By James Santagata
Principal Consultant, Silicon Edge
In a recent blog post entitled "How to Deal with Pure Recruiting Mistakes", Mark Suster, a partner at Upfront Ventures gives his take on fixing recruiting or hiring mistakes. He has written some other posts on the subject as well in terms of hiring and firing fast.
In regards to hiring and firing fast, I want to be clear and fair that his post is primarily referring to startups (whose needs may be well different than a large, more established company) and is not a "just pull anyone in and see who makes it" mentality.
There is a lot of merit in moving quickly in the hiring process, in fact, many companies lose key talent because they move to slow. This slowness in hiring often comes from several factors which may include an overly subjective interview process, the inability to get all people to agree to a hire (e.g,. a group decision) or "cock-blocking" office politics.
What I want to do today, is to delve a little deeper into why recruiting mistakes happen. Why are people hired who don't work out? Is it skills, attitude, cultural fit or some other factor or combination?
There are many factors and they come from both sides of the table -- the candidate's side and the hiring firm's side. Each situation is different (ESID), but we can usually boil it down to several factors:
1. The candidate doesn't have the aptitude (skills).
2. The candidate doesn't have the attitude (mind set and motivation).
3. The candidate doesn't mesh / can't find his or her way in the corporate culture. That is, it moves too fast or too slow for the candidate.
4, The company improperly assessed the candidates skills sets and fit.
5. The company selected the candidate to fail (e.g,. "Rank & Yank" and this candidate is the group's Sacrificial Lamb).
6. The company applied a selection shortcut -- "Oh he worked at XYZ company, must be good..."
7. The candidate's new peers or one peer sees the new hire as threat and works to remove (have fired) him or her.
Of these factors, #6 is perhaps the most critical error (along with #4) when we make hiring decisions quickly. What happens is that unless we know exactly how to interview AND are interested in a very objective, brass-tacks assessment of how the candidate really is rather than how we'd wish would be or hope the candidate is, we will get fooled and made bad decisions.
Most often this happens when we rely on Social Proof, assume the Portability of Talent (namely, the inability to identify and separate the success of the candidate from the success or support provided by the system, company or brand) and engage in Trait Ascription Bias while applying the Just World Hypothesis (sometimes known as Just World Theory, Fallacy or Phenomenon. It's a cognitive bias).
Two of the more insidious reasons the wrong hires occur is when the hiring authority's (or future peer group's) ego as well as internal politics are injected into the hiring and assessment process. This is a killer. Often resulting in hiring the wrong talent, while driving away and 86'ing the key talent.
Here's a quickly illustration of several of these factors at play simultaneously. And just for the record, please don't read anything into the universities or companies that I have chosen to illustrate this with. They were simply chosen because of their impact in terms of having or lacking social proof and so on.
Hiring Manager / Hiring Authority:
"Hey, this candidate is a stud/studette. He/she was the Sales Director at Google so he'd/she'd make the perfect first hire for our startup sales team."
When you're selling for Google or IBM among other well-known firms, you'll find that about 90% of the sales mojo comes from your brand, team and resources. Conversely, when you're selling from Puntster Analytics from Podunk. Iowa, it's all about your game and skills -- pure talent.
Similar mishires are also clearly seen when hiring shortcuts are taken by hiring from direct competitors (or hiring industry insiders) and misattributing their past successes to the candidate rather than seeing what the system provided. Conversely, an excellent person may be turned away and they often are, because their stats aren't as good BUT their stats are the result of Jedi-level talent in the face of a poor brand or system. Yet they are rejected.
There are countless other examples, but another common one is the filtering out or rejecting of highly-qualified talent because the current interviewers or team see the candidate as a clear and present danger and threat to someone's salary, position, title and/or ego on the team.
How to Deal with Pure Recruiting Mistakes
Posted on November 27, 2013
by Mark Suster
One of the unavoidable realities of building a startup is having to fire people.
