Amazon and Walmart should remarry but they better start planning soon

It’s inevitable.

It always was.

Like two good friends that finally realize they’re actually in love?  No.  This marriage will be arranged for mutual financial benefit – and world domination.

Walmart’s recent numbers and its decision to invest heavily in a new Web site as well as its ongoing support for WalmartLabs speak volumes.  As does Amazon’s announcement to open brick-and-mortar stores, its drone delivery concepts, as well as its new stature as the world’s most valuable retailer:  just a few years ago Walmart would have been the groom, but now it’s the bride.  Not that they both don’t bring a ton to the marriage – they do.  But given recent stock performance, Amazon will have to pop the question.  Walmart should cozy up to the largest retailer in the world – which I suggest it do as soon as possible.

Both companies are sailing toward growing online and offline revenue powered by a global digital infrastructure that enables a massive and continuous distribution and fulfillment process.  But only one has the digital legs to seamlessly integrate into a scalable, global machine.

Due Diligence

Mega-mergers should be discussed contextually.  It doesn’t really matter what Walmart’s revenues were a decade ago or that Amazon began as a book retailer.  What matters are the trajectories that will influence their business models and how those models can profitably and flexibly adapt to endless changes in the retail world – which will reinvent itself as quickly as Uber, Facebook and Tesla change the rules of the game whenever they choose.

The real key to a workable marriage is the recognition that past retail behavior will in no way, shape or form resemble future retail behavior.  Walmart is very late not just to the digital retail party but also to the drivers of digital retail trends and the digital infrastructure that enables market agility.  Spending a lot more money on “online retail”or an improved Web site with better overall “user experiences” is only part of the answer:  changing a highly successful, stubborn retail culture is a much bigger challenge.  This is a classic case of anti-disruption where existing revenue streams blind companies to future streams that may in fact cannibalize the old ones.  Said differently, Amazon is not Walmart’s only competitor.  Walmart is Walmart’s largest competitor.

Advertisements

From Public to Private

Wendy Webb talks about her move from public company IR into the private equity sphere

It’s investor relations – but not like any investor relations you’ve ever known. During more than two decades at the Walt Disney Company, Wendy Markus Webb rose to senior vice president of IR and shareholder services. Today she handles IR for Tennenbaum Capital Partners (TCP), a private equity firm in Los Angeles.

After Disney and then a stint at Ticketmaster Entertainment, you had offers from major public companies to be a high-profile head of IR. Why did you choose such a different course?

At this point in my career, I wanted to try something new, something unproven, something less cookie-cutter. Public company IR is fairly transferable – interactions with sell-side analysts, quarterly earnings calls, industry conferences, and so on. For private investment companies, however, there’s no standardized approach. At heart, I’m a builder, and I welcomed the opportunity to build a more robust investor relations effort here at TCP.

Wendy Webb

Public companies have 10Qs, 10Ks and a host of other compliance demands. Do private equity firms have similar reporting requirements?

Some Tennenbaum funds are registered investment companies, which do make public filings four times a year, but our other funds aren’t required to. We’re still beholden to Regulation FD, however, and we don’t give material information to investors in an uneven manner.

Our investors watch our performance carefully. Most private investment companies mark their investments to the market quarterly, monthly or even weekly, and provide that information to investors. These valuations make a difference, particularly to our institutional investors and ultimately to their accounting. A corporation’s books can also be affected by the valuation of alternative investments in its pension fund, just as it is affected by fluctuations in its public equity holdings.

Are you talking to the same contacts on the buy side as public company IROs talk to?

Like most private equity firms, our funds are typically structured with 10-year lock-ups. As a result of the longer-term investment horizon and illiquidity, we tend to deal with somewhat higher-level people on the institutional side, and the conversations typically are more sophisticated.

Another reason we usually deal with higher-level individuals is our revenue model. It’s actually based on the fees paid by investors, plus a share of the investment returns we generate, so the relationship we have with an institutional investor is more consequential than if it was investing on the open market.

