Wednesday, November 27, 2013


I am grateful for what I am and have. 
My thanksgiving is perpetual…
Henry David Thoreau

But I am a little concerned about my children and grandchildren. Will we leave them a nation in debt and politically so divided and paralyzed that it is incapable of rising to the occasion as it has done so many times in our time?

I am grateful for what I am and have but have we been too selfish in claiming for ourselves more than we were willing to pay for, presenting the next generations with a huge credit card bill?

I am grateful, but not too pleased that consumerism is claiming every single Holiday on our calendar, first Christmas and now Thanksgiving too. Do we really need to break up our Thanksgiving celebration to start our Christmas shopping at Best Buy?

If we don’t have our priorities straight are we even deserving of Thanksgiving? From those to whom much is given, much is expected; and from the one who has been entrusted with much, much more will be asked (Luke 12:48).

John F. Kennedy reminded the nation on January 9, 1961 of this biblical admonishment. Have we been heeding the message?


Friday, November 22, 2013


I have written before about customer service. How every business today will claim that “the customer comes first” and how few put their money where their mouth is.

Case in point Pella Corporation. On its web-site Pella claims to be putting customers first. It proclaims: “Pella is a family-owned and professionally managed privately held company. Because of this, we have a proud tradition of putting our customers first.”

Lip service! Let me share with you my experience with Pella.

In 2001 we built a new home to accommodate us in our upcoming retirement. A comfortable ranch, with lots of natural light coming in through 19 windows. The builder’s standard offering was Windsor or Andersen windows, but gave us an option to “upgrade” to Pella at an additional charge. We chose Pella thinking that it would offer us the highest quality product. Knowing of Pella’s Dutch origins, we were charmed by the thought that we would be supporting our own brand.

Our builder installed 19 Pella windows, of Pella’s ProLine Casement type.
Pella now knows – and so do we – that these windows were defective. In 2006 Pella has re-engineered the product to eliminate the flaws and ProLine windows installed after that changeover don’t seem to present the same problem.

The problem, in layman’s terms, is that the casement protecting the wooden window frame is found to separate from the glass, allowing water to penetrate the unit. Over time moisture will build up inside the unit and corrupt the wood frame. Pella offers a ten year warranty on these windows.

When Pella discovered the problem and re-engineered the product it did not notify existing customers who had bought its ProLine Casement windows. But it could not hide the problem entirely and its was confronted with a class action suit, Saltzman v. Pella Corporation, Case No. 06-cv-4481. The suit was settled in 2012 and approved by the court in March of 2013. This settlement is highly unsatisfactory and probably the result of Pella having much deeper pockets than the plaintiffs.

In the settlement agreement Pella did not acknowledge that the product they had supplied was defective. On the contrary, Pella CEO Pat Meyer declared in a statement issued in 2012 upon reaching the settlement agreement: “In the overwhelming majority of cases, our Pella windows performed extremely well and as designed”. She continued: “The settlement is designed to address the relatively small number that may have experienced a problem.”

This is a typical case where the company is more concerned about its short term financial performance than about the customer. Long term I don’t think that Pella can get away with duping its customers.

All of my 19 windows are defective. It took me a long time to get Pella to send out a technician to assess the damage, but when he finally came out he found that of the 19 windows 6 had to be replaced and the other 13 had to have the cladding and joiners replaced.You would think that Pella would come out and do the work at no charge, but think again!It will cost me $3,642.31 to have Pella repair the damage.

Pella is hiding behind the court sanctioned settlement agreement and offers only a 40% discount on the purchase price of replacement product. That is a deal I can get when I go to Andersen for replacement windows!

Pella should accept the court sanctioned settlement agreement as a minimum compensation for the cost incurred by its customers for ProLine Casement windows. If Pat Meyer is correct in her statement that only “a relatively small number of customers may have experienced a problem”, Pella should stand behind its product and hold the customers who do experience a problem with its windows completely harmless.
I am not alone in this situation. All you have to do is Google “Saltzman v. Pella” or “Pella ProLine Casement” and you will get to read a litany of duped Pella customers. 

