Nathan Lustig

November Books

Category : Books
Posted on December 3, 2009 by Nathan Lustig

Traffic: Why We Drive the Way We Do (and What It Says About Us) – Tom Vanderbilt. Traffic is full of interesting stats about how and why Americans drive the way they do. Vanderbilt tries to figure out why Americans behave the way they do inside their cars: tailgating, road rage, aggressive driving etc. It is fairly dense and reads more like an academic paper with a little humor thrown in for good measure than books like Freakonomics or Outliers, but is worth checking out. Among other things, the book looks at why people say “I got stuck in traffic” or “I got hit by a car” rather than “I got stuck in people” or “I got hit by a driver.”

I really enjoyed his thoughts on merging from two lanes to one lane. An easy example is a construction zone on the highway. Usually about a mile ahead of the lane closure, drivers will see a sign that says “left lane closed 1 mile, merge right.” Do you merge right away or do you wait until the end and try to move over then? Many people move over right away, but Vanderbilt cites a study that shows that it is actually better to merge late because it fully utilizes the available road space up until the last minute. The study found that there were fewer accidents and quicker communes if people merged late. As a late merger myself (who has been yelled at by both friends and family for it), it was great to have my ideas confirmed by an actual study. Check out Traffic if you are interested in reading about America’s traffic problem.

Kitchen Confidential Updated Ed: Adventures in the Culinary Underbelly (P.S.) – Anthony Bourdain – I’m a huge fan of Anthony Bourdain’s show on the Travel Channel, No Reservations, so I had to pick up Kitchen Confidential. Bourdain grew up wanting to cook and Kitchen Confidential details his rise from a cocky, inexperienced line cook to a successful head chef at a NYC French restaurant. Kitchen Confidential is billed as a look behind the scenes of restaurants in New York City during the 80s. Bourdain battles drugs, the mafia, spiteful and dumb owners and many other problems in his quest to be a good chef. From seeing his show, I hadn’t realized how deep into drugs he was in his past.

While I enjoyed many of his war stories about crazy owners, chefs and his escapades as a young, drugged out cook, I was really interested in his chapters about cooking, traveling and the restaurant business. Bourdain spends a chapter explaining how to spruce up home cooked meals so that they taste (and look) more like they were created in restaurants. There are a few chapters on what makes or breaks restaurants and how to spot a failing restaurant from a well run place. I was most interested in the chapter about his first trip to Japan.

Bourdain talks about being completely immersed in a foreign culture where he couldn’t communicate. After the first few days of wandering around, he finally works up the courage to walk into a noodle shop and point to what the guy sitting next to him was eating to order “whatever he was having.” Bourdain’s story about being worried what others would think, but then deferring to the rest of the people made me think of a time I was in France for the Confederations Cup in 2003. We were in a restaurant where nobody spoke any English and simply pointed to another table to say “we’ll have that.” It ended up being a great meal. Bourdain’s book is a quick read and shows how he launched himself into TV stardom. It’s well worth the read.

The Help – Kathryn Stockett. The Help pulls the lid off of a social circle in Jackson, Mississippi during the heart of the civil rights movement, but tells the story from the perspective of the maids who work in white family homes. The book is very well written and a fun read, even though it deals with some heavy subjects. Stockett makes you feel like you are listening to the thoughts of each character, using unique metaphors throughout the book.

Some of the chapters are a little slow to get through because Stockett uses the dialect that some maids would have used in the 60s. It’s a little hard to get used to, but by the 2nd or 3rd chapter, you are up to speed. It’s completely worth it. Without spoiling the book, it was interesting to read about some of the double standards that white women had in the 60s. White women were perfectly happy to allow their maid to touch their child when the maid was cleaning, feeding or clothing their child, but they would not let the maid sit in the same room to eat or use the guest bathroom. It seems like a convenient suspension of segregation that, looking back, does not make any sense (not that segregation made any sense at all.) The Help is a really good book and potentially one of my favorites for the year.

Black Friday: Advertising Thoughts

Category : Business & Advertising
Posted on November 27, 2009 by Nathan Lustig

It’s been awhile since I wrote about advertising, so seeing as it’s Black Friday and millions of Americans woke up early (or stayed up all night) to go shopping at ungodly hours, I thought I’d write a little about some of the current campaigns that motivated Americans to shop. First, the bad.

AT&T has been in a battle with Verizon for mobile phone dominance for the past few years. Verizon still has more subscribers and a bigger network, although AT&T has closed the gap and even taken the lead in some areas. AT&T’s launch of the iPhone has been a huge boost for AT&T, but lately Verizon has been hitting back. They launched a commercial that shows two maps of the US, one showing Verizon’s 3G coverage and the other showing AT&T’s 3G coverage.

