7 ms·

Yea, if you twist Friedmans meaning you can make all sorts of nonsensical arguments. Value is profits extending into the long run forever, he spoke and wrote cl

Yea, if you twist Friedmans meaning you can make all sorts of nonsensical arguments. Value is profits extending into the long run forever, he spoke and wrote clearly enough that he doesn't have to spell that out for you. In Etsy's case, paying above market wages and benefits does nothing for the company and it's shareholders, it's just a gift from the CEO to workers, paid for out of shareholder accounts. Etsy didn't get the best web site or software out from it, they got rampant entitlement and sub-par work.

clavalle 10y ago
>paying above market wages and benefits does nothing for the company and it's shareholders Again, we can use Friedman on both sides of the argument (which was my original point as to the meaningless of the statement if not in original intent then in popular application). I could argue under the same statement that such a move would do plenty for the company in establishing itself as a very good place to work making it likely to attract and retain top talent. It could also make individuals 'hand crafting' items to sell, who are more likely to be a conscientious lot, feel good about continuing to do business with Etsy. These factors could lead to a more solid niche in the market, longer company survival, and more consistent profits over time. I'm not saying that's what I believe but let's assume it is true. Since long term profit projections get hazy, the safer bet almost always is to follow a short term profit argument and take surer profits as soon as possible even though, in perfect hindsight, a long term approach would have yielded greater overall profits. I'd bet this happens a lot and this idea that everything is subservient to profits paradoxically hurts value more than it helps.
valuearb 10y ago
"I could argue under the same statement that such a move would do plenty for the company in establishing itself as a very good place to work making it likely to attract and retain top talent. " Market value means that your turnover should already be low, your employees can't leave for better paying jobs. Obviously there is more to retainment than just wages, there is managerial competency and how you treat people. Bad workplaces have to pay more than market to retain people, good workplaces shouldn't. But again, it's a silly argument that paying substantially more than market is going to benefit shareholders in some obtuse way. There are as many disadvantages as advantages, such building a complacent, insular underperforming culture just like that Etsy appears to have. And another is using excess comp to build a "cult of personality" so the CEO can be worshipped, and those are terrible for business/shareholders. "It could also make individuals 'hand crafting' items to sell, who are more likely to be a conscientious lot, feel good about continuing to do business with Etsy. These factors could lead to a more solid niche in the market, longer company survival, and more consistent profits over time. I'm not saying that's what I believe but let's assume it is true." Do you really think those people are going to leave Etsy because it no longer has the CEO's cult cheerleader squad decorating the offices? "Since long term profit projections get hazy, the safer bet almost always is to follow a short term profit argument and take surer profits as soon as possible even though, in perfect hindsight, a long term approach would have yielded greater overall profits." Do you really think Etsy's massive admin spending, far higher than similar companies, is really translating into long term value and higher profits? This is money not spent on partners or customers or brand, but internally. "I'd bet this happens a lot and this idea that everything is subservient to profits paradoxically hurts value more than it helps." The easiest response is to ask you to read some Warren Buffett. All his shareholder letters are free to read going back to the 1970s on