When you start a company, every obstacle is a challenge. Everyone’s out to get you: That’s just the way it is, and you work around it. What’s available to the big guys isn’t available to you, like bank credit. That’s an advantage; you develop a low-cost product. What if you can’t find anyone to share your vision? Great. When your ship comes in, you won’t have any competition. Are the bureaucrats driving you crazy? Fantastic. You’ll neutralize them by playing them against one another. Is your company so small you have to do everything yourself? Wait until you’re so big you can’t. That’s worse. I know.
At Bloomberg, we had a major obstacle to overcome after only five years in business: history. As part of our second Terminal sale to Merrill Lynch, we had made an agreement that was limiting our expansion. Merrill had leased more than a thousand of our machines at $1,000 each per month. Simultaneously, they paid $30 million for 30 percent of Bloomberg’s equity. We, in turn, agreed not to sell products for five years to their fourteen major competitors (Bankers Trust New York Corp.; Bear, Stearns & Co.; Citicorp; Daiwa Securities Corp.; Drexel Burnham Lambert & Co.; E.F. Hutton & Co.; First Boston Corp.; Goldman Sachs & Co.; J.P. Morgan & Co.; Kidder Peabody & Co.; Lehman Brothers & Co.; Morgan Stanley & Co.; Nomura & Co.; and Salomon Brothers Inc.).
This restrictive term had three more years to run in 1988 when I went to see Merrill’s president, Dan Tully. Merrill was enjoying the exclusivity it had negotiated. It gave Merrill the unique conduit to the world’s central banks, pension funds, insurance companies, and investment managers that increased Merrill’s ability to capture institutional business. Additionally, by using our risk management and trade-processing software, it was saving tens of millions of dollars each year in reduced trading losses and lower clerical expenses. Needless to say, the heads of each of Merrill’s units (who were paid on their own department’s performance) wanted this competitive advantage to continue.
Tully, on the other hand, had to take a broader view. In addition to the tactical advantages the exclusivity gave Merrill, he had to consider its investment in Bloomberg as a company. That investment would be worth a lot more if everyone could buy Bloomberg subscriptions. And it wasn’t just added value arising from the extra Terminals the fourteen embargoed firms would rent. A system used by all financial companies could essentially become an exchange. If everyone had access, then Merrill would have a stake in something much bigger than just a parochial supplier.
After almost a year of discussion, Dan acquiesced to our request to be released from the exclusivity clause. He thought at that point that Merrill had such a significant edge in experience with the Bloomberg Terminal, it would take these other firms years to appreciate the benefits Bloomberg provided in cost reduction and improved controls, to order the Terminals and have them installed, and to train their employees in their use. In the meantime, as long as everyone could participate, institutional clients would come to accept Bloomberg as their preferred conduit to Wall Street. So, for years, even though Merrill wouldn’t technically have exclusivity, it would have unique contacts the others could only dream of.
Given the way it turned out, Tully showed himself a master strategist. Three of the restricted firms went out of business (Drexel, Hutton, and Kidder). The Japanese firms (Daiwa and Nomura) imploded as their penetration of world markets failed to materialize. And the three banks (Bankers Trust, Citicorp, and J.P. Morgan) didn’t take over the securities business the way conventional wisdom of the mid-1980s had predicted they would. In the meantime, Merrill kept growing and dominating in every area where it entrusted its processing to Bloomberg, particularly compared to the remaining six formerly embargoed brokerage firms.
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By the late 1980s, Bloomberg had established offices in New York, London, Sydney, and Tokyo, with more than five thousand customers spread over forty countries. We were growing 25 to 30 percent annually and adding staff almost as fast as our business enlarged. This presented new challenges in running our organization.
Companies expanding at that rate are particularly vulnerable to supervisory gridlock and loss of control. Often, the original managers’ abilities fall short, as administrative and leadership skills, compared to product knowledge, become key. Letting go and delegating sometimes proves impossible, often with disastrous consequences.
I was, of course, there in the beginning; I too think I can do everything better than anyone else. I believe my design instinct, sales savvy, and management skills are the best around. Still, my ego does allow for the remote possibility that someone might be as good at one or two little things. I’ve admitted there’s a slim chance that ideas coming from others could be valuable as well. In other words, I’m the same as every other entrepreneur. But at least I know what I don’t know.