In a normal business you can often sweep bad performers under the rug and not deal with them. When you have millions or billions of dollars of revenue you can suffer a few bad performers or bad apples. You can miss a quarter’s target and not cull the inefficiencies. I’m not saying you should, but you could.
But in startups this equals death.
Death because just 3 extra non-performing employees in a company of 15 can either accelerate cash out date or can dramatically lower your productivity.
I’ve spoken about this before and my mantra, “Hire Fast, Fire Fast.”
When I first started my career I came across a term for this that has always stuck in my head and serves as a useful reminder of this mantra.
We called it “PURE.”
Previously. Undetected. Recruiting. Error.
By James Santagata
Principal Consultant, SiliconEdge
One of the frequent topics I like to discuss besides the myth and meme that "Necessity Is the Mother of All Invention" is the fact many of Silicon Valley's most vaunted startups are all post-tech businesses.
Yes, you read that right. Post-tech.
They surely use technology in their day-to-day operations just as UPS does, the Hilton hotel chain or even Walmart. However, many of these startups may actually use even less tech than these brick and mortar firms. Examples of such startups and ventures that are post tech include Airbnb, Uber and Zappos which is analogous to an online Nordstrom in terms of the excellent customer service experience they provide. Further, the technology required to run these companies is often available right of the shelf for a pittance (relatively speaking). There are plenty of other non-Valley, post-tech companies such as Groupon, Gilt Groupe and Dollar Shave Club to name just a few.
What does all this mean?
As we've discussed many times before, this means that what many of these startups are facing (or will face) as their primary challenge is primarily human in nature not technical.
Specifically, the markets that post-tech startups will want to or tend to target are those which are massively inefficient (thus, having huge profit potential while populated with tepid or ossified competitors) due to the use of regulatory capture by rent-seeking incumbents.
Over the last 18 to 20 years (and especially during the last 7 years) the skills and knowledge needed to quickly and cost effectively build, mass produce and even consume these technologies and tools have now become almost completely common place. Consider that the amount of computing power (and bandwidth) we have in our smart phones to a person 10 years ago as is the ability to buy right off the shelf most of the things we need to create just about any product or business.
We're no longer concerned with the theory behind building a router or the design and development of packet switched (versus a circuit based networks). Even IPTV is no longer a hazy dream but a daily reality.
I could go on and on, but I won't so as not to bore you.
Beyond core technology, the Valley has now grown and matured in regards to the knowledge, processes, skills and resources needed to not only build a product but to launch a company and to make it successful (although, often times, the Valley still struggles greatly with market-based productization and ultimately the monetization off the product. These two sticking points, therefore, provide huge opportunities for the next generation of entrepreneurs to focus on).
For me, I'm glad I lived in the Valley and still do business there. It was a very huge turning point and chapter in my life, however, for many reasons, not everyone can get there, at least now.
Yet they worry and fret. Don't.
My advice, is don't worry or fret, do the best you can, with what you have, where you are. If the Valley is in your future you'll be there. And beyond that, there is a downside to the Valley -- too many posers, Drive-by entrepreneurs, Lottery Ticket Louts and so forth attending events and conferences rather than staying home or at the office building product or businesses. Better yet, spending the time getting in front of customers. The point is the Valley is a huge echo-chamber where luck and one-trick ponies are seen as "systems", "processes" and "truths" and where almost no one I have met can separate talent from systems, brand and product.
That's the downside. A major downside.
The upside is that even if you aren't in the Valley, you can still read and see what's going on, in real time, without being pulled into the Valley echo-chamber and backslapping "ataboys" that are often made with good intentions but damage companies and entrepreneurs in the long run.
The glorious fact, and I do say glorious, is that now with all of the knowledge, mentors, books, forms, templates and so on I question this "race to setup in the Valley" Further, we should consider and clearly understand that most of the "tech pain" and "tech risk" has been taken entirely out of the startup equation.