Berkshirehathway.com. Long term value in a business is created by building a unique and defensible product offering, a brand, a technology, etc. It's not from throwing more employee parties and increasing employee compensation. Employees can walk out the door at any time, even the CEO. One of Warren's favorite quotes is you want a business any fool can run, because sooner or later a fool will be running it. In Etsy's case, it needs to be the best source/destination for it's unique crafts. To do that it needs to provide a viable market place to it's partners. Otherwise it's entire business will just dissipate to Amazon and Ebay and the Kum ba yah nirvana will disappear anyways. Paying engineers $200k a year when they would be content if they made $150k a year is simply wasting $50k each on something that doesn't add value to the business. That excess comp would be far better spent hiring more people to build more and better competitive advantages, or marketing campaigns to get more partners and better build Etsy's brand, or kept in the bank to safeguard against rainy days, or returned to the shareholders as dividends and better support the value of it's stock.
- clavalle 10y ago
  >Market value means that your turnover should already be low, your employees can't leave for better paying jobs. The curve isn't flat. >Do you really think those people are going to leave Etsy because it no longer has the CEO's cult cheerleader squad decorating the offices? I think people that spend their time learning a craft then peddling hand crafted objects for, let's face it, love over money, will not want to work for anything approaching a Wal-Mart or other 'soulless corporation'. Speaking generally, of course.
  - clavalle 10y ago
    >The easiest response is to ask you to read some Warren Buffett. I've read plenty of Buffet, Munger, Graham, Dodd and the rest. Pretty common knowledge. What you are missing in your analysis is that Buffet et. al. invest in very well understood businesses (hell, they didn't even touch Amazon). Very well understood businesses tend to have very well understood systems (including the people and their roles and contribution to those systems. They have settled to a point where they /are/ interchangeable. They also tend to be boring and have well understood moats like huge capital or regulatory requirements. They can thrive in the fat part of the curve (or even a bit below it if they have stellar management). Etsy is none of those things. They are carving out a new niche (or an very old niche with very new scope) with new technology in a constantly changing landscape that, really, anyone with a laptop and some free time could monkey. They will die if they try to live with average, interchangeable parts. No doubt about it.
    - valuearb 10y ago
      If Etsy's management didn't understand their business, they shouldn't have been it's management. But truth is, their business isn't from Mars, it's easy to understand, even if it's not easy to optimize. And if they truly need special custom development, why are they so poor at doing it? Where are the benefits of all that admin spending? And BTW, I can't think of one Berkshire business that has any significant moat from "like huge capital or regulatory requirements". In Insurance their real moat is either the direct cost model (GEICO), or their underwriting discipline and long term thinking. Etsy should know what makes it special to customers. Why isn't it more efficient at delivering that?
pjc50 9y ago
> paying above market wages and benefits does nothing for the company and it's shareholders, it's just a gift from the CEO to workers The real problem in compensation is executive pay, which reaches extraordinary levels, explicitly rewards failure (Yahoo passim) and tends to be a gift from the CEO to themselves.
Qwertious 9y ago
>he spoke and wrote clearly enough that he doesn't have to spell that out for you. Death of the author. Most people who read, and quote, Friedman's quote, haven't read Friedman's other writings or watched his speeches. People can't apply context that they don't have.

