(simple title art)
Reader Note: If you are just catching on, each Thursday we’re are doing a chapter each week of a book I’m writing for Millennials – teaching the insights that will (hopefully!) allow them to live long and prosper – and be around to clean up after us Old People who made a mess of getting civilization this far.
There are three sections to each chapter. Something you can read to children, a general reader part, and the advanced/business section.
We pick up with morning like so…
We established in the first chapter that there is RECIPE for everything we do.
Chapter 2 involves understanding (and owning) PROCESSES.
Chapter 3 discusses recipes and processes of INVENTION.
Chapter 4 looked at FLOW The reason we do management reports is so we can spot problems and head them off at the pass.
Chapter 5 considered “WORLDVIEW” and how that “place we stand in our minds” determines what happens in the strange land “outside our heads.”
Chapter 6 focused on “TRAVEL” and considers the importance of travel as a way to more deeply understand worldviews since people with similar problems will come up with surprisingly different answers to the problems of Life…
Today, in Chapter 7 “Matrix 512 is discussed as a unique way of keeping your worldview consistent as how to use it as a tool for clarified thinking in an every increasingly complex world.
For All Readers
Tom the Baker and Little John had the world by the tail.
Tom’s trips to far away places had discovered hundreds of new ingredients for them to try. Some with spices – like new kinds of peppers never before seen in the Kingdom.
Some were fish that Tom had shipped to the King’s castle in giant aquariums to the fish would be alive while they were being readied for a feast.
Strange plants, like breadfruit from the South Pacific were on hand. As we purple potatoes from high in the Andes Mountains of South America.
It all promised to be a feast. Yet the job was also daunting to Little John who had become Tom the Baker’s trusted assistant.
With so many ingredients, Little John was at a loss of what to cook.
“How can I ever figure all this out?” he cried in desperation.
“Let’s use a small matrix to do our work for us,” suggested Tom.
“What’s a matrix, again?” asked Little John.
“Remember the game of tic-tac-toe?” he began. “We call those lines a matrix. There are two lines up and down which divide the paper into three vertical columns. Then there are two lines horizontal that divide the paper into three rows.
Between then, there are 9 possibilities. Three across and three down.
Now let’s take our dinners and imagine each one has an appetizer, a main course, and a dessert,” he continued.
“We list the across rows as “New Recipes” and the Vertical Columns as “Tested Recipes.”
Each day, we will consider the three courses. We don’t want to overload the King on new and exciting tastes. Yet he does want to be adventurous.”
Little John thought about it. He then put letters in the grid. “Tested” was marked with a T and “New” was marked with an N.
Presently, a pattern evolved.
On the first day, the King would be served a new appetizer, but tested main course and desserts.
On the second day, the King could be served a familiar appetizer, but the main could would be new. However, for dessert, one of his tested favorites would be served.
On the third day, it would be the old favorites for appetizer and main courses, but a dessert.
“Say, that looks good…but what then?” said Little John.
“Well,” reasoned Tom the Baker, “We will ask the King if he wants to explore new favors faster or slower. If he says faster, then we use two new recipes and one old one and we go through the same process. Except now, we only use one tested recipe per meal.”
Just then, Little John has a moment of inspiration.
“Aren’t there Big Ingredients in Life that we would arrange the same way, to some advantage?”
Tom got out a fresh sheet of paper and he drew 7 vertical lines which made 8 columns. Then he did the same horizontally for 8 rows.
Then he did something truly remarkable: He drew 7 lines on an angle, so that a huge box appeared.
“What is that, Tom?”
Tom was busy counting, but when we was done he called it the Magic 512 Matrix.
“What does that mean,” demanded Little John..
“While I was traveling around the world, I learned that there were Seven Major Systems in Life. These were food, shelter, communications, transportation, energy, environment, and finance.”
Little John caught on immediately, but then noticed something wrong. “What you have drawn Tom is EIGHT rows, columns, and 8 levels of depth. What goes with the 8th label?”
“The Observer,” explained Tom. “You can understand almost everything in the world with this matrix because there is exactly one small cube that will best describe what and object is.”
“How can it be so simple?” Little John wasn’t convinced everything in life could be reduced to something as simple as an 8 by 8 by 8 cube. Tom, meantime, had been counting cubes within his Magic 512 Matrix.
“Go ahead, Little John, think of anything you want in the real world and I can put it into exactly one cube for you.”
Little John smiled. He knew he had Tom on this one.
“OK, Tom, what about the carriage-house for the King’s carriages?”
But alas, Tom was very smart. He went to the cube and he shaded the row labeled Transportation, then he shaded the column that was labeled Housing.