To summarize, in effect, so many of these startups are post-tech. They surely use tech in their daily business or operations just like KFC, Burger King and UPS does but they aren't tech firms. This doesn't make them better or worse than any startup. But it does mean they should acknowledge this new reality as should every startups, potential entrepreneur as well as incumbent.
By James Santagata
Principal Consultant, SiliconEdge
As previously discussed, we focus on both the human and the strategic elements of personal and business success.
We'll dig down deep and explore and unpack the official narratives as well as the myths and memes as to why particular companies, products, people and technologies have succeeded or "failed" and we'll often end up with far different conclusions than are commonly published or discussed within the business and tech communities.
We'll also draw heavily upon some of the following subject matter to help make our points:
1. Evolutionary Psychology
2. Cognitive Science
3. Influence and Persuasion
4. Military History, Tactics and Strategy
5. Economics (primarily regulatory capture by rent-seeking incumbents)
6. Linguistics & Languages
7. Foreign Cultures
8. Seduction and Dating
And a whole lot more... stay tuned!
By James Santagata
Principal Consultant, SiliconEdge
Outside of questions pertaining to SiliconEdge's training and coaching services, two of the most common questions people ask us have to do with our company name.
Is there a particular meaning attached to the name? And if so, what is the philosophy behind it?
Simply stated SiliconEdge represents two concepts.
First, it represents the physical edge of Silicon Valley -- the millions and millions of miles of inhabited space where entrepreneurial and intrapreneurial skills and knowledge have been rapidly diffusing or have already diffused and the exciting innovation and creativity that have been taking place or are about to take place outside of the Valley as well as outside of the United States.
Second, and mostly importantly, if we accept Silicon Valley to be the mecca of technology, creativity, innovation and risk taking, then this "edge" is the next step, the next evolution of this mecca; not a physical edge but a philosophical edge.
To me, it's been very clear that this next evolutionary step is a philosophical shift in recognizing and optimizing the human element and the strategic element and nowhere will this become more true and more important than in the Valley which is increasing becoming a "post-tech" world although very few seem aware of this fact. This shift means that business and people will soon need to recognize that most of the problems they face are not technical or financial in nature but human (we address this in great detail).
To be sure, the intrinsic importance and value of the human element is not new and it has always been of critical importance even when it has gone unrecognized. And due to a number of factors the actual importance of the human element has often been masked, misinterpreted and even when it's been recognized the response has often been to simply address it with platitudes.
A common example of this is found in the expression, "Necessity is the mother of all invention".
Is this really the case? We think not.
To us, this human element relates to being able to most effectively and efficiently select, acquire, develop, deploy, motivate, manage and retain the right people necessary for your business to reach or exceed its objectives and goals as well as ensuring your continued competitiveness and viability in the fast moving, global business environment that is today's reality.
More specifically, the concrete skill sets that now provide the largest ROI and ROL for companies (and individuals) include:
Beyond this human element, the essence and philosophy of SiliconEdge is to always question the official narrative as to why a particular person, company, product or strategy was "successful" or "failed" and to identify and unpack the most powerful myths and memes to find the real lessons to be learned.
A very nice, heartwarming homeless veteran transformation. It really helps keep everything in perspective and I'll be surprised if you don't get at least a little misty-eyed.
By James Santagata
Principal Consultant, SiliconEdge
Over the years there's been much discussion in both the business press and the general press regarding the state of Japan's economy with many, including technology, economic and Japan-focused pundits, having concluded that Japan has become nothing short of a complete and utter "economic basket case".
Far worse, it's said that in the very near future Japan risks becoming completely irrelevant if it doesn't immediately act according to a particular set of "politically-correct prescriptions" which we'll discuss in more detail later. We are told that the situation Japan faces is dire even though Japan still retains the world's third largest GDP and was only just recently eclipsed by China -- The same China which has ten times the population as well as a supposedly long, advanced and storied civilization according to the pundits.
And yet, through all this doom and gloom, here we find little, lowly, Japan smack dab in the number three slot.