ATT&T wrote an open letter trying to explain the situation, but they also created their own commercial to show that they too offer service in most of America. It sounds like a good idea, but for me, the commercial fails. It opens with Luke Wilson standing on a map of America saying that he got postcards from people all over the US who are able to use AT&T’s network. Wilson reads off tons of cities and tosses the postcards where the cities are on the map. Pretty soon, the entire map is covered in postcards. It might be a cool idea, but they picked Luke Wilson. As the viewer, I immediately think, “why couldn’t you get Owen Wilson?” Is AT&T really the second most famous Wilson brother and Verizon is Owen, the big movie star? It’s almost too perfect since AT&T is playing second fiddle to Verizon and had enough of an inferiority complex to respond to Verizon’s national 3G coverage map with an open letter to consumers. At least they didn’t pick Andrew Wilson to be their spokespan. Then people would think they were US Cellular.

http://www.youtube.com/watch?v=wjwBHqa6lZI

Sears has always had fairly tame advertisements around the holidays an this year isn’t any different. Their ads are actually fairly good until the end, when they show their 2009 Christmas slogan. Their slogan is “More Values, More Christmas.” It hardly seems right to equate buying more things with more Christmas. Wal-Mart does the same thing with their slogan “Christmas Costs Less at Wal-Mart.” It seems wrong to me to equate being able to buy more things with “more Christmas.” I’m not even going at this from religious perspective, simply a materialistic one. Both stores are equating buying more things with being happier. It’s a good message for the stores’ bottom line, but not for everyone else.

Finally, the last of the bad. Kopps Custard, a local institution in the Milwaukee area used to have a billboard on I43 that showed the flavor of the day. It let you know if you should take a right turn when you got off the highway or continue to your destination. If it was a good flavor, you got off and got custard. If it was bad, you continued on. I can’t count the number of times I’ve stopped because the billboard showed Tiramisu, Chocolate Peanut Butter Chocolate or Grasshopper Fudge. It was a great ad because it motivated people to change behavior and buy. You can now follow Kopps on Twitter, but it’s just not the same.

Now, onto the good. This year, Best Buy sent out their Black Friday circular in newspapers around the country, just like they did in other years. The only difference was that in heavily Muslim areas, they included a bubble at the top that said “Happy Eid Al Ahda.” Eid Al Ahda is a holiday celebrated by Muslims that runs from Friday until Sunday. Predictably, Best Buy’s decision has drawn criticism from some right wing Christians, including some who want to boycott the store. I think this is yet another manufactured issue and commend Best Buy for using some innovative marketing to try to tap into an underrepresented market. As an aside, I also laugh at companies that refuse to mention Christmas in their holiday ads.

Happy Thanksgiving and if you are shopping today, good luck finding those deals. Remember, door busters don’t mean that you should literally bust the door down.

Is Your City Startup Friendly?

Category : Entrepreneurship
Posted on November 23, 2009 by Nathan Lustig

I was talking with a few people at the last High Tech Happy Hour and the last Capital Entrepreneurs meeting about what makes a city startup friendly. We came up with a short list, but I’ve been thinking about it ever since. What makes a city startup friendly and how can cities that are not startup friendly make changes to become more startup friendly?

Startup friendly cities need to have a high density of smart people. Potential founders of startups need other smart people who could be potential partners, contractors or employees. Most cities that have a high density of smart people happen to be cities with large universities that attract a huge supply of smart people each year. It helps that these cities have universities because it’s even better to have young smart people, rather than simply smart people. Young people can afford to take bigger risks and are more willing to work longer hours for little or no pay than older people who may already have families, mortgages or other obligations.

Another helpful characteristic is low cost of living. If founders can live cheaply and find cheap office space, it makes it much easier for a startup to get off the ground. Additionally, having a low cost of living allows startups to stretch their investment dollars much further. Employees, rent and just about everything else is cheaper. I talked to one Madison-based founder who has successfully sold one company and is on his second startup who believes that Madison’s low cost of living is one of the most important reasons why his company succeeded and his competitors did not.

Access to affordable office space in a business incubator is another key characteristic of startup friendly cities. Business incubators are an important asset for startups, especially if they are affordable. Unfortunately, many incubators I’ve seen end up charging close to market rates. Incubators are an important step for startups because they are usually the first move from working out of the founder’s bedroom. They also provide camaraderie, connections and bring startups out of isolation because the rest of the people in your office are also running startups. It’s much better for a startup to move into an affordable business incubator with other startups, rather than move into an affordable office space next to a lawyer, construction contracting company and a non-profit.

