What Can We Learn from Ebenezer Scrooge?

The rich old miser is such an easy target.  Great film and literature is full of them.  There’s Mr. Potter in It’s a Wonderful Life, and Silas Marner in George Elliot’s novel of the same name, and just about every Hollywood movie that contains a CEO characterizes him as a rich and greedy.   But the quintessential miser, of course, is Ebenezer Scrooge from Charles Dickens’ A Christmas Carol.  The very name Scrooge is synonymous with greed.

Notice what all of these famous misers have in common: 

a.) they have no friends

b.) they are mean, crabby and generally unhappy

c.) they are very, very rich

It is tempting to see all of these characteristics in a cause/effect relationship.  In other words, because they’re very, very rich, therefore they are mean, crabby, unhappy and have no friends.  This is the conclusion we tend to draw — at least subconsciously — because all of the poor people in these stories, people like Bob Cratchit and George Bailey are happy, kind and loving and have lots of friends.  It’s as if the characteristics required to make money are the same characteristics that make a person mean, greedy and friendless.  

I think we should resist drawing this conclusion — even subconsciously.  I think that the reason misers are so unhappy and friendless is not because their revenue is so high, it’s because their expenditures are so low.  Cash is meant to flow.  And while you have to spend less than you make and set the excess money aside if you want to have profits and a strong balance sheet — that doesn’t rule out what Aristotle called “liberality,” what we might call “generosity” or “philanthropy.”  

At the heart of philanthropy is love — philia in Greek.  Don’t miss the essential transformation that Scrooge makes in A Christmas Carol.  His transformation is not from rich to poor, but from anti-social to social. 

Early in the story Dickens paints the incredible isolation of Scrooge, “No one ever stopped him in the street . . . No beggars implored him to bestow a trifle, no children asked him what it was o’clock, no man or woman ever once in his life inquired the way to such and such a place, of Scrooge.” 

And at the end of the story, we find that Scrooge became, “as good a friend, as good a master as the good old city ever knew.”    He didn’t become poor, he just became known, and known as good.

So let’s agree that Scrooge’s real problems had nothing to do with money, but rather, like any old Grinch, this was a problem of a heart “three sizes” too small.

And now that we’ve established that, let’s go back and see what we can learn from Scrooge the businessman. 

The first thing that strikes me about Ebenezer Scrooge is his courage.  He’s resolute, strong and thick skinned.  “External heat and cold had little influence on him . . . no falling snow was more intent upon its purpose.”  When Scrooge’s dead partner, Jacob Marley shows up in his bedroom, “‘How now!’ said Scrooge, caustic and cold as ever.”

This bold faced courage, sense of undaunted purpose and strength in the face of opposition is a characteristic I have found in all the great businessmen and women I have known.

Scrooge is an accountant, for which reason he pays close attention to the books.  The further I travel in my business career the more I notice that the most financially secure people are those who keep excellent financial records and understand the fine details of their financial situation.

Scrooge notes, as we all must admit, Christmas is not helpful in this regard:

“What’s Christmas time to you but a time for paying bills without money; a time for finding yourself a year older, and not an hour richer; a time for balancing your books and having every item in ’em through a round dozen of months presented dead against you?”

We also note in here Scrooge’s aversion to debt, which is another quality I’ve noticed in most of the successful business people I have known.  And add to all this the idea that Scrooge was good upon his word, and had what we would call a perfect credit score, for  “Scrooge’s name was good upon ‘Change for anything he put his hand to.”

Finally, Scrooge is also a hard worker, who proceeds with single minded focus on his aim, whether it is simply getting his work done, as in the early scenes before his conversion, or after his conversion when he sets to work helping the Cratchits and Tiny Tim with that same intensity he has for “his bankers books.”   He promises to help the Cratchits and “Scrooge was better than his word.  He did it all, and infinitely more; and to Tiny Tim, who did NOT die, he was a second father.”

So while the transformation of the heart made Scrooge kinder and more philanthropic, it is these other characteristics that allowed him to become “as good a man as the good old city ever knew” after his conversion. 

In the past, I have always walked away from A Christmas Carol thinking, “Ah! That old miser learned his lesson.”   But this year, when I read it through the lens of “Great Minds Do Business” I walked away having learned my own lesson, that becoming a great philanthropist requires more than just a soft heart; it’s a work ethic, an unwavering sense of purpose, close financial scrutiny, attention to detail, aversion to debt, and a great dose of courage.

