“People will never give up their offices.”

“Companies will never allow their employees the freedom to work from home.”

Seven, short years later, more and more companies are operating their offices on a virtual network, sharing files, and utilizing cell phones and Skype to create a virtual office environment.

But why did it take seven years for virtual office to really take off?  The internet was widely used back in 2003, and file sharing via email was rapidly replacing the fax machine.  I think companies have just been downright lazy and reluctant to begin utilizing free virtual office tools.  And many companies have simply dragged their feet in making the change.  By making everyone come to one place, the business owner had no reason to change.

Until now.

The recession has inevitably forced both small and large companies to convert to a virtual office structure and begin utilizing free tools like Google Apps and Google Voice.  These small companies are giving up pricey office space in exchange for home offices.  Many of these companies have provided virtual office tools to their employees, now allowing them to work from home.

In fact, a friend was telling me about his wife’s company with 40 employees.  While the business’s revenues slowed over the past couple of years, housing 40 employees under one roof was killing their income statement.  The solution? The company decided to axe the ridiculous office rent and instead provided tools for its employees to begin working virtually, from home.  The beauty of this new structure was that, not only did everyone keep their job, everyone was also really excited about working from home.

How this company’s income statement will recover or suffer from this business decision, only time will tell.  But the point is that they did it. They made the leap because they had to.  And they are not alone.

Seth Godin wrote about the move towards virtual office in his recent post titled, “Goodbye to the Office.”  An excerpt from his post sums up my sentiments on this topic exactly:

“…..Why go to work in an office/plant/factory?

1. That’s where the machines are.
2. That’s where the items I need to work on are.
3. The boss needs to keep tabs on my productivity.
4. There are important meetings to go to.
5. It’s a source of energy.
6. The people I collaborate with all day are there.
7. I need someplace to go.

But…

1. If you have a laptop, you probably have the machine already, in your house.
2. If you do work with a keyboard and a mouse, the items you need to work on are on your laptop, not in the office.
3. The boss can easily keep tabs on productivity digitally.
4. How many meetings are important? If you didn’t go, what would happen?
5. You can get energy from people other than those in the same company.
6. Of the 100 people in your office, how many do you collaborate with daily?
7. So go someplace. But it doesn’t have to be to your office……”

All of this talk provokes a billion dollar question in real estate: What is the future of commercial office?

Noah’s of Utah is trying to predict where commercial office is headed with its new concept in commercial real estate.  At Noah’s, you can host a ballet class for an hour a week in a large room filled with mirrors and ballet bars.  The same day, a corporation can host a weekly meeting with its 40 virtual employees, and in the same room. How? The mirrors and ballet bars are on swivel doors as if inside a funhouse. White boards and projector screens are on the reverse side of the mirrored doors.

Noah’s is one commercial office concept that I think will do well in the future.

What other commercial office concepts will best serve the needs of companies that have chosen to ditch their conventional office space?  As Seth Godin lays it out in his recent post on this topic:

“When you need to have a meeting, have a meeting. When you need to collaborate, collaborate. The rest of the time, do the work, wherever you like.

The gain in speed, productivity and happiness is massive. What’s missing is… someplace to go. Once someone figures that part out, the office is dead.”

I wouldn’t say that commercial office as we know it will be completely dead. But I would say that it is certainly evolving, and fast.  What are your thoughts?

Posted by Corey Curwick on July 12, 2010

Email us with questions or subscribe to the blog! If you subscribe, you will be notified via email when new content is posted to the blog.

Send your email address to:

Corey Curwick, Blog Administrator

Email: corey curwick at gmail dot com

Or leave a comment below with your email address! Thanks for reading……!

For Christmas I received a book that was a New York Times Bestseller called “The Ascent of Money,” by Niall Ferguson.  I have blogged several times in the last year about this author, so you might recall his name. Ferguson, an economic historian who has studied the history of the world’s financial markets, has quite a fascinating insight into current events.

“The Ascent of Money” is the most recent of Niall Ferguson’s collection of books on the history of money.  This book has been described as the “layman’s guide” to unraveling this complex topic.  In fact, the book was made into a television documentary series and won an International Emmy Award.  Now that I am officially halfway through the book, I want to give you my impression at this point.

