MANDATES - TAXES - REGULATIONS - HOMELESSNESS 

California is consistently a fertile breeding ground for unintended economic consequences. At least I hope they're unintended. These politicians with good tans constantly prove to the rest of us that if you don't understand the most basic economic fundamentals, your efforts will always hurt those whom you proclaim you are helping. As with so many things in this world, those who we think are promoting ideologies to benefit us are actually creating great burdens on us, and those whom we believe are selfishly only benefitting themselves are actually creating prosperity in which rising tides lift all boats, including ours. 
Let's look at the connection between the California Energy Commission's recent decision to mandate solar panels on all new homes, the oppressive existing California property taxes and regulations, and the current exploding California homelessness population. This case study is Bad Economics 101, and to show you just how bad unintended consequences can get, we will even check in on Caracas, Venezuela today. 
First, mandatory solar panels. Pure Capitalists and Libertarians must be losing their minds over this most-blatant example of government intervention choosing free market winners and losers. I'm sure that at least the 69,000 employees of Exxon have a strong opinion on this one. The average rooftop solar panel system today costs about $18,000 and will add over $100 per month to a 30-year mortgage until rates go higher, which they will. Annual cleaning averages $400, and an average repair costs $650 (no more kids allowed to play baseball in the backyards of California!). The homeowner will reportedly save $80 per month on utilities, but that's only because California's utility bills are already 30-100% higher than their neighboring states due to renewable-energy government mandates already in place. And, California already has such a surplus of solar power that they are currently PAYING Arizona to take the energy off their overloaded power lines! This reminds me of the price control government strategies which pay farmers to plow under crops to keep agriculture prices higher. 
Second, property taxes and regulations. It costs approximately $60,000 more to build one house in California than in the rest of the country. Yes, $60,000! California has the highest number and highest priced government mandates, zoning restrictions, and permitting fees. The state legislature thought these barriers of entry for average citizens were so oppressive that they recently even added another socialist $75 fee on every new mortgage refinancing in order to, theoretically, support low income housing. Everyone on the Left Coast must have selected surfing over finance for their electives! 
Now, third, Californians are confounded by the fact that they have an explosion in homelessness, and most-unfortunately, unsheltered homelessness. Last year the California homeless population grew 13X the national average! Just Los Angeles has over 55,000 homeless, and because LA lacks shelters or transitional housing due to high costs and regulations, over 75% of the homeless live on the streets or in encampments along riverbeds (Picture Steinbeck's "Grapes of Wrath"). By comparison, in New York City only 5% of homeless are unsheltered. Now when I listen to Diane Feinstein on CNN, she certainly sounds like her entire life mission has been to help the poor people (although her and her husband are fabulously wealthy). So, how can this be? Do you see how government intervention in free markets creates dystopia, especially when presented as helping the less fortunate, redistribution, and "fairness?" This is the con that has been around for thousands of years. 
Finally, for a glimpse of how bad it can get you don't have to re-read Orwell's "1984" or Huxley's "Brave New World," because you need only look to today's case study in Caracas, Venezuela. Caracas was once a Latin American jewel with a fashionable urban sprawl of penthouses, fine restaurants, theaters, art, and a bustling international airport. Yet, as socialist-authoritarian governments have rolled across South America promising redistribution, large government care, and power to the people (See Chavez, Peron), they have destroyed lives and countries with their terrible, basic economics. Now, Caracas barely has running water, mass transit doesn't work, and homes sell for one-third the price they did just five years ago. Sadly, President Maduro was just re-elected while gangs run the streets and the middle class rummages for food. 
Maybe one day soon someone will come along in our great country who will be able to effectively explain to our hardworking citizens how the "beneficial" economic and political policies sold to the general public actually result in great burdens and terrible unintended consequences. 

"The most terrifying words in the English language are: I'm from the government and I'm here to help." 
- President Ronald Reagan 

* Thank you to Erin Ailworth, Allysia Finley, and Ryan Dube of the Wall Street Journal for many relevant facts and statistics. 