One of my fellow victims left a highly illustrative comment in a web posting on June 4, 2013:

I beg to disagree with Ms. Krafka-Harkeema (Pella spokesperson) when she says that the Pella windows in question have performed extremely well. I also beg to differ in her claim to addressing customer service needs. Our first window we had to replace at full cost. The remaining windows had started to rot out but it was not visible from the exterior. The local dealer did not even have the courtesy to make a site visit or direct our concerns to Pella Corporate. Instead of advocating on our behalf, it was basically “so sad, too bad” new windows will cost you X. It took over a year to get someone from Pella Corp to come and look at how bad the windows were and even then new ones were offered at a limited discount when the company admitted to defective products. Unacceptable when our initial purchase was a substantial investment with over 22 large windows.
Manufacturing defects occur, but not to stand behind your product at the Dealer level and or to be nonresponsive at the corporate level just reflects on the company as a whole.”

This echoes in detail my experience and I fully underwrite the closing comment.
What really gets me in this case is that Pella’s executive management has steadfastly refused to deal with me and my complaint. All my efforts to get management’s attention have been fended off and tossed in the lap of “Customer Support Specialists”. If Pella’s executive management does not own the function of customer relations, it cannot legitimately claim that it puts customers first.My case painfully brings to light that Pella just pays lip service with it’s “customers first” proclamation.

Caveat emptor! Buy Pella product at your own peril. I have found out to my detriment that you cannot rely on the expectation that Pella will stand behind its product.

Saturday, November 9, 2013


I learned from Dave Sullivan, the business consultant who for years taught the Course for Presidents at Aileron, that in business one should never start an enterprise without at the same time designing an exit strategy. Dave Sullivan wants you to ask yourself: How do I extract myself when it does not pan out, when I find that I have more important things to do, or when calamity strikes? More precisely, how do I extract myself without doing harm to the business, its stakeholders and my estate?

The typical small business owner has ninety percent of his/her net worth tied up in the business and is relying on the value of that investment to fund his/her retirement.Yet, a preponderance of small business owners will be in for a shock when they try to sell or have their business valued for estate planning purposes. This is particularly the case with businesses that do not carry substantial hard assets like land, property and machinery on their balance sheets. There is a rule of thumb that says that 60% of the valuation of a business depends on the general state of the economy, 30% on Wall Street’s outlook for the industry it operates in and only 10% on the financials of the business itself. This suggests that timing of exiting a business is all important.

As Dave Sullivan points out, exit planning should not wait until you begin to feel ready for retirement. In fact, business owners would do well to separate exit planning from retirement planning. Otherwise the presumption is built in that the business owner will not voluntarily exit from the business until retirement. The exit planning Dave Sullivan is talking about is having a plan for what to do with the business when it no longer meets the owner’s goals, whether these goals are of a business nature or a personal nature. This can happen at any time in the owner’s lifecycle and in the business lifecycle.

Such exit plan should look at all alternatives for the business, including liquidation, retaining ownership but leaving the day to day operations to others, becoming a silent owner, selling, transitioning to the next generation, turning it into an employee owned business, merging it with another business, you name it.
Not all of these options may be valid at every stage of the business development or under all circumstances. Therefore the exit plan should be written as a “what if” scenario:
·         What if in five years I cannot achieve my return on assets goal?
·         What if my health fails me and I no longer have the stamina to lead the show?
·         What if I come across another business opportunity with higher earnings potential?
·         What if I want to go back to school or change careers?
·         What if a family member needs my full time attention and care?
·         What if I discover that others are better equipped to run the show than I am?
·         What if I want to retire?

A carefully considered exit plan is an indispensable business and personal planning tool. It will stimulate the business owner to maximize the value of the business independent of his/her level of participation in the business. It is also an expression of good governance as it protects the value and continuity of the business for other stakeholders, particularly heirs, employees, customers, suppliers and –if applicable – minority shareholders.

A good exit plan is a direct reflection of how the owner sees his/her role in the business. If he/she is a veritable entrepreneur the plan will focus on scenarios that will call for an early exit or distancing from management as other opportunities arise. If he/she is a business owner to have job security and make a decent living the plan will focus on retirement. If he/she wants to be the Chairman of the Board but not the CEO the plan will focus on separation of powers.

For small business owners wanting to create an exit plan there is plenty of professional counsel available. The first source to go to is The Exit Planning Institute (E.P.I) . The institute is responsible for the certification of “Certified Exit Planning Advisors”. Its web-site is a treasure trove of information on the topic of business exit planning.E.P.I. points to the damage owners can do to themselves, their heirs and the business when failing to have a well designed and implemented exit plan:
·         Undervalue your company leaving hard-earned wealth on the table
·         Pay too much in capital gains and estate taxes
·         Lose control over the exit process
·         Fail to realize your personal, financial, or business goals during the exit process.