I. What Exactly Do The Pundits & Japan Watchers Say Is Wrong With Japan?
Specifically, technology and economic pundits as well as Japan watchers have come to the conclusion that Japan is ailed by the following:
1. Lack of innovation.
2. Lack of creativity.
3. Lack of Business-level English speakers (determined as a percentage of the adult working population).
4. Lack of inflation (we are told that Japan is in a devastating deflationary spiral).
5. Lack of diversity.
6. Lack of immigrants.
7. Lack of a globalized workforce (besides sufficient English skills it's said that the Japan workforce lacks a variety of soft & hard skills).
8. Lack of startups.
9. Lack of entrepreneurs.
10. Lack of babies / A falling fertility rate.
Whether one agrees with these pundits and the press or not, the very frequency and pervasiveness of such articles, comments, and themes clearly show how far Japan has fallen from its once rapid and presumed continuous economic ascendancy in the the mid-1960's. This kicked off with the 1964 Tokyo Summer Olympics and along with the debut of the Shinkansen / Bullet train service heralded Japan's post-war "Coming Out Party" and continued through the 1980's with a great many believing that eventual world economic dominance by Japan was a given. It may be hard to imagine now, but this was a time when Japan's economic dominance bloodied even American stalwarts such as Intel and General Motors and eventually had them hanging onto the ropes screaming "no mas! no mas!".
At the pinnacle of its economic power and influence, Japanese products evoked in consumers a promise of high-quality, innovativeness, and a fine attention to detail, all to be had by middle class consumers for a very reasonable price. At the same time, Japan's economic power and influence provoked sleepless nights if not abject horror in many American business managers who dreaded the prospect of facing this highly aggressive and unyielding competitive foe on the unforgiving battle field of business.
And let's be very clear about this fact: American business management feared Japan businesses and industry and for a very good reason. The Japanese economy and its assortment of high-performing companies were literally on fire and stomping out American, European competitors left and right.
From automobiles to semiconductors to video games to industrial test & measurement equipment to video consoles. Japanese products were often very innovative and almost always fantastic. And by no means were they all "copycat" or "fast follower" products (see: First Mover or Fast Follower? Harvard Business Review, June 14, 2012).
Consider Sony Trinitron tubes, Sony Walkmans (the inspiration for Apple's iPod), Toshiba's pioneering flash memory, Maganvox's Odyssey home video console (which was released a full 3-years before Atari's best-selling Pong) and, of course, the Sony Betamax video recorder as well as JVC's VHS players and VHS standard (which would set you back $4,600 while each blank tape ran for $72 based on inflation-adjusted dollars) which was adopted and also produced by Japanese electronics powerhouse Matsushita (now Panasonic).
The Japanese, coming from a small island nation roughly the size of Montana but with even less usable land and all but devoid of natural resources save for her people, were literally knocking the stuffing out of American industrial giants and America as a whole. Even more shocking was that this little resource devoid island nation was clobbering Superpower America which was overflowing with natural resources as well as having a population 2 times larger than Japan's!
The economic bloodshed was bad.
How bad was it? Let's just say that it got so bad that US businesses scrambled to lobby and plead for the US Congress to get involved, not only in terms of Japanese "voluntary" trade restraints but also in the development of SEMATECH (see also: Lessons From Sematech, MIT Technology Review, July 25, 2011). This political pressure later escalated with the goal of forcing Japanese firms to open manufacturing facilities stateside. (see: Transplant Car Makers Redefine The Industry, New York Times, June 23, 1992).
And yet, with the bursting of the Japanese economic bubble in the early 1990's, Japan is now often seen if not actively portrayed as a failing economy which is devoid of strength and slowly deflating over the last two decade -- the so-called "Lost Decade". At the same time, Japan is portrayed asemploying an army of graying, boring, robots and worker bee drones who themselves are devoid of even an ounce of creativity. If that weren't bad enough, we're now told that Japan's rapidly aging population along with the declining birthrate are about to take Japan underwater, once and for all.