*For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com

* To access JAM Views directly, please visit jeffreyamartinovich.blogspot.com.

* SUBSCRIBE TO JAM VIEWS

DRIVING MYSELF TO PRISON 

I had rejected three Government plea offers, endured a four week trial debacle, and received a twelve year prison sentence. Following the egregious trial, I was assured I would remain free on bond while the Appeals Court reviewed the facts and would certainly reverse the decision. But, I had not yet received confirmation of this reprieve.  
On November 12, 2013, I was meeting with my new consulting team and reviewing the day's rebuilding progress. At 4:15 PM my cell phone buzzed with a call from the attorney's office. "Jeff, you're not going to believe this, but the Appeals Court answered our forty-page Motion with one sentence, 'Bond is Denied.' You have to report to prison in Morgantown, West Virginia by Noon tomorrow, and whatever you do, don't be late." I had been naive about the system. I had always believed that common sense would prevail, things would be resolved, and we would rebuild our organization and restore our shareholders. 
After many tears with my amazing team, I decided to spare my family and friends an uncomfortable road trip to West Virginia. I would drive myself to prison. At 3 AM I texted my son in college that I loved him, I smooched Mom, I punched Morgantown into the iPhone's GPS, and I began my journey West. 
The dramatic fall from grace swirled through my mind as I kept asking myself out loud, "How the hell did we get to this point?!" I decided to use my voice texting function to say goodbye, hopefully only temporarily, to all my friends listed in the phone's contacts. At least I wouldn't wake them up with a 3 AM call and make their day as miserable as mine. "Kevin, I'm driving myself to prison today! You better find another partner for the Member-Guest, but hold my slot for next year!" "Sean, write this down. Don't ever, ever invest in a solar stock!" "Dave, you're probably just getting home from the L.A. bars, and I'm driving myself to prison. Tell me a good story!" And on I drove, reaching deep into my contacts list, going all the way back to military buddies, business partners, and the neighborhood gang. It was a long drive. I imagined friends waking up across time zones saying, "Honey, I'll be damned. Martinovich is going to prison today!" and then, "Oh, don't forget to pick up my dry-cleaning," as they quickly moved on with their own lives and responsibilities. 
As the sun rose in my rearview mirror, I started to receive a few responses - "WTF???," "Dude, I'll send some cookies! Do you like Rice Krispy treats?," and "Turn left! Turn left!" I also received a call from my attorney, James Broccoletti. "Don't worry. Hang in there. We will get the appeal in as quickly as possible. Remember, don't be late!" (He would send me a letter in prison one week later stating that he had withdrawn from my appeal case, and to this day he has refused to return the $25,000 deposit!). 
Then the phone died. The GPS was gone. In the confusion I had forgot to bring the phone charger. I had no paperwork for where I was supposed to go. I contemplated stopping for a morning cocktail since this was West Virginia, and someone had to be serving a beverage which could calm the nerves. But a quick calculation said that I might be cutting it close, I didn't know where I was going, and I remembered Broccoletti saying that the first thing they do is give you a breathalyzer! 
As I got closer, I stopped at two stores for directions, but to no avail. Time was short, and the blood pressure was rising. I asked God to not let today be another disaster on top of a long list of recent disasters. I stopped again at a corner restaurant and engaged the pierced and tattooed hostess, "Hi, I have a meeting this morning at the Morgantown Prison. Can you please give me directions?" I chuckled internally at my embarrassment. She paused, looked me over in my Hugo Boss sport coat and Gucci loafers, and pointed, "Mile and a half down the road." I thanked her, ran to the car, and felt secure in the forty-five minutes I had left for a safe arrival. 