Mozart and the Need for Non-Profits

There’s something unique about Mozart’s music.  The very first time you hear it, it sounds as if you’ve heard it before.  It’s comfortable. 

Other composers may have been more prolific (like Bach) or more dramatic (like Beethoven) but no composer is more likeable.  Take the opening notes of “A Little Night Music.”  The shape of that tune just feels so logical, as if it has to sound that way.

And logical is probably the right word, since Mozart was also a mathematical genius.  He started scribbling math problems on the wall at age 3.  Another great mathematician, Albert Einstein, found a kindred spirit in the composer.  Throughout his life he studied and catalogued much of Mozart’s repertoire.  His assessment of Mozart was something to the effect of “Mozart did not create this music; he pulled it out of the workings of the universe.”

Mozart also left an astonishing corpus of letters starting at age 13 right up to about a month before his death.  His prose is fluid and conversational, at times very serious and at times shockingly irreverent, but always with a playful hue that makes his letters as likeable as his music.

One of the earliest letters in the collection is from Mozart’s father, Leopold, to his wife during one of the European fathers-son tours they made together when Mozart was still a boy.  It begins, “We shall not, I am convinced, make much money in Italy . . . one must usually be content with admiration and applause in lieu of payment.” 

Money is a common theme in these letters.

From Mozart’s adult letters, there are painful sections written to his father or his wife, explaining how hard he is trying to get some payment for his work.  He tells in excruciating detail about embarrassing conversations with people who seem to be his friends or nobles who love to have him around, but when he asks for payment, they say awkwardly, “You want money? Oh, I cannot do that.”  Mozart ends one letter with the line, “I cannot write, I am so hungry!”

Toward the end of his life there are many letters to friends literally begging — for money to hold him over, or for loans to pay off loans.  We don’t see the replies, but often they are followed by letters of indignation from Mozart which clearly tell that he was turned down.  He didn’t seem to ever have many close and trusted friends.  All the accounts say that there were few people at his funeral and even fewer braved the walk in the rain to see his body — sans coffin — tossed into a common grave. 

Afterward, his wife wrote a letter to the Emperor begging for mercy, noting that Mozart didn’t have any insurance, or a pension to care for his family (wife and two children) and she was completely destitute.   How does this happen to one of the most gifted human beings who ever lived? 

I think the answer has to do with Maslow’s Hierarchy of Needs.  You probably know this pyramid, with our basic physical needs at the bottom and the more sublime, self-actualization stuff at the top. 

Marketing majors often study this pyramid in business school, because people pay for the basic physical stuff.  As we climb the pyramid of Maslow’s Hierarchy, we find things that people need, but just aren’t willing to pay for.  That’s where non-profits come in. 

There’s an ancient model of the human being that goes back to Plato.  It sees man as a combination of a body and a spirit.  There’s a line that divides the two.  Below the line is our animal nature; cravings for food, wine, sex, violent movies, etc., all fall rather far below the line.  Higher order desires – things like fine art, opera, the need for silence and meditation, communion with the divine . . . all of that would be way above the line.  Most of life hovers right around the middle, in some inextricable combination of spirit and flesh.  

Now the farther you go below the line, the easier it is to sell something.  Milk and meat, professional football and Terminator movies are a pretty easy sell.  On the other hand, symphonic music, silent retreats, and a lecture on 18th Century paintings — not so much.   

The basic difference between for profits and non-profits, then, is this line.  At the risk of oversimplifying this, anything below the line can probably pay for itself and is an honest business venture.  Things above the line usually require a subsidy and a tax break.

This explains poor Mozart.  One of the greatest composer’s in all of history and he had to go begging.  But really, that’s as it should be.  He was way above the line.  

I have often heard people in these “above the line” non-profit areas profess that they were going to break the mold and do some traditional non-profit venture as a for-profit, saying,  “I know that if I produce a quality product, people will pay for it.” 

I absolutely disagree.  People just don’t pay for the sublime.  Mozart’s father knew that.  He repeatedly tells his son to bring it down a notch: “If you write anything for publication, make it popular and easy for amateurs.” 

We think people will pay for quality, but that’s not really true.   Just look at all of the quality products that have to raise money. The London Philharmonic, the San Diego Zoo, and the Louvre all have development departments.  The Louvre for crying out loud!  They’ve got the Mona Lisa and they still have to have raise money.

As much as we can feel that this is all very unjust, we really should count our blessings.  We should be proud that we have such an enlightened society which sees the needs for these higher order services and supports them by tax deductions and donations.