“I understand what you have done,” admitted Little John, but you only used two dimensions of your matrix. What is the third one for?”
Tom the Baker smiled broadly.
“Those other dimensions can be used to gain greater understanding once you tell me which aspect of the carriage house you wish to understand.”
Little John scratched his head…a common problem in days of old.
“How do you mean?”
Tom felt a blush of impatience.
“Little John, if you were to place a telephone in the carriage house, then it would be Housing, transportation, communications as you zoomed in on the Magic Cube.
Or, if you are talking about how the Royal Bankers are financing the carriage house, it would be Housing, transpiration, finance.”
Little John began to nod his head as the majesty of the Magic 512 Cube began to unfold before him.
“There is one thing that troubles me,” said Little John. “How do the Observer rows and columns and depths work?”
“Ah,” smiled Tom. “Now you get to the core of the Observer paradigm. Some things in our Reality are meant to be observed. But others are not. So we use the Observer intersections to, well, think of turning things either visible or invisible!”
“I don’t get it,” said Little John, feeling a bit exasperated by the whole matter. “How could something like communications be ‘visible’ or not?”
“I will give you an example then. When you use a telephone you can see and interact with the telephone. But you do NOT SEE the magic of the telephone. That would be the central office where the electronic switching of calls takes place. And if a cell phone is involved, then invisible processes switch calls from one tower to another and handle billing and time accounting. Some of those things are terribly complicated, so they are best left invisible.”
Little John nodded his head. “And so this is why most of the Internet is invisible, then?”
“Yes, exactly!” Tom was thrilled his assistant was catching on so fast.
“People don’t all need to build watches to tell what time it is, Little John.”
For General Readers
The easiest way to carry the Seven Major Systems around in your head is to simply memorize the list of seven items:
- Environment (and health)
The last item, the Observer State becomes clear when you take an event or item in the physical world and envision it as a primary aspect of something with six “sides” around it that define how it interacts with the world.
A few days went by when suddenly, Tom was surprised to receive a note from the King.
It read “Tom, you must explain this Seven Systems” theory of yours to me. Come to myt Court right away.”
Tom didn’t waste any time as the King was impatient.
“You Highness, I have made an amazing discovery,” he began. “As I traveled around the world, I began to notice that everywhere I went, people had some things in common. There are certain activities that everyone seems to be involved in. Let me read you the list:
Tom was pleased, but the King was a little confused. “Yes, Tom, I know that everywhere people live, they will eat, but what does this have to do with being the Royal Cook?”
Tom wasn’t sure exactly, but he knew it was important. He tried to explain himself a little more clearly.
“You Highness, this discovery has given me a new way to organize not just the recipes in the kitchen, but all the recipes of life! “
“What on earth are you talking about?” the King asked.
“Well, I call these seven things the Major Systems of Life,” Tom began. “I noticed that whenever I saw a different kind of food in a country, there would be other things that were different too. Maybe it was the cooking fuel that I listed in the category called energy. Or, maybe it was the weather. I noticed in colder climates, the people were eating more foods with fat or butter.”
“Do you mean to tell me that where a person lives determines what they eat?” asked the King.
“Exactly, Your Highness. The people who lived in the tropical areas didn’t eat much fat, because the weather was warm and their bodies didn’t have to work to keep warm. But when I got up to northern Europe, I noticed that people ate a lot of the fat on meat and they ate a lot of butter too because their bodies were working really hard to stay warm. People there tended to be heavier in the fall and lighter in the spring, too if they worked outdoors.”
The King was very impressed with the way Tom had organized his knowledge. Presently, the King asked Tom, “If what you’re telling me is correct, I should be able to figure out tell where a person is by simply looking at how they dress, how they eat, how they get around and so on. Is this right?”
“Well, sort of,” Tom answered. “But there’s a little more to it than that. You see, Your Highness, I discovered that how we file recipes in our heads determines how we look at the world. So whether we think consciously about it or not, we all have a filing cabinet inside our heads that allow us to organize all the recipes of life in a way that not only let’s us remember everything, but depending on how we set it up, determines how we learn everything, too” Tom continued.
The King thought about this for a minute before he encouraged Tom to go on.
“I found, for example, that there were some people in China that I could communicate with very well. We seemed to have the same ideas about a lot of things. When I asked them questions, they seemed to give the same sort of answers that I would. But there were other people that just seemed to view the world much differently than I did. If I talked about a house, for example, they would think I was starting to talk about their social status” Tom explained.
The King still wasn’t sure if he was getting Tom’s point or not. “Give me some examples of what you mean,” said the King. He thought there might be something good in what Tom was saying, but he wanted more details.