How did the global financial crisis and fraud such as the Bernie Madoff scandal affect private equity investors?

There’s definitely a new demand for transparency. For example, our biggest investors routinely send in their compliance folks to meet with our CFO and go through our files, much like an auditor would. Plus, part of my investor relations role is to oversee the completion of due diligence questionnaires and audit confirmations.

Private equity IR has a whole constituency public company IR doesn’t have: advisers like Cambridge Associates, Mercer and New England Pension Consulting, which investors hire to do deep-dive analyses and information gathering. We also have a password-secured investor portal, which I overhauled since arriving at Tennenbaum.

For our investors, it’s like going onto a brokerage website to look at their account, see how they’re doing, review historical information, and so on.

Does your job go beyond IR?

I’m part of the investment committee, so I sit in on its weekly meetings and stay on top of what we’re thinking about and what we’re investing in. If I have something to add – in the entertainment space, for example – I might pipe up with my opinion. But I was specifically brought in to TCP to elevate the IR function because of the increased demand for transparency from investors.

Another part of my role comes into play when we raise new funds, and having good ongoing IR with a sense of trust certainly helps then. IR is increasingly important as a way to foster the relationship with investors that allows for valuable ongoing access to capital, which is harder and harder to raise in these economic times.

It’s a fun new aspect of the job for me. We just closed a $530 mn fund in August, and I was intensely involved in that for the past year and a half. I worked in investment banking doing private placements before I joined Disney, so this really harkens back to my early training.

Are environmental, social responsibility and governance factors part of TCP’s IR story?

We have a number of college endowments and charitable foundations that invest with us, so we’re sensitive to their social responsibility needs.

Our corporate governance is much less visible than on the public company side. But at the outset, when an institution is considering investing millions of dollars with us, there are a lot of questions about governance in the due diligence process – like the long-term commitments of the leadership and key investment officers, or the structure and make-up of the board governing the fund.

Do private equity IROs have a professional association like NIRI?

I’d welcome NIRI broadening its mandate to include private equity IR – that would be very valuable. In the meantime, I’m trying to develop an informal network of private investment firm IR professionals to share ideas. For example, our clients tell us our investor portal is very helpful, but I don’t know how others compare. Plus, we send out quarterly investor letters with performance numbers and a macroeconomic outlook on the market, but not every firm does that.

We don’t currently hold regular conference calls with investors, but I’m considering doing them and I’m curious about what others are doing. Many private equity companies have an annual investor conference or annual meeting, talking about performance, showcasing investments and interacting with investors, so sharing ideas on structure and content would be interesting.

How do you think most private equity IR professionals get their positions, and which skills are especially useful?

It seems most work their way up through their firms or through financial services organizations generally. That makes me pretty unique in having come over from big company IR but I think there could be more opportunities for public company expertise to benefit the private side, for sure.

I certainly value my early investment banking training because I have to be conversant in the various financial securities a private investment fund might have in its portfolio – first lien term notes, second lien with penny warrants, DIP facility [a form of financing extended to debtors under the US Bankruptcy Code], mezzanine, and so on.

An IRO could walk into a public company and usually pretty quickly start talking about that company’s products or services, but the lingo around private equity can be somewhat more complicated.

That said, for people who are confident about their understanding of the capital markets and how various investors derive returns, crossing over from public company investor relations to private equity IR is definitely possible.

Disrupt yourself

The Road Not Taken Isn’t a Choice, It’s Crucial to Your Success

One of the key attributes ascribed to disruptors is that they play where no one else is playing. Whether you are a low-end or a new-market disruptor, you will find yourself pioneering your way to a market that has yet to be defined. As a trailblazer, even though you may have a goal or purpose, your path to that objective is yet to be marked. It is unrealistic to believe that you can get there without a detour or two; flexibility becomes an important attribute.

Disruptors are driven by discovery.