I pulled up to the gate, and the lone guard walked out of his shack. 
I offered, "Hi, I'm Jeff Martinovich, and I'm reporting to prison today." 
He leaned onto my door, looked into the empty car, and inquired with a perfect West Virginia twang, "You drove yourself to prison?" 
I nervously replied, "Well, it's a long story. I didn't think I was making the trip. Everyone fell apart last night. I thought I'd better just drive myself. I'm going to park in that lot over there. My buddy, Mike, owns a car lot, and he'll send a couple guys over to pick it up tomorrow." 
He looked at me like I'd lost my mind, leaned back, spit tobacco juice on my front left tire (true story!) and said, "You're not parking your car here. Your only option is to go back into town, leave your car, and take a taxi back here. And, you have thirty minutes to make it back, or you'll be starting your sentence in the Hole!" 
I wasn't sure what the Hole was, but it certainly did not sound good! I had scary visions of Paul Newman in "Cool Hand Luke." I whipped the car around and headed in the opposite direction. There would be no time to get a taxi, and surely the guard took great enjoyment in knowing this fact. My only hope was my Goth hostess. I pulled into the restaurant's small parking lot and ran in to ask if I could leave my car there overnight. 
"Oh no, Sir. John The Manager would never allow that. There's never enough space as it is." 
I interrupted, "I'm sorry to be short, but I'm in a huge hurry. May I please speak to John?" 
Soon appeared John The Manager displaying double the piercings and tattoos as our hostess, died black hair, and thick black eyeliner. "Cannot do it. No way!" he rolled off his pierced tongue. 
I proceeded to employ every Dale Carnegie technique I could remember to influence this fine, young gentleman to allow me to leave my car, but I was getting nowhere. Then, I went to Plan B and just would not accept "no" for an answer. Finally, in exasperation, he yelled, "Fine! But if it is still here tomorrow, it will be gone!" and he stormed back to the kitchen. 
I turned back to my hostess. "Miss, I didn't exactly tell you the whole story before. If I don't report to prison in fifteen minutes, they are going to throw me in the Hole! Is there anyway I could talk you into driving me to the front gate so I can make it on time? You can even drive my car!" 
I then experienced for the first time the label of a "felon" as she took two dramatic steps backwards and made clear that my request would not be possible. 
I ran to the car. My watch noted I actually had sixteen minutes remaining. I threw the watch, the phone, the wallet, and the keys into the glove compartment. I slammed the car door, looked to the sky, and let out a yell, "Okay God, if this is the way it's got to be, then this is the way it's got to be!" 
I took off in a sprint across the snow covered parking lot. I crossed the street, dodging a few cars, and ran as fast as I could against traffic on the side of the narrow rural road. The snow was deep on the side, and the shoulder was covered in slush and puddles. The road was occupied with Ford F-150's barreling down on this lunatic running for his life against traffic in a black sport coat and loafers! The trucks showered me with spray as they passed too close for comfort. As the mind slows down at these extreme times, so many events which had brought me to this point played like a movie in front of me. 
I was soaked to the bone, the snow was deep, and I knew I wasn't making good time. I screamed to God once more, "After all of this, you have to let me make it!" 
I spotted the prison ahead, and it gave me a final burst of energy. There was a gap in the oncoming traffic, so I moved onto the road and gave it all this forty-seven-year-old body could summon. I sprinted through the gate like Eric Liddell winning the Olympic gold in "Chariots of Fire." 
The guard walked over to me as I clutched my knees, heaving and gasping. He looked me over and shook his head. "Two minutes to spare. I never thought you'd make it." 
I followed him into the Processing Center. There would be no Hole for Prisoner 81091-083 today! 