The US and Western press no longer asks "Can the US and other developed nations compete with Japan?".
It's now, "Can Japan even compete globally?". And this rhetorical question is often posed with an air or sense of deep schadenfreude while at other times it's posed with nervous hand-wringing from Japonphiles as well as the Japanese themselves
We've repeatedly been told this narrative so many times that the answer to the question "Can Japan compete globally?" is already a foregone conclusion: Of course Japan can't compete globally we reflexively answer.
The adherence to this false but official narrative is so strong that everyone appear to be too busy witnessing "a failing Japan" to even contemplate a Japan that can compete. These forgone conclusions have now fully morphed into a set of very powerful myths, memes and misunderstandings.
This in turn raises two other questions:
Having read numerous articles such as this coming from both the technology and economic press, it seems that very, very few articles have approached this topic with a ground-level, brass-tacks understanding of what really goes on in Japan, socially, culturally and economically. Moreover, even fewer seem to have approached this with a positive worldview (versus the normative proposition) to ascertain what's really going on and what, if anything needs to be fixed or improved let alone how to do it. And by "how", I mean a real "how" not some socially-engineered pipe dream.
We've previously analyzed and destroyed a few of these memes, including that "Japan's troubles have do to with a lack of creativity and innovation on the part of Japanese" as well as the nagging question as to whether or not Japan can even compete globally. We've also touched upon and heavily damaged the "diversity is necessary for success" myth as well as the mythical "immigration is the solution to Japan's problems" narrative.
II. Debunked Myths & Memes About Japan
Not withstanding the reality of where Japan is today and what ails her, these previously discussed myths and memes have become so well accepted as "fact", that many Japan, economic and technology industry "analysts" and "pundits" simply rehash or cut 'n paste these old, tired and dangerously incorrect myths, memes and misunderstandings without ever stopping to think and consider how obviously and completely wrong and broken they really are.
III. What Japan Does And Doesn't Face
1. Japan does not lack of innovation.
2. Japan does not lack of creativity.
Japan and the Japanese people are extremely innovative and creative as we've discussed previously. It's not that Japan and the Japanese lack these attributes but rather that what Japan does lack (i.e., strong leaders with ability to productize and monetize creativity and innovativity) is being mistaken for a supposed lack of innovativity and creativity.
If you are now competing with Japan or if it's likely that you may compete with Japan one day, swallowing such a broken narrative is perhaps as dangerous as mistaking some range bum's politeness for weakness as illustrated in this Clint Eastwood classic:
What Specifically Is Japan Lacking:
a. The ability to productize its innovations & creativity.
b. The ability to monetize its innovations & creativity which it has productized.
c. Real leaders that will drive a. + b forward and into a long-term, sustainably profitable reality.
3. Japan does not lack of business-level speakers:
While you can possibly never have too many fluent speakers of any language, especially when it concerns a global business, scientific and cultural language like English (this is because English language ability provides the greatest marginal utility of all second languages in almost every case) it's still a fallacy to assume that you need to have everyone of your citizens possessing English fluency.
It's no different than running a military operation and employing the concept of the "tip of the sword" or "tip of the spear". You may use pilots to drop ordnance from the air but not everyone in the military and not everyone even in your branch of the service or unit needs to be a trained pilot.
Of course not. That would be ludicrous.
They don't even all need to know about airplanes. Some, like flight mechanics, may need to know more about aircraft than others, but do you really think that the cooks, supply line drivers, doctors or chaplains do? Of course not. How silly would that be and what a waste of resources it would be as well.
As an added benefit, by maintaining a relatively limited pool of strong globally-minded and fluent English-speakers while having the main population relatively "weak" in these skills, you've just created a fantastic, practically impenetrable barrier to entry to foreign competition. Yet, simultaneously by deploying your own "tip of the sword", you can approach, enter and take foreign markets as desired.
4. Japan is not in a devastating deflationary spiral
We are told that Japan needs more inflation - that inflation is your friend. But since when has inflation become a "good thing"? Certainly not for producers and especially not for consumers and savers.
