Your Values & Your Cuts - An Educational View

As school districts, state & local governments figure out how to balance their budgets, many things are getting cut. It could be called hindsight to say save a little in good times and the cuts are less severe in bad times. However, politicians often seem to miss that message.

Going forward, there are tough choices to make about where we cut. Individuals have made these decisions with personal and household budgets. Now the government organizations have to step up. While there will always be people to lobby against cuts to their programs, I alwys think back to one simple question--If not this program, where would you make the cuts?

Individuals within large groups rarely step up to answer this challenge. Their focus is to save their favorite programs. In reality, the save also requires a method to reduce costs in some other area. When forced to choose, that choice says a lot about what you value more.

These decisions are often messy in misaligned industries. My definition of a misaligned industry is one where the customer that gets the service has a very limited or indirect association with the source of revenue/payment. Public schools have issues because funding comes from taxes and other government funds that loosely link to the student. In contrast, private schools have a more direct link of payment from the students' families. State & local governments also get taxes to fund their services, but rarely would an individual or family use all of the services of government. Some will be important to a family while others will go unused.

How do I link cuts to values? Some activities will never be valued by the majority, but the outcomes of those services ultimately lead to a better situation for all. I don't know people that are excited to pay taxes. Nevertheless, without taxes coming in, the government cannot provide their other services. For example, I would always take care of the potholes along the routes I travel. Places where I rarely travel would be at the bottom of the pothole repair list. I think pothole repair has a better priority list than where I drive.

Bringing all this back to real world examples...governments are always looking for businesses to add jobs within their state/local borders. Businesses often have interest in things like transportation, quality of workforce and housing, and tax benefits. When we cut things that negatively impact these business interests are we giving our municipalities a slow acting poison pill?

Here's an example of a state using education to attract business.

Now here's one of the many conflicts that comes up with cuts in education which started a few years ago. 

Public education budgets are being cut around the country. What does it mean relative to those businesses that are considering relocation? Don’t move or move to a place where the areas that were cut are not that important to you/your business.

I am sure that we will revisit this later as people react to cuts…because some folks get active when their valued programs are cut. Do you?

Bare Naked Bucks--Prepared for Sudden Wealth?

Last week a number of young men have moved into an expected sudden wealth financial category based on their draft status with the NBA and NHL. While this is good news for them, it also comes with a number of strings attached.

Because these guys were expected to make big money, I am sure that tons of "lost" relatives have come calling. In addition, some of them will have collected best buds faster than Facebook friends.

What some of these people will not do is protect the long term investment. The average NBA career was just under 5 years. If we apply the average (mid level) exception salary for the past 5 years (2004-2008), we get about $26 million. HOWEVER, the NBA pays its stars very well and most players on a roster make LESS than the average salary. The more acccurate number to use is the MEDIAN salary. (You get this number by ranking the salaries from smallest to largest and stopping in the middle.) For this past season it was just above $3 million. If we assume that the median salary and the mean salary have grown in similar percentages over the past 5 years, then the median salary over an average 5 year career is actually $14,213,779.

Take the rookie scale for draft picks. In 2005, out of 30 first round draft picks that are given automatic raises annually, their first option year is the 3rd year of the contract. At that point, only the top 4 picks exceed the median. So 26 rookies are actually trying to get above the median on their 2nd contract, which many may never see as it comes after their 4th year in the league.

Anyhow, take that almost 3 mil/yr and subtract federal taxes (34%) and a standard agent commission (4%). We will skip over the variety of state and local tax possibilities and look at the average player as a person with $1,762,509 annually for 5 years. After that time it is likely that the salary will drop significantly for the remaining work years.

By the time the player gets a place to live and spreads some of that money around to the "friends & family" just how much will really be left to live on when you retire in your mid 20s?

To all my newly rich "friends" that were drafted, be careful with your money and don't collect an entourage...unless it is the DVD box set!

Newco Motors

Innovation has been on my mind. Let's look at the other side of it.

The motor vehicle industry is struggling. Even the good ones are having a tough time. If you are honest with yourself, how often does the average person need to buy a new car? Buying used cars help dealerships, but they don't justify manufacturing more new vehicles. There is an overcapacity of auto manufacturing. If an auto manufacturer goes bankrupt, I do not expect to see the company return...unless...some insightful new organization is ready to change the game.

That means a company or group of companies that are ready to change the way we look at the cash flows related to automobile ownership.

