Weekly Thoughts

VIEW ALL POSTS

Weekly Thoughts: Income Inequality, Workplace Engagement, and ‘Maximizers’ vs. ‘Satisficers’

Here are three things that have caught our interest this week.
 

Income Inequality

Continuing our running commentary on economic repression and how this might impact small business ownership, we were interested to read an article on the AP’s big story blog regarding the rising cost of living for the average middle income family. According to the Center for American Progress:

For a typical married couple with two children, the combined cost of health care, day care, housing and savings for college and retirement jumped 32 percent from 2000 to 2012 — after adjusting for inflation. Average income barely rose in that time once you factor in inflation.

The figures marked a sharp change from the preceding 12 years ending in 2000, when average income for a four-person family rose 20 percent, after inflation, and college and health care costs rose more slowly.

The trend towards higher costs of living and lower real incomes for the middle class has happened at the same time as incomes for the 90th percentile have increased about 10%, and incomes for the 99th percentile have exploded. In our view this is problematic, because it not only reduces the pool of potential small business owners (as we have discussed previously), but it also risks disenfranchising large portions of the population who may increasingly feel that they have bought into a system that promises upward mobility without actually delivering that opportunity.

President Obama, in speaking about this very trend, highlighted the importance of growing the total economic pie and increasing access to quality education as key initiatives to reverse this trend. While we largely agree with these macro ideas, we think real change can and should happen on a more micro level. As aspiring small business owners, we believe that by hiring, developing, and properly incentivizing quality employees we can do our part to incrementally reduce some of these trends that tug at the social fabric of the country.

You can read more about these issues here, here and here
 

Workplace Engagement

Related to the first topic, we read an interesting article in Fast Company recently concerning workplace engagement. According to a recent Gallup survey only 3 in 10 American workers feel engaged in their jobs and that has created a trend toward companies increasing employee perks which unfortunately hasn’t fixed the problem. According to Gallup CEO Jim Clifton: “What companies will inevitably find is that the only way to make a person happy is to give them a job that matches well to their strengths, a boss who cares about their development, and a mission that gives them feelings of purpose,” Clifton said. “The belief that something gets better when you come and do your job, that’s as happy as you can be.”

It is highly likely that we will not have direct industry expertise in whichever company we end up acquiring. While we do hope to create value via some capital structure optimization and “financial engineering”, we take very seriously the managerial role we are likely to play and we view this as a key area where focusing on the welfare and development of our employees will ultimately benefit our customers and in the long run ourselves as investors. According to Clifton this is exactly what managers should aspire to in the modern workplace. He says: “Going forward, we must insist on hiring caring managers. Managers must be driven, love productivity, profitability, and competing,” he added, “but they must also have an inclination to maximize the potential of every person on their team.”

You can read more here
 

“Maximizers” vs. “Satisficers”

Lastly, the WSJ carried an interesting article this week concerning decision making. The article highlighted the work of professor Barry Schwartz who splits decision makers into two groups, ‘Maximizers’ and ‘Satisficers’. According to Schwartz, ““Maximizers” like to take their time and weigh a wide range of options—sometimes every possible one—before choosing. “Satisficers” would rather be fast than thorough; they prefer to quickly choose the option that fills the minimum criteria (the word “satisfice” blends “satisfy” and “suffice”).”

We have followed professor Schwartz’s work for some time and his insight that increased choice can paradoxically lead to higher dissatisfaction (especially for maximizers) is very intriguing. However, as we continue to work on selecting acquisition targets, the challenge for us going forward is not to avoid the difficult and potentially frustrating task of considering all the options available to us. Instead, we have been steadily implementing procedures and screening tools to make the work of moving potential leads through our deal funnel more efficient. Ultimately we aspire to make an acquisition decision like a maximizer while maintaining the temperament of a satisficer.

Full article here

 

Have a great week,

Your Chenmark Capital Team

Previous Post Next Post

Recent Posts

It’s Basically 1200 Meters

When we lived in Cambridge, we frequented all the common outdoor exercise spots — leisurely jogs along the Charles, grueling stairs in the Harvard Stadium, and heart-rate spiking intervals on the Newton hills.  As such, we enjoyed learning more about the “Tempo Loop” in the Harvard Athletic Complex. 

Read More

I Said No F*ing Brown M&Ms!

While we are more of a Smarties group, we were interested to learn this week that brown M&M's carry relevant significance despite being the worst color for a candy variety.  They are also the most notable thing about a backstage concert rider — the legal document that outlines terms for concert promoters — for Van Halen’s 1982 World Tour.

Read More

Cash Money

Our regular readers will know that our metric of choice is Free Cash Flow.  This is because the crux of our strategy relies upon our ability to purchase cash flowing businesses from retiring owners, and then, over the long-term, using the cash flows from those businesses to fund the equity requirements for growth—whether it be supporting internal growth initiatives or writing a check for our next acquisition.  Without free cash flow, our strategy stalls. 

Read More