I always encourage my entrepreneurship classes to learn more about IT and recently to learn more about data management and analysis tools. Some recent thoughts on the future of data and its uses are here and here.
AWS recently announced that they are making their full range of services available for free to professors, researchers and students. All you have to do is apply for a grant from AWS, which looks really simple, and you have access to the cloud computing infrastructure of AWS. Sort of like borrowing a nuclear submarine from the U.S. Navy for the weekend.
This is a great opportunity for anybody to play and learn about state-of-the-art IT infrastructure and for student entrepreneurs to have free access to significant computing resources for their businesses. Apple and Microsoft pioneered computing in the U.S. education system. AWS is now pioneering cloud computing. To me this is much more exciting than Google's initiatives with Google Apps in universities. Look for Google to respond to this AWS initiative.
Wilson Sonsini, the premier venture capital law firm in Silicon Valley (and probably the world) has a free application to generate a term sheet for a venture round of capital. Fill in the blanks and it produces a term sheet that you can compare to the one the VC sent you.
Further proof that my idea of an application to prepare SEC filings may not be far off.
Daniel Buenza, a Professor at Columbia University Business School (my alma mater), focuses his research on the social studies of finance. In a recent article he describes his research over the last three years on the derivatives trading desk of a major bank. The period examined included the recent financial crisis and the bank came through unscathed, i.e. no huge losses or need for a capital call. Before we get to Dr. Buenza's conclusions on why the bank avoided the errors of their peers, lets first examine this new concept of social studies of finance. At least it is new to me and hopefully of interest to you--my respected readers.
Basically the social studies of finance examines the role of technological artifacts and mental models in capital markets. Technological artifacts are artificial human constructs that provide knowledge. (More on this subject here.) Wikipedia defines a mental model as "an explanation of someone's thought process for how something works in the real world". In summary, the social studies of finance involves the study of the role of technology-based and "pure thinking" models in capital markets. Obviously the two types of models can interact on the same problem. In a simple Excel model, you change the assumptions and the company cash flow changes. This would be an example of the two models interacting. Program trading would be an example of technology-based modeling where the model basically trades the position. Playing Texas Hold'em would be an example of the pure thinking model.
The unscathed, unnamed bank that Buenza studied managed to avoid catastrophe by a principle called reflexivity. Reflexivity is nothing more than the ability to reconsider your position on an issue. In finance terms, it would be to reconsider your assumptions. In other words the mental model is reexamined, thereby leading to a change in the technology (computer model) which governed the trading strategy.
The particular bank in question had a very collegial atmosphere, free exchange of information between colleagues and no superstars to upset the flow. This culture allowed traders to gather much more data and to change their mental models more easily, thereby avoiding the current financial disaster. When trading model driven positions, there is a tendency to over rely on the model and be slow to realize the model is no longer trading profitably. Excessive positions and a slowness to realize that the trading models were no longer working properly is a large part of the cause of the current financial crisis.
Most of us do not trade derivatives, but Buenza's study of the bank points out the importance of maintaining a culture that is conducive to changing assumptions. Most air crashes are due to pilot error and in most of those cases the co-pilot remained silent while knowing the pilot was making a terrible mistake. It is not easy to maintain a culture where reflexivity is the practice, but it may help you avoid disaster in your business.
As I began my promised post on the advice I give to students in my entrepreneurship course at the end of each semester, I came across a very relevant article in Scientific American entitled "Learn to Think Better". This article, which features an interview with savant Daniel Tammet, discusses techniques for how to learn new languages and mathematics more easily. The relevance of this article will be apparent shortly.
I believe strongly that lifelong learning is one of the keys to a successful life and particularly important to aspiring entrepreneurs. Other posts on the subject are here and here. Therefore, my advice to students should not be too surprising.
Constantly be learning. For young entrepreneurs I recommend that they become loyal readers of the Wall Street Journal, Harvard Business Review and McKinsey Quarterly; this is how I learned 50 percent of what I know about business.
Learn from the best. Joe Gallo, the son of the founder of Gallo Wineries, once told me that whenever he met a new person he first determined if the person was an expert in the subject they were discussing. If not, he stopped listening. This may be an extreme approach but it makes my point.
Become a good recruiter. Recruiting is rarely taught but is obviously a key skill in order to recruit good people. Learn everything you can about how to interview, screen candidates and do background checks.