Picture yourself as an explorer, part of the Lewis and Clark expedition crossing the American West to the Pacific Ocean, starting from the safety of the known and venturing into completely unknown territory. In May of 1804 Lewis and Clark departed from the St. Louis area equipped with keelboats—large, flat freight boats used on rivers—and enough supplies (so they thought) to make the trip. Little did they realize that each new discovery would alter their course and necessitate revisions to their original plan. When the Missouri River petered out, Lewis and Clark abandoned their keelboats. When supplies ran out, they hunted or traded with Native Americans. When they required help, they found a guide and an interpreter. Each obstacle to be navigated drove their decisions for the expedition.

According to researchers Rita Gunther McGrath and Ian MacMillan, discovery-driven planning acknowledges the difference between planning for a new venture and planning for a more conventional line of business. Conventional planning operates on the premise that you can extrapolate future results from a well-understood and predictable platform of past experience. One expects predictions to be accurate because they are based on solid knowledge. In this type of planning, a venture’s deviations from the plan are a bad thing.

Most of us prefer the certainty of this kind of conventional planning. There’s likely a checklist with a list of tasks to complete, maybe even a detailed market analysis and a step-by-step blueprint to achieve your goal. If you’ve gone to high school and college and gotten good grades, you are probably pretty schooled in this type of planning. Do your homework, study for tests, participate in class, and you’ll get an A in the course.

A parallel can exist with your career. Beginning in high school, maybe even middle school, you could create a checklist for what you would need to do to become a physician, for example: get good grades in high school, major in a life science in college, go to medical school, complete a residency, and pass your boards, and you’ll become a doctor. Once you’ve checked off each box on your list, you’ve completed your goal. Under conventional planning, if you don’t become a doctor after following this plan, something is amiss.

But this kind of planning isn’t how most of us figure out what to do with our lives or even how most companies today figure out how to succeed. New York Timescolumnist David Brooks has said, “Most people don’t form a self and then lead a life. They are called by a problem, and the self is constructed gradually by their calling.” Matching problems to your strengths isn’t just about being rewarded by monetary compensation but also by the joy of following a true vocation.

Often, you discover your calling one baby step at a time.

Discovery-Driven Planning
With discovery-driven planning, you begin with the premise that little is known and much is assumed. That is not to say that you don’t have a plan: you do. It’s just a different kind of plan. Instead of declaring, “These are the results that I expect,” you ask, “What has to prove true for my plan to work?” According to McGrath and McMillan, this type of plan includes four steps:

  1. Create a reverse income statement. If you are launching a new product, rather than forecasting how much revenue you will generate and what your costs will be and then solving for the profit, you build the income statement in reverse. You decide on your required income, and then solve for how much revenue will deliver those profits, and how much cost can be allowed. With personal disruption, the question you ask is: To achieve my baseline level of happiness, what do I need to accomplish and what am I willing to give up in order to make this happen?
  2. Calculate the cost. With this step, you estimate what the cost will be to produce, sell, and deliver the product or service to a customer. Combined, these are the allowable costs that permit the business model to hold together. As an individual, the question is what kind of time, expertise, money, and buy-in will you need to make your plan operational? Is the personal cost of being on this curve one you can afford and want to incur?
  3. Compile an assumption checklist. This checklist allows you to flag and discuss each assumption as the venture unfolds. For example, what assumptions are you making about how much you will sell and at what price? How many sales calls will you need to make to get a single order? How many salespeople will you need to make that many calls, etc?

    As an individual, if you decide you want to earn $100,000 a year consulting, and last year you earned $100,000 consulting, then conventional planning works. If you’ve never consulted, then you’d want to think about the assumptions behind your ability to earn that $100,000. How many clients will you need? How many hours per day will you need to bill, and at what price point? Do you enjoy the work, and will it be emotionally satisfying?

  4. Prepare a milestone chart. This chart specifies which assumptions need to be tested and what you are going to learn by each milestone. In discovery-driven planning, learning is the essential unit of progress, so a course correction isn’t equivalent to failure, as it would be in conventional planning. Rather, it’s an opportunity to recalibrate so you can move more effectively up the curve.