It is extremely important for startups to interact in a community of other startups. Having other entrepreneurs around, especially entrepreneurs who have been successful in the past, is important because founders can ask for advice when they have problems. A mentor program like MERLIN Mentors is very important because it matches up experienced people who have been successful before with inexperienced startup founders. These mentor programs not only build a community of startups, but they provide specific feedback to startups and help them overcome challenges that they might not if they were left on their own.

Another important aspect of an entrepreneur community is free networking events like the High Tech Happy Hour and Capital Entrepreneurs. Events like the High Tech Happy Hour bring smart people together who are not necessarily focused on entrepreneurship and startups, but are fertile ground for finding employees. Local, free entrepreneurship groups like Capital Entrepreneurs offer founders of startups a place to meet others who are doing what they are doing. It also creates a community and gives founders of startups some semblance of co-workers. Starting a startup can be lonely if you do not get out and interact with others who are facing the same challenges and dilemmas that you are.

These free networking events provide a way for experienced entrepreneurs to mingle with people who are just getting started. Experienced entrepreneurs set an example and show everyone in the city that starting a company is viable. They can also provide advice, but simply having experienced, successful entrepreneurs in your city makes your city startup friendly. Cities like Boston, San Francisco and Seattle have these networks. Others like Madison and Boulder are just getting started, but are on the right track.

These experienced entrepreneurs can introduce inexperienced founders to professional service providers like lawyers and accountants who are willing to help entrepreneurs. It also helps if your city cultivates a network of experienced, flexible professional service providers. These service providers should be willing to take equity, give discounts or defer payments into the future for startups that they think are going to be successful. It is extremely helpful if startups can still get top notch professional services, without breaking the bank during the company’s research stage.

These professional service providers can help startups gain access to capital that they need to fund their business. Ideally, a startup friendly city will have VCs, angels and other rich people who are interested in investing in startups, but not all cities must have all three. A strong network of professional service providers who work with entrepreneurs can make introductions to rich people who are willing to invest. Some startup friendly cities can be heavy on angel and rich individuals, but light on VCs. Another way cities can help entrepreneurs is by advocating for small business loans and other alternative ways of funding.

Startup friendly cities generally have support programs in place for entrepreneurs. They tend to have low taxes. It is much easier to start a startup in a city that does not have 10% sales tax, like the city of Chicago. The state of Wisconsin provides a 25% tax credit to angel investors who invest in certified Wisconsin startups. Wisconsin also offers low interest loans that are forgiven if the startup fails. Both of these programs help entrepreneurs succeed. Other states have implemented programs that fund early stage startups.

Finally, many people who start statups generally like living in cities. They like walking to work and living in tolerant environments. They like to be able to meet in coffee shops, go to interesting restaurants and enjoy life with their peers. It’s best to have good weather. Low crime and good schools are also helpful. Overall, creating a city with high quality of life keeps the three most important ingredients, experienced entrepreneurs, rich people and smart, young people, in one place.

Cities can begin to implement policies that help foster entrepreneurship. Cities can start by creating a business incubator for startups that offers offices (with windows) at 50% discounts. They can start to create mentor programs like MERLIN and create entrepreneur networking groups like Capital Entrepreneurs. Service providers can start offering discounts or equity for service deals. Once one service provider has success offering this deal, it quickly becomes the industry standard. I’m not advocating that government do all of this. People who want to see their cities become more friendly to startups have to do some of the work themselves.

Government does have a place. It can offer incentives for startups to move to their cities. It can lower taxes or offer government programs that provide easier access to capital. It could create a new business incubator and it could help create a community of entrepreneurs by publicizing entrepreneur success stories or the local startup community. Government could help make cities more startup friendly simply by being more friendly to startups themselves.

Characteristics of Startup Friendly Cities

Figure out if your city is startup friendly. Rate your city on a scale of 0-2 for each characteristic and score total the score at the end. 0 means that your city does not do it at all, 2 means your city does is very well.

Access to capital
High concentration of smart people
Low cost of living
High concentration of rich people
Network of experienced entrepreneurs
Mentor programs
Low cost startup incubator
Low taxes
Governemnt support
Flexible professional service providors
Free networking events
High quality of life
Tolerant, vibrant, walkable cities
Large universities
Culture of entrepreneurship
Educated workforce
Good weather
High concentration of science and technology workers
Direct national flights
Entrepreneurship advocacy groups

I would say Madison, WI gets a score of 23/40. Milwaukee gets a 13/40. San Francisco gets 36/40.