Further, how can it be stated that Japan is in a deflationary cycle when it's clear that Japan is simply recovering from an inflationary bubble? Things are continuing to deflate because equilibrium hasn't been reached yet, therefore setting the baseline of this analysis from the top of the bubble is as idiotic as having your pediatrician worry about your child's temperature because the baseline of their temperature reading was taken at 103F when the child was exhibiting a high-grade fever. Now imagine that the child's fever has broken and their temperature is spiraling down to 98.6F, the "normal basal temperature". Is this something to worry about or is that simply the return of the child's temperature to the basal temperature and something to celebrate?
5. Japan doesn't have a diversity problem
Diversity as well as the benefits, value and costs of diversity (few rarely acknowledge let alone consider the costs of diversity) critically depend on you one defines it. If by "diversity" one simply means a quota of different races, ethnicities or the possession of a different set of reproductive organs, then no, diversity by itself has absolutely zero value.
If by diversity one means possessing, sharing and exhibiting different viewpoints and abilities all within a particular or specific band whereby the various individuals can still work cohesively as a team and support each others, then most certainly diversity has measurable value if not immense value.
In practice, true diversity would be having two Japanese come from completely different backgrounds, even if they are both men or both women, as compared to having one Japanese male hailing from Kyoto University and the other from Tokyo University both of whom studied the same subject matter.
At the other extreme, coupling an Israeli scientist who is an expert in materials science with an illiterate Sudanese goat herder probably won't add any value either. This would especially be the case, if the two parties involved don't speak the same language or have any means to communicate in a mutually intelligible language or system. This gap and mismatch would perhaps be even more apparent if their objective was to discuss the advanced development of carbon nano-tubes.
I'm well-aware and understand that this is heartbreaking if not earth shattering for the pro-diversity-at-any-cost social-engineers out there, but the fact remains, Japan is one of the most homogeneous countries in the world and uet it's a smashing success as is Korea. And Korea is arguably more homogeneous than Japan!
Meanwhile, other highly diverse societies have eaten themselves for lunch such as the former Yugoslavia while an analysis of other diverse societies often suggests that a very small percent of the population is doing the heavy lifting (this is often captured and reflected in large income disparities assuming that government regulations and interventions haven't distorted the market by fouling pricing signals, blocking competition or picking winners and losers).
And as repulsive as Jim Crow-era laws and apartheid is and was, during this reprehensibly time and with an extremely non-diverse workforce, the US arguably reached the pinnacle of its vaunted space program which culminated in several lunar landings. Since then the US hasn't revisited the moon nor made any substantial man-driven landings to Mars (that is put a human on Mars).
This then begs the question. "Where exactly is the "diversity dividend" we've been promised?
6. Japanese doesn't lack immigrants because it doesn't need wholesale immigration
What makes Japan work is its strongly-coupled and cohesive society. This doesn't rule out immigrants as immigrants can, would, could and do help Japan but it must recognize that immigrants will only help Japan or any nation when there is a policy based on the merit and value the immigrant brings or is expected to bring to the host name (as expressed by "life time value") versus the societal carrying costs over the immigrant's lifespan.
Japan would be well advised to avoid what has happened to not only the US but also Europe where never ending flows of immigrants,
in particular low skilled and/or non-assimilating immigrants are bringing negative externalities as a whole. Obviously, there are very productive and bright immigrants which should be welcomed, but we must ask if family chain immigration should be allowed and to what extent should anyone be welcomed without regard to their financial and societal contribution as well as financial and social impact to the host nation?
For those that consider this cruel and cynical, let me ask you this:
If not, your answers are "no", then it it would seriously behoove you to consider why you harbor such a double-standard regarding national immigration since it is just a larger version of the family structure.
This issue will be even more critical as we continue racing toward Peak Jobs (see: "Not Peak Oil But Peak Jobs") and certain societies are beginning to strain with overpopulation and large, unemployed or even underemployed layers of society.