Over the years, as Bloomberg grew, I managed to delegate the running of the established parts of Bloomberg and focus on our new projects. No longer would I make most decisions day to day. My function became more about encouraging others, soliciting new ideas from everyone (“Let’s develop a real estate product”), and making sure we allocate resources to new, innovative, and risky development projects (“We need to do something in insurance”). Still today, my job is to ensure that new products come alive at Bloomberg and to integrate them with the rest of our system (“Let’s go after the energy market’’). I direct customer feedback to the appropriate parties and see that it gets listened to (“What about a corporate-loan database?”). And once a new project is going—once I’ve added my ten cents—I make sure that we put people in charge who can take it to the next level—and that the rest of us (including me) leave them alone for a while to do their own thing.
At the beginning, I sat with the programmers and watched, learned, and oversaw. Later, I did the same with the salesforce. Then service people got much of my time. At one point, I made myriad phone calls each day to the data-collection group. But as each area developed its own experienced and talented supervisors (almost all our management is “homegrown”), my involvement with that group diminished. Partly, it was a conscious effort to avoid diluting their authority. To some extent, it was just the lack of time that prevented me from micromanaging. Mostly though, it was that the people we put in charge didn’t need me anymore. They were the new guys, and as Forbes magazine claims I said in the 1990s, “The new guy can do it better.” I still believe that.
One growth impediment I still wrestle with personally, however, is our chronic office space problem. Every time we’ve leased real estate, it’s proven to be too small for our needs. Our crowding shows my inability to plan for our rate of growth, but it’s also a safety valve: Space available puts a limit on how many people we can hire, and, God forbid, should sales slow, keeps the overhead in check. One time, though, we were so out of space in our New York sales office, a carpenter came in on a Friday night after everyone had gone and cut eighteen inches in width from each desk. We then added new ones of the same type in the reclaimed space. It was hours into Monday morning before anyone figured out why suddenly everyone had a seat. As I always maintain, if you really want to do it, there’s a way.
We always have our offices in the best and most expensive parts of town while our competitors look for bargain space in the lowrent districts. It gets back to who you think is more important: your people or outsiders. I believe our people matter. The best for us. This is true not only at “headquarters,” but everyplace. Our offices around the globe are all at the best locations, with interiors that offer a feeling of luxury and comfort for every employee. Big saltwater fish tanks provide light, white noise, and some relaxation. Glass-walled conference rooms improve interaction. No one has a private office, including me. The waiting area for guests is in the middle of our employees’ snack bar: It shows off our people and the normal excitement at our company. If being invisible from your colleagues is what you crave, we’re not the right place for you.
I’ve always believed that management’s ability to influence work habits through edict is limited. Ordering something gets it done, perhaps. When you turn your back, though, employees tend to regress to the same old ways. Physical plant, however, has a much more lasting impact. Ours is an open plan layout. People must develop the ability to concentrate, despite myriad distractions. But the good part is, they absorb information peripherally while focusing elsewhere. Openness also constantly puts them in front of their peers, preventing childish fantasies that coworkers are out to get them. As is true with markets, transparency produces fairness. I issue proclamations telling everyone to work together, but it’s the lack of walls that really makes them do it. (Of course, this will last only until the next management team brings in the construction company to build barriers, something they inevitably will do the day after my funeral.)
Openness also shows off our most important asset, our people. They are the company. You can replace our technology, data, reputation, and clients, but you cannot duplicate the group we’ve put together and the culture they’ve developed. We are a team. Every year, to increase intracompany and interfamily communication, we have a huge company summer picnic with spouses, children, and significant others. (Our kids learn where Mommy and Daddy go during the day and whom they work with.) We constantly encourage one another. (We play sports together, work on charities as a group, teach one another new skills.) Our young people socialize with one another. (We’ve probably been more effective at introducing people to their future spouses than most dating apps.) We work together. (A number of people have told me that every employee they’ve seen at Bloomberg has had a smile on his or her face, and that wasn’t true elsewhere. I hope they’re right.)
Compare us to our competitors. Typically, they have reception areas with deeper carpeting and more wood paneling than elsewhere in their organizations. Their receptionists are chosen for physical attractiveness rather than interpersonal skills. The average employee there is relegated to non-VIP elevators. Clients see only representatives who are sanitized, less human than presentable. What are those companies ashamed of? The fact that your average computer programmer dresses differently from the typical salesperson, or has longer hair, or is shy? That’s what programmers are. So what? This is who we are.
