Business Operations: Generational Challenges

I find it real interesting how some people take offense to hearing the truth. If what is said is the truth it should not be offensive. The truth should be what everybody wants to hear.

However, when it comes to business or personal creations like internet web-sites and online businesses, people get really upset when someone points out flaws in their business plan or thought patterns.

Then, you have the generational thing. I will not get off into the cultural differences that have developed since the early 80’s between the Onliners and Offliners. It is sufficed to say the younger generation has a hard time getting over some of the things they felt were hardening during their parents’ attempts to set them on the right track.

Most of the creators of some of the stuff that is launched online today are craftily developed by young men and women in their early 20’s. In most cases their endeavors are outstanding. Most of the tools businesses use online are created by these young business people. With that said, there are some of them who are clearly missing how business operations work online or offline.

Recently, during my surfing of the internet for sites offering marketing services to other businesses I ran across several newly launched sites that have some very creative approaches of doing something someone else already launched. This is truly the way online businesses improve upon themselves by seeing what someone else has done and improve upon it.

What happens is these sites lose touch with what the business purpose is or what the site offers to help businesses meet their goals. They get caught up in producing a slick visually pleasing site which is needed in the move to the WEB 2.0 standards, but once pass their homepage what they offer is voided with seemingly incomplete delivery of the service they say they are providing. There is a fundamental absence of any business operations in some of these sites.

The challenge recently is providing these young startup business creators with positive and constructive advice. They see any attempt to help or provide experience from anyone outside of Silicon Valley as an insult. Comments or suggestions for improvements are considered negatives. Questions on direction of their business plan as not needed.

Some of the developers of these new business ventures feel their advanced educations justifies the way they are going about doing business as the only way to go about doing business. Some even feel their short experience of being part of another startup sets their business plan on solid ground. All of them are attempts to falsely rationalize the fact they do not know what the heck they are doing.

Colleges for the past 25 years are pushing out graduates with degrees full of teaching of business cases full of words but no practical applications to what really goes on in the business world. This rush to keep the schools of higher learning financially sound has built at least two generations of dreamers who were taught how to build businesses on paper, but not on concrete or from experience.

The result, the youngsters hit the streets or the internet in this case, with lots of knowledge on the concept of building a business but absolutely no experience in actually how to do business. They feel their MBA’s and Doctorate will be all they need to overcome their business operation needs.

The challenge then becomes how the business consumer will deal with these new online line businesses and their attitude towards the past. How will they develop a trust that the slick looking site will deliver what its homepage is saying it will deliver?

Hopefully, these new sites and businesses developed by the younger generation will some come to realize that people who come from their parent’s generation, or grandparents’ generation, are not out to get them, or run them into the ground, or discipline them for what they are trying to accomplish. They need to get over whatever hang ups they have had in their past that has resulted in them being callous to critique and start viewing the people over 30 as a resource that will save them value time and money.

Telling someone the truth and providing a truthful evaluation should not be taken as offensive. It is what is commonly known in the business arena as Help. Help comes in all ages and challenges can only be met with help.
Let me know how I can help.

What $100 Oil Means for Your Wallet

WITH OIL PRICES hovering around $100 a barrel, consumers worry about what sort of hit is heading to their wallets.

The 34% jump we've seen in oil prices over the past three months has largely not translated into higher consumer costs — at least not yet, says Diane Swonk, chief economist with Mesirow Financial, a Chicago-based financial-services firm. But those days may soon be ending, especially if we get a cold winter that drives up demand for oil. So far, oil refineries and gasoline stations have largely absorbed the increase in crude oil costs — in part because demand for gasoline has stayed relatively weak in the U.S. But dropping temperatures and holiday travel could mean those extra costs will be passed along to the consumer.

So what's driving the price of oil? At its core, the good old supply-demand relationship: Oil production is decreasing, while global demand is growing. Last year, world production dropped to 73.5 million barrels a day compared with 73.8 million barrels in 2005. This year's eight-month average is even lower, at 73 million. How come? A primary reason is that the oil-production companies have not invested enough in exploring new oil resources, says Chris Lafakis, associate economist at Moody's Economy.com. Meanwhile, this lesser supply is met with strong demand, driven by surging consumption of oil in Southeast Asia, particularly China.

This is where the speculators come in, explains James Williams, an energy economist with WTRG Economics, an energy research and analysis firm in London, Ark. Much like real estate speculators drove up prices in parts of the country to unsustainable highs during the real estate boom, futures traders are driving up oil prices today. They're buying futures contracts at record-high prices, essentially betting that oil will remain expensive at stipulated future dates

Finally, because oil is an internationally-traded commodity that's priced in U.S. dollars, the weak dollar also takes a toll. "As the dollar gets weaker, oil prices get higher," Lafakis says. On Wednesday, for example, a senior Chinese official's suggestion that China diversify its $1.43 trillion in foreign-exchange reserves out of the dollar and into other currencies such as the euro, pushed the dollar to new lows and respectively, helped oil prices climb higher.