“How you think about the world, Your Highness, depends on what you think is important. If you think religion is the most important thing, then every aspect of your life will be seen as having something to do with your religion. Or, if you live in a land where social status is all-important, then everything you see will be colored by the status you assign to it.” Tom hoped the King was getting his point.
The King asked, “Do you mean that how people look at a house can be seen as a social status thing, and not a structure to keep out the rain?”
Tom replied, “Exactly sire. There seem to be two kinds of people in the world: those who see things for their utility value, or those who see things for their social value. The problem with social values is, of course, that it changes how you look at things.
Suppose you have a puppy. If you look at the utility value of a puppy from a physical standpoint, it doesn’t do much more than eat and make messes. You don’t really need it to keep warm. But, if you look at the puppy from a social standpoint, then a puppy can be every loving and emotional friend. I’m not saying either view is right or wrong, I like dogs too. But a dog places a burden on my Seven Systems of Life and the value I receive in return doesn’t add back into that system.”
Tom wondered if what he was saying made sense to the King. After all, the King had many dogs and was known to be an animal lover.
“Are you saying having a puppy is a bad idea?” the King thundered.
“Oh no Sire!” replied Tom quickly. “It’s just that a puppy brings with it a responsibility in each of the Seven Major Systems of Life.”
“I’m not sure what you mean by this Major Systems of Life stuff,” said the King, “show me what you mean.”
“OK, Your Highness here goes. The first major System of Life is food. So your puppy can be looked at as a food problem. The problem is that if you don’t feed the puppy food, then you are being cruel to an animal, right?”
The King nodded agreement.
Tom continued, “and the second Major System of Life is shelter. If it’s raining outside, you can’t leave the puppy outside in the rain, right?”
“But the next Major System of life doesn’t make any sense. How does communication work with my dog?” asked the King.
“You talk to your dog, don’t you? I’ve heard you myself. You talk to him, you look each other in the eyes, and you have certain motions that give the dog directions what you want him to do. When you snap your fingers, the dog runs over to your left side and heels. So what you are doing is communicating with the dog.” Tom was feeling pretty good because he could see the King was beginning to see how his recipe system would work.
“But transportation,” said the King, “How do dogs fit in to transportation?”
“Well, in my travels” said Tom, “I heard of people who lived in the far frozen north who used dogs for pulling sleds. These sled dogs pulled carts on the ice that had skis instead of wheels.”
“And what about energy then?” demanded the King.
“Ah, Your Highness, those sled dogs were providing one-dog power each and according to my studies, one dog-power is a small fraction of one horsepower of energy. The people in the frozen north had found a way to use dog power as energy that provided transportation.”
“I know about dogs and the environment already,” said the King. “I know that when I take my dogs for walks that where they go to the bathroom, the lawn gets brown from too much fertilizer.”
“And, last but not least, Your Highness, you pay a lot of money for your dogs. Some of them have cost you hundreds of gold pieces.”
Tom concluded by telling the King, “I’m not saying that owning a dog is a good or a bad thing. What I am saying is that in the physical world outside of emotions and society, a dog has some measurable aspects that we can all agree upon. The social and emotional value will vary from person to person. But because we all live in the same world, we can all describe the Seven Major Systems of Life and discuss separately the emotional and social aspects of dogs.”
For General Readers:
The notion that there are Seven Major Systems of Life (plus an observer) is one that I came up with while working on the issue of long wave economics and how the meaning of “wealth” has changed over time.
We have come to equate “speed” with “progress.” The two are not the same, however.
I’m sure you remember from your school days that the Island of Manhattan, where New York was built, was originally traded for a box full of beads. The reason the trade worked was that the beads had only utility value to the Europeans who came to the New World, but they had high social and emotional values to the Native Americans who made the trade.
In retrospect, this seems like a very foolish trade; almost anyone today would scoff at the notion. Yet, in our own way, we have an equally high regard for the modern equivalent of those beads. We can find examples in many areas of life, and it’s worthwhile to go through a discussion of how social and emotional values color our perceptions and decision-making processes.
Let’s take food, specifically, a large New York steak. I mean as long as we’ve just mentioned Manhattan, right? We assign varying social status; depending on the setting the steak is in. Let’s put the steak in a number of settings, starting from the low end of society and working our way to the top, shall we?
If it’s prepared over a coffee can fire under a freeway overpass (having been fished out of a dumpster) that has one social status implication about the person eating it.
Preparing the steak in a residential kitchen implies higher social status.