In 2017 we opened our new European headquarters in London. It was the first time we constructed our own building. We designed it, with the brilliant British architect Norman Foster, to be a physical manifestation of our company’s core values, starting with openness and transparency, which are taken to new level. In the middle of the building, instead of an elevator bank, is a soaring central ramp, where employees and visitors can interact and share ideas. Work stations are circular, to make it easier to interact with others, and they surround communal tables where impromptu meetings can occur. Everything is designed to maximize interaction and collaboration. That’s what it’s all about. Our goal was to create a building that our employees would be proud of and that our clients would want to come to. And we did that not only through innovative design, but also through art, both inside and outside the building, which excites and inspires people—and serves as a reminder to everyone that we value creativity. The reviews of the building were incredibly positive. One called the building “sexy on the inside and sophisticated all around.” Another headline read: “Welcome to the Office of the Future.”
Office spaces can say a lot about a company. I like what ours say about us.
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We handle perks differently, too. At Bloomberg, as you get promoted and your compensation increases, you aren’t expected to work less and take more vacations. Quite the contrary. You’re more valuable, you get paid more, and your coworkers should get more out of you. The increase in your compensation is for current and future services, not rewards for past performance. Don’t want to commit to that? Then don’t accept the promotion and raise. We’ll have no hard feelings—and someone else would love the chance.
We have no reserved parking spaces for senior executives. If you want to leave your car right by the door, just come in earlier. Creating class distinctions isn’t constructive. That’s why I don’t believe in executive dining rooms either. The issue isn’t fairness. If we constantly remind those people at the bottom that they are not at the top, do you really expect them to be “gung ho” about the company? Remember, remove the bottom 50 percent and half of everyone remaining joins that lower group instantly.
If we expect dedication, cooperation, and performance, we’ve got to protect, assist, develop, and pay. The social contracts work two ways. The Bible says you reap what you sow. Yes, we expect you to put in long hours. You absolutely must show up for work even on those days when a lay-about seems more attractive. Sure, you sometimes have to work alongside people who aren’t your favorites. Of course, you’ve got to produce rather than lollygag around the water cooler. How else can we pay all employees more each year?
Our company has to do its part. That ranges from physical security to disease and injury prevention programs, and to the most expansive health care plan money can buy. Our company builds employees: Constant training, retraining, coaching, and instruction from on-staff, full-time experts increase everyone’s worth. Our company creates opportunities: Management that’s promoted from within, transfers to other offices around the world, and chances to move to new areas make us different. Our company shares its financial success: High salaries, significant bonuses, and generous expense reimbursement are part of everyone’s package.
Do our employment policies work? Compare us to our competitors or even to any similar-size organization. We have phenomenally low turnover for a company employing many young programmers, salespeople, and reporters, and we attract a pretty diverse labor force. In 2018 the Columbia Journalism Review found that Bloomberg has one of the most generous parental leave policies among major media organizations. Our assistance to young graduating students beginning careers is legendary. Almost everyone wants to join us—and only a handful elect to leave.
Loyalty is everything. Our people expect me to have it to them, and vice versa. Be honest, work hard, treat each other fairly and openly. Add a dash of competency, and we’ll be together for a long time.
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In business, growth is a necessity: You grow or you get out. No company can stay anchored to the status quo, no matter how successful it is. Customers come and go; their needs change with time, and the services that help them do their jobs are always in flux. Woe to the supplier without the best offering. If you’re depending on longtime personal relationships, and not the quality of what you provide, start working on your golf game: You have a friendship with the buyer—your competitor already has one with his or her successor!
Nor can a company depend on just the best offerings to carry the day either. They’re always transitory or eventually the patent just runs out. Remember Wang’s word processor, Prime Computer’s mini, or Sony’s Beta? Few people do. Consumers have an insatiable appetite for improving their lives—and zero loyalty to past products or brand names. Time may be kind to great literature, art, music, dance, design, or philosophy, but in the commercial world, it’s out with the old, in with the new, overnight.
Every day at Bloomberg, we face challenges that jeopardize our comfortable life. We constantly have to fight established competitors trying to take food out of our children’s mouths. And then there are the start-ups that want to destroy everything we’ve built. Stand still and their products will overtake ours. If we’re not careful, one day it’ll be easier for them to add our features to their products than for us to add theirs to ours. Growth makes us a moving target. No growth makes us a sitting duck.