Thus far, the book has really humbled me with regard to speculation or investing. History is the clearest lens by which to view the present, particularly with regard to investing. With the history of financial markets in mind, what cycles do you see repeating?

In the book, Ferguson starts out discussing debt (versus equity).  He describes how many other countries have sunk below their own “mountains of debt.”  The book then goes into the history of equity (versus debt) e.g. stocks and the stock market.

One thing in particular I found interesting in the book, was the story about the man Niall Ferguson calls, the “Napoleon Bonaparte of Finance.”  Most people don’t know that the infamous Nathan Rothschild, of the great Rothschild banking family, made his first millions simply by brokering paper. (Even more ironic was that he started out as a gold smuggler in Europe during the early 1800s).

Want to gain an entirely new perspective on current events and investing? I would recommend this book to you.

I’ll send you a final report on the book once I’ve actually finished reading it.  Until then, please leave your comments below.

Posted by Corey Curwick on May 12, 2010

Before you read the interview, I am encouraging all of you to contribute your comments below, at the end of this interview.  I expect that most of you won’t be surprised by any of the answers to the questions below, in fact, most of you will think to yourselves, ‘Doesn’t everyone already know this?’

However, the majority of people out there really don’t know what’s happening in banks and lending.  A program that was intended to pull banks, and thus our economy out of this crisis, has only invited more abuse and greed in the banking world, and further delayed inevitable bankruptcy.

• How long have you been with this particular bank?

15 years

• Is this a community bank, a regional bank, or national?

It is a community bank that focuses on commercial loans.

• What is your title at the bank?

I was a commercial loan officer for 10 years. I am now Vice President of the commercial division of our bank.

• Tell me a bit more about how lending has changed over the last few years at your bank? For example, number of loans your bank was making then, versus now, the requirements then versus now,  etc.

In 2006 we were making 125 commercial loans per year.  In 2009, we made 36 commercial loans.  In 2006, we lent based on appraised value, up to 85% of appraised value.  We also did not require borrowers to have a depository relationship with us in 2006.  Now, we lend primarily based on the DSCR, and up to 75% of value or the purchase price.  However, our average loan to value is actually only 70%.  We also require borrowers to establish a depository relationship with us. Typically 20% of the loan amount.

• So let me clarify what you’re saying. If a borrower comes to you with a commercial building that he or she can buy for fifty cents on the dollar, you are still requiring a 30% down payment based on the purchase price plus an additional cash deposit of 20%?

Correct. Even if the building is worth much more than our customer is buying it for, we are still only lending 70% of the actual purchase price.

• O.k., let’s use an example then, just to illustrate the numbers here. Let’s say I’m able to buy a building that’s worth $2 MM for $1 MM.  I’m coming to your bank for a loan of $1 MM to buy this building.  In this case, I’ll need to bring in a $300,000 down payment in cash as well as a $140,000 cash deposit.  This is a total of $440,000 in cash that I need to put up for a loan of $700,000?

That is correct.

• Wow. Unbelievable.

Yes, that is the reality I’m afraid.  If we give you a loan at all.

• So based on what you told me about only issuing 36 commercial loans total last year, you aren’t really lending right now are you?

Frankly, no.

• Do you think your bank will stay afloat and outlast this crisis?

Yes, I think we will.  The only reason we’re still operating is due to the conservative stance our President took at the end of 2006.  After 2006 we began to curtail our lending a bit because our President could see the bubble about to burst.  During that time, there was a lot of pressure on us to compete with other banks. The lending environment was very competitive, and frankly, it was out of control.  Some of our competitors were making 48 hour closings on commercial loans. In order to compete for the business, we were being pushed to do the same. Looking back, this was ridiculous, but at the time, it was just, well, business as usual.  Unfortunately, our competitors that were putting pressure on us at that time to keep up, well, they’re all out of business.

• That’s sad.  I guess the writing was on the wall though. Your bank’s President sounds like a smart guy.

Yes. He was, and is. Too bad our Board of Directors forced him to resign shortly after the bubble burst.

• What has happened to your bank since the bubble burst?