The next step up might be the same kitchen, but if instead of a frying pan, we use a JennAir indoor grill, that implies slightly higher status. Having the steak prepared by a kitchen worker who cooks for hire implies even higher social status.
Last, but perhaps at the most enjoyable level, sitting in a fine restaurant, and having the steak prepared right at your table by a famous chef, while no doubt enjoying a good glass of wine, has a different social status.
But all of these social status issues aside, the steak, which is food, has aspects in each of the six other Major Systems of Life. Let me show you what I mean.
What is the shelter aspect of a steak? Here’s where we revisit the issue of scaling and zooming.
If you are “zoomed in” on the steak, you could consider the steak’s package to be its shelter. If we zoom out a little more, its shelter might be the refrigerator that it is being stored in prior to cooking. Or, it might be the meat market where similar steaks are housed in a walk-in freezer, prior to being sent to homes for consumption.
The communications aspect of the steak depends on which of our senses we are using as a communications channel. If you happen to use your voice, the communications aspect might be the instructions to the butcher, “I’d like it about an inch and a half thick.” I like good steaks. Or, if you are too lazy to head to the butcher shop, you could be saying something like, “Hello, is this Omaha Steaks?” Our eyes communicate a lot of information about the steak; is the marbling right? Has too much fat been left on it? Our touch and smell might warn us if there is a problem with it. There’s even a part of hearing involved. If you hear a mooing noise, it’s not cooked yet. Sizzling noises from charred areas? Yum.
Steaks have a complex transportation system if you look at it over time. Steaks begin by being transported as heads cattle to a slaughterhouse. From there, it moves to a cutting room and then on to an aging room. Once purchased by a buyer, it is transported, usually by truck, to a regional warehouse, and from there it is sent to either a butcher shop or off to the local Safeway or Kroger’s. It then takes a ride in a car to get to your house. The Omaha Steak people have capitalized on overnight jet cargo service to give their steaks an airplane ride. These are very good steaks, and thus, the use of more expensive transportation seems important.
Energy has a very interesting relationship with steaks. It may be burning wood, smoldering hot charcoal, electricity, or even natural gas. Some kinds of energy don’t seem especially appropriate, like solar or oil fired, yet they can be used. Solar heat seems to work if you’re drying the steak into teriyaki beef jerky, and a steak burned on a grill heated by white gas near a campfire can be exquisite. Providing it’s not raining, which it often seems to be whenever I’m camping, although even under these adverse conditions, I’ve had some good steaks.
Steaks and the environment get us into a highly contentious area. The reason is that as foods go, steaks are very inefficient. Yeah, they taste great to some of us omnivores, but there are internal and external environmental reasons why steaks are not the best food on the planet. Raising cattle as a food source uses something like six times more grain and water than simply growing the same number of calories as vegetables. That cattle can be hard on some kinds of grasslands is not disputed either. The internal environmental reasons not to eat steak can be traced to high meat diets causing colon cancer, and to excessive deposits of plaque in arteries.
Last, but not least in our exploration of how the Seven Major Systems of Life apply to steaks we have the matter of finance. Steaks are not cheap. Part of this comes from the amount of traveling they do, part from the inefficiency involved in raising cattle – land and feed cost a lot of money – and part comes from the fact that only a small fraction of cattle converts into steak. The rest winds up as hamburger, roasts, and leather goods.
We can generalize this notion that every one of the Seven Major Life Systems has aspects or “faces” to all the other aspects. If we make a ball out of “food” and place it inside a “box”, each of the interior surfaces of the box touches our problem area:
If we want to become really fancy in our analysis we could arrange the faces on the inside of the box so that they worked in a way that the real world operates. For example, we know that our food has a finance aspect. But while the finance cost of food relates to transportation (and adjoining face) and communication, the environment cost of food may not be too great. So as we look at unit costs of a food, say a carrot, we can order the systems by ranking costs as delivered to our dinner table.
Let’s say this carrot we’re talking about costs one dollar. We might find 50-cents of the financing of the carrot comes from transportation. Maybe there’s another dime or two in energy. Shelter (or specifically packaging and warehousing) might eat up everything but the last 2-cents of our dollar. The two cents would be the cost of land to grow the carrot.
We can then build a hierarchy of “carrot finance”
Transportation costs: 0.50
Energy costs: 0.21
The main point of running through this is to demonstrate the obvious: If we look at financial dimensions of carrots (food) we denominate our evaluation process in finance units. An evaluation done in the U.S. would differ from one done in Russia where rubles, not dollars, are used.