So far, high oil prices haven't yet significantly impacted consumers' wallets. That's because oil refining companies like Chevron (CVX: 85.27, -1.99, -2.28%) BP (BP: 72.11, -3.02, -4.01%) and Exxon Mobil (XOM: 84.54, -2.31, -2.65%) have been absorbing the increase rather than passing it along to consumers. Consider this: While companies made a $35 profit on refining a barrel of oil in May this year, today that margin is down to $5 a barrel, Lafakis says. At the same time, the mark-up their gas stations charge for gasoline has dropped from 90 cents to 70 cents a gallon. "That's really one of the buffers we've had," he notes.

The cost of gasoline, after all, isn't determined solely by the price of crude oil. In fact, only about 64% of gasoline prices are made up of the cost of oil, according to the Energy Information Administration. The rest is refining, distribution and marketing costs, company profits and state and federal taxes.

The reprieve on higher gas prices can be attributed to the current slow travel period, which falls between the summer and the holidays. Drivers are also easing up on the gas pedal in general. So far this year, fuel consumption in the U.S. is down 0.6% compared with the same time in 2006. That's a significant change, given that for the same period last year, consumption was up 5% over 2005. "Consumers are finally responding to the high fuel prices we've had for the past couple of years, driving more fuel-efficient vehicles and even using more public transportation," Lafakis explains.

But should the current price of oil be maintained — or go higher — consumer costs will rise. Here's how rising prices could affect you:

1. Gasoline Prices

Gas prices have increased in recent weeks, and that trend is expected to continue between now and Christmas, says Jeoff Sundstrom, spokesman for AAA. The national average retail price for self-serve regular gasoline could go above the record-high $3.23 a gallon recorded on May 24 this year, he says. Today's average price is $3.06 — a 40% increase over one year ago.

2. Home Heating Costs

Just how much your home heating costs may rise this winter depends on what type of fuel you use, says Jonathan Cogan, a spokesman for the Energy Information Administration. Heating oil is refined from crude oil, so it has a direct relationship with oil prices. Nationwide, only 7% of households use heating oil, but it's commonly used in the Northeast. Assuming average oil prices at $86.93 a barrel for the fourth quarter this year (based on October's crude oil monthly average of $85.80 per barrel, and the EIA's projected average for November at $89 and December at $86), these households will face a 25.6% increase in heating costs during the fourth quarter, compared with last year, according to the EIA.

If you use natural gas — 58% of U.S. households do, the majority of them in the Midwest and West — you have less reason to worry, says Williams. The price of natural gas does have a correlation with the price of crude oil: Many factories and power plants have the ability to switch between crude oil and natural gas for their production needs, Cogan explains. So if oil prices remain high, demand for natural gas could increase as these factories switch, driving prices up. Colder-than-expected weather could also bring bad news. Natural gas is used mainly for heating, so its price is much more sensitive to the weather than the price of heating oil, Cogan explains. The EIA projects households using natural gas to see costs go up an average 10.7% nationwide this winter.

Households using propane (only 5%) will see a 20% increase, while electricity-heated households (30%) will see a modest 2.7% increase. Click here for advice on cutting your winter energy bills.

3. Air Travel

Airlines aren't happy with oil hovering at $100 a barrel. Jet fuel, which is made from crude oil, is their biggest expense (26% of their total operating costs, according to the Air Transport Association) and any price increase will directly cut into their bottom line.

But hiking airfares isn't so easy. "The airlines have to propose a fare increase and hope that their competitors go along, and then hope that the higher fares won't scare off too many passengers," says Phil Baggaley, an airline credit analyst with Standard & Poor's. It all boils down to the strength of the economy and the competition, he explains. International routes, which are offered by fewer airlines, are typically more prone to fare increases. Competition in the domestic market, meanwhile, may keep the airlines from hiking prices, especially if the U.S. economy weakens, Baggaley says.

4. Shipping Costs

Plan to save on gas by taking to the Internet? Thanks to higher gas prices, shoppers will likely see an increase in shipping costs when ordering online, Swonk says. Even the most basic of necessities — groceries — are likely to become more expensive, as merchants will pay more to get the goods delivered to their stores, she says.

The silver lining: As consumers get smarter about comparison-shopping, merchants will have to stay competitive this holiday season. "It's now a game of discounting," Swonk says. "Wal-Mart already launched its discounted season two weeks earlier than last year."

The Upshot of the Dollar's Fall

The dollar's descent to record lows has many market players fretting, but there are positives, too. Here's what you need to know

The U.S. dollar fell to an all-time low Nov. 7, pushed over the edge by some off-the-cuff comments from Chinese officials.

But in the complex world of currency markets, things are not always as they appear. While a dollar in the dumps might look like a stain on U.S. pride and prestige, it might also be good news for American consumers, workers, and companies.

Here are several key lessons to learn from the dollar's slide:

1. The U.S. dollar really did hit a historic milestone on Nov. 7.

The dollar has been hitting record lows against the euro for years, but those records aren't very surprising because the euro is a new kid on the block, only created in 1999. On Nov. 7, the dollar hit a true milestone when it surpassed the spring of 1995 low against the Deutsche Mark, the equivalent of about $1.455 to $1.457, according to Marc Chandler, chief foreign exchange strategist at Brown Brothers Harriman.