Well, we bought a larger, regional bank that was going out of business.  The problem is, they only had to disclose their “bad loans” at the time of the purchase. They did not have to disclose those loans that they knew were about to become “bad loans.”  So, shortly after the purchase was complete, we found out about a lot of problematic, or soon to be bad loans in their portfolio.  And, just as we feared, many of these “problematic” loans started to go into default, soon after the purchase.

• So what now?

Unfortunately, we must set aside a large sum of capital in reserves to cover these bad loans, 80% of the loan amount, for each loan that is in default.  This has eaten up all of our capital, which we could be using to make new commercial loans.  This is the primary reason we are unable to lend right now.  We are not lending because we are short on capital.

• But what about the TARP money from the government? Didn’t your bank receive any of this?

Yes, we’ve received over $50 MM.

• Wasn’t this government money meant to keep banks like yours lending? $50 MM is a lot of money to make loans with.

Yes, technically it was meant for that purpose. But I think most banks like ours are using their TARP money to cover bad loans on their books.

• Ugh. That’s the ugly truth.  So, that $50 MM dollars, that was lent to you by the U.S. government to keep lending, and indirectly to keep the wheels of our economy turning. You are using that to cover your bad loans and not to make new ones? And there’s no accountability, no regulations on this?

Correct to the first question. And, no, not really, to the second question. There are no regulations. It’s a pretty screwed up system. I can say that because I’m on the inside. I know first hand how it ticks. And this is exactly why I’m not supposed to say that we are not lending. If anyone caught wind that we are “not lending,” we’d be in a lot of trouble and those government loans would be called in immediately, if we weren’t shut down altogether.

• So what about your commercial borrowers? The ones that have a long-term relationship with your bank? Are you renewing their loans?

No. Unfortunately these are the customers that are getting hurt the worst in this whole thing.

• Why?

Well most of them have just completed their Phase I financing and are coming back to us for perm.  Some of these customers have been banking with us for over 20 years. We know their first names and we’ve seen their kids grow up etc.  When they come to us for this perm financing or after a 3 to 5 year call to refinance, we have to tell them to pay us off and go to another bank.

• What happens to them?

Most of them are so strong that we are hoping that they will be able to obtain a loan elsewhere.

• This seems backwards. Aren’t you trying to obtain more deposits? These customers are taking their deposits and walking.

Well, right now we need to raise capital through stock issue.  Investors won’t look at our stock unless no more than 20% of our portfolio is secured by commercial real estate.  This means we have to get this ratio down to attract investors to purchase our stock.  This is why we are not issuing new commercial loans. I think a lot of banks are in this same position.

This concludes the end of the interview with a banker.  This story is not the same for all banks.  Some banks are stronger than others and have sufficient capital to continue making news loans.  However, the truth is that many banks are actually turning away long-term customers that have never made a late payment on their commercial loans. Customers with which they have built long-term relationships for 20 years or more.  These are the people who are truly getting hurt in all of this.

The more grim outcome of banks not lending, even though they have been lent millions by the U.S. government in order to keep doing so, is that the mere action of lending to businesses is what fuels our economy.  This action creates jobs, and inventories of stuff that people buy, or services that people buy and sell, and profits which allow loans to get paid back, and then the cycle repeats itself over, and over, and over again.  Lending is the impetus behind this precious cycle.

Please leave your comments, good or bad, negative or positive. I’d love to hear from you on this controversial topic. Or, share your own story or a story of your clients. Please share.

Posted by Corey Curwick on March 21, 2010

Seth Godin spoke yesterday in Salt Lake City and I had my first opportunity to hear him give a live talk.  Sure I’ve heard him speak before: while narrating his audio book Tribes, while speaking on the Marketing Over Coffee pod cast twice, and of course, I’ve certainly seen him on YouTube.  Part of me expected to hear a lot of what I’ve heard before from Godin.  But surprisingly, Godin’s live presentation yesterday was certainly NOT more of what I’ve heard from him before.  In fact, the presentation was so powerful that I both laughed and cried, as if I was watching a great movie.

Why did I laugh?  Godin puts together a slide show presentation to go along with his talk. The funny photos he chose for the slide show take some of the seriousness out of the very serious subject matter at the center of his talk.  These photos capture the unexpected things and people in life that catch you off guard and make you snicker.