The more subtle point is that we can do other dimensional analyses of food. An analysis of “carrot transportation” might be expressed as a mileage study. There are mileages traveled by carrots and carrots in packages. There are two or three mileposts along the transportation continuum where communications occurs. This kind of analysis forces you to ask questions like “What is the financial aspect of carrot transportation?” As you ask this kind of question, the interconnectedness of systems comes into focus.
You’re then in a position to roll-you-own in any type of analysis and do as good a job of it as “more learned” experts in the field. If you look at Greenpeace, or other environmental groups, what they have done is demanded environmental dimensioning of particular consumable items. Whether the “environmental accounting” is done using some arbitrary form of energy unit, or “earth quality” unit makes little difference – yet. But we as our society grows, we are evolving accounting units for each of these Seven Major Systems. As the following table shows, not only do we have primary measures, but also secondary measures have evolved as our knowledge has expanded.
As should be coming into focus for you, as we come to better terms with the evolving complexity in society, the way we measure things has changed. This evolution of measurement within the systems comes over a period of time.
It’s easy to imagine our friends Uggg and Thuggg fighting over the day’s food. The measurement system was pretty crude. Uggg might say “Uggg caught deer”. And Thuggg, the always-present enemy trying to gain without work, might reply “Thuggg takes food.” Thugg was the ancestor of bankers.
The huge shift is obvious when you engage in conversation today about food. “I can’t have that piece of pie because I’ve already had 1700 calories for the day and plenty of carbohydrates.” The always-present negative aspect of self even gets involved in the evolution of measurement because instead of whispering in our ear, “Thuggg takes food”, we instead mumble to ourselves, “Well, just a few more calories won’t hurt just this once.”
There are only two more points to make about how we frame the world we observe. One has to do with creativity and the other has to do with scaling over time.
The way the Seven Major Systems can be applied to understanding of any society is to build a grid system that forces you to analyze how a particular group of people has constructed their systems. Think of this approach as an attempt to define a cross-cultural systemic anthropology. Or, more simply, think of it as constructing a group’s worldview.
We begin with a simple chart that shows how the systems all fit neatly together. It looks like this:
The way this works is pretty simple. You start with food and how it interacts with food (A) and you start asking questions like, “Is there anything that is food that is being fed to something that is food?” In this category, you might find, if you live in the Cayman Islands, that Ralston Purina makes “Turtle Chow”, which is food being fed to food. Although turtle soup is maybe not high on your list of favorites, in Kansas City, you’d expect to see grain being fed to cows. In Nebraska, it would be corn to the hogs. In the Pacific Northwest, you might notice that chicken parts are being placed in crab pots because crab love chicken.
As we move to the intersection of food with shelter (b) we see that this may be broken into a continuum. It might look something like this:
There’s a continuum over time that happens with each of the intersections between the major life systems. Put another way, everything has a history that leads up to the present moment and, barring a major eruption of the sun that vaporizes us; most everything will have a future.
The reason for developing a non-social framework for the analysis of recipes is that there are two general classes of recipes: those that are intended to give power and control over the physical world, and those that give power and control over people. We’ll explore the “recipes that run people” in a later chapter. For now, let’s talk about the necessary recipes you need to live at the animal level and fully cope with the implications of that.
The implications are pretty simple, although not especially comfortable. If you have food, shelter, transportation, and the rest, if your comfort level is similar, it doesn’t really matter whether you accomplish it with a gazillion dollars worth of high technology, or simple low technology like you find in the houses that line the switch-back rail line leading up the mountain from Cuzco, Peru, to the summit that leads down into the high Amazon.
I spent only a little time in Peru, but came out of the experience with a very high regard for their way of life. Not only do they enjoy better coffee than Norte Americanos, but they also have almost no commute time, no air pollution to speak of, reasonably good health, and good communication. Did I mention music and dancing?
No, they do have Pentium IV’s or i7’son their desks at home, but neither do they have desks. Their life is filled with emphasis on other things. They have time to think, time to reflect, and time to decide big issues. The do manual work and their processors are between their shoulders and they get recharged nightly.
Although “what it means to be a man” is not a major focus of conversation in big cities of America (except perhaps in certain gay clubs) it is what men really wonder about in Peru. They have an emphasis on macho behavior. They really are largely focused on conquering women and South American men are more chauvinistic in ways that would offend most women in the U.S.A. But, they also have a different view of family. It’s not something that is sublet to a school, which then takes up the role of parenting. Nor do Peruvian men lack charm or grace, especially when compared to some of North America’s finest “nerd class.” They say “goodbye” and are polite. N.A. nerds simply click. Goobye’s take time and they have none to spare. There’s a FB post to be done…
As Tom implied to the King, there needs to be a framework for collection of the recipes of life. The Seven Major Life Support Systems are only one such framework. It’s consistent to the extent that it removes social and societal lenses from our eyes and let’s us look at planetary life in new ways.