"The real test of man is not when he plays the role he wants for himself, but when he plays the role destiny has for him." 
-- Vaclav Havel 

* For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com

* To access JAM Views directly, please visit jeffreyamartinovich.blogspot.com.

* SUBSCRIBE TO JAM VIEWS

PAY FOR PERFORMANCE AND THAT'S IT! 

Today I'm asking you to totally erase your beliefs and habits in how you pay other people and how you get paid yourself. Our nation has grown from a capitalistic, entrepreneur, craftsman, shopkeeper founding to a socialistic, bureaucratic, pay by the hour, pay a fixed salary system. This transition began during the Industrial Age as workers left farms and local shops and services to enter the factories of the big cities and the railroads across the country. Henry Ford and Andrew Carnegie found it simpler and more profitable to pay the masses an hourly or daily wage. 
Unfortunately, this compensation structure is diametrically opposed to human nature and mankind's genetic coding to pursue his own self interest. In today's Information Age, paying people by the hour, or by a fixed salary without significant incentives, is simply the product of lazy and uneducated management. 
Years ago a famous Westinghouse study experimented with dimming the lights in their factory to see if worker production would decrease. Then they increased the lighting to see if worker productivity would in-turn increase. What they were surprised to discover was that worker production increased when the lights were both increased and decreased. What it proved was that the factory workers simply responded well to knowing that someone cared about their performance, someone was concerned about their work, and that someone was paying close attention. 
This is why I say that paying salary or hourly wages is lazy. Creating a sophisticated compensation system which properly pays employees based on objective and subjective results requires thinking and effort and follow up by management. But, the result is exponentially more productive and profitable. Not paying your yard guy, your painter, or your attorney hourly fees, or upfront retainers which they request, will also create a likely uncomfortable conversation, but it will save you in numerous headaches and failures. 
I believe I am an expert on this subject only because I have made more mistakes than anyone in paying my employees, partners, vendors, and contractors. In my companies, certain deals had long lead times until the agents were paid their fees and commissions, such as buying and selling companies or in commercial real estate transactions. So, I would get talked into paying draws which are technically advances so the employee could live on that income until the deal closed, at which time the company and the employee would settle up. But, what happens in real life is that the pay just becomes a salary which a C-Player expects monthly, and then not as much revenue is produced as expected. Then the C-Player leaves the company with a debt the owner never recovers, or the employee negotiates a new deal and promises it will work out better the next time, which of course it never does. I paid Bruce, an investment banker in our NYC office, $12,000 per month draw because every month our management team was fed a large stack of documentation showing the deals would be closing right around the corner. The CFO and the COO tried to slap some sense into me to fire Bruce, but I believed the large successes would finally arrive. Finally, once Bruce was over $200,000 in debt to the firm, he brought us a deal that went bankrupt and then even testified against the firm and myself in Federal Court! Is that the worst example you can even imagine?! It was totally the result of an over-generous, naive pay structure I had created. 
Another time, a senior healthcare consultant pitched our firm to introduce him to the significant number of doctors and medical practices we had as current clients. He would help their practices be more successful, and we all would split the success fees.. He presented a financial model in which I would pay him a flat fee of $10,000 per month plus office space, support, and infrastructure, while our firm would reap a substantial profit on the bottom line. After many negotiations, I offered to pay the consultant no fixed salary, but instead a percentage of bottom line profit at a rate which would double his projected compensation to $20,000 per month if he performed on the model he presented. He wouldn't accept the deal, and we likely avoided another disaster. 
I owned a restaurant in Newport News, Virginia, in a partnership with an experienced operator group, and this group took their management fee every month as a percentage of the top line revenue. Every month we would hit the top line projected number, but unfortunately, the Profit and Loss Statement (P&L) would show all kinds of problems or decisions which erased any profit for the ownership group - snowstorm, marketing campaign, the bartender was stealing! After six months I caught on and offered to pay my operating partners double the management fee as previously negotiated, but only as a percentage of the bottom-line profits their financial model had projected. They wouldn't take the deal, so I knew it was likely a sinking ship. I fortunately negotiated to be bought out at a very tiny profit, and a year later the restaurant closed its doors, with a fixed $14,000 monthly mortgage to be paid. Another narrow escape. 
Hourly rates and fixed salaries by definition promote time, not results. Lawyers bill you what the market will bear and then fill in the hourly timekeeping system to add the names and tasks which make the numbers work out. Trust me, I have personally watched the process. The lawyers prefer the corporate clients because they know the market will bear even much higher fees as they are spending the company and shareholder's money, as opposed to the individual who might scream bloody murder if it was coming out of their own pocket. 
Accountants look up how much they charged you last year, and then know that you will bear a 5-10% increase this year. They then back-end fill the hourly time sheets to justify the quoted rate they provided you. Trust me here also, as I merged in a 75-member accounting firm and was shocked at how inefficient and disruptive the billing process was for the partners. As much as possible, you must negotiate "a price for a result." You must think and act as an educated consumer and clearly lay out what you will pay for what result, and believe that their time is their own concern.. Many lawyers and accountants will balk at this structure, but then you must move on to find A-Players who will accept this performance-based compensation. If not, you will only have yourself to blame for incredible over-charging and continuous frustration. I have made this mistake more times than I can count. 
If you pay the yard guy a monthly flat fee, his only avenue to increase profits is to reduce the mulch, skimp on the fertilizer, and spend a few less hours. If you sign a cost-plus contract with the homebuilder, his only incentive to increase profits is to increase the cost of the house. When the White House signs a cost-plus 15% contract with Boeing to build the next Air Force One, what incentive does Boeing have to build the plane cheaper, more efficiently, ahead of schedule, and under budget? They have zero incentive, as even President Trump was shocked with the price tag! 
Everyone must be sitting on the same side of the table, and everyone must have skin in the game. In our investment company, even every receptionist had 1) a significant portion of their compensation based on the profitability of their individual branch, 2) another slice of compensation based on the bottom line profit of the entire firm, 3) their formula was a fixed ratio so they controlled their destiny - not a subjective allocation from me, and 4) the eligibility to make the exotic company rewards trip just like the top producers. This is why our receptionists leapt to their feet as a client entered the office, shook their hand, smiled, remembered their name, served them, and treated them as a personal guest. And if the branch's top producers didn't pick up their calls, or return their messages, you know who was the first one to give them hell! Some of my greatest memories are observing the receptionist and her husband enjoying a trip in Acapulco or the Islands, knowing that they would have never had that opportunity in "regular" companies. 
Finally, don't let the kids get an hourly job at McDonalds. Although honorable work, it will teach them backwards economics. Encourage them to create lawn mowing businesses, build websites for a fee, give personal swimming lessons, and even higher their friends for a slice of the bottom line. Their future economic potential is limitless if we only help them understand their personal worth early on. 