Follow Your North Star
One of the things that the textbooks on disruption shy away from mentioning is that discovery-driven learning is often lonely and sometimes scary. Businesses and individuals that are disrupting themselves frequently find themselves with very little, if any, company. After the initial rush of excitement wore off when I left Wall Street, I occasionally felt a total loss of identity. I could no longer call people and say, “This is Whitney Johnson from Merrill Lynch.” Now, it was just “This is Whitney Johnson….” And there have been more than a few days when the p/e, or puke/excitement, ratio has been so uncomfortably high, I feel like I am on a thrill ride to zero cash flow.

The path of discovery is rarely strewn with rose petals, but the outcome is worth the struggle.

Because she couldn’t see the end from the beginning, Susan Cain struggled through years of insecurity about the kernel of an idea that became Quiet, one of the best-selling books of 2012.

Cain wanted to write about how modern Western culture misunderstands and undervalues the traits and capabilities of introverted people, leading to a waste of talent and a loss of self-esteem for the “quiet” individuals among us. Prior to writing Quiet, Cain was making a living teaching negotiation tactics to women. Her friends and colleagues questioned the topic she wanted to write about because it wasn’t something she had a specialty in, and the literary agents she queried thought it wasn’t commercial enough to sell books.

But Cain believed she had something important to share. Her father is an introverted doctor and it was clear to her that his strength as a physician is his temperament. Every day he would come home from work, have dinner, and pore over medical journals. It was the same with her grandfather, who was a rabbi. He was always reading, always thinking, and that’s what made his sermons and rabbinical thought so rich.

Cain first had the idea for Quiet in 2005. She spent a year writing a proposal. After she found Richard Pine, an agent who thought her idea was marketable, she was swept up in meeting with twelve different publishers; nine of them bid on the book. “This was the most exciting thing that had ever happened to me,” she shares.

Then came the long and tortured process of actually writing the book. She was confident she wanted to be a writer, but she had never written a book. In 2007, “I turned in an extremely crappy first draft. My editor took one look at it and said, ‘Start over, from scratch. Take all the time you need.’ I was relieved and grateful.”

Four years later, she turned in the final draft of her manuscript; the book was published in 2012. Cain has written a New York Timesbestseller, become the leader of a movement for the quiet half of the population, and is now CEO of the Quiet Revolution, because she was willing to persevere in the lonely pursuit of her disruptive idea.

If it’s scary and lonely, does it mean you shouldn’t disrupt? It may just mean you are on the right track. In fact, if you don’t disrupt when you feel you are called to do so, you’ll die inside just a little. That’s why it’s called the innovator’s dilemma. Whether you innovate or not, you risk downward mobility.

As you embark on a journey of personal disruption, you are in search of a yet-to-be-defined market. Like Lewis and Clark, you have a plan: to discover and conquer new territory. It will sometimes feel scary and lonely, and you will undoubtedly end up in places you haven’t anticipated. But your willingness to do things differently than they’ve always been done will help you successfully discover your way up the S-curve of personal disruption.

Why Attitude is More Important Than IQ

It’s all about the growth mindset.

LinkedIn Influencer Dr. Travis Bradberry published this post originally on LinkedIn.

When it comes to success, it’s easy to think that people blessed with brains will inevitably leave the rest of us in the dust. But new research from Stanford University will change your mind (and your attitude).

Psychologist Carol Dweck has spent her entire career studying attitude and performance, and her latest study shows that your attitude is a better predictor of your success than your IQ.

Dweck found that people’s core attitudes fall into one of two categories: a fixed mindset or a growth mindset.

With a fixed mindset, you believe that you are who you are and you cannot change. This creates problems when you’re challenged because anything that appears to be more than you can handle is bound to make you feel hopeless and overwhelmed.

People with a growth mindset believe that they can improve with effort. They outperform those with a fixed mindset, even when they have a lower IQ, because they embrace challenges, treating them as opportunities to learn something new.

Common sense would suggest that having ability, like being smart, inspires confidence. It does, but only while the going is easy. The deciding factor in life is how you handle setbacks and challenges. People with a growth mindset welcome setbacks with open arms.