What makes the challenge even tougher is the threat of being swallowed by industrial giants who covet our business after we establish a market. These interlopers buy their way in and wreck the economics we have built. They hire away our people with preemptory starting salaries, not realizing that few employees of any company are that valuable when stripped of the team doing the blocking and tackling.
And there’s another insidious source of competition waiting to get us, one that’s particularly galling. Our customers get blasé about our service. If we provide it competently and consistently, they think other companies must be able to do so as well. All of a sudden, these customers start calling in others to make proposals and pressing us to reduce prices. Then they start thinking they can provide the same product or service more cheaply themselves. Perhaps they can even build it and sell it to others as well. So, to survive, we must grow and improve. Any supplier who offers today what it sold yesterday will be out of business tomorrow.
Companies must grow for internal reasons, too. Without the challenge of the new, employees’ minds and spirits atrophy. Work devolves from fun to drudgery. Without growth, no new opportunities are created, and employees who work hard to get a promotion have no place to go. If we tried to promote them anyway, we’d push the most productive people into meaningless senior slots. That would neutralize our greatest contributors. So we must grow to create new valuable positions, or watch our best and brightest quit for management jobs elsewhere and dissipate everything we’ve built over the years.
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Bloomberg grows primarily in the traditional way: We expand our basic product. After all, that’s what we do best. As the old western song goes, “Dance with the one that brung ya!”
We make our products global. As our clients, opportunities, and suppliers move to new cities, new countries, even new continents, so do we. Of course, other physical locations require that Bloomberg employees master different languages, understand unconventional conventions in bond calculations, handle unfamiliar customs in client service. We must deal with employment laws inconsistent with those at home, build new relationships with unknown sources, and cope with unknown regulators in everything. We must adapt our product to other markets, other types of securities, other formats, and other terminologies.
We increase our product’s functionality. Customers’ needs evolve and we provide what they want or lose their business. For example, Bloomberg disseminates information on companies, including earnings statements, balance sheets, press releases, news stories, and government filings. Bloomberg also provides myriad details of the securities these companies sell, such as terms, conditions, restrictions, holders, and transaction prices—as well as information on who runs these companies, who analyzes their prospects, who trades their securities, who invests in their future, their supply chains, competitors, and top holders of debt and equity. And through Bloomberg Intelligence, we provide a research service to clients that capitalizes on the Terminal’s extensive data and tools. Our team uses the Terminal to provide in-depth analysis on what is happening at companies and within industries and markets, including both equity and credit markets. We examine their strategies and the factors that could affect them, including government policy and litigation. We publish primers on some 2,000 companies and offer in-depth analysis of about 140 industries to help our customers to shape their decisions. Traditionally, market participants relied on big banks to provide this kind of research, but the potential for conflicts of interest helped create an opening for us. At Bloomberg, our only interest is in providing the best possible data, information, and insights. Plus, the banks faced growing difficulty in getting adequately compensated for their research. So we stepped in to offer research content as the banks continued to move into more personalized research services and more profitable transactions and products. It’s been win-win-win for all.
When you add a new product to your company lineup, existing ones usually need modification too. Products are interrelated. Concepts developed by one group of clients are envied by others, particularly fashionable terminology and technology. Your average customer may use only the conventional, but if you lose your reputation as the expert—the guru, the one who’s pushing the envelope—you’ll lose the loyalty of all those who live by association. Constant “modernization” is just part of the game.
Just growing a product isn’t enough to make it succeed, though. Infrastructure must expand too. Backup, contingency planning, reliability, security all become even more important than new offerings. The longer you have clients, the more they depend on you. The more clients you have, the more you have to lose. The more you’re viewed as the establishment, the more the old reliable reputation is worth.
Keeping serviceable what you’ve built is a never-ending process. Every day, something you never thought could go wrong, does. So every day plus one, you fix a problem you previously didn’t know you had. Of course, you’re locking the barn door after the horse got out—but now the next horse can’t escape. Each day, there’s one fewer animal potentially running amok. With time, you grow your service record. It gets better and better—never perfect, but more and more acceptable.
