on the bus.  Having worked in organizations with people who were either the wrong people or in the wrong seats, it’s easy to understand how lucky it would feel to find myself on a bus where everyone’s where they need to be.

Anyway, whittling away the distractions is an important piece.  This is one I really need to do for myself.  A few paragraphs up I said I’m finding myself prioritizing differently, but I really like the idea of making a concrete list of things I need to stop doing.  Without a “stop doing” list our “to do” list can just keep growing and growing.  If left unchecked we wind up getting pulled away from our Hedgehog Concept.  The same is true of any organization.

In my next installment I’m going to combine chapters 7 and 8 (“Technology Accelerators” and “The Flywheel and the Doom Loop”).  Again, if all goes as planned that’ll be up next week.  Thanks for reading!

## Has Batman Ever Been So Relevant?

I just had another dream weird enough to wake me up and make me want to write it down.  This time it involved Batman.  A very, very, very dark version of him.  In my dream Batman had taken a hiatus from wearing the suit, choosing to operate in his Bruce Wayne persona.  What made me wake up was coming to see just how close to evil he’d gotten.  It’s been 10-15 years since I read the comics so he may have gotten just as bad, but this is beyond any memory I have of him.

The first scene was myself (as Bruce Wayne) having a brief meeting with Alfred, instructing him to take care of a few things.  Then my dream shifted and I was in a college class, sitting along the right hand wall of a large lecture hall full of students.  I was wearing a very expensive suit.  A friend of mine was also there, also wearing a suit.  So was a third person I didn’t know.  That person kept messing with me.  He took a seat that blocked my view, and when I went to move to another seat I had to move the chair, then turn around and do something before I could sit in the seat.  As I turned back to take the seat he had come down and sat himself in it.  I looked him in the eye, called him a dick, and found another desk.

As I moved to another seat the teacher announced a supermodel classmate was auctioning off a date to the highest bidder, with the money going to charity.  I dropped a bid far above what anyone else could, and awarded the date to my friend who, being a bit of a geek, started to detail plans of doing homework with her.  He’s not a complete geek though, so when she gave him the sex eyes he picked up on it.  Good for him.

As I left the class I struggled to find may way through the throng of students to find where I’d parked.  As I walked outside I saw a Zamboni that looked surprisingly like it was a Lamborghini underneath all the street-cleaner gear that was attached.  I made my way to a pizza parlor that I owned in a mall on the same property.  It was being run by a college-aged girl who’d written a number on the side of the pizza oven door in chalk.  I erased it and wondered if her mind was cracking.  If so then she’d need to be replaced.  But In my mind I knew this pizza shop was part of a covert network I had built, and my control of her mind might be breaking her.

Alfred came in as I made myself a sub in the kitchen, and gave me a status report.  As he did so he used some terminology, and then said somewhat proudly of himself, “…and I mean that in the third sense.”  He continued, “I really enjoy the way we’re doing this, Master Wayne,” referring to how I was teaching him multiple levels of covert operations, multiple levels of speaking.  His new-found knowledge was causing him to get smug, and needed to be reminded of his place.  I got really nasty with him, saying, “You think you’re better than Gordon?  You think you’re smarter than Gordon?”  My dream then jumped to a scene of Christian Bale and Michael Caine between a dumpster and a cinder block wall (presumably behind the pizza shop), only visible from the chest up.  Alfred had no shirt on, was shaking in fear, and you could tell by his eyes that he wasn’t mentally present.  He shits himself off camera, and Bale/Wayne (looking at the camera) smiles, and pulls Alfred’s head onto his shoulder.

Cutting back to the pizza shop kitchen, someone else comes in and gives an update, then leaves.  I don’t remember the next scene but I know it was another where I, as Bruce Wayne, go to check on a member of my covert organization, believe they need to be reconditioned mentally to be brought back in line, and in the process I have them do something that hurts them physically or mentally.

From there I skip to a third, similar scene.  I’m behind a high-class restaurant with someone who works there.  Next to us is a modified washer and dryer (for doing the restaurant’s linen) that has no door, so you could stick your hand in while the washer is on its spin cycle.  I’m telling the man, “I really like running this place with you.  You really know what you’re doing.”  As I finish the second sentence, the person (who again doesn’t seem to be themselves) reaches over to the washer (which is on spin cycle), turns a knob that makes it spin even faster.  He grins at me, then slowly sticks his hand in, breaking a finger.  I walk away as he’s taking out his cell phone to snap a picture of it, saying, “Enjoy it, it’s your finger.”

This is where I woke up.  Although the idea of a man intentionally (and happily) breaking his own finger for Batman was nauseating, more so was the thought of him using his capacity for psychological manipulation to control their minds.  I got up, used the restroom, and moved to the couch, hoping I could fall back asleep.  No luck.

I laid back down and started thinking about the dream.  I went back in time, imagining a conversation between the Alfred and Bruce I used to know.  Bruce was considering a move that would lead to the scenario above, and Alfred was cautioning him that doing so would make him not much better than the criminals Bruce wanted to save people from.  Speaking of the criminals Bruce says, “They’re not going to ask people’s permission to kill them.  I can’t take the time to ask their permission to save them.”  Alfred posits that people have the right to refuse help, even if they know it means their own death.

I’ve always been interested by dream interpretation, and this is the moment where I understood the connection between the dream and my waking life: The NSA thinks they are Batman.

## A Tax on the Stupid?

Still behind on projects – I’ve had a number of new things come up in the last 30 days.  But this came to mind today and thought I’d share:

I’ve heard it said the state lottery is “a tax on the stupid.” It takes the money from a group of people and redistributes it to achieve public benefits. That’s a tax. Your odds of winning a payout are so astronomically low they’re not even worth mentioning. The only difference is that unlike the IRS taking your money and never giving ANY of it back, there’s a tiny chance that you’ll win a few million.

But come to think of it, the IRS probably should make our taxes into a lottery system. There are probably a shitload of people who would be much happier about taxes if they knew there was a chance they’d win \$500 million for paying them.  The payout could depend on how much tax you paid.  So someone who paid \$1k in taxes has a miniscule chance to win \$100M.

Plus, with the payouts going to random people I have a hunch the money would grease the wheels of our economy relatively well. Some would save it, some would spend it, and some would start businesses – but it would be a random distribution (you know, except for that whole human corruption thing.)