How startup friendly is your city? Do you agree with my list? Do you have any characteristics to add?

How NFL Coaches are like Midlevel Workers in Corporate America

Category : Sports
Posted on November 16, 2009 by Nathan Lustig

Bill Belichick is widely thought of as the smartest coach in the NFL. He has been hugely successful, coaching the New England Patriots to the Super Bowl four times in his 9 years of coaching, winning three. Like many successful people, Belichick rubs many NFL fans the wrong way, leading many to revel in his failures. Part of the schadenfreude can be explained by his somewhat abrasive personality and win at all costs mentality. He was caught up in the NFL cheating scandal a few years ago where he was accused of ordering Patriots employees to tape opponents practices before important games.

It was no wonder that Belichick was universally slammed by pretty much everyone after his decision to go for it from his own 30 yard line in the 4th quarter last night’s Sunday night game against the Indianapolis Colts. Here’s the situation. The Patriots were winning by six points with a little over two minutes to go. The Patriots faced 3rd and 2 from their own 28. A first down in this situation wins the game. The Colts defense stopped the Patriots on 3rd down, forcing a 4th and 2. Instead of punting, Belichick ordered his offense back out onto the field to go for it. They didn’t get it and Peyton Manning drove the Colts 28 yards for the game winning touchdown.

It’s obvious that the Patriots should have punted and forced the Colts to go 70 yards to try to win the game, right? To steal a line from Lee Corso, not so fast my friend. Belichick is way ahead of the curve. According to research by David Romer at UC-Berkely, NFL teams punt way too often.

The Patriots convert first down from 2 yards out 76% of the time (ESPN’s stat from Sportscenter). This stat means that by going for it, the Patriots had a 76% chance of winning the game. Belichick only had to think that his defense would give up a touchdown to Peyton Manning and the Colts offense at a lower rate for it to be a good decision. Manning had already driven the Colts to three 75+ yard touchdown drives in under two minutes in the game. Belichick made the decision to go for it and this time it did not pay off, which brings me to why I love watching him coach a game.

Coaches in all sports, but especially football, almost always play it safe and go with conventional wisdom. I’ve written about the lack of innovation in football before, mostly relating to play calling. Last season I came up with a hypothesis:

I think it is because coaches fear being fired for not just doing poorly, but doing poorly a different way. If coaches go with the conventional wisdom and fail, they will not be criticized as harshly as if they experiment and find new ways to fail. If they succeed, like Mike Martz’s high-flying pass offense for the Rams called “The Greatest Show on Turf,” they are given some credit, but when the same coach experiences a minimal decline, he is criticized more harshly than a conventional coach. For example, when Martz decided to pass in a late game situation, just like he had during other times in the game and failed, he was roundly criticized. If he had run and failed, the players would have been criticized for not executing. There is no upside for innovation here.

Today, I found out that this hypothesis has a name, via the Freakonomics blog:

If his team had gotten the first down and the Patriots won, he would have gotten far less credit than he got blame for failing. This introduces what economists call a “principal-agent problem.” Even though going for it increases his team’s chance of winning, a coach who cares about his reputation will want to do the wrong thing. He will punt, just because he doesn’t want to be the goat. (I’ve seen the same thing in my research on penalty kicks in soccer; it looks like kicking it right down the middle is the best strategy, but it is so embarrassing when it fails that players don’t do it often enough.) What Belichick proved by going for it last night is that 1) he understands the data, and 2) he cares more about winning than anything else.

It takes a leader to be willing to go against the grain, even when he knows that he will be excoriated by his peers. He could have taken the easy way out. If he did, today’s headlines would most likely read “Patriots defense no match for Peyton Manning and the Colts.” Instead, we have “Colts make Pats pay for Bill’s unusually dumb decision.”

I think that this problem helps explain why big companies are slow to innovate. They face the same problem. Mid-level employees face the same problem as NFL coaches. If they simply keep their heads down and do what 99% of the other workers would do, they will get credit if they succeed, but face much less criticism if they fail. Most corporate cultures punish failing in a new way much more than failing the same old way. If a mid-level employees actually do something innovative and it works, many times they are given less credit than they deserve.

I think this problem helps explain why startups are able to innovate much faster than big companies. If big companies want to innovate faster, they need to empower their employees to go against the grain and make tough decision. They need to actually mean it. Companies need to view a failure for what it is, a failure, rather than get caught up in how the person failed. This is not to say that someone who decides to pull the corporate equivalent of going for it on 4th and 20 from their own 5 yard line shouldn’t be criticized. As long as the decision has a reasonable chance of success, they should be applauded for their innovation, rather than criticized for thinking outside the box.