clavalle 10y ago

>paying above market wages and benefits does nothing for the company and it's shareholders Again, we can use Friedman on both sides of the argument (which was my original point as to the meaningless of the statement if not in original intent then in popular application). I could argue under the same statement that such a move would do plenty for the company in establishing itself as a very good place to work making it likely to attract and retain top talent. It could also make individuals 'hand crafting' items to sell, who are more likely to be a conscientious lot, feel good about continuing to do business with Etsy. These factors could lead to a more solid niche in the market, longer company survival, and more consistent profits over time. I'm not saying that's what I believe but let's assume it is true. Since long term profit projections get hazy, the safer bet almost always is to follow a short term profit argument and take surer profits as soon as possible even though, in perfect hindsight, a long term approach would have yielded greater overall profits. I'd bet this happens a lot and this idea that everything is subservient to profits paradoxically hurts value more than it helps.

valuearb 10y ago

"I could argue under the same statement that such a move would do plenty for the company in establishing itself as a very good place to work making it likely to attract and retain top talent. " Market value means that your turnover should already be low, your employees can't leave for better paying jobs. Obviously there is more to retainment than just wages, there is managerial competency and how you treat people. Bad workplaces have to pay more than market to retain people, good workplaces shouldn't. But again, it's a silly argument that paying substantially more than market is going to benefit shareholders in some obtuse way. There are as many disadvantages as advantages, such building a complacent, insular underperforming culture just like that Etsy appears to have. And another is using excess comp to build a "cult of personality" so the CEO can be worshipped, and those are terrible for business/shareholders. "It could also make individuals 'hand crafting' items to sell, who are more likely to be a conscientious lot, feel good about continuing to do business with Etsy. These factors could lead to a more solid niche in the market, longer company survival, and more consistent profits over time. I'm not saying that's what I believe but let's assume it is true." Do you really think those people are going to leave Etsy because it no longer has the CEO's cult cheerleader squad decorating the offices? "Since long term profit projections get hazy, the safer bet almost always is to follow a short term profit argument and take surer profits as soon as possible even though, in perfect hindsight, a long term approach would have yielded greater overall profits." Do you really think Etsy's massive admin spending, far higher than similar companies, is really translating into long term value and higher profits? This is money not spent on partners or customers or brand, but internally. "I'd bet this happens a lot and this idea that everything is subservient to profits paradoxically hurts value more than it helps." The easiest response is to ask you to read some Warren Buffett. All his shareholder letters are free to read going back to the 1970s on Berkshirehathway.com. Long term value in a business is created by building a unique and defensible product offering, a brand, a technology, etc. It's not from throwing more employee parties and increasing employee compensation. Employees can walk out the door at any time, even the CEO. One of Warren's favorite quotes is you want a business any fool can run, because sooner or later a fool will be running it. In Etsy's case, it needs to be the best source/destination for it's unique crafts. To do that it needs to provide a viable market place to it's partners. Otherwise it's entire business will just dissipate to Amazon and Ebay and the Kum ba yah nirvana will disappear anyways. Paying engineers $200k a year when they would be content if they made $150k a year is simply wasting $50k each on something that doesn't add value to the business. That excess comp would be far better spent hiring more people to build more and better competitive advantages, or marketing campaigns to get more partners and better build Etsy's brand, or kept in the bank to safeguard against rainy days, or returned to the shareholders as dividends and better support the value of it's stock.

clavalle 10y ago
>Market value means that your turnover should already be low, your employees can't leave for better paying jobs. The curve isn't flat. >Do you really think those people are going to leave Etsy because it no longer has the CEO's cult cheerleader squad decorating the offices? I think people that spend their time learning a craft then peddling hand crafted objects for, let's face it, love over money, will not want to work for anything approaching a Wal-Mart or other 'soulless corporation'. Speaking generally, of course.
- clavalle 10y ago
  >The easiest response is to ask you to read some Warren Buffett. I've read plenty of Buffet, Munger, Graham, Dodd and the rest. Pretty common knowledge. What you are missing in your analysis is that Buffet et. al. invest in very well understood businesses (hell, they didn't even touch Amazon). Very well understood businesses tend to have very well understood systems (including the people and their roles and contribution to those systems. They have settled to a point where they /are/ interchangeable. They also tend to be boring and have well understood moats like huge capital or regulatory requirements. They can thrive in the fat part of the curve (or even a bit below it if they have stellar management). Etsy is none of those things. They are carving out a new niche (or an very old niche with very new scope) with new technology in a constantly changing landscape that, really, anyone with a laptop and some free time could monkey. They will die if they try to live with average, interchangeable parts. No doubt about it.
  - valuearb 10y ago
    If Etsy's management didn't understand their business, they shouldn't have been it's management. But truth is, their business isn't from Mars, it's easy to understand, even if it's not easy to optimize. And if they truly need special custom development, why are they so poor at doing it? Where are the benefits of all that admin spending? And BTW, I can't think of one Berkshire business that has any significant moat from "like huge capital or regulatory requirements". In Insurance their real moat is either the direct cost model (GEICO), or their underwriting discipline and long term thinking. Etsy should know what makes it special to customers. Why isn't it more efficient at delivering that?

pjc50 9y ago

> paying above market wages and benefits does nothing for the company and it's shareholders, it's just a gift from the CEO to workers The real problem in compensation is executive pay, which reaches extraordinary levels, explicitly rewards failure (Yahoo passim) and tends to be a gift from the CEO to themselves.

Qwertious 9y ago

>he spoke and wrote clearly enough that he doesn't have to spell that out for you. Death of the author. Most people who read, and quote, Friedman's quote, haven't read Friedman's other writings or watched his speeches. People can't apply context that they don't have.