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Our company standards also grow and evolve. No company’s accounting systems adequately accommodate growth without constant enhancement, nor do any company’s stated ethics and behavioral practices survive long without modification, particularly as you go worldwide. Practices acceptable here are often taboo in other countries, and vice versa. Disclosure, drug testing, “considerations” (bribes, to an American), harassment, fraternization all have very different meanings in different cultures. What is normal or correct in one place may be blasphemous in another. What is in the public domain here may be a state secret there, with disclosure being a capital offense.
Employment practices—hiring, firing, vacation, maternity, disability, and compensation laws—vary greatly worldwide. Using constant standards can cause no end of confusion and illegality. For any company doing business in two or more countries, it’s perfectly possible that a single policy complies with rules in one place and violates the law in another. As a company expands, growth, flexibility, and fresh expertise in the human resources department must occur.
Similarly with security. We fret about losing our intellectual property rights and our wealth, but if we’re not vigilant, we could lose things equally as important, our physical well-being and freedom of speech. Not all parts of the world are safe or open. At Bloomberg, we wear identification badges around our necks at work—no exceptions, including me. It’s another case of how leadership by example is key.
One area where we haven’t changed is our commitment to gender equality. When we decided to open an office in Japan, the two pieces of advice I got from everyone were: get a Japanese partner (satisfying government regulations would be impossible without an insider’s help, I was told), and don’t send women (Japanese businesswomen in those days wore uniforms and served tea). Bloomberg being Bloomberg, we opened without a local partner (and had no governmental problems) and sent two women to run the place (who were accepted and able to hire men to work under them). So much for convention.
I’d like the company to be 50 percent male and 50 percent female at every level, in every function, in every one of our offices. (Remember, I have two daughters—and I want them to have the same opportunities as your two sons!) Not all of our customers have the same policy. They don’t care that the world’s population is roughly half women and half men. Sometimes, we would go to high-level meetings where everyone not serving tea was male. Or clients would ignore our female manager and address all conversation to our male representative sitting in the meeting right next to her. Thankfully, that is changing, and more companies are embracing our view of equality.
We’ve always done what we think right, and we’ve found that the best way to encourage others to join us is to do what we do best: make accurate data—in this case on gender equality—more broadly available. Investors have noticed that there is some evidence showing that gender equality policies and practices can benefit a company’s performance, including its ability to attract and retain talent. And yet there was virtually no information on which companies are leaders on this issue. To change that, we launched the Bloomberg Financial Services Gender Equality Index, and the positive response we received from firms led us to expand the index to cover more industries. Bloomberg has always been dedicated to making markets more transparent, and we’ve always been dedicated to equality. It’s another way we can better serve our customers—and help make the world a more equal place, too.
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The other basic way to grow is by product diversification—entering new businesses that are at best only tangential to a company’s existing offerings. Companies diversify with a variety of motives. New products look appealing, and management thinks its traditional endeavors have little earnings potential left. The marketplace predicts a period of slow growth (read low price/earnings ratio, thus a low price for the company’s stock, thus possible criticism of management). Or maybe the CEO is bored and wants the glamour of being in more trendy industries. Others make the old classic synergy argument that one plus one is worth more than two, like when Scientific Data Systems was bought. (Xerox paid $1 billion in 1969 for this “strategic fit” company—and wrote it down to zero only seven years later. A billion dollars was a lot of money in those days.)
Occasionally, product diversification actually benefits the company’s employees, stockholders, and customers. Mostly, though, the history of corporate growth through new directions is disappointing. Could it be that, often, no growth in a company’s traditional business is caused by poor management, and that lousy supervision and erratic decision making are the real consistent parts of these companies?
When is diversification appropriate? Only when it fits with what you already do. Companies have ethics, talents, and structures suited to specific businesses. Those who think their skills and management abilities are easily transferable aren’t being realistic: Generally, they’re not. Synergies are seldom more than constructs for consultants’ reports. (Apples and oranges are both fruits from trees, but are grown in totally different environments by farmers with differing skills, tools, time frames, and economics. Buying an apple orchard when one already owns an orange grove probably just adds rotting apples and eliminates time to care for the oranges.)
Well-run organizations, whether commercial, political, educational, military, or philanthropic, have conceptual goals stated long in advance. New possibilities are always tested for fit against these predefined objectives. This insistence on a prior specific mission statement against which all proposed actions must be judged tempers the emotions following the “fad of the day.” Smart managements plan strategically beforehand, and don’t do anything tactical that’s not consistent with the plan—particularly in the heat of some once-in-a-lifetime, do-it-now-or-lose-it-forever opportunity brought to you by a breathless investment banker. If it’s not your business, it probably shouldn’t be.