The solution is to understand that a small, highly-educated, cohesive and tightly-knit society is the society that is well positioned for the 21st century. Japan and Korea are obvious choices that come to mind.
If you doubt this, simply consider the reaction of two very different societies and cultures to natural disasters that have befallen them. Namely, consider Japan's Tohoku earthquake and New Orlean's Hurricane Katrina where even the local police were caught on camera looting!
7. A Globalized workforce is not a panacea but can be very important (this includes business-level English skills)
Although Japan does have some very capable workers, this is a critical issue that they face in some situations. However, while the English language component is important, even more so is critical thinking, overseas sales ability and psychological aggressiveness-- this is true even if these skills are taught in Japanese and the Japanese students are monolingual (Japanese only speakers).
8. Startups & entrepreneurs is critical for Japan's economy
This is a problem which is mainly due to various cultural and social conventions along with a strict, domestic regulatory environment (more about this later).
9. Lack of babies / falling fertility rate is a pro or con
This can be good or bad. By focusing on factory automation (FA), autonomous systems and robotics, Japan can overcome any such problem. If Japan's decides they need more flesh and blood I would suggest that rather than "import immigrants" they should do what countries like China, India, Indonesia and Mexico do so prolifically -- make their own babies the fun and natural way. There are a number of things that the Japanese government can do, policy-wise to encourage this which we'll discuss later.
IV. The Real Problems & Solutions
There are a number of solutions to the problems that Japan faces, but most of the solutions necessary to remedy these issues will go against what Japan's domestic incumbents and power structure want and what have installed in Japan for their own benefit. We see this in the so-called Abenomics where Prime Minister Abe's economic policies, the so-called Three Arrows are potentially disastrous for Japan. Prime Minister Abe was presented with a fantastic opportunity to remake Japan and have her again challenge the world, instead he chickened out, putting a rope around Japan's neck while making her stand on a wobbly chair amidst a chaotic, soapy floor...we all know how this will turnout.
Prime Minister Abe listened to Japanese businesses who wanted the easy way out (devaluing yen) rather than having to compete globally as this would have required many of these companies to fully restructuring their businesses. In response, Abe pushed forward with a plan to drive down the yen by easing monetary policy (i.e., printing money or creating digital credits as they do today) and hoping to stoke inflation (as though that were a good thing). After those two "arrows" were in place, he had hoped to push through some critical economic reforms.
This was very, very poorly played.
By weakening the yen, at the very same time that Japan was experiencing record fuel imports (due to the shut down of the country's nuclear reactors), all that was accomplished was a short-term shifting of non-sustainable profits to the exporters while shifting
the cost of the increased imports (vis-a-vis the weaker yen) onto consumers. Lastly, I can guarantee you that the very structural changes which Japan needs the most won't be proposed and even if they are proposed, they will either be stomped out or be so thoroughly neutered as to be ineffective.
V What Would Have Been The Smart Play & What Really Ails Japan?
The smart play would have been to keep the yen strong -- let it stay there -- then, simply work to encourage Japanese firms to engage in heavy non-yen foreign-based M&A. This would driven down the yen (which is what exporters want) but Japanese firms would have been holding foreign-based non-yen denominated assets and since the Japanese need to improve their global operations, much of that strong yen could have been used to purchase the critical training and know-how needed, again trading a strong yen for non-yen denominated training and knowledge.
By combining this overseas asset purchase spree with the increased energy imports, the yen would have still been devalued (albeit more slowly), however, Japan would be holding foreign assets and exporters would quickly understand from the fierce discipline meted out by the market, that they needed to improve their operational effectiveness and efficiency and not simply rely on a "cheap yen".