One thing the study of recipes has shown me is that there are two ways to approach many problems. In the field of anthropology, there are dozens of books that deal with differentiation.
Because of analysis by differentiation, textbook publishing has flourished. But what about the other side of the differentiation coin? What about studies of societies and social structures that begin from a basis of commonality? Although the study of our common behaviors and common grounds may challenge the conventional paradigm of division to the nth degree, everyone on the face of this earth seems dwell somewhere, to eat food, travels from place to place, engages in some kind of exchange, in a shared environment, communicating in some way, using or selling their energy, and at the same time, live with a purpose that is grander than the basics of consumption.
A suitable challenge for any encounter with another person seems to be developing at least a baseline appreciation of their motivations.
OK, there’s one final point I’d like to make about the Seven Major Systems of Life because you’re probably thinking to yourself “Say, this looks sort of similar to something I’m already aware of…” If you can’t place where it is you have seen this collection of items, let me give you a hint: It’s your monthly budget for your household.
Yep, each month you have to write a check or do an auto pay for each of these items.
The house payment is your shelter cost, the energy bills come in for the house and the car, the environment bills include things like medical coverage, insurance, and the like. Transportation is covered by the car payment, and communications has been growing a lot in the past 20 years to include a land based telephone line, a cell phone (or two), the cable TV (or satellite service), along with your Internet Service Provider (ISP) billing. Your finance bill comes in from MasterCard, American Express, Visa, and as those service charges from the bank. If your household is like ours, your food expenses sort of dribble out every time you visit the store.
I make this point about budgeting because if you ever need it, this type of thinking will allow you to come up with all kinds of ways to save money that you might not have thought about previously.
Take housing, for example. If you ever find yourself laid off, a position I found myself in September of 2001 through January of 2002, there are lots of ways to reduce your out-of-pocket housing costs. One way you could reduce your costs is by taking in a roommate to help offset costs.
Elaine & I were pleased during this period of unemployment to share our home (a boat actually) with Elaine’s brother, who contributed to our rent (moorage costs). Because living on a boat got to be a little cramped, Elaine and I secured a job as apartment managers. Although ultimately we had to resign because I accepted a relatively high-paying job in a different state, managing an apartment is a simple way to live very inexpensively.
The job we were offered was done in exchange for a nice 2-bedroom apartment with a good-sized patio and a 10-minute drive from downtown San Diego.
We spent more on communications than most unemployed people would, having two cells phones, an ISP, a landline to support internet service, and a $75 monthly DirecTV bill. That was 2002. Today it’s just normal.
We cut expenses in other areas, too. Elaine’s brother was able to do some shopping at the local military exchanges, being retired from the military. The evenings we went out, we focused on “happy hours” and especially those that had food specials. One night, for example, we had shrimp and roast beef for dinner and it set us back about $9 for both of us. Lounge food isn’t a bad deal if you find the right places.
In the transportation field, we decided to get by with one car, so we dispatched one to my daughter, Allison, who made the payments for a while and in exchange got a solid zero-down car. I’ve did the repairs on the outboard motor for the RIB boat myself, rather than take it to the shop because I had time, while unemployed, to do that kind of thing. Kinda missed it when the 80 hour weeks resumed in Florida.
As amazing as it seems, our quality of life was actually as good while unemployed as it was when I was working and making $100,000+ per year.
Granted, there were shifts in how we did things, but we stayed ahead of the curve, and eliminated costs like bankcard interest by simply paying off the card wherever we spent money.
During the six-month hiatus, I only drained about $4,000 from my savings to augment unemployment. I ate less – and that certainly helped the food budget and my health – and I walked more.
All told, it was an interesting period, and one that allowed me time to write the first draft of this book and pursue a lot of financial studies.
Words are interesting things. I felt kind of funny while being unemployed. I wasn’t lazy; I still managed to get up most mornings around 6 AM and start banging on the computer and keeping up to date on news and professional interests. But I did find myself doing things that were extremely satisfying to me personally – things that I would not have been able to do if I were purely focused on earning money.
I didn’t mention at the time that I was unemployed, though. In order not to look like a deadbeat, I told people who asked, that I was taking a sabbatical. This is an important point to note if you ever find yourself unemployed; look at the time off as a gift and do some of the things you really want to do. Value it and use it wisely. People understand rehab and sabbaticals. Sabbaticals when you walk around with an armload of books which I was doing.