The same applies to Bloomberg. We’ve grown dramatically over the years, and our diversification has stayed consistent with our mission statement. Our goal is to provide the information and analytical capabilities serious professionals need to be well-rounded and do their jobs. The focus of our computer Terminal product is clearly for the sophisticated users, as it is for our radio and television programs. The publishing parts of our company target investment professionals or consumers interested in personal finance and markets, or the broader business world and how politics affect it. So far, what we’ve done fits.
After we look for relevancy versus our strategic objectives, we at Bloomberg look for overlaps with existing products. Will it help what we already do? Can we use the same people? Is the technology required consistent with what we know how to produce? What can we do that our competitors can’t? There’s no reason to do a copycat product. Consumers can just as easily buy from others. Do we have limitations that would disadvantage us? As a news organization, we have great access, but we can’t be seen as a promotional device for our sources. Last, we insist on doing profitable things. I’ve never believed Bloomberg should be a charitable institution—instead, we give nearly all of our profits to Bloomberg Philanthropies.
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We’re frequently presented with opportunities to grow or diversify by acquisition. I almost never let a seller’s representative send us offering memoranda. If we’re not seriously interested in making a bid, it’s disingenuous to look; and I really don’t care anyway. It may be interesting to know what others have done, but the only thing that matters is what our customers need. Looking would just get us worried and have our practices influenced by managers we’d never hire.
At Bloomberg, we’re builders, not buyers. I’d make a terrible venture capitalist; every company I look at seems overpriced. I always think we can create it more cheaply ourselves. Whenever I think goodwill (the accounting treatment for paying too much) is justified, I rush to take a cold shower. What’s for sale may be worth it, but why? All these companies appear to me to have problems I’d find difficult to fix, something I’d have to do since, if I ever did buy anything, I’d want to make it my baby and grow it forever. I’m not a seller either.
The real problem with acquisitions is that neither corporate cultures nor technologies mix. The momentary advantage to the buyer adding an existing operation often gets dissipated quickly, and then one’s stuck with the reasons it was for sale in the first place. More times than not, when two good companies combine, they stay as separate functional organizations, having contact only through common ownership. When poorly run companies get together, they tend to do it at the operating level, where the worst of both can do the most damage to each other. It’s probably inscribed someplace (or should be): Two negatives always produce something worse!
In our company’s history, we’ve made only a few major purchases, including Businessweek; the Bureau of National Affairs (now Bloomberg BNA), which provides in-depth analysis of legal, regulatory, and tax-related issues; and the Barclays Risk Analytics and Index Solutions, which is highly valued by our customers—and potential customers.
All have worked out, but our modus operandi remains building from within, which avoids the bet-the-store, high-risk gambles that often characterize large takeovers, such as the disastrous TimeWarner-AOL deal. Maybe I’m just not that smart. When I’m looking to expand, I prefer starting with a little capital that we can afford to lose and a few people we can always reassign to other projects. This way, we never feel we’re committed to stay with our mistakes, nor are we so overextended we can’t handle other additional experimental ventures simultaneously. (Out of deference to our professional service providers, I won’t mention the savings in accounting bills, legal charges, and investment banking fees we also get with this build-versus-buy strategy.)
Just as important is the people issue. Growth by building gives us the chance to reward our best employees with newly created management jobs. Growth by buying would just force us to fire a bunch of people I’ve never met who haven’t done anything bad to me. I’m not sure how I’d explain that to my kids, or why at my age I need to give myself that task.
There will be an exception or two that will present themselves in the future—companies with brand identification we’d never replicate, or distribution channels we can’t buy, or the opportunity to end a dependency on a supplier we’re uncomfortable with. What will we do? You’ll see when it happens. (Unfortunately, if we ever seriously looked at acquiring something, our major competitors would probably rush in and outbid us just to stop the process.) All I can guarantee is that if we ever buy another company, it will fit our mission statement and sell at a price I think is lower than the cost of replicating that company’s products.
