"I can turn a $4 million profit into a $2 million loss and get every national accounting firm to agree with me."

Professor Berri ( of The Wages of Wins fame ) breaks down the previously linked to story about the Pittsburgh Pirates & their incentive to improve.

Meanwhile, over at Slate, Phil Birnbaum ( of Sabermetric Research fame ) really nails the crux of the issue with his take. Especially telling is this quote:

As a result, Tampa Bay’s regular-season operating income declined from $22 million in 2007 to less than $1 million in 2008—which means it cost the team $21 million to transition from cellar dwellers to World Series participants. As amazing as it seems, even after adding in $11 million in postseason earnings, the Rays were more profitable when they went 66-96 than when they went 97-65.

Sobering.

Brazils Lean Startup & Emerging Entrepreneurial Economy

Time magazine has a great article about Brazil as the new VC hotspot. The tech sector in Brazil is absolutely scorching hot. In fact, ThoughtWorks just opened a Brazilian office in my girlfriends hometown of Porto Alegre.

The IMF projects that Brazil’s economy — now the eighth largest in the world — will grow by 7.1% this year and soar throughout the decade. A confluence of factors will contribute to growth: abundant natural resources, stable government policies, a sophisticated banking sector, a rapidly growing middle class that now comprises about half the population of 190 million and a surge in real estate and infrastructure development to prepare for Brazil’s hosting the 2014 FIFA World Cup and the 2016 Summer Olympics.

Last year I was able to visit the country for the first time and see just how incredible the growth has been. It’s really amazing to see how the entrepreneurial spirit has grabbed a hold of people down there and is pushing them to make advances in all sorts of industries. It’s really amazing to see them follow in the footsteps of the US.

Of course, they are leaving the US in the dust in some areas:

In Brazil you need to have a strong payback model right at the beginning. VCs won’t wait to see if one day there is an exit for your company since they don’t want the risk. In the U.S., a start-up is cut some slack. It can operate for two years without any revenue. We don’t have that luxury.

It seems as though many are starting off with the idea that profitable & sustainable is the way to go. If this mentality takes hold and spreads, one could easily see Brazil becoming a real profit center and a power in the global marketplace. It should frighten the US to think about what a country the size of Brazil could do with a zero-debt, profit driven focus compared to our concept of debt and bailouts.

Rates as a function of capacity

I recently had the pleasure of attending the June meeting of Dublin chapter of the Bootstrappers Breakfast. After the meeting there was a Q & A session with the remaining attendees. I remarked to Sean Murphy that I’ve recently moved to a new pricing model for consulting. I’ve started to adjust my pricing based on my current capacity. That is, as my schedule becomes fuller and I become busier, my hourly rates increase. That way clients can decide for themselves how important their project is. If it can wait, we push the project back a bit, my price goes down and the clients get a price break. If there is an immediate need, they will need to pay a premium and it will be a rush job.

I do this because the last few hours of my week act as a buffer for anything unexpected that should come up. If I pack my schedule to the brim, I run the risk of all sorts of chaos if/when anything unexpected comes up.

In lean terms, I’m increasing costs as my capacity decreases.

Why? A few reasons:

First, it provides an incentive to prevent me from becoming overtaxed and taking on too much work. This regulates the flow of work into my 1530 schedule and provides a sort of cadence for new work. This allows me to plan more efficiently.

Secondly, by stabilizing the work in and out, I stabilize my flow. This helps me churn out better work quicker. If you take on everything that comes your way for the same price, there’s no doubt that that you would begin to resent those last few pieces of work that you’re cranking away on any given Sunday night. With the rate increase, at least there is ability to look back and see that there is increased compensation for working later at night and into the weekend.

I should note that this obviously this can alienate clients and cause you to lose work. However, part of managing a successful service based business is to know when and how to control clients. If you simply say ‘Yes’ all of the time to everyone, you’ll quickly find yourself taking on much more work than you’re capable of. That will lead to you not being able to deliver consistently excellent work and you’ll lose clients anyway. I would rather have a healthy relationship with a client and be able to say ‘No’ as often as I say ‘Yes’. Those are the kinds of clients you’ll be able to build a sustainable business from.

BTW, this isn’t a new concept. The concept of cadence and queue management is applied in a lot of different places. For example, Chicago is entertaining the idea of rolling out congestion based pricing for its tollways that’s similar to several other tollways across the US. Comed and other electric companies employ Real-Time Pricing. These are just two other examples and there are many more.

Take a look at your own life and see if you can figure out ways to employ a form of cadence to help stabilize things.