The modest changes you will need to make are simple shifts in your Seven Major Life Support Systems. The specifics can all be discovered in a quick reading of your checking account register. It’s a simple process of understanding how you frame the recipes that make up your physical support systems.
Take a sabbatical sometime. It’s worth getting fired to get one.
For Business Readers
The Seven Major Life Support Systems have their analog in the business world, yet here they have a different name. Let me share with you the history of one of my first – and most important – complex spreadsheets.
It was called A.L.F.M.S. – the Airline Financial Modeling System. I did the work when I was Senior Voice President of an international airline in 1983-1985. The reason for building the model was so that the president and I could test various hypothetical changes in operations of an airline to see what would result in the greatest improvement in cash flow and the bottom line.
Let’s talk about operating models for a moment, and see where they fit into the grand scheme of managing a business.
First, the basics of accounting are observed in every business. Most small companies are run on a cash basis. This means bills are paid when they come in the front door. The other way to run a business is by the accrual method. This may be summarized as accounting that tries to match up expenses with revenues.
What few companies use as an operating tool at the president or vice president level though, is something called the “pro-forma.” It’s not to be confused with accrual worksheets of operating results because they become much too large to be used to make snap decisions. Accrual worksheets, that recognize revenue in complex situations, are not a management tool. They take way more time than is necessary to make management decisions.
The president had already identified the major management problem before I arrived at the airline: The 727’s were only being flown about 7-hours per day. The rest of the time, they were sitting on the ground doing nothing. The task, therefore, was to fly the planes more above their direct operating costs so something would fall to the bottom line.
What the accrual system didn’t do was solve the utilization problem. So, armed with an early HP-110C laptop (one of the few early computers certified for use aboard aircraft, by the way), I set about modeling revenues so that we could see with a few keystrokes, what a charter of a jet to a customer like Club Med or an airline like Faucett, the national carrier of Peru, would do to our bottom line.
Here’s a flow chart that explains in general terms, how the model worked for us:
The airline president had served at the VP level of Air Florida, and had worked as an accountant for the airline industry at a Big Eight accounting firm (back when there were that many). Because of this, the intricate relationships between various parts of the model were nearly second nature to him. But, to me, new to the airline business at the time, there were a lot of “Ah ha’s!” that sprung out after I built the model.
A lot of this systematic viewing of things was grounded in that experience.
For example, all other things being equal, an aircraft will generally operate more efficiently on longer flights. It’s logical when you think about it – it takes more fuel to get up to cruising altitude than it takes to maintain cruising altitude.
Another factor? There are many items on an aircraft that are cyclical expenses. In the airline world, a cycle is a take-off and a landing. Cycles are where your incur tire replacements, servicing of landing gear at major maintenance checks, and the like.
The model also forced me, heading up marketing, to associate specific city-pair marketing costs with the revenue generated. If I ran a special one-way fare from Grand Cayman to Miami for the locals of $126 each way, I needed some basis for that price. I was able to take my average yield on that city-pair northbound, see it was $126 (it was a buck or two less the other direction) and know that if I ran a special, it would not dilute my revenue, but it would likely take traffic away from my competitor.
Back to the point about the model, it was an incredibly useful tool to learn and be able to manage marketing of an international airline. What’s not shown in the simplified diagram above is all the currency conversions that took place, because we had routes into the Turks and Caicos Islands, and Jamaica, plus all North American fares were in U.S. dollars while the Cayman Island fares were in (as you would expect) Cayman Island dollars.
It was a grown-up spreadsheet, for sure.
Still, once built, it allowed us to model what would happen if we put an extra section (an additional flight in non-airline lingo) between a particular city-pair given some unusual event. That might be a holiday, and it might just be extremely hot weather somewhere like Houston that causes Texans to look for somewhere cooler to relax.
The model also had its analogy to the Seven Major Life Support Systems.
- Passenger revenues
- Cargo Revenues
- Aircraft expense
- Marketing costs
- Aircraft utilization
These factors all had influences on all the other aspects such that for a given airline with a particular route and revenue structure, there were implied limits to efficiency that a well-run airline should bump up against.
When the turnaround of the airline began, two 727-227ADV’s were each was flying a bit over 7 hours per day. Given this low utilization rate, it was virtually impossible to operate a profitable airline at anything other than holiday peak periods. When tourism traffic dries up in the Cayman Islands (and most of the Caribbean) in September 15th to U.S. Thanksgiving, those planes were burning money just sitting there – holding the ground down – and every flight operated just dug a deeper hole.