But I did say I cried too, and why did I cry? I cried because of the reality check that Seth’s talk gave to me and to most of the other 600 people that attended the event.  The reality check was at the heart of the talk and had to do with the new economy that is right before our eyes.

What are some of the implications of this new “digital age” in terms of your job or your business? Will your job become automated or just eliminated altogether?

Having followed the traditional, educational path myself, by pursuing a Graduate Degree from a prestigious school, I too have had to swallow the fact that the old rules no longer apply.

You are probably wondering, ‘who is this Seth Godin guy and what kinds of things was he talking about?’  Some of the main concepts of Seth Godin’s talk yesterday were the following:

• Replaceable people versus irreplaceable people in the job market.
• Getting and keeping a good job used to be about “not” talking too loudly or “not” standing out.  Nowadays if you don’t stand out and don’t talk too loudly you’re dispensable or replaceable.
• The individual has more power than ever before in history to create something amazing because of the infinite reach of the internet.  Before the internet, you could blame a publisher if your didn’t make it as an author or you could blame the music industry if you didn’t make it as a musician.  Now you have no excuse.

These were just some of the concepts from Seth Godin’s presentation yesterday, as there were just too many good ones to count.  If you don’t know who this guy is yet, I encourage you to get your hands on at least these three books from Seth Godin:

1. Purple Cow
2. Tribes
3. Linchpin (just released!)

Godin’s books will change the way you think about your “job” today and your “job” in the future.  He will change the way you think about your business too.  Read all of his books if you can, but the three I’ve listed above are, in my opinion, the “must reads” by Seth Godin.  Ironically, I wrote a post on the blog one year ago yesterday that referenced Godin. The title of the post was, “How Can Small Business Best Survive Recession.” Check it out if you haven’t read it.

If you are already familiar with Godin’s work, what are your thoughts on the three concepts I’ve listed above? I’d love to hear from you.

Posted by Corey Curwick on February 13, 2010

But who are these companies that are standing out?  And which of these companies would you invest in if you had a chance?

The companies that come to mind first are Facebook, Yelp, and Rackspace. This is just the tip of the iceberg. As more and more consumers search online for products and services, it is essential to look for companies that push the edge in innovative ideas in this rapidly growing, online marketplace.

Demand Media, a company that I discovered back in November, is an example of this.  As fresh, online content becomes the driver of search results on the web, this new company stands in line to take advantage of this opportunity. Kind of like a content “factory,”  as described in November’s Wired magazine.

And then what about online reviews? Forget about Yelp, even though it’s a darn good business model, and think about review software in general. A recent article, “Even Bad Reviews Boost Sales,” appeared in Fortune Small Business and highlights the growth of reviews on the web. An excerpt from the article,

“Online reviews have been spreading ever since Amazon.com (AMZN, Fortune 500) pioneered them in 1997. Consumers are becoming used to searching for reviews when they shop online. Internet shoppers rank reviews as the most desired feature of a Web site, according to a recent survey by Forrester Research.”

Forsee Results, one small example from the FSB article, provides customer satisfaction survey software to websites.

What other sectors of the tech industry will experience massive growth in 2010?  A recent article in TechCrunch called, “The Top Ten IPO Candidates For 2010” will certainly get you thinking about these growing sectors.

Are there any other companies, tech or otherwise, that you will be keeping your eye on in 2010? Please share.

Posted by Corey Curwick on December 24, 2009

 “The creation or distribution of products or services intended for a global or transregional market, but customized to suit local laws or culture.”

 In business school, the term glocalization was used as liberally in core business courses as it was in marketing courses.  But is this widely-used strategy as effective as it used to be? Vijay Govindarajan, Director of the Center for Global Leadership at the Tuck School of Business, says no. 

 On a recent Harvard Business School podcast, Vijay suggests that many multinational companies will have to ditch the strategy of glocalization and replace it with a new strategy that will be more effective in our current and future economy. This strategy he calls, “reverse innovation.”

 In a Harvard Business Review article titled, “How GE Is Disrupting Itself,” this new strategy is described as being the new game that multinationals have to play if they want to survive in the 21^st Century. 

