I was an inglorious failure for many, many years and in some respects probably still am, but
but I bored badly and quickly from every job I ever had including as a chief financial officer
and I opened up a strategy consulting shop after I bombed out of a PhD program and
and you know would you know figure people would be the path to my door and of course they didn't
and I was playing chess one day over lunch with a fellow in a CPA firm where I rented
a little 12 by 15 foot cookie box office and I said, so Lewis, what are you doing these
days?
He said, oh, I'm doing a business valuation.
I said, oh, what's that?
I'm an old CFO, know a little back of the envelope stuff.
He explained it to me and I said, well, that sounds kind of interesting.
I started poking around one thing led to another and ended up in a first of a number
Finance has somewhat more, but strategic management has a whole heck of a lot to do with it, and then three years ago, I happened upon Austrian economics. I always knew that the economic stuff I was being fed was not what I knew, not what I felt, not what I had experienced, not what I read about, not what anybody else I knew had experienced, but there is a, there is a kind of an outlier, I don't think accounting, accounting certainly doesn't have much to do with it.
There's a blackout. It's an intellectual blackout in PhD programs. At least there was in mine
and I don't think I was being singled out for any special treatment. There's just nothing
about Austrian economics. Intuitively, I believe this isn't true but you can't beat something
with nothing. So I just sat there and kind of ground my teeth for many, many years until
I stumbled across that E3 years ago and it's been one of the great intellectual discoveries
Austrian Economics drives home the idea because value is subjective, competing using what
What the Strategy Literature calls Focus Differentiation, Porter Generic Competitive Strategies, Cost
Leadership Differentiation, if you don't compete industry-wide in a segment which is literature
called Strategic Groups, Focus Differentiation is absolutely the way for 99 out of every
100 businesses at least to go because there can only be one cost leader.
You try to compete on cost and if you're not the leader, you are playing catch-up, you
are playing a game by someone else's rules.
And so, in my view, strategy, valuation, value enhancement, the whole nine yards, is about
being different, thinking different, and doing different, okay?
Imitation may get you some competitive parity for a while, but it's not the path to fame
and fortune.
It is not that path.
And so the whole notion of subjectivity that gets us away from the homogeneity of traditional
economics really shines some light on this for us.
Really shines some light on this for us.
I mean, I had a client say to me one day, I was pounding on it pretty hard about that,
and he said, well, we're no worse than anybody else.
And I said, oh hell yeah, you're going to get your people out of bed at six in the
morning to come up here and spend the best years of their life because you're no worse
than anybody else. Give me a break, man. Give me a break. I also like to challenge authorities.
I got out of the Marine Corps about three months after I started, after I really started
thinking them out. That was a voluntary exit, I might say. Honorable discharge, but I read
Goldwater is conscious of a conservative and it really changed my life.
It also gives us additional insight into entrepreneurs by what makes them tick, although I am an
entrepreneur.
I am an entrepreneur, so it's not as alien to me as it is to a lot of my colleagues who
have a somewhat more traditional view of the world.
is more on differentiation but the whole notion of competitive heterogeneity which we get
out of Nelson Winter and we get out of evolutionary economics, routines, routines, natural capabilities
that maybe either exist already in organizations or can be built from the existing resources
of the organization.
We ask new clients, why do your customers do business with you?
And no matter what they say, my next question is, how do you measure that?
How do you measure it?
Because it is about measurement, it is about alignment, alignment between that ever-changing
non-static external risk environment and that we love to do what we know how to do, let's
Let's not change anything, a facet of human nature.
The hardest time in the world to get people to change is when the heavens have opened
up, money is cascading down on them.
Nobody wants to move a muscle.
But in capitalist societies, or in capitalist systems, you know, success is a moving target.
If you look back to Peters and Waterman's 1982 book, you will see that the vast majority
Three of those excellent companies have either gone out of business or hit on very hard times.
Very hard times.
Look back a hundred years, look in Chandler's Strategy and Structure book.
Early on, he names 51 companies.
Of those 51, you'll recognize fewer than a half a dozen today.
That's creative destruction at work.
Creative destruction at work.
In my particular line of work, 5% of family businesses make it to the third generation,
Now, when you be disruptive, you don't want to commit suicide. We have a client in the
Atlantic seaboard area who liked the early stages a couple of years ago of doing wireless
internet for rural areas. Now, it's competing with the government, but in any event, and
And they thought, well, we'll just go into Manassas.
I said, you know who's in Manassas?
And they said, no.
I said, Time Warner.
They said, so?
I said, I'll squash you like a bug.
Squash you like a bug.
There won't be anything left of you.
And they went, you really think so?
I said, put on your Time Warner hat.
What would you do?
These people from, you know, Hillbilly Yeagers come to town and decide they're going to compete
with you on cost.
Are you kidding me?
Success is a Moving Target, we really are big on individualism, but we want in growing
In companies, employees have to take responsibility for some of their own growth, and that doesn't
mean going to junkets down in the Bahamas somewhere.
That means going to school at night, that means taking time away from the family.
Those are tough choices for people to make, and different people will make different choices,
but we say you also have to tell your people that choices have consequences.
We all know we only get to see our kids grow up once, but we're not going to sacrifice
the business for that very noble child-raising enterprise.
We're not going to put everybody else at risk, so you just have to make choices, and we're
sorry.
It also helps reduce turnover.
We want them to be the imitati, not the imitator.
We emphasize the whole notion of imperfect knowledge, which we think is a whole lot nicer
Better Than Ignorance
Finally, we are in the business of educating clients about the difference between accounting
profit and economic profit, and the simple way we do this is, net income is an opinion,
free cash flow is a fact.
It's real simple, and net income is, you know, tell me what you want it to be, I can make
I can make it happen and I can do it legally. That's it.