The next step would be to understand that Japan's current business environment is full of deadwood and heavy overgrowth. This deadwood and undergrowth needs to be cleared out and the way to do that is make the Japanese economy at a minimum neutral to if not lovingly-biased towards startups. Once in place, an army of these startups would begin to nip at the incumbents' heels prodding even the most obtuse or ossified of firms to retool and restructure. Eventually those firms that couldn't compete or refused to compete (and yes, there are some very stubbornly obtuse and ossified firms in Japan) would be killed, eaten and composted with their ashes and assets, talent and IP being quickly recycled and allowed to blow with the winds across the Japan business community.
It would also ensure that Japanese successes (and failures) are kept in Japan. Currently, due to the lack of a vibrant startup ecosystem, when big ossified Japanese firms stumble and fall or implode, it is the foreign firms that benefit and end up eating the Japanese firms bento box. For example, Apple benefited (iPod, iTunes) from Sony's stumbles as did Samsung from both Panasonic's and Sony's travails (actually it could be said that these firms, Panasonic and Sony, fell flat on their collective faces).
Don't fool yourself into believing that this concept I'm proposing is somehow unique -- it isn't. It's a plain vanilla, common sense concept and this is actually what the US in general and Silicon Valley in particular does so well.
Compete, kill, eat, compost, spread the ashes and recycle....
In US tech regions in general, and in Silicon Valley in particular, there is fierce intra-industry competition where firms are wiped out and crushed on a daily basis until a victor stands tall and dominates the industry. Only to have it happen again as this new victor is mercilessly pummeled and cut down. The names may change, but the winners are almost always American.
Well, how about computers and the computer industry?
ENIAC, UNIVAC, Wang, DEC, IBM, Eagle Computers, Kaypro, Osborne, Compaq, Tandem, Dell, HP and so on.
See any patterns?
Do the same for chips, for databases and so on.
In fact, just about the only area in the US where you won't find this fierce intra-industry competitiveness is where the US government has intervened and distorted the market (e.g, labor, regulations, pricing, etc.). This primarily occurs when rent-seeking incumbents engage in the regulatory capture of markets.
This is why the US auto industry was wrecked -- regulatory capture and regulations hobbled and harmed it, until foreign competition like the Japanese and Germans crushed the US domestics. Were it not for the US governments over regulation of the automotive industry, we would have seen many automotive startups begin to form and then compete with and eventually force the obtuse and ossified US automotive giants to change, piston by piston, engine block by engine block. crankshaft by crankshaft..
Those firms that refused to change or couldn't change would be slaughtered and then composted.
And this is exactly what Japan faces as its number one problem.
The endemic regulatory capture in Japan needs to be eliminated. Beyond that, entrepreneurs face serious hurdles with capital accumulation and company formation along with facing very serious (although it's getting better) social, financial and career risks.
From this there are even further knock-on effects whereby mid-hires or hires from direct competitors only happen rarely in Japan and often when these types of hiring occur it's driven by the Gaishikei, the so-called foreign-capital firms (think: Microsoft, Oracle, Altera, Coach, Starbucks, McDonalds, etc.). This refusal to hire mid-career talent effectively prevents individual risk taking as well as precludes intra-industry and cross-industry cross-pollination.
All of this greatly dampens an entrepreneur's appetite for risk. Interestingly enough, though, Korean and Chinese firms have begun to hire mid-hires as well as very talented "early-retired" or "moth-balled" Japanese executive and engineers.
A vibrant, healthy and properly functioning labor market will exhibit strong labor mobility - for the most part Japan doesn't have labor mobility although it has made huge changes in the last 19 years and even more so in the last 4 years -- but it still has a long way to go.
By making these structural changes, primarily with adjustments to various regulations and some tax reforms to favor capital accumulation and company formation, Japan could rocket upwards by unleashing her creative, innovative people and giving them the opportunity not only to productize but more importantly to monetize their efforts.
This would most likely mean that many of the big Japanese brands that we know today would wither away (assuming they refuse to or can't modernize and compete) but this is no different than what we've seen happen in the US' relatively more vibrant economy.
As it stands now, Japan's obtuse and ossified incumbents are more than happy to go down with the ship and they apparently have no qualms about taking the entire workforce and nation with them.
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