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Whether by building or buying, there are dangers in growth you ignore at great peril. We insist on management depth at every position. Lack of it would leave us vulnerable when someone quits or gets hit by a truck. (I want the loss of anyone in the company to hurt us, but not fatally, including the likes of me.) Every job performance review I give my direct-reporting managers includes the question, “Who’s your replacement? If you don’t have one now, I can’t consider you for bigger things. If you don’t have one the next time I ask, you may no longer be a direct report.”
As we face the issue of growth, we need the best managers we can train—and the best people to build our internal accounting, measurement, and control functions. If we don’t stay in control, nothing else matters. We’ve got to be able to service our clients, pay the bills, collect the revenue, file our tax returns, detect fraud, spot trends, and so on. If there are no controls, there’s eventually no company.
Due to their size, our competitors have limited ability to respond to threats. We can’t become inhibited in the same way as we grow. Big companies allocate expenses, thereby causing divisiveness in their organizations. We don’t run our company with “profit centers.” With their focus on cash flow versus earnings (they never consider depreciation a real cost, a stupid assumption given today’s pace of obsolescence), they never have the funds available to give the customer the latest and greatest service and technology. We’re aggressive with depreciation and assume it’s real. They have equipment in the field that, if quickly upgraded to a better product, would cause accounting write-downs and kill their credibility with lenders and Wall Street analysts. We provide new equipment and services to clients when they are available, not when they fit our P&L statement. As a private company, we report to only a few who understand and have a long-term perspective.
Without knocking the value of the accounting profession, it is true that “numbers lie—and liars use numbers.” Only with superhuman effort can a company keep accounting from being misused as it gets bigger. I can’t count the number of times I’ve watched people incorrectly make decisions that confuse incremental costs with fully allocated ones, or misuse present value calculations. These concepts can be useful tools, but slavish adherence to them can produce cockeyed results. Had the person who invented the wheel used “net present value,” we would still be walking!
Size also limits growth by inhibiting (or at least making more difficult) communications, which make sensible controls, not constricting policies, all the more necessary. In big companies, meeting after meeting is required to include and inform all concerned before anything happens. Is greater knowledge worth the extra time? I tend to just do my thing and apologize for not posting others after. Secretly, no matter what our rules and procedures, I wish all our people would. Once, I got frustrated at a get-together where each participant read a summary of his or her department’s progress for the week, right from the printed notes handed out to all at the meeting’s start. The next week I had the chairs removed from the conference room before we started. It’s amazing how much quicker and more focused stand-up conferences are. Size also leads to a cover-your-rear mentality that slows down development. Each manager protects his or her own turf, which is particularly true when they can’t see what the others are doing. Size hides.
Size’s economics of scale are seldom realized. Take the great misconception in our business about software: that maintaining a program is cheaper than developing it. It isn’t. The fact is, software needs to be updated constantly to retain value. The inputs to it change. The hardware and communications change. People always need new formats, sorts, fields, and calculations. That’s why we constantly hire more programmers. Or what about the belief that hardware is a onetime “capital expense”? People always say something costs N to buy (a cost they “capitalize”) and then assume that’s the whole cost. I always figure on 40 percent of N every year, forever (a cost you expense versus earnings)—10 percent interest, 10 percent maintenance, 20 percent depreciation. That adds up to 40 percent in my book. Don’t quibble with details. Use 40 percent. Trust me. Whom do you want to kid? Yourself?
Our greatest challenge today? Fighting the stultifying effects of success, the paralyzing results of growth, the debilitating cancer of entrenchment.
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Management must promote growth, while staying within the mission statement’s guidelines. Unfortunately, managers are human beings, too, with personal interests, egos, and insecurities similar to those of real people (the people they supervise). There are many examples of an acquisition and/or new initiative begun for noncommercial reasons and justified ex post facto. Fortunately, a more open and competitive world has reduced these abuses. And in all fairness, most managers really do try. The success of American business is ample testimony to their high ethics, hard work, and superior talents. Still, people are people—and managers are human beings first and foremost. What does it take to succeed as a manager?
The primary function of those at the top is the care and feeding of the company’s most valuable asset, its employees, including designing and administering a compensation system that encourages cooperation, rewards risk taking, and gives inducements to work hard—Job One for the CEO.
The leverage a great team provides makes management a fantastic investment for a company’s stockholders, but phenomenally overpriced when the executives can’t get the organization to perform. All the magazine surveys of CEOs’ compensation based on earnings growth or stock price performance miss the point. It may be a standard of success harder to measure, but rather than raising stock prices and even generating earnings, building, leading, and motivating the staff a company needs for the future is what managers should be paid for.
