Sister Florence has a problem with her nephew. She has sworn a vow of poverty, and her nephew is a banker who makes north of a million dollars a year. He helps some companies buy and sell other companies while his company takes a slice of the proceeds in return. Sister Florence sees little if any social good coming from her nephew’s efforts and all those wasted profits..
What Sister Florence misunderstands, is that her nephew doesn’t make profit for his employer, he makes revenue. There is a huge difference. Revenue is the fuel that allows a company to run. It is the fuel that is put into the tank, powers the organization, and pays the employees, rent, and taxes. It is what pays for the airline tickets as well as the staples.
Profit on the other hand, is what is left after all those costs and bills have been paid. Many companies do not make any profit some years. Those that do find that number is often very small – typically less than 10% of revenue. So for every revenue dollar that comes in, maybe one nickel or dime ends up being what the company makes – the profit.
Corporate profits are used to help a company grow – through acquisition or paid in bonuses and perks to the employees who help increase the revenue. Most companies also donate a proceed of their profits to civic causes that make better places to live and work.
Sister Florence may have mixed emotions about what the company does with its profit, but she should understand that its revenue is almost completely directed at the public good. That revenue allows the Company to employ people. And not just high paid bankers like her nephew, but also the executive assistants, the financial analysts fresh out of college, and the fellow in the mailroom.
These people pay taxes, support their local schools, and tithe their churches. The Company pays rent to the building owners who support her community. All of these people buy things from the local stores which employ local people. Every penny the Company spends – even that which some may considered wasted – benefits a person somewhere who has the capacity to use it for good.
Meanwhile, the Company pays taxes which allow for the existence of the social programs that Sister Florence supports.
Still, Sister Florence may question why the bank needs to pay her nephew so much. But certainly she would prefer that he receive it rather than have his employee keep it. It was already noted that she is ambivalent with what the company does with its profit, but she certainly cares what her nephew does with his earnings.
Rather than being critical of her nephew for making so much money, she should be gracious of a system that allows him to do so well. Rather than passive-aggressively shunning him, her energies would be better spent cheerfully pressing him to increase his annual giving.
A stumper just came to my door from an organization called Working America. He informed me that Working America is funded by the AFL-CIO and does not support any candidates. In spite of this, it became apparent that he was here to offer reasons to vote for Bridget Degnen over John Fritchey in the race for Commissioner of Cook County. I asked him, why his organization would prefer one over another – especially given that they do not “support candidates”.
Bridget Degnen has some very creative ideas for raising revenue, he explained. She wants to create a new revenue generating office for expediting city services for a fee. Businesses regularly seek licenses and other government assistance and often find themselves waiting for weeks or even months for their requests to be fulfilled.
My friendly stumper told me that Miss Degnen’s new office would charge businesses, say, $300 to get those services and licenses in a couple days. That revenue could then go toward additional government services, higher government wages, or pensions. You know how you can get a passport in eight weeks or pay 500 bucks and get it tomorrow? Yeah, like that! Good idea?
In fact, it’s a terrible idea and suggests that Ms. Degnen is seeking to be the problem. It is well understood that Government in Cook County is inefficient and common sense suggests that the goal of local politicians is to improve it. Yet, Ms. Degnen doesn’t want to eliminate the problem, she wants to exploit it! By favoring those willing to pay more for efficiency, and building a costly infrastructure to support them, her plan introduces additional friction – and costs – into government, while her promise of future revenue insures that those not able to cough-up the additional dough will continue to wait longer and longer.
The right objective of the Commissioner is to reduce the friction between businesses and the County. Improved efficiency lowers the cost of government. Saved funds can be directed at pensions or reducing our already ridiculously high taxes. But more importantly, when government makes it easier for companies to do business they also make it easier for businesses to create jobs.
Ms. Degnen’s plan increases the cost of government, decreases the incentive to improve, and increases the cost of doing business with the county, hurts job creation, and is just another tax on already overly taxed constituents. She fails to understand that the job of Commissioner is to improve operations, not blackmail the people and companies in Cook County who are all equally entitled to its services.
I explained this to the friendly fellow standing at my door who listened intently as I had to him. “Well,” he said, “you seem to know more about this than I do. Can I have your email address for our mailing list?” I declined and wished him a good day.