And of course the real enlightened ones are the donors, all of the benefactors who support these things with their own dollars.  They see that life requires higher order services that feed the soul, as well as the body.  And I don’t mean just the arts, sciences and museums, but soup kitchens and churches as well.  All of these things have a civilizing effect on our society and ourselves. 

Whether its time spent listening to a great aria, or dishing up soup to the homeless, the presence of not-for-profits helps us stay above the line, and takes us higher up the hierarchy.

 Great Minds Do Business Reading Selection:  The Letters of Wolfgang Amadeus Mozart.  Selected and Edited by Hans Mersmann.  Dover Publications, NY.

Aristotle and the Anatomy of Boom and Bust

I’ve been told that there was a time when the stock market moved according to very rational principals, things like P/E ratios, book values and the like.  If ever that were true, it doesn’t seem to be so today.

This past decade in the market has been a bit of a freak-show of oddities:  we’ve seen bloated dot.com IPOs, desperate day traders, and that French kid at Societe Generale who was playing around with 7 billion and no one noticed.  

And then came last year’s 4th quarter which made even the most conservative buy and hold strategy feel like a day at the dog track.  A decade of gains were wiped out in a matter of weeks.

So forgive me if I spend 800 words on what seems to me to be the main force behind the market – human fear and greed.  For if we consider how human nature influences the market — as opposed to key economic indicators or some other inanimate force — then it makes sense that Aristotle’s Ethics should shed some light on this. 

Aristotle’s teaching on ethics is a comprehensive and profound reflection on all the virtues of a good life.  But he begins quite simply by pointing out that every action aims toward some end.  Saddle-making aims at horseback riding, and horseback riding aims at transportation, and transportation has some purpose, either business or pleasure, and so on. 

But if this is so, then there must be some final end toward which all actions aim – and that final end, Aristotle decides, is happiness.  (Keep in mind, the Greek word for happiness, eudaimonia, is a bit richer, more like “contentedness” or “flourishing.”)

Two conclusions flow from this idea that all our actions aim at happiness.  First, we have to be active.  We have to do the things that will make us happy.  If you want to be a piano player, you have to play the piano.  If you want to be a lawyer, you have to practice law. 

But we also have to do our actions well.  After all, playing piano poorly just makes one a poor piano player, and that will not bring much happiness.  So how do we structure our actions so as to arrive at true happiness?  Aristotle’s answer has become known as “the golden mean.” 

As he put it, we succeed in all our actions “by avoiding excess or defect.”  He gives many examples, and you can think of many yourself.  In health, we say, “he eats too much” or “she exercises too little.”  In social skills we may talk too much or go out too little. 

Move it over to business and think about this in terms of pricing.  If the price is too high, we’ll have no customers. If it is too low, we’ll have no profits.  Avoiding excess or defect is at the very heart of supply and demand, inventory, staffing, forecasting, etc.     

According to Aristotle, the primary reason that people fall into the traps of excess or defect is because of pleasure and pain. We have ingrained in us this notion that pleasure is always good and pain is always bad — so we pursue pleasure to excess and avoid pain to the point of defect. 

Aristotle disagrees that pleasure is always good and pain is always bad.  He says that pleasure and pain are neutral without a context.  He spends a good deal of time trying to correct the notion that all pleasure should be sought and all pain avoided, “for to feel delight and pain rightly or wrongly has no small effect on our actions” he says.

Now back to the stock market.  Surely the boom and bust cycle of the market is a clear example of Aristotle’s notions of pleasure and pain, excess and defect.  Two of the most famous sayings in stock market history seem to underscore the connection.   

First, in the wake of the stock market crash of 1929, FDR noted the tendency of our country to avoid further pain, the likelihood of our country missing the golden mean through defect or a drawing back when he said, “the only thing we have to fear is fear itself.”  

Then, back at the very beginning of the dot com boom, in 1996, Greenspan saw the tendency of our country to seek pleasure in excess, again  overshooting the middle, and he warned against the possibility of “irrational exuberance” unduly escalating asset values.

So what would Aristotle’s solution be to this endless cycle of excess and defect, pleasure and pain, boom and bust?  Aristotle’s answer would be the virtue that is the mean between the two extremes of fear and irrational exuberance – courage.  Aristotle describes courage as being able to hold on to your rational fears, but still act with confidence.  It is an attitude that realizes that neither our hopes nor our fears are certain, and all we can do is the best we can do.