 But what exactly is “reverse innovation?”  The HBR article summarized it best by saying,

“For decades, GE has sold modified Western products to emerging markets. Now, to preempt the emerging giants, it’s trying the reverse. With glocalization, companies develop great products at home and then distribute them worldwide, with some adaptations to local conditions.”

 For many multinationals, product innovation is centralized in the U.S., while products are then modified for local markets all over the world.  This strategy won’t be easy to replace but, if it is indeed becoming obsolete, multinationals need to begin to experiment with it.  For many multinational companies, the change in business models means that local “growth teams” will replace the centralized model of decision-making and resources.

 To read more on this trend of reverse innovation, also check out Business Week’s March feature, “Game Changing Ideas for Business.”

 What are your thoughts? I am particularly curious to see what my fellow Thunderbirds think about reverse innovation. Have you seen changes in your own multinational companies? Please share your observations if any.

 Also, to read what others said on this topic, check out a Harvard Business blog post on this topic at: http://blogs.harvardbusiness.org/hbr/hbr-now/2009/09/is-reverse-innovation-like-dis.html

 (See below a brief except from the Harvard Business School article discussed in this post).

 Thanks…..!

 Posted by Corey Curwick on October 31, 2009

Excerpt from HBR Article, “How GE Is Disrupting Itself:”

In May 2009, General Electric announced that over the next six years it would spend $3 billion to create at least 100 health-care innovations that would substantially lower costs, increase access, and improve quality. Two products it highlighted at the time—a $1,000 handheld electrocardiogram device and a portable, PC-based ultrasound machine that sells for as little as $15,000—are revolutionary, and not just because of their small size and low price. They’re also extraordinary because they originally were developed for markets in emerging economies (the ECG device for rural India and the ultrasound machine for rural China) and are now being sold in the United States, where they’re pioneering new uses for such machines.

We call the process used to develop the two machines and take them global reverse innovation, because it’s the opposite of the glocalization approach that many industrial-goods manufacturers based in rich countries have employed for decades. With glocalization, companies develop great products at home and then distribute them worldwide, with some adaptations to local conditions. It allows multinationals to make the optimal trade-off between the global scale so crucial to minimizing costs and the local customization required to maximize market share. Glocalization worked fine in an era when rich countries accounted for the vast majority of the market and other countries didn’t offer much opportunity. But those days are over—thanks to the rapid development of populous countries like China and India and the slowing growth of wealthy nations.

GE badly needs innovations like the low-cost ECG and ultrasound machines, not only to expand beyond high-end segments in places like China and India but also to preempt local companies in those countries—the emerging giants—from creating similar products and then using them to disrupt GE in rich countries. To put it bluntly: If GE’s businesses are to survive and prosper in the next decade, they must become as adept at reverse innovation as they are at glocalization. Success in developing countries is a prerequisite for continued vitality in developed ones.

The problem is that there are deep conflicts between glocalization and reverse innovation. And the company can’t simply replace the first with the second, because glocalization will continue to dominate strategy for the foreseeable future. The two models need to do more than coexist; they need to cooperate. This is a heck of a lot easier said than done since the centralized, product-focused structures and practices that have made multinationals so successful at glocalization actually get in the way of reverse innovation, which requires a decentralized, local-market focus.

Almost all the people and resources dedicated to reverse innovation efforts must be based and managed in the local market. These local growth teams need to have P&L responsibility; the power to decide which products to develop for their markets and how to make, sell, and service them; and the right to draw from the company’s global resources. Once products have proven themselves in emerging markets, they must be taken global, which may involve pioneering radically new applications, establishing lower price points, and even using the innovations to cannibalize higher-margin products in rich countries. All of those approaches are antithetical to the glocalization model. This article aims to share what GE has learned in trying to overcome that conflict.

Why Reverse Innovation Is So Important

Glocalization is so dominant today because it has delivered. Largely because of glocalization, GE’s revenues outside the United States soared from $4.8 billion, or 19% of total revenues, in 1980, to $97 billion, or more than half of the total, in 2008.

The model came to prominence when opportunities in today’s emerging markets were pretty limited—when their economies had yet to take off and their middle or low-end customer segments didn’t exist. Therefore, it made sense for multinational manufacturers to simply offer them modifications of products for developed countries. Initially, GE, like other multinationals, was satisfied with the 15% to 20% growth rates its businesses enjoyed in developing countries, thanks to glocalization.

