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A comment I left at Alan Mitchell’s blog, a VRM mailing list participant, about a reducing supplier risk comment by Ted. Markets, prices, and VRM.

@Ted “In any partnership, both parties must assume responsibility for the satisfying each other’s needs.”

In the consumer to producer context, I completely disagree with this. The consumer precisely does not nor ever will have that responsibility. Satisfying his own needs is the consumer’s only responsibility, and I think this sounds reasonable when you realize that the relationship isn’t between a consumer and a producer, but between a consumer and a set of producers (Actually, it’s a set of consumers to a set of producers, but it’s easier to analyze a one to many situation than a many to many.)

CRM is the solution companies have created to solve the producer to consumers (one to many) relationship problem. VRM would solve the reverse one to many relationship problem of consumer to producers. Humans are very good (relatively speaking) at dealing with one to one relationships. We’re capable of projecting and reading those projections like dilated eyes, plushing skin, tone of voice, change in posture. However, our performance is reduced in multi-tasking situations, and we’re not so good at dealing with the one to many problem, which is why we’ve built technology to help us with that.

I as a consumer have no responsibility to any single producer, and I am free to accept or reject the offers of any and all producers. That’s how it is today, and that won’t change with VRM. The producer still bears the risk of invention and production. However, the producer still as rights to the profits of such an endeavor, and since a consumer as no right to those profits, a consumer has no interest nor responsibility in satisfying a single producer’s needs. That’s just how competition works.

It is in the interest of the producer to satisfy the needs of the consumer because that would inevitably bring in more profits (including an appropriate price point as part of a consumer’s needs). However, every interaction between consumer and producer is a potential step in creating or strengthening a relationship. Stronger relationships create stronger bonds between the two parties, and that can turn into a true partnership, but that’s not the goal of VRM. VRM may well improve the one to one relationship, but it’s primary goal is improving the consumer to producers relationship problem.

When a company does something like “guarantees to the customer if the product or service he bought fails to meet his needs” it’s reducing the risk of consumer backlash. Companies do this precisely because the costomer does not “share a small portion of the risk temporarily,” but assumes 100% of the risk permanently at the point of purchase, and at the same point the producer takes 100% of the profit (which is its reward for taking on the original risk of production). Because of that, the producer has an inherent responsibility to the consumer in quality of product at the least, and in the case of consumer dissatisfaction (where there is no legally binding responsibility), it benefits the company to satisfy the consumer post purchase, but that is for its own benefit as much as the consumer’s benefit.

For savvy companies, VRM will open opportunities for reducing investment and production risk. However, most companies probably won’t realize the benefit until the benefit is the same for all companies just as companies are still struggling with the benefits of the internet. Most immediately, VRM will help companies reduce operation costs, instead of reducing risk. VRM will help reduce transaction cost, and other costs associated with information storage such as information gathering and updating.

Still, consumer to producer relationships will improve with VRM much like CRM improved, although did not solve, the one to one relationship. But the primary goal is improving consumer to producers relationship, and that will inevitably help the producer, even if it helps the consumer more.

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This has been going around it seems. Notes from a talk that Buffett gave a couple weeks back. The transcript is great, and the insights are bountiful.

From Underground Value, Notes from Buffett Meeting 2/15/2008

Read through, but here are a some good quotes:

That’s what most people should do, buy a cheap index fund and slowly dollar cost average into it. If you try to be just a little bit smart, spending an hour a week investing, you’re liable to be really dumb.

I know too many people from the forums that think they can spend a little time a week and make themselves rich. Not gonna happen and Buffett agrees, and here’s the kind of person you’re up against, and the kind of person you have to be if you want to make serious go at anything other than index funds:

Markets are efficient most of the time about most things. But for these opportunities, nobody will tell you about them. They won’t be on CNBC and they won’t be in brokerage reports. You have to go find them yourself. In 1951, after I graduated from school, I used Moody’s and S&P manuals as my sources of information. I went through them page by page. I was like a basketball coach looking for 7-footers. I still have to find out if he’s coordinated, and can stay in school…On page 1443 of Moody’s, I found Western Insurance Securities. It had earned $21.66 per share 2 years ago, and earned $29.09 last year. Over the past year the stock was selling for between $3 and $13 per share. I still had to do the work to make sure the earnings were valid. The markets will get it right eventually. But they are there. You don’t have to find too many. Finding 10 of these opportunities in your lifetime will make you so rich. But you can’t be wrong. You can’t have any zeroes. A list of big numbers multiplied by zero will equal zero. You can’t go back to “Go”.

Are you trying to play the stock game? If so, are you reading thousands of pages of reports looking for the right investment? Are you certain that your method will produce no zeros? If you’re gonna do it, take it seriously. Even just a few hours a week is silly and leaves you undereducated, and unable to react quickly (or not react at all) and rationally when times require it.

A couple more, there are tons behind the original link. Reading the full post is a must.

As Bertrand Russell says, “Success is getting what you want, happiness is wanting what you get.” I won the ovarian lottery the day I was born and so did all of you. We’re all successful, intelligent, educated. To focus on what you don’t have is a terrible mistake. With the gifts all of us have, if you are unhappy, it’s your own fault.

And lastly:

We did an informal office survey by looking at the total tax footprint versus the total income. I earned 46 million and paid a tax rate of 17.5%. My rate was the lowest, the average was 33%, and my cleaning lady paid 40%. The system is tilted towards the rich. The Forbes 400 total net worth has gone from 220 billion to 1.54 trillion, an increase of 7-to-1. You see in legislature that there is lobbying carried on by the powerful over issues such as the estate tax and carried interest for private equity investments. We need to flatten income and payroll taxes, and those making under $30,000 shouldn’t be bothered.

Those are just random ones I grabbed from the long read, so I didn’t have to even try to get good quotes.