You may recognize this concept, disguised as “The Stockdale Paradox” in Jim Collins’ book Good to Great.  As with so many great ideas, Aristotle said it first.  And it is excellent advice for how to conduct ourselves in these challenging times.  

Great Minds Do Business Reading Selection:  The Nicomachean Ethics, by Aristotle.

Shakespeare on the Dulling Power of Debt

There are actually several books available on the topic of Shakespeare and business. Not surprisingly, most of these are very general books about leadership, marketing and communications. After all, Shakespeare lived in Elizabethan England, in a modified monarchy long before industrialization, globalization or the information age.

There is one book that I found that gets rather close to brass tacks, falling into the category of “business strategy.” Shakespeare’s Guide to Entrepreneurship contains advice for start ups based on Shakespeare’s own career. The author suggests creating multiple streams of income (Shakespeare did not have a major patron) and guarding your Intellectual Property (Shakespeare self-published) and being associated with a physical icon (Shakespeare was synonymous with the Globe Theater.)

What I find amazing about this book is that it purports to take lessons from Shakespeare’s life when we know almost nothing for certain about the real Shakespeare, whether as a playwright or an entrepreneur. In fact, we don’t even know for sure if the man who died in Stratford Upon Avon actually wrote these plays. People have made the case that it was Ben Johnson, or Francis Bacon, or Edward De Vere the 17th Earl of Oxford, and even Queen Elizabeth herself.

So are there any applications of Shakespeare to business that don’t require broad generalizations and guesswork? I think so. Shakespeare clearly understood something about commerce and money, and he influenced the way we speak of these things by coining words that we use in business every day. The words: advertising, employer, frugal, generous, investment, marketable, manager, negotiate, and retirement were all used for the first time by Shakespeare.

Additionally, one of the most famous lines in all of Shakespeare speaks directly to the principle which is at the heart of our entire economic system – credit.

It’s from Polonius’s advice to his son Laertes in Act III, scene i of Hamlet:

Neither a borrower, nor a lender be,

For loan oft loses both self and friend,

And borrowing dulls the edge of husbandry.

While everyone has heard the first line, we rarely hear the couplet that completes the rhyme. And it is those two lines that deserve our attention.

The first explains why we should not be a lender:

For loan oft loses both self and friend . . .

Don’t the banks know this now.  With each foreclosure or default they lose not only the money, but the client base and market share as well.

For small business owners, who become borrowers as their accounts receivables grow, it is important to consider that there are two pieces to that A/R aging summary, the client (friend) and the account (loan). The goal is to lose neither of them, when the temptation is always to settle for just one of the two. Right? You either want to keep extending credit so you don’t lose the client, or you want to collect at all costs. It’s a tight rope. You’ve got to save them both.

And why does Polonius caution Laertes against borrowing?

. . . And borrowing dulls the edge of husbandry.

Huh? No wonder nobody remembers that part of the saying. Can you imagine trying to teach this stuff to high school kids?

Husbandry is defined in the Shorter OED variously as: the administration of a household; an occupation; tillage of the ground; and careful management of goods. The word originally had to do with agriculture and farming. So the idea is clear, borrowing dulls your tools. It erodes the “careful management of goods.”

And it’s really quite logical: borrowing takes the pressure off. That’s why we borrow in the first place! But Polonius has a point here. He is saying that if we borrow, we’ll be less productive. Borrowing is one of those short term solutions that takes care of the symptom, but doesn’t treat the disease. Our real problem is lack of revenue, lack of earnings. Borrowing mimics revenue in the most insidious ways, and it makes us let our guard down, at the very moment when we need to begin working harder than ever.

Think of debt as “taking on water.” Think of your company or household as a boat, and your debt is water running in through a hole in the boat. What should you do? You need to bail water. Pay down debt.  The more water that you have taken, the faster you need to bail. Because there’s a tipping point when it comes to taking on water in a boat. Remember the Titanic? Men were playing cards, smoking cigars in their tuxes and listening to the band right up to that one moment when it all went woosh and was gone.

Of course, there are times when long term, well structured debt makes sense, as with a house or a car or heavy machinery. And there is a role for the small business loan to finance good receivables. But so much debt is not like that. Compare it to drugs. You have your medicinal drugs and your recreational drugs. So much of our debt is recreational.

It might sound a little radical, but we counsel all of our clients to have zero tolerance for recreational debt. As for the medicinal debt, just start bailing. The reward for getting out debt is well worth it. If you have no debt, you can never declare bankruptcy.