Being the spokesperson for the company is an important part of running any organization, and perhaps the hardest to delegate. Everyone wants to hear the top person’s views (even if someone else wrote the speech). Guests want to shake the boss’s hand (even though no one remembers who was who after the meeting). If you want to exchange business cards or have a picture taken jointly, no one else but the top boss will do. So, while the senior manager may have other pressing duties, he or she has to set a high priority on accessibility to the press, the stockholders, the employees, and the customers. At Bloomberg, I handled all our firm’s internal and external public relations until we got so big that I could no longer do it.
Then there’s old-fashioned leadership. It’s the top person’s policies, personal and professional deportment, and working hours that the organization tries to emulate. While the only difference between stubbornness and having the courage of one’s convictions may be the results, it’s a natural reaction to attribute superior strength, knowledge, and consistency to those we follow. (But the slightest sign of vacillation can kill that image forever.)
Say something as CEO and the organization responds. It may only be by analyzing, criticizing, ridiculing, or specifically deciding to ignore the pronouncement, but notice it they will. You go to the other side of the world and find a nonsensical business policy instituted by your most remote office—perhaps everyone wearing hats indoors. Why? “Well, years ago you said in a memo to keep your head covered.” Yes, perhaps you did as a throwaway line, without much thought, outside on a very cold day, applied to a totally unrelated situation you’ve long since forgotten. But the CEO is the parent, teacher, clergyman, politician. Everyone’s watching all the time. Wanting to believe, aching to follow. Are you not comfortable with leading the company twenty-four hours a day, seven days a week? Then step down.
The CEO is also the company’s morale officer. He or she must promote an atmosphere in which ordinary people who try new things that fail are encouraged to try again. Projects that succeed always get support and provide their proponents sufficient adulation. It’s the failures the timid watch. A belief that trying new things could jeopardize one’s career stifles creativity. Lose the contribution of the average employee and you lose the war.
Last, there’s the “who’s in charge” function. THE BUCK STOPS HERE was a sign President Harry Truman had on his White House desk. He didn’t make most decisions, but he did bear responsibility for his staff’s actions. (Something modern politicians disgracefully walk away from. “A mistake was made” has become a euphemism for no one taking responsibility.) It’s the same with the corporate CEO. He or she can get help, delegate, farm out, get advice, and so on. But in the end, it’s one person’s decision, one person’s responsibility. A major part of the CEO’s responsibilities is to be the ultimate risk taker and decision maker. Truman had it right.
Companies that do things correctly for long periods still seem to get in trouble eventually, however. Is it always the CEO’s fault? When it’s because of the CEO’s new game plan every month, you bet. Consistency and predictability are important requirements if an organization is to function well. But the opposite is also true: Let the hierarchy remain static and you get disaster. The good quit for lack of opportunity or out of boredom; the bad entrench themselves. Stirring up the chain of command is another part of the CEO’s job. Not easy. Not pleasant. Not even always explainable. Too late to do in bad times, and never thought of in good times. But don’t do it—and you’ll get killed from within. Or when the inevitable competitor arrives with a better way, the organization previously without a need to improve has grown so lazy it has trouble reacting.
When I look at a company, I pay little attention to its accounting statements. A good accountant with a creative mind can make numbers paint any desired picture. No one understates revenues and profits when they’re trying to show off. Presumably, the financial situation is always equal to or worse than stated. A better way to evaluate a company is to talk to the experts. No, I don’t mean journalists or analysts. I mean those who really know what’s going on and what the potential is. First, I call those most knowledgeable, the customers. “Do you plan to buy more or less of this company’s product?” I ask. “Are there competitors coming along with better offerings?” Then, I call the other insiders, the headhunters. “Do people want to go to work at this company, or are they trying to leave in droves?” Management, accountants, and other outsiders can say anything they want. Clients and employees rarely lie.
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Competition’s great—obviously for the consumer, but even for the providers. Every morning when we get up, we relish the day’s upcoming battles. They keep us alive, and they keep Bloomberg’s corporate family thriving. We can’t wait for tomorrow. Who says we can’t do that? What do you mean they’ll beat us? Have them put on their boxing gloves, and send them into the ring. We’re ready!