Then in September 2001 one of the coauthors of this piece, Jeff Immelt, who had just become GE’s CEO, set a goal: to greatly accelerate organic growth at the company and become less dependent on acquisitions. This made people question many things that had been taken for granted, including the glocalization strategy, which limited the company to skimming the top of emerging markets. A rigorous analysis of GE’s health-care, power-generation, and power-distribution businesses showed that if they took full advantage of opportunities that glocalization had ignored in heavily populated places like China and India, they could grow two to three times faster there. But to do that, they’d have to develop innovative new products that met the specific needs and budgets of customers in those markets. That realization, in turn, led GE executives to question two core tenets of glocalization……….(Copyright © 2009 Harvard Business School Publishing Corporation. All rights reserved).

The term “Chimerica,” Ferguson explains, comes from the economies of the two countries being so “intertwined” that they essentially became “one economy.”  Thus the ‘marriage’ analogy. With China’s international reserves totaling $2.1 trillion, 70% of these are in dollar-denominated securities.  But the Chinese aren’t going to stop buying dollars, Ferguson says. If they do, their currency will inevitably appreciate against the dollar and further hurt exports.

But what would be the result of the “divorce” that Ferguson refers to between the two countries?  Ferguson hints that a “cold war” may be on the horizon and a “strategic rivalry” between the two economic superpowers.  All of this is probably obvious to most of you, however, Ferguson did highlight some pretty eye-opening facts in the article.  Take a look at the article and please, post your comments. I’d be curious to see what your thoughts are about the fate of “Chimerica.”

Posted by Corey Curwick on October 6, 2009

These days, it’s hard to imagine a world without discount internet sites where product is sold at a deep, deep discount off of its retail price.  These aren’t just auction sites either, but rather sites where product is simply dumped, regardless of its origin.  For example, a shirt that retails for ninety dollars in the store, my fiancée recently found on the internet for $10 plus shipping.

Will retail as we know it die, as the popularity of these discount websites continues to grow?

I think the answer is probably no. Retail will never completely die, people still need to go and try on wedding dresses and wander aimlessly around shopping malls. However, I do think that the big days of retail are officially over. As consumers become more savvy online, there will be more tire kickers.  And this trend will just grow and grow.

Brick and mortar retail giants, unless they dramatically alter their business models and their distribution models, are doomed. As shareholders flee the space and banks stop funding commercial retail, the giants will certainly fall.  We’ve seen both Circuit City and Best Buy slowly crumble. What other big box names will follow?

Any opinions on the future of retail as we know it?

Posted by Corey Curwick on September 19, 2009

According to a recent article in Inc. magazine, “A Buyer’s Market,” the median sale price for a private company fell by nearly 30 percent last year.  This is no surprise, with dwindling revenues across the board from the recession, and the rapid implications of a completely New Economy.

This represents a tremendous opportunity for those who are looking to buy a business or acquire a competitor.  Cash rich companies, who have found themselves in dying or just slowing industries, are snatching up their competitors at deep discounts.

The scarcity of credit is also pushing down prices. Businesses that no longer have access to easy credit, are dumping their businesses for pennies on the dollar.  This then forces other sellers to lower their prices. In this way, buying a business is a bit like buying a house.  Recent comparable sales can have tremendous influence on the sales price of comparable assets.

The drying up of the credit markets has also forced both buyers and sellers to get super creative in how they structure the deal.  Buyers are more commonly using “earn-outs,” to structure an acquisition.  In this scenario, the seller of the business stays “in the game” with the business for a set period of time, and thus takes a percentage of the agreed upon sales price from future revenues.  I think an earn-out is a smart move, particularly with the rapid pace of economic changes we are experiencing.  A business that made a profit for the last ten years, may not make a profit in the next two, if its business model or industry are now obsolete.  With an “earn-out,” the new business owner passes on some of this systematic risk to the former business owner.

Any comments about the plummeting prices in this asset class? Or, is anyone currently looking to acquire a competitor?

If you are curious about business valuations, I recommend taking a look at the article referenced in this blog post.

Please leave any additional thoughts & ideas!

Posted by Corey Curwick on August 30, 2009