The way out of the problem was to increase the utilization on a year-round basis through additional flights, mostly on a charter basis, so that the direct cost of aircraft ownership (a lease) would be spread out over more flight hours. While the costs of maintenance went up, we were able to reduce the cost per flight hour by more than US$1,000. This doesn’t seem like a big deal, but when you consider we increased utilization to about 13-hours per day per aircraft, you can see how we were able to dramatically lower our breakeven costs. These in turn allowed us to price more aggressively on some routes and gain market share, a strategy that paid off handsomely when we got into those holiday periods.
By using a model, we could develop a charter price quote for Club Med in a matter of seconds – something that was almost unheard of in the early 1980’s.
The airline case illustrates an important point about framing of recipes. A lot of small businesses come and go because they don’t have the “big picture” and the experience to properly frame a business decision.
I have worked in the admissions area of proprietary colleges and here again, the lack of a sensible model makes the difference between a positive result and a money loser.
I have come to the conclusion that each department in every company alive, should have a daily reporting system in place so that all employees will be able to see at any time, how the business is doing. Although this touches on a long-standing debate over whether all employees should be told how a business is doing, it is critical that everyone understands the main function of their department and see how it is measured and how their individual efforts fit in to the companywide outcome.
In 2001, I executed a sales turnaround for a proprietary college in the San Francisco Bay area. The school sales (admissions) operation had been poorly managed and the reason was simple: There were no measurements in place.
My first step upon arrival was to require each of the admissions representatives to complete a detailed sales report. Every day, these sales personnel would have to document how many prospective new students they talked to. Of these, they would have to report how many were scheduled to come into the school for a tour of the campus and discussion of their goals. Then I required an accounting of how many actually showed up for the tour of the school, how many enrolled, and how many actually began attending school.
Last, but not least, there was a final accounting each 6-weeks to see how many students each admissions rep had started who had remained in school five days. Students that don’t “stick” for longer than five-days don’t count in the school business, because most were not charged tuition until after the 5-day mark.
The results were, as you’d expect, impressive. Sales people who couldn’t make the grade either self-selected out, or in a few cases, I made the decision for people who couldn’t perform. But of the half of the original sales force that survived 6-months of my numbers-oriented management style, efficiency more than quadrupled. Admissions went from an average of 30-students per six-week period to over 100 per six-week period, and my last class start was 156. The two year program was on its way to 2,000 students.
This is not to brag. It’s to make a couple of extremely simple points.
First, the Hawthorne Study that says people do better at everything just be virtue of being measures is absolutely true in the field. If you are not requiring daily reporting of every employee in your company, you are not operating anywhere near possible efficiencies.
Secondly, you can’t make good decisions without a model. If you know that one advertising media results in $10 of advertising cost per sale and another results in a $50 advertising cost per sale, you’d have to be a complete numbskull not to make the obvious decision. (I’ll help you with it: Advertise more on the $10 per sale media and cut the budget of the $50 per sale media…)
Thirdly, developing a simple daily pro forma tool is in my experience the cheapest investment any company can make – whether at the department, regional, or national basis – to forcing employees to come to terms with the truth of their business.
People are pain-avoiding animals. When a company is not making money, it’s not because the animals are bad. They’re just doing what they do – avoiding pain. The task of management is not to inflict pain, but to find out where the pain is coming from and orchestrate group efforts to end the pain.
Seven Major Life Support Systems you can define for any business are:
- Sales (Customers)
- A Product
- Plant (Shelter)
- Daily P&L (Finance)
- Raw Materials
If you model any business, you will quickly see how a change in any one of these items will ripple across the whole business. If the P&L is sick, you may lose sales because you can’t afford enough advertising. If you have too much plant space, you may not be able to sell enough to make money. But if you have too little, you will be encouraging competitors. If the price of raw materials moves up, your pricing will have to adjust pricing which in turn may impact sales volumes. That in turn ripples to plant and number of employees.
Just as the major support systems of personal life work as a balloon being squeezed in a fist – where the balloon will pop out somewhere – so it goes in operating a business. You can only pull so much demand forward with special pricing, and you can only operate at some fraction of 100% efficiency so long.
Whether it’s a small airline in the Caribbean, a college in the San Francisco Bay area, or a high tech electronics manufacturer, a reasonable person, willing to ask questions and quantify factors, can a model what will yield a reliable approximation of how close you can get to doing everything as close to right as possible for a given set of operating circumstances.
The daily pro forma is a simple tool that helps frame decision-making.
If you relentlessly follow the pro-forma, despite hatred from revenue accounting worriers, eventually the bottom line catches up and everyone has a fine pay day.
More next Thursday when tge Keyword will be “Making.”
Write when you get rich,