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Wednesday, December 07, 2016


Steve Cole's thoughts on business in general:
1. When I was in my 20s, I told all of my friends of my quite excellent business idea to produce a winning NFL (American football) franchise. First, I would travel the world looking for someone seven feet tall (perhaps a Watusi?) who could kick a field goal from his own 20-yard-line. (Actually, I need two or three of them for backups.) My NFL franchise would have no offensive unit, but two complete first-string defensive units (each the best in the league), a second-string defensive unit (injuries do happen), and an elite "special teams" unit. I could afford the very best because there would be no offensive team (which costs more than a defensive team). Every time my team got the ball we would immediately kick a field goal and then kick off to the opposing team (who would never return a kickoff since my Watusi would kick it into the stands). Any opposing team who tried to run or pass into my ace defense would end up punting, and my special teams unit would run back the punt to a point easily in the range of my kicker. (Same for a kickoff if they did score.) By the second half, the opposing offensive unit would be totally exhausted since their time of possession in the first half would be about 25 minutes out of 30, and the score of a typical game would be maybe 15-to-7 at worst. For the second half, the opposing team would have to play their exhausted first string or their less-dangerous second string against my duplicate first-string defensive unit. A typical game would end with a score of 33-to-7.
2. "Tell me about polar bears." A friend of mine who owned a business and did a lot of hiring always included this question in his job interviews (along with a lot of other innocent conversational questions that were actually carefully concealed probes). His company had nothing to do wildlife and even he had only the vague general knowledge of the average American who saw a polar bear in a zoo. His point for including the question was that it told him a lot about the person if they knew something beyond what most people knew about some obscure subject that very few people studied in any depth. He wanted to hire people who read books, not people who just watched sitcoms on television. (Just so you know if it ever comes up: polar bears are the biggest land carnivores on Earth but actually do most of their hunting in the water. They mostly eat seals but if they find a dead whale on the beach they will stay a week to eat their fill. Their skin is black and their fur is clear, but each hair is hollow and the inside surfaces are rough, producing a white effect. They are dangerous to humans and will hunt and kill us. They don't have the big hump on their shoulders that grizzly bears have because they stick their head, neck, and (narrow) shoulders through the breathing holes in the ice that seals use. If you ever have to shoot one,  you need to use a bigger than normal rifle or shoot them about ten times.)
3. On GOLD RUSH, the reality show about gold mining in the Klondike, there has been a long-running argument between Parker (the kid) and Tony (who owns lots of land and leases it to mining companies) over royalties. Parker pays Tony 15% of the gold he recovers, up to 3,000 ounces, then the royalty jumps to 25%. Parker says there is no point in him mining more ounces because the higher royalty rate means he cannot make any money. Tony refused to change the deal and the show paints him as a stubborn and greedy old jerk. Parker said in response that he would stop mining and go home for the year once he has the 3000th ounce and Tony said that was fine. While nothing has been said, it seems obvious to me that Tony (who leases land to dozens of mining operations) cannot give Parker a lower rate because all of his other tenants would demand the same rate. (Sometimes you have to think about the bigger picture.) Beyond that, I suspect that Parker is the greedy one. If his operating costs are anywhere north of 60% of gold recovered (at which point the lost 10% would be problematic), he has to be doing something wrong. That 10% difference is there so that a mining operation has money (from the first 3,000 ounces) to buy and refurbish equipment (capital sunk costs, not operating expenses). After that, the equipment is paid for. Parker paid for his equipment earlier. If he had a million dollars to invest in his new Slucifer wash plant, he wasn't having expenses over 40%.