On Nov. 7 the euro hit a high of $1.473 before pulling back a bit by the end of the day. At the end of the day, the euro was up 0.57%, to $1.4641.

2. Ignore the loose talk.

The dollar's plunge started when some Chinese central bank officials were quoted suggesting China would be diversifying its $1.4 trillion in foreign currency reserves, moving away from dollar holdings. But Chandler says those officials shouldn't have been taken seriously because they have little power: It would be like the mayor of Milwaukee making comments on the war in Iraq, he says.

Many already assumed China and other Asian central banks were diversifying their holdings, but they're not necessarily selling dollars, just buying extra euros. "This is a question of psychology," Chandler says. The Chinese comments "gave market participants an excuse to do what they wanted to do." Also, says Standard & Poor's European economist Jean-Michel Six, "There is a bit of political posturing here." China is pushing back on U.S. demands that it revalue its currency. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)

One Chinese official was quoted saying the dollar is "losing its status as the world currency." There's not a lot of evidence for this contention, Chandler says. Despite the drop in the dollar's value, commodities such as oil and wheat are still traded all around the world in U.S. currency. U.S. Treasury bills are still a popular safe haven for investors all over the world. Treasury prices actually rose on Nov. 7.

3. So why did the dollar fall?

Look at economic fundamentals. Money moves across borders, chasing extra returns. So currencies tend to rise when the markets expect strong economic growth and to fall when a slowdown may be coming.

This economic strength or weakness is reflected in yields on bonds and interest rates. Right now, Keith Hembre, chief economist at First American Funds, says the bond markets seem to expect many more interest rate cuts from the Federal Reserve in the next several months. That means the markets also are expecting a deep slowdown in the U.S. So it's no surprise that investors are moving money out of dollars and into other currencies that will give them better returns.

4. Will the dollar keep falling?

It's hard to say, but "there is a lot of bad news that's already priced into the market," Hembre says. In other words, expectations in the bond market are already so low for the U.S. economy that they're unlikely to fall all that much further.

Chandler expects the dollar to keep falling until the end of the year but then rebound next year.

Andrew Bernard, professor of international economics at Dartmouth College's Tuck School of Business, warns it's very hard to predict currency movements in the near term. But don't expect the dollar to revive "until the U.S. economy starts picking up again," he says.

5. A weak dollar is bad for some, but might actually help the U.S. economy.

U.S. tourists abroad don't appreciate a cheap dollar, and neither do foreign companies selling into the U.S.

But otherwise, Hembre says, a weak dollar can actually stimulate economic growth in the U.S. A weak dollar makes U.S. exporter's products more competitive in the rest of the world, for example. The U.S.'s trade deficit with the rest of the world has narrowed as exports boom, eliminating the deficit's drag on U.S. growth, writes Deutsche Bank (DB) economist Carl Riccadonna. A weaker dollar also can help employment, as multinational companies choose to hire relatively cheaper workers in the U.S. Investors are also more likely to look for bargains in the relatively cheap U.S.

6. The big dangers: inflation and energy costs.

When the dollar falls, imported goods are naturally more expensive, pushing up prices. However, many experts don't see signs that a weak dollar is causing inflation yet. "It does add a little inflationary pressure," Bernard says, but he adds that the U.S. economy is so large and competitive that most companies don't really get an opportunity to raise their prices.

The one area where a weak dollar hurts, however, is in commodity prices. Oil prices are pushing up close to $100 per barrel. That could hurt growth in the U.S., but Europe wasn't hit as hard because it's paying for fuel in more valuable euros.

Rising inflation can pose a special challenge to the Federal Reserve. The threat of inflation can stop policymakers from cutting interest rates to stimulate economic growth.

7. Governments won't intervene unless things get really bad.

The world's central bankers seem surprisingly relaxed about the slide of the dollar. Few observers expect finance officials from the U.S., Europe, or Asia to intervene in currency markets unless the dollar crashes in a big way. A disorderly fall for the dollar might prompt action, but otherwise bankers are expected to sit on their hands.

8. Eventually the cycle will turn.

Right now, the Federal Reserve is cutting interest rates and the U.S. economy seems to be slowing. Next year, many expect those rate cuts to pay off, as the U.S. economy perks up again. At the same time, however, European and other bankers may begin cutting rates to stimulate their economies.

In that scenario, the dollar probably would start to rise and the euro start to fall. S&P economist Six predicts the dollar will hit bottom sometime in the middle of 2008, landing at $1.52 or $1.53 per euro. But then he expects the dollar to be back to $1.45 or $1.40 by the beginning of 2009.

Under any set of circumstances, a big rebound for the dollar isn't expected for quite a while. Americans will have to get over the embarrassment of a weak currency, perhaps by remembering that a lower buck could help keep the U.S. export machine humming along.