Imagine you purchase a Newco mobile. At Newco, they have models that look like your standard cars, but the deal is different. For the price you pay they bundle in certain things that link you to their big organization. In addition to the standard warranty, they include maintenance and insurance for X years. Newco provides you with some additional services (think OnStar) that are bundled into the price of the car. Maybe they bring some other services to the table that car buyers have to purchase or have demonstrated that they will pay for over time.

Newco is an organization setup by an insurance company, a finance company, possibly an oil/fuel station company and a major auto repair organization. They sell the cars to make real money off the services. It is similar to the way companies sell printers to make significant profits from the ink replenishment. The same way that the profit is in the razor blade sales much more than the razor sales. The difference is that their auto industry profit is bundled into the purchase terms.

Changing the game happens, but often we miss the key moment that tips the scales. Look at how you spend the part of your household budget called communications. Thirty years ago, this was mainly a black telephone and its related service that was tied to your home. Now it is a combination of home service w/o equipment, mobile phones for almost everyone, and internet. It is also likely a larger percentage of your budget than the black phone was in the 1970s.



The next big industry shift is moving fast. Do we see it?

N - O - V8

There are difficulties with the economy, education, and other areas of life. One of the common themes I hear is that innovation will make it better. While I believe that innovation is the way to a better future, I do wonder how much we support the efforts to innovate.

BusinessWeek had an interesting article on innovation and the role of government.

While I question the need for more bureaucracy, I could see an expanded opportunity to actively encourage more innovation through the Departments of Commerce and Education. Seems like the government is already bankrolling some nonpartisan efforts on innovation.

Educationally, professionally, or personally those who innovate are less common. In the development of innovation they are likely to be less appreciated. It is only with the confirmation of success that society gives credit for innovation.

Think about your TV recordings. Did digital TV recording start in the late 1990s? Think again--it's middle aged!

There are businesses that do a great job of turning innovation into products, services, and profits. They change the game in ways that create greater prosperity and convenience. Fast Company tracks and recognizes innovative businesses annually.

Let's roll those innovation thoughts over to K-12 education. Once you have the basics, how should your education evolve? We will get into more of these ideas in future postings. We see examples of educational innovation in people that challenge the educational status quo. I think about charter schools and new private schools and new types of assignments that are unfamiliar to their parents from their time in the same level of school. For now, let focus on personal uniqueness as a route ot innovation.

Standardized testing usually doesn't measure your capacity to create innovative solutions. Innovators tend to use common ideas in uncommon ways. Think about ways that you are uncommon.

• How did you develop those unique skills?
  
• How do you use your uncommon skills?
  
• What innovative things do you use now that you did not touch a few years ago?

For example, mobile phones are commonplace now. The commercially available portable phone was an innovation. When they were big and bulky, they were new. Once the price and size shrunk, they gained more widespread acceptance. The smaller, smarter phone was another step. Blackberrys, iPhones, Google phones and their apps are innovations that feed off each other and challenge the innovators to dig deeper.

Sometimes business innovation is simply repackaging something you have already done in a way that is more publicly acceptable. Let's get it started?

I can't get no...satisfaction?

The other day, I was in a fast food business that focuses on chicken. There was a customer who was not happy with her order. She explained that it was not done enough for her. As the issue was handed over to the shift manager, she checked the chicken. The shift manager explained that the chicken was fully cooked and she had cooked it herself.

The customer wanted another order. The shift manager explained how she cooked the chicken for the required time and that all of the chicken was similarly prepared. She offered to refund the customer's money. The customer insisted that she wanted another order of chicken. The manager gave her the option of a refund or keeping her original order.

I was very interested in this exchange, because of that old (false and incomplete) adage--the customer is always right. While the customer is always right about his/her expectations, that does not change the reality of the business. Unless the manager believed this was a bad piece of chicken, giving away more of the same doesn't make the customer happy, it just makes the restaurant less profitable. Good for the shift manager.

All customer satisfaction is not equal. In some cases what we expect is not even close in different industries. The average level of service we expect from the cable company is far different than our expectations from an internet retailer.

Before you paint me with the "doesn't get customer satisfaction" brush. let me say that it is important to deliver a high level of service to your customers. Doing so should get you more business if you understand how to make their experience a memorable one.

However, if your best is not good enough for them, you have to make a business decision. Are we going to get better or do we believe our level of accomplishment is good enough? If you have no plans to get better, target customers that like your level of accomplishment and quickly get the others out of your business.

It is better to not have customers that you will not satisfy, than to keep them around. The more they show up, the more your happy customers start to wonder if their level of approval is appropriate.