Regression to the Mean - Merry Christmas!

There is a term in the science of statistics called “regression to the mean.” The term refers to the fact that when equilibrium is upset to one side, usually there is an equal and opposite action to the other side. As Ho Chi Minh said “to straighten a curved piece of bamboo, one must bend it in the opposite direction, and hold it there awhile.” In the 1980s commercial real estate boomed far higher in Japan than residential prices, and in the 1990s commercial busted far lower. Almost 20 years later, Japan commercial real estate is still working its way back to the mean, from its low.

If you did not start a business in the last ten years, then it was a mistake to fail to do so. There are many businesses started in the last ten years thriving right now, in spite of the economic downturn. Some are failing, or have failed. But many people, quite aware of the fundamental circumstances of providing a value, are doing quite well. Having never been fooled into taking on debt that they could not service, especially with reduced sales, such level-headed business people continue on, doing well.

Those who were fooled by randomness and now find themselves busted, can start over. But having been fooled by the boom, they ought not be fooled by the bust, and neither should you as you start your business in these unusual times. A false economy now, in 2008 and 2009, is busting, and no matter how bad it gets, it is a regression that we see, one that we will come out of in 15-30 years, depending on how bad the government makes this economic crisis. Your business model should assume no boom or bust, your model should look to the stable, the fundamental, the sustainable in business.

A friend of mine ate quite a bit of rabbit as a child during the German occupation of France. It was all the people could get, and the demand was high. Anyone who invested heavily in the rabbit trade at that time would find himself out of business when normalcy returned, and people eschewed that of which they became surfeit. Better to become a roast beef dealer during the occupation, and make more money doing less, and stay in business when the Germans withdrew.

Where an activist like Ho Chi Minh may explain that bent bamboo must be bent to the other extreme to be straightened, I argue why not just start with a straight piece of bamboo?

I spent a lovely Christmas eve in Rome a few years back, where the restaurant tradition is to have a seafood dinner. My bilingual daughter made sure we were properly cared for by the wait staff, and we enjoyed the best and traditional combinations for the celebration. The portions were surprisingly generous, and since the morrow would be Christmas day we would be unable to shop for food for Christmas to supply the apartment we were renting for the holidays. I instructed my daughter to inform the waiter we would be having the leftovers wrapped to take home. My daughter instructed me that “take-home leftovers” and “doggie bags” were not the Roman way, “and when in Rome...” Indeed, the wait staff would be dining on our leftovers.

I looked around and saw the mountains of food leftover on the many tables in the restaurant, and calculated the loss of our table’s contribution would be of no consequence to the crew.

So I replied to my daughter “And when in Gomorrah...? I will tell the waiter in English I want the leftovers packed up. You, my daughter, intervene, explaining to the waiter in Italian that I am ignorant of the Roman way, and incorrigibly american, someone the waiter can ignore with impunity At which point, my child, I expect the waiter will go generous on the ignorant tourist and offer to pack up the leftovers, in contravention of the Italian way. It is worth a shot.

Shortly thereafter I got my chance to instruct the waiter in English, and on cue my daughter cut in with a barrage of Italian apologies and explanations. The waiter seemed to be digesting all of this for a moment, and then in perfect American English stated: “I am from Chicago, I understand, no problem, we’ve got mountains of the stuff already, ... let me pack this up for you... Merry Christmas”

In San Francisco there is Swan’s Oyster Depot at 1517 Polk Street., opened in 1912. With only 17 stools at a bar, it serves very simple seafood, standard beer and wine, and there is always a line. In spite of the fact it is only open breakfast and lunch six days a week, it supports three or four families at a time and has been through the great depression and every other recession since 1912. Danes started the business, and in the last near 100 years it moved to one Italian family, and then another. The model is good and true and beautiful and works at different times with different cultures. Dine there and see what you learn. I usually visit solo, which means where groups must wait a while to find the right combination of stools to be seated together, I can make it in to sit at the odd stool rather quickly. Protocol is to just ask the people ahead of you in line if anyone minds you taking the lone stool.

They have a walk-in trade for carry-away fresh seafood, which is big business too.

The moral of this story is when lunching today on leftover cioppino and rye bread, my wife informed me we eat too much, when fish bits in a marinara broth and a crust of rye bread is more than enough to be happy. I thought of Swans. The business model of Swans is clear and simple and sustainable. Whatever business you start should informed by the example of Swans Oyster Bar model.

Merry Christmas!

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