According to Dweck, success in life is all about how you deal with failure. She describes the approach to failure of people with the growth mindset this way,

“Failure is information—we label it failure, but it’s more like, ‘This didn’t work, and I’m a problem solver, so I’ll try something else.'”

Regardless of which side of the chart you fall on, you can make changes and develop a growth mindset. What follows are some strategies that will fine-tune your mindset and help you make certain it’s as growth oriented as possible.

Don’t stay helpless

We all hit moments when we feel helpless. The test is how we react to that feeling.

We can either learn from it and move forward or let it drag us down.

Countless successful people would have never made it if they had succumbed to feelings of helplessness: Walt Disney was fired from the Kansas City Star because he “lacked imagination and had no good ideas”; Oprah Winfrey was fired from her job as a TV anchor in Baltimore for being “too emotionally invested in her stories”; Henry Ford had two failed car companies before succeeding with Ford; and Steven Spielberg was rejected by USC’s School of Cinematic Arts multiple times.

Imagine what would have happened if any of these people had a fixed mindset. They would have succumbed to the rejection and given up hope.

People with a growth mindset don’t feel helpless because they know that to be successful you need to be willing to fail hard and then bounce right back.

Be passionate

Empowered people pursue their passions relentlessly. There will always be someone who is more naturally talented than you are, but what you lack in talent you can make up for in passion.

warren buffettAlex Wong/GettyWarren Buffett uses the 5/25 technique to find his passions.

Empowered people’s passion is what drives their unrelenting pursuit of excellence. Warren Buffett recommends finding your truest passions using what he calls the 5/25 technique: Write down the 25 things you care about the most. Then cross out the bottom 20. The remaining five are your true passions. Everything else is merely a distraction.

Take action

It’s not that people with a growth mindset are able to overcome their fears because they are braver than the rest of us; it’s just that they know fear and anxiety are paralyzing emotions and that the best way to overcome this paralysis is to take action.

People with a growth mindset are empowered, and empowered people know there is no such thing as a truly perfect moment to move forward. So why wait for one? Taking action turns all your worry and concern about failure into positive, focused energy.

Then go the extra mile (or 2)

Empowered people give it their all, even on their worst days. They’re always pushing themselves to go the extra mile.

One of Bruce Lee’s pupils ran 3 miles every day with him. One day, they were about to hit the 3-mile mark when Bruce said, “Let’s do two more.” His pupil was tired and said, “I’ll die if I run two more.” Bruce’s response? “Then do it.”

His pupil became so angry that he finished the full 5 miles. Exhausted and furious, he confronted Bruce about his comment, and Bruce explained it this way: “Quit and you might as well be dead. If you always put limits on what you can do, physical or anything else, it’ll spread over into the rest of your life. It’ll spread into your work, into your morality, into your entire being. There are no limits. There are plateaus, but you must not stay there; you must go beyond them. If it kills you, it kills you. A man must constantly exceed his level.”

bruce leeArchive Photos/Getty“Quit and you might as well be dead.”

If you aren’t getting a little bit better each day, then you’re most likely getting a little worse — and what kind of life is that?

Expect results

People with a growth mindset know they will fail from time to time, but they never let that keep them from expecting results. Expecting results keeps you motivated and feeds the cycle of empowerment. After all, if you don’t think you’re going to succeed, then why bother?

Be flexible

Everyone encounters unanticipated adversity. Empowered people with a growth-oriented mindset embrace adversity as a means for improvement, as opposed to something that holds them back. When an unexpected situation challenges empowered people, they flex until they get results.

Don’t complain when things don’t go your way

Complaining is an obvious sign of a fixed mindset. A growth mindset looks for opportunity in everything, so there’s no room for complaints.

Bringing it all together

By keeping track of how you respond to the little things, you can work every day to keep yourself on the right side of the chart above.

Do you have a growth mindset? Please share your thoughts in the comments section below as I learn just as much from you as you do from me.