"Never mistake potential for performance." - Peter Drucker 

This Post contains excerpts from Jeff's upcoming book, "Building Special Companies," Ash Press, Fall 2018 Release. 

*For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com

* To access JAM Views directly, please visit jeffreyamartinovich.blogspot.com.

* SUBSCRIBE TO JAM VIEWS

BE A CAPTAIN INSTEAD OF A COACH 

     To paraphrase a little Burt Bacharach, "What the world needs now is many more Captains, Lord we don't need another Coach." Coaches tell us what to do, while Captains show us how to do it. The Coach is back at HQ, while the Captain is in the trenches. The Coach must stay on the sidelines, while the Captain is in the game. The Captain never asks the team to do something they are not willing to do themselves. 

     I am a huge fan and student of the legendary coaches such as Vince Lombardi, John Wooden, Pat Summit, Stephen Covey, and Tony Robbins, but today we have enough people who want to tell other people what to do. We need more people who are willing to lead by example. Leadership By Example is the only leadership model in America which I believe provides inspired, transformational, long-term results. 

     The majority of working Americans today have never served in the military or fought in a war, and therefore do not understand the environments which demand a pyramid-style command and control structure. Millennials, Gen Y'ers, and Gen Z'ers especially want to know "why" they need to do what you have asked them to do, as opposed to just following orders. In our investment firm we would begin each company-wide retreat with a slide of an upside-down pyramid. What I attempted to illustrate to everyone was that the executive-management team worked in service of the front-line financial advisors, not the other way around. Also, our firm was led by individuals who had been, and still were, successful front-line advisors themselves. This structure and mind-set provided our employees with credible leaders whom they could respect and relate to as they fought on the front lines servicing clients and driving new revenue growth.          Many of our competitors were acquired by large banks and insurance companies which then replaced the Captains with "corporate types" only to watch their top sales people leave the company to return to small-firm cultures they remembered. 