Great Minds Do Business Reading Selections:

• The Yale Shakespeare: Complete Works by William Shakespeare
• Shakespeare in Charge by Kenneth Adelman and Normand Augustine
• The Bard and Co. by John Simmons
•  Coined by Shakespeare by Jeffrey McQuain and Stanley Malless

Adam Smith and the one thing people are always willing to pay for

The other amazing thing that happened in 1776, besides all that American Revolution stuff, was that a theologian wrote a book that would define modern economics.  The Wealth of Nations, by Adam Smith is one of those books that is almost exclusively read by students and teachers in an academic setting.  Few poeple would sit down on a Sunday night and peruse a tome like this.  I mean, if it’s between Sunday Night Football, Desperate Housewives and Adam Smith, I am thinking Adam Smith usually comes in third.

That’s too bad, because it is truly an amazing book.  Well, okay, it is a daunting book when you look at the cover and the number of pages, but as soon as you wade into Smith’s enlightenment prose, the clarity of thought, universality of experience, and relevance of the points made keep the pages turning.  

Rather like reading the Bible, or listening to Mozart, The Wealth of Nations is an explication of First Principals.  You keep saying to yourself, “Oh, so that’s where that comes from . . .” or “I’ve heard that before.”  The things that Smith lays out are so foundational, they are almost invisible.  

Now, a building’s foundation becomes invisible for one of two reasons:  either because it is so old that ground level has risen around it, or what has been built on it is so significant and far reaching that people are too busy admiring the edifice to look down at the foundation.  Both are true of the foundational principals laid out in The Wealth of Nations.  Like the rising street level, much has been built up around them, but even more, so much has been built up on top of them, that you rarely think of them anymore. 

One such principal is the division of labor.  Smith calls the division of labor, “the greatest advance in the productive powers of mankind.”  And he makes it clear with numerous examples.  He uses a pin factory, but we could think of a car factory, or any assembly line where the jobs are broken up into little parts and each person is assigned one of those tasks to do over and over again.

Division of labor could almost be called insinctual. When I tell my two boys to load the dishwasher, immediately they come to the conclusion, “Okay, you rinse.  I’ll load.” 

To apply this to business, we can think of books like, “Soar With Your Strengths” and the many “career aptitude tests.”  The idea is clear, you need to specialize.  What are you good at?  What are your strengths?  If you want to be a “jack of all trades”, you’ll certainly be a “master of none.”  This is important to consider because people pay for technical expertise.      

And that is the point of this post: realize that whatever you are paid to do, you are paid because of your technical expertise in that area. 

We can all think of the story where they “call in the experts.”  They go to 221 Baker Street to find Sherlock Holmes, or they send the blood sample to the CSI Crime Lab for testing.  But in reality, you call in the experts each time you go to the barber, or when you go to church, or to the dentist.  Everywhere you go in a day, you rely on people who have a particular expertise in a particular area. 

Now, see yourself that way.  See everyone who comes to you as seeking out your expertise.  What do you know that they don’t know?  How can you know that thing better, and deliver it better, and so on.

One final thought here.  Smith was brilliant in many ways, but one thing he did especially well was to see the full ramifications of these foundational ideas.  He admits, for example, that people are born with different natural skills and abilities, and that would naturally complement the division of labor.  A tall person will make a good basketball player, and someone with perfect pitch might make a good piano teacher, but Smith’s genius came in seeing that technical expertise is not the cause of the division of labor, it is the result of it.   

In other words, the natural talent of each person does not necessarily lead to technical expertise.  In fact, some tall people may not like basketball, and some people with perfect pitch may perfer accounting.  Tecnical expertise arises in a society precisely because division of labor takes hold and when it does, technical expertise is what people pay for. 

And that brings us, of course, to the very heart of The Wealth of Nations — Smith’s notion of “the invisible hand” and the idea that “man’s self interest is God’s providence.”   People develop technical skills for their own self-interest — because they want to get paid.  And yet, in so doing, they take their place in the vast assembly line of life and serve the whole of humanity.  They keep the machine moving.  The play their role to their own benefit, and at the same time, they help others.

Great Minds Do Business Reading Selection:  An Inquiry into the Nature and Cause of the Wealth of Nations, by Adam Smith.

Great Minds Do Business

This is the first post in the “Great Minds Do Business” blog. The point of this blog is to discuss sound business practices as inspired by the world’s greatest thinkers. Your feedback is appreciated. If you are inspired in your business by the great minds of history, drop me a line and let me know.