Certain organizations screen people who are successful. Notable organizations that consistently produce great people are McKinsey, Proctor & Gamble, Yale Law School, Stanford Business School, MIT and the U.S. military (officers), to name a few; people that have completed a stint in these organizations are typically great hires.
Improve your math and statistics skills. Understanding business and analyzing a company is in large part numerical analysis. The better those skills the better you will understand KPIs, management reporting and financial information.
Learn Chinese. 300 million Chinese speak English but the advantage may go to those foreigners who speak Mandarin.
With these last two posts I think I have now covered my entire entrepreneurship course through blog posts. The other post on semester ending advice to student entrepreneurs is here.
Every semester I give the same closing lecture in my entrepreneurship class at FIU. Basically it is a combination of course summary and practical advice learned over my 35 years of business. I call it "10 Rules for Success".
All problems start with strategy. Every problem should be evaluated for its most far reaching consequences, which typically makes it a strategy issue; this approach also helps to avoid treating a symptom instead of a problem
Focus on the core business. Be slow to diversify into new businesses or lines of business; critical competencies are usually more narrowily focused than you think
Constantly be trying to improve your business. When you become complacent the problems start
Trust employees and build good control systems. This approach reduces the likelihood of micro-management, which is the biggest cause of slow growth
Hire 1 qualified person instead of 3 cheap ones. Good people are self-motivated, more productive and require less supervision
Invest in people and IT--not boats. Keep the money in the business and invest it in your people, IT and cash reserves; luxury goods are of no help to the business when times get tough
IT is always a competitive advantage. If IT systems give you a competitive advantage, do not worry about return on investment; good CEOs always have a profound understanding of IT
Good accounting is invaluable. The management information system is only as good as the accounting information; hire the best internal accountants you can afford
Ethical behavior is the best practice. If you have to be unethical for your business to survive, you are not running the business very well; if you can not tell your mother about a decision, it's a bad decision.
Don't run out of cash!!!
Tomorrow I will post on my closing advice to my young students.
Venture capitalist confidence in the economy may be improving for the first time since 1st quarter 2007. As reported by Mark Cannice at the University of San Francisco:
"The quarterly Silicon Valley Venture Capitalist Confidence Index™ (Bloomberg ticker symbol: USFSVVCI) is based on an on-going survey of San Francisco Bay Area/Silicon Valley venture capitalists. The Index measures and reports the opinions of professional venture capitalists in their estimation of the high-growth venture entrepreneurial environment in the San Francisco Bay Area over the next 6 - 18 months.The Silicon Valley Venture Capitalist Confidence Index for the first quarter of 2009, based on a March 2009 survey of 30 San Francisco Bay Area venture capitalists, registered 3.03 on a 5 point scale (with 5 indicating high confidence and 1 indicating low confidence). This quarter’s reading rose from the previous quarter’s reading of 2.77 (a 5 year low).."
The historic chart is below.
Perhaps another small piece of evidence to suggest an upturn in the economy.
Note:I found this information through a tweet by @briannorgard.
The fine folks at Finance 3.0 have launched a new sister site Finance Yard. The new site is a financial headline news service. Nice balance of international and U.S. stories presented in five categories:
Business
Companies
Economics
Markets
Newsmakers
Check it out!
In the interest of full disclosure, I am now an advisor to Finance 3.0.
If you use Twitter or frequently send website links to others then you have probably discovered the multiple service offerings to shorten web addresses. For example, http://sophisticatedfinance.typepad.com becomes http://tinyurl.com/653hog using the TinyURL site. Such services obviously reduce the number of characters for a website address and reduce the possible errors in using the address. TinyURL is even available as an add-on to Firefox. All in all a nice little web service, but how does this relate to data mining--a topic dear to my heart and a future source of infinite new business possibilities.
As ReadWriteWeb reports, a new group of prominent investors has invested $2 million in Bit.ly, another service that shortens web addresses.The purpose of the investment is for Bit.ly to capture statistics on the 20 million website addresses that it shortens perweek and keep track of the hits on each website in real time. This information, which would be more current than Google Analytics, would then be made available to developers through an API, presumably for a fee.
Another interesting feature of Bit.ly is that it uses Calais, which I posted on in February 2008. Calais is the Reuters technology that extracts semantic tags out of web pages, thereby allowing Bit.ly not only to provide database search and statistics by web page but also by topic, e.g. "Miami Heat".
Prominent tech investors, Calais technology, huge statistics database, cost of data capture--nearly zero. Sounds like a winner.