About 3 years ago a friend asked me to look into a multi-million-dollar, international, multi-level marketing company that she was considering. She had been recruited by a woman who promised her great things in return for selling bundled utilities at reduced prices. Maybe she trusted my analytical ability or maybe she just knew I had free time, but she wanted me to give her my opinion of it.
I went undercover on this project and was able to meet with a real rep who was trained in the company rhetoric. Assuming I was interested in joining too, she dazzled me with stories of reps who were making millions of dollars a year and had customized license plates on their Bentleys. But when I asked her to explain the formula for revenue she couldn’t do it. When I asked her how much I would make off my sales, my recruits, or the reps that they recruit, she told me that there were way to many variables for me to calculate on my own. She was quick to point out however that she knows another rep who makes so much money that she paints her poodles nails in real gold (OK, I may have made that one up).
Now I’ve created spreadsheets with hundreds of variables. There is no possible formula I can’t model-up in Excel – unless you refuse to tell me what it is! Furthermore, one of the things everyone learns in business school – or in life in general – is that a complicated revenue model is a doomed revenue model. Yet this clown just kept stonewalling on the important questions while playing to my fantasies. It was only when I found a question she would answer that the veneer started to crack. “How many reps fail before making any money?” I asked. “99%,” she responded, but then added quickly – “that just underscores how important it is to be the best and keep recruiting. Because the best…”. That’s around the time I stopped listening.
What she was telling me was that almost all the reps that join, pay the 500 dollar fee, sign up their 10-20 friends, and then drop out never making a dime. Meanwhile the Company keeps all the customers, the revenue, and maintains a steady stream of new recruits who are willing to chase the dream until they realize they can’t catch it, at which point they sulk away quietly, hoping no one notices.
This also suggests that following the introductory period, the Company is likely to raise prices. Without a rep to assist, converting back would be complicated and likely costly, creating a captive audience environment. I called my friend who by this point had signed up many of her family and friends and warned her to check the numbers on her earliest conversions. Sure enough, the promises she had been making to her closest circle were untrue. Prices were not lower, or about the same, but significantly higher.
She hadn’t yet made any money, and now she was faced with the task of calling all her customers, apologizing profusely for the losses they had suffered, and manually switching them all back – one customer at a time, one utility at a time. Drag, man.
The Company is basically honest to its reps – her friends and family were her easiest customers, they may or may not save money but they will switch as a favor to her, and if she can extend her network to additional customers and reps she would make money. What they didn’t tell her was, it is more likely that her peeps will not save money, she is unlikely to extend her market, that the Company makes money either way, and it is very unlikely that she will ever make her initiation fee back.
The Company is publicly aware of its reputation and train their reps to combat it. They have been accused of fraud and operating a pyramid scheme. At least two states have brought cases against them. The Company’s General Counsel states that “[The Company] is aware of the bad press that’s out there on the internet, and we pretty much ignore it.” So how does a company like this continue to exist and even thrive?
The answer – it turns out – is Donald Trump! The businessman who touted playing into people’s fantasies in his book “The Art of the Deal” has extolled the virtues of this Company for years. He has praised the innovation of their business model in YouTube videos and twice featured the Company on his show the Apprentice. According to the Wall Street Journal, this relationship has netted “the Donald” millions of dollars.
When I researched the Company several years ago, Trump’s picture and quotes were all over the Company’s marketing material. Today however, with his Presidential campaign steamrolling across the country, all reference of him has been removed from the Company’s website and he claims – in typical fashion – “I do not know the company. I know nothing about the company.” Still, YouTube is peppered with videos that demonstrate what a lie this is.
Trump’s attraction to this company isn’t the business model that sells a great product that people want. It is much more likely that he appreciates using the seduction of fantasy to encourage naïve reps to sell a lucrative but worthless product at absolutely no cost to the Company.
Donald Trump may have looked slightly presidential after his win on Tuesday, but his involvement with this sham suggests that he has no moral compass when it comes to business. Companies that do not add value, or prey on their constituents, do not have a place in society even if they can scam some money out of a few people for a few years. People who endorse and profit from such companies are nothing short of greedy hucksters.
And one more thing, I am going to go out on a limb here but a man who in one day publicly makes two references to his penis, one including proximity to Mitt Romney’s face, does not deserve to be President.