A good exit plan is written with the input of professional counsel. My experience with small business owners is that too many are living dangerously without a good exit plan. They do so at their own peril but they need to be aware that, in the process, they are also exposing all stakeholders in the business to unnecessary risk and harm. What they are leaving behind is a mess.

Saturday, November 2, 2013


The conventional wisdom says that consumption drives our economy. We are heading into the Holiday season and several department stores and box stores are now opening up on Thanksgiving Day. Is that extra shopping day so important that we are willing to sacrifice the sanctity of one of only few remaining true American Holidays? Then it will be a race to Christmas and see if we can break the spending records of previous years. If Holiday spending is not up this year by at least a couple of percentage points then it will be interpreted as a bad sign for the economy. But is it?

Do we really benefit from importing more Chinese consumption goods that will soon be broken, tossed out or put out on E-Bay or in a garage sale?

We have become a throw away consumption society. We produce more garbage (literally and figuratively) per capita than any nation in the world and – in the process – we consume a lot more energy per capita than the rest of the developed world with the exception of Canada (where the climate and the distance between population centers are drivers of high energy consumption).

We are so focused on consumption that we put the cart before the horse. We are hell-bent on reducing unemployment not so much because we are concerned about the (lack of) quality of life of the unemployed but because we want to swell the ranks of active consumers.

Our economic policy is all about stimulating consumption as the primary means of stimulating economic growth. But how healthy is economic growth if it is primarily consumption driven? We are spending beyond our means at just about every level. Our National Debt has exploded to $17 Trillion and household debt adds over $11 Trillion to the debt burden we have to carry. It needs to be noted though that while the National Debt has continued to rise steeply, household debt has come down from its peak of $12.7 Trillion in the third quarter of 2008. There is a further significant difference between the Federal Debt and household debt when we look at what the debt has bought us. Almost 78 % of household debt is incurred in the form of home mortgages and car loans. In other words it is spent on investments in our basic needs. Another 8.6 % is incurred as student loans, which represent an investment in our future. The Federal Government, on the other hand, has just incurred it $17 Trillion in debt, without making any measurable investment in our infrastructure (roads, water, power, (air)ports, bridges, broadband) or our future (education, healthcare, research & development, environmental protection).  It has just consumed without investing.
The bottom line is that together we have spent $28 Trillion more than we had in the bank. So, do we really need more consumption? I will argue that we should be focused on getting unemployed back into the production economy rather than the consumption economy.

I cringe every year when I see what people –also the ones around me – spend on Christmas presents that nobody needs, that are getting returned or traded or just put away until the next garage sale. We are just adding to our credit card debt of $ 679 billion and will be thoughtlessly paying 18% interest on that debt.

The whole debate about government spending is misdirected. It should not be so much about the level of spending as well it should be about what we are spending it on. If, as a nation, we don’t invest in keeping our people and infrastructure competitive with the best in the world we will soon have no more money or credit to feed our consumptive addiction. We will have to invest in education (and continuing education) of all of our people; and in technology; and in research and development. We will have to do a better job of protecting our environment and we have to make up for decades of neglect of our roads, tunnels, bridges, water supply, railroad system, power grid, ports and airports. It would be nice if we started rebuilding our urban and suburban systems to stimulate and facilitate walking and biking as a safe and healthier alternative to commuting by car.

If the government would just give priority to stimulating, supporting and subsidizing the production economy rather than the consumption economy, and to promoting healthy behavior it would help create value and wealth and that, in turn, would create all the consumptive power the economy needs. We may then be spending on bikes, biking- and hiking-trails rather than automobiles and roads. We may then be spending on gyms and vacations rather than on video games and professional sports paraphernalia. But we will have more money to spend than we ever had before, without going into debt. We need to get to the point that consumption is no longer a goal in itself but the natural outcome of productive behavior in a growth economy. In other words we need to put the horse back before the cart.

I know it is heresy, but if this means that, to make up for lost time, we will have to increase taxes for a while, so be it. After all, people have no compunction about spending fortunes in the lotteries and in casinos, for which – with very few exceptions - they get nothing in return. However, we should not accept a higher tax burden without a complete tax reform that should include simplification, elimination of tax expenditures and a rethinking how tax policy can support productive economic behavior and healthy behavior of its tax payers. Maybe it is time to replace to some degree taxation of income by taxation of consumption.