Socialize debt and privatize profit

Fantastic interview with David Zirin, author of ‘Bad Sports’.

You socialize the debt of a stadium project, but the profit goes to private hands. In a lot of ways you can look at sports as being a kind of Trojan Horse for enacting a set of policies that nobody would agree with it if were about any other business or entity. On the other hand, you could see it as a harbinger to the bank bailouts that have just taken place and to the entire economic recovery plan that has been enacted over the last couple of years.

And lest you think it’s just about the money:

Donald Sterling, owner of the Clippers, just had to write a check for the largest racial housing discrimination suit in the history of the United States, and NBA commissioner David Stern doesn’t say a damn thing, even though his league is more than 80 percent African-American. And now he’s being sued by NBA Hall of Famer Elgin Baylor — inarguably the greatest player to come out of Washington, D.C. — for racial discrimination, and once again Stern saying nothing.

This is the same commissioner that mandates a dress code for players.

Wait, you mean $200 million for 100+ losses a year is bad?

Revenue sharing is one of the hallmarks of baseball. Small market teams get to reap the financial benefits from larger market teams. They get a guaranteed payout every year regardless of team performance. Given that, I can’t imagine why the Pittsburgh Pirate owners wouldn’t want to increase payroll to win. From The Sports Economist:

If they won and were forced to increase their payroll from $34 million to $75 million or $80 million … how profitable would they be? There’s a ceiling in terms of gate revenues, ” said Dave Berri and Roger Noll, a Stanford University economist, follows with, “Probably the Pirates would be less profitable if they tried to improve the team substantially.”

Ah.

Once again, people, true incentives dictate behavior.

Deliver on Wednesdays, not Fridays or Mondays

When jumping into any company, people will immediately begin to ask that you finish things BY FRIDAY! Monday is another typical choice for deadlines. The end of the week and start of a new week is the perfect time to pick for delivering.

Why?

Well, for starters, Friday is the end of the work week and Monday is the beginning. It’s a simple concept to grasp. It doesn’t take too much work to remember when, in relation to today, things are due. “It’s Wednesday, so my project is due in two days.” Simple.

But is it the best? Is Friday/Monday really the ideal delivery dates for things? Obviously, if you’ve read this posts title, you know that I would argue that it isn’t. Why?

Frankly, every single person sees the two days between Friday & Monday as cushion. “It’s really ok if it’s not done until Friday, I can just put in a few hours over the weekend.” Wrong. By thinking like that, most people develop Student Syndrome. They’ll let things slip and slip and slip until the deadline is staring themselves in the face. When that happens, the best way to ensure you’re doing sub-par work is to try and cram it into a weekend.

Second, have you actually ever tried to get something done on a Friday? Also, forget about getting other people to help you. In most offices, by 3pm Friday afternoon, the place will be a ghost town. Monday mornings are almost worse since those that ARE there will likely be lethargic and “catching up” on things that they themselves didn’t do on Friday.

It’s also easier to miss Mondays & Fridays. 3-Day weekends, holidays, vacations and plain ‘ol “sick days” are more likely to fall on Mondays and Fridays than any other days.

Be sane. Always pick either Tuesday, Wednesday or Thursday for deadlines. Preferably Wednesdays, since they’re right in the middle. It gives two days from the weekend either way. You can start the week refreshed knowing nothing is due immediately and it gives you two days to get into your zone for deliver. Same goes for Thursday and Friday. You can usually get substantial work done on a project on Thursday and Friday and not worry too much about forgetting where you were on Monday morning.

A painful dilemma over how high to set prices

Interesting economics spin around the unadvertised short cappuccino at Starbucks by Slate.

The practice is hundreds of years old. The French economist Emile Dupuit wrote about the early days of the railways, when third-class carriages were built without roofs, even though roofs were cheap: “What the company is trying to do is prevent the passengers who can pay the second-class fare from traveling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich.”

I continuously maintain that we should be introducing basic, basic economic lessons to our kids earlier and earlier. It’s so critical to understand incentives. Especially how people manipulate things in response to to said incentives.

Piranha 3D is a horror movie bar mitzvah.

Thus begins Cinematicals review of Piranha 3D

It turns boys into men, cleaving their life into two distinct periods: Before Piranha 3D, a time we shall refer to as The Darkness, and after Piranha 3D, also known as The Awakening. Now that I have thankfully awoken in its glorious elysian fields of excessive gore and outrageous nudity, I never want to return to horror films that require fewer than 800,000 gallons of fake blood spilling forth from 500 bikini-clad extras. Anything less is an insult and, frankly, a malicious waste of my time.

Sounds like quite a time.