     People want to be inspired, overachievers want to be led by overachievers, and talk truly carries no weight. We can tell C-Players what to do, and they will follow us because they have no other options. But, A-Players want the Captain to carry the flag and show them how to be a winner. 

     As the leader of your company, team, charity, or household, every minute of every day your people are consciously and subconsciously analyzing everything you do and everything you represent. Steve, the President of our company, and myself put a great deal of effort into the smallest items for Captaining our ship. We committed to look sharp and be on top our our games every day, and we knew that we could never "phone it in" on the days we just didn't feel like giving it 100%. We put in the most hours, but we ensured the firm rewarded results and productivity instead of a "punch the time clock" mentality. Our teammates learned to be professionals who made commitments and controlled their own success. 

     We stayed late cold-calling with the rookie advisors, sharing the pizza and beer, and teaching techniques for building relationships with new clients. While running the company, we also managed the two largest client books of business in order to maintain credibility with even the rising prima donnas. We joined numerous civic and charity boards and successfully inspired nearly every employee to also donate significant time and financial commitments. We played on the company softball team, basketball team, and ran the half-marathons, all while proudly sporting the company logo gear and participating in all the after-game celebrations where the real relationships are forged. At investment conferences, we would be the last one at night in the hotel lounge building new contacts and business ventures, but we would ensure we were in the first row for the conference meetings the following morning long before the other companies' C-Players trickled in. Without us saying a word, people in our company believed that our teammates were stronger, smarter, and more successful than the employees of our competitors. 

     The Captain's leadership by example becomes a self-fulfilling culture. Why is Duke Basketball such a dynasty? It is because Coach "K" is really a Captain whom people mistake for a Coach. He had initial credibility from playing and coaching under legendary Bobby Knight. His drive, his fierce competitive spirit, his brains and experience, and his class and grace all drive his team to win, and to win the right way. He is the Captain of that ship, and every player and every coach that joins his organization knows that they need to bring their A-Game every day just to keep up with him. The legion of "Duke Haters" out there only confirms that Coach "K" captains the type of organization the rest of us wish we could join. 

     Recently, my buddy, Ray, a former Army Infantry Lt. Colonel, reminded me that the "Captain" never ate until all of his soldiers had been fed. Without words, every day he communicated to his men that they were important and that he was standing with them shoulder-to-shoulder. 

     Do you remember in the movie, "Dead Poet's Society," when the students stood on their desks and proclaimed Walt Whitman's "Oh Captain, my captain!" as Robin Williams was being wrongly dismissed from the pretentious prep school? He was their Captain because, by example, he inspired those young men to learn and reach for their dreams. He was not merely a teacher instructing them to read Shakespeare. 

     The Captain is connected and responsible for the results, including all the failures. I can honestly trace every failure, big and small, in my organizations back to my leadership shortcomings. Whether in my corporations, charities, or sports teams, I can identify how our losses occurred when I took my eye off the ball, when I stopped sweating the small stuff, or when I let up on my personal effort. The Captain also handles the unpleasant duties inside the organization. They call out the troublemakers and make them shape up or ship out. They cull the herd of the C-Players who are dragging down the performance of the team's A-Players. The Captain always deflects praise for the organization's victories, but assumes full responsibility for the failures. 

     There are enough people in the world telling you what you should do in your business, your school, your church, and your relationships. I urge you to be different. I urge you to summon your courage, buckle your chin strap, pull up those socks, and be a Captain who leads by example. You will be amazed at how quickly, without words, your team bus is filled with the right type of players. And, then it's up to you. 

"In the fell clutch of circumstance, I have not winced nor cried aloud. Under the bludgeonings of chance, my head is bloody, but unbowed...I am the master of my fate. I am the captain of my soul." - Invictus, William Ernest Henley 

* For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com

* To access JAM Views directly, please visit jeffreyamartinovich.blogspot.com.

* SUBSCRIBE TO JAM VIEWS