The Difference Between Business-People and Financiers

Wednesday, September 19, 2012 at 3pm
By John Friedman

Recently we’ve been exposed to a great example of the difference between business-people and financiers, in the guise of a clearly successful financier asserting, quite a bit more broadly, that he was a clearly successful business-person. I speak, of course, of Mitt Romney, private equity hero, repeatedly asserting that he would be a great president because he was so great a success at business.

To my way of thinking, though, even if we assume for the sake of argument that great business people do indeed make great presidents (by no means a clear-cut winning assumption), this begs the question of whether great financiers make great presidents.

It’s an important distinction, as over the past five years we’ve learned — and-how — that there’s a big Big BIG difference between financiers and businesspeople, given that the key domino of The Great Recession (a/k/a the Lesser Depression) was the wholesale gutting of financial businesses everywhere, which only then (if exceedingly rapidly) bled over into the wholesale gutting of the entire global economy.

* * *

Real businesses — let’s call them business-businesses — live and die based on their day-to-day Money-In/Money-Out margin (as in, Are we bringing in more than we’re spending?) and on the ability of the people inside the business-business to make that positive margin consistently come about, primarily through their day-to-day endeavoring (as in, Are we, as a group, pulling the weight we need to pull, and pulling it in the right direction, so that we are we producing something folks want to buy, and are we doing all of this in a way that’s got a good chance of working over a decent amount of time?, etc.).

So a business-business has to be managed, and, if the people inside the business-business successfully manage the business-business, then the output of the business-business ends up as a stream of goods or services that people want to buy, again and again and again and again, and, ultimately, a stream of happy customers (and, in the best of all worlds, though quite rare, a stream of happy employees nicely ensconced within happy families).

Financier-businesses, on the other hand, live and die on something else entirely. They live and die on the deal. Connections and reputations play a huge role (by affording the financier-business the opportunity to buy something well, or to get a loan no one else can), and, rather than a stream of goods or services bought by a stream of happy customers, the financier’s output is a series of one-off transactions. True, the financier-business still needs to have employees, but their role is entirely different from the roles of employees in business-businesses; the role of employees within a financier-business is to make the deal happen in a good way for the other people involved as co-financiers. Happy customers are not necessarily necessary to that result.

Or, you can think of it in terms of Game Theory: success in a business-business rests on a single, long-term extended slice of repeat play endeavoring, while in a financier-business success rests on multiple, independent iterations of single play endeavoring.

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Jack Welch is thought by many folks to be one of the greatest business managers of all-time, having built General Electric into a huge conglomerate good at pretty much everything (including finance, but also including medical equipment, jet engines, power generation, media, consumer products, etc.), and having presided over the company during a 20-year period during which the company’s stock price increased 4,000% (admittedly, during the mostly very good stock market years of 1981 to 2001). To pull all that off, Mr. Welch had to get the best out of hundreds of thousands of employees — getting them to all pull in the right way and in the right direction (in 2011, GE had 301,000 employees) — and navigating GE’s way through all sorts of external obstacles.

Mitt Romney is no Jack welch (indeed, Jack Welch probably isn’t either, as his reputation has taken lots of hits since he left GE — one hit, as it happens, having to do with how during his tenure he morphed a previously 100% industrial company into one that was 50% industrial company and 50% financier). Why, when even Peggy Noonan is calling Romney a failure as a manager of his presidential campaign (“It’s time to admit the Romney campaign is an incompetent one”), it’s time to state that, at least when it comes to Mitt Romney, being a great financier (which for present purposes we will simply assume he is) has little to do with being a great manager of a large, complicated operation with lots of employees and lots of external obstacles to navigate. And what of managing an entire country?

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Has Governor Romney ever managed — day-to-day CEO-managed — a huge, complicated operation of any kind? It’s hard to know for sure.

What sort of day-to-day management did Romney provide to the Salt Lake City Olympics? We know that he is proud of how many sponsorphip dollars he brought in, but, wasn’t that him acting as a financier — a gatherer of dollars — more so than as a manager of people endeavoring?

And then there’s Bain Capital. How many people did he manage there? It’s hard to say what the numbers were way back then (whenever when was), but Wikipedia says that, today, Bain capital employs fewer than 500 people.

Say what you will about Governor Romney’s positions, values, political skills, etc., but, right here right now, most of us can probably agree that he does not appear to be especially skilled at the very difficult management task of running a great presidential campaign.

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It’s a real shame. Right now it feels a bit like watching Research in Motion’s Blackberry fade to black in the face of Apple’s iPhone dominance. Mightn’t we all be better off if Blackberry had figured out how to extend its once greatness into today’s smart phone environment? After all, we’d then have two (three?) great and wonderful platforms competing against each other.

This week it does not feel like our political process is gaining the benefit of any such competition.

 

844 words

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