SOPHISTICATED FINANCE

FIU BizNews

Many thanks to Michelle Joubert for her help to promote my book. The excerpt from the current edition of FIU BizNews is below.

Eugenio Pino and Family Global Entrepreneurship Center

Robert Hacker, a member of the Pino Center advisory board who also teaches workshops for the center—most recently “Developing a Killer Business Plan”—has published his first book, Billion Dollar Company: An entrepreneur’s guide to business models for high growth companies. The book draws on stories from his success in building a billion dollar company in Indonesia and his 35-year career working internationally.

The book website is here and the link to Amazon is here.

Management Maturity

Image by woodleywonderworks via Flickr

 

 

 

 

 

 

 

 

I recently attended a meeting where a private equity firm declined to invest in a very profitable company growing at 40% a year with revenue of $40 million. What did the investor find missing:

• The company had no metrics for operating performance
• The company had no monthly reporting system except an income statement
• The company focused on revenue growth and ignored cash flow
• The corporate structure was overly complicated (too many subsidiaries, all with different shareholders)

Perhaps none of these factors would have been important in a smaller company, but when you tell a story about growing to $100 million in three years investors expect an infrastructure and management philosophy that supports the plan. Good results alone do not raise capital, especially in this tough market.

Excellence is a Habit

Image via Wikipedia

 

Aristotle is among the three greatest philosophers in history. Through his followers in the Catholic Church (principally St. Thomas Aquinas) and their widespread distribution of his ideas, Aristotle is arguably the most influential western thinker of all time. A friend sent me this quote from Aristotle, which prompts today's post.

Excellence is an art won by training and habituation...We are what we repeatedly do. Excellence, then, is not an act but a habit.

After reading this quote I thought about how many people I have met in almost sixty years who consistently practice excellence. I came up with three people--an MIT professor, the sender of the quote and my wife. When I thought about what all three had in common I concluded as follows:

1. Very high intelligence
2. The ability to think at both the conceptual level and the smallest level of detail 
3. A belief that rigor has its own value regardless of pursuit (which is what permits excellence to permeate many parts of their life)

They all are immaculate dressers but I think this is just a symptom of their pursuit of excellence :) Hard to tell if Aristotle was a sharp dresser but he also practiced excellence.

Image credit

Walgreens Launches Cheap Tablet

Walgreens, not known as a premier retailer of new consumer electronics and computers, now has available a tablet computer at $99.00. This tablet runs Android and has a 7 inch screen. Walgreens is positioning it as a Web surfing device. The online ad is here.

I have had samples of an unbranded copy of this device for about six months. It's not an iPad, but it is a very usable device. If you use a lot of Google apps, the experience should be even better. The one thing I would have preferred is a higher resolution screen, but maybe I am spoiled by my MacBook. Also, remember with no Internet connectivity the device's functionality is reduced. Should be very suitable for class note taking for college students on a budget.

My new book, Billion Dollar Company: An entrepreneur's guide to business models for high growth companies, is available on Amazon. Learn the fourth strategy Michael Porter should have included, how to determine if a market opportunity is large enough to interest venture capitalists and how product differentiation is more than just a feature set. Book website.

 

Related articles

• Further Thoughts on Tablets (sophisticatedfinance.typepad.com)
• Walgreen's now selling $99 Android tablet (the-digital-reader.com)

Contemporary Vintage Fashion-www.furormoda.com

A former FIU student of mine has launched an online fashion business, Furor. Focus is on ladies vintage pieces with a contemporary interpretation. Check it out here.

South Florida Tech Needs a Catalyst

In a post in the Equity Kicker that linked to a graphic from Tech Crunch there was the image below of all the start ups spawned by former Yahoo employees. (Click on the nodes for the detail. Takes a while for nodes to show)

Yahoo has served as an entrepreneurial incubator because employees participated in the early stock appreciation of Yahoo and the scale of Yahoo involved a lot of talented people (per Equity Kicker).

When we look at Yahoo and all the entrepreneurs that it produced, the point that is perhaps overlooked is that Yahoo in its early days was an entrepreneurship classroom for the employees. The founders made a lot of good entrepreneurial decisions that the employees learned from (a form of mentoring). Of the seven senior managers at the billion dollar company I built in Indonesia, four became successful entrepreneurs, two are CEOs of large companies and one is still a senior executive with the company.

As we look at the South Florida entrepreneurship scene and the number of large companies developed here, the landscape is pretty bleak. The best examples are Brightstar, Citrix and Carnival. Why do we have so few:

1. There are few successful technology companies or near tech (Brightstar) to foster employee entrepreneurship by example
2. We have no great universities. I continue to believe that we should offer an irrestible deal to Oxford or Cambridge to set up a branch of their university in South Florida focused on science education and related disciplines (mathematics, entrepreneurship, etc.) The University of Miami Medical School might fill this void but that is debatable.
3. There is little seed money, few angel investors and no venture funds for early stage companies. Perhaps what we need is an incubator funded by the private sector, tightly affiliated with a university, but looking for investments in the entire community.

Related articles

• Resource for new Florida Tech Companies - Florida TechVenture 2010 (tacticalip.com)

Miami Web City Girls Event

@JanieC is organizing an event for female geeks and other females on November 4 in Miami. The event will showcase the stories of three women, their careers and aspirations.

Janie is your standard run of the mill "wonder woman", and being an expert on wonder women, I highly recommend the event. Janie is also a great source of advice and counsel on social media. Event details below. Update: Men are also welcome.

My new book, Billion Dollar Company: An entrepreneur's guide to business models for high growth companies, is available on Amazon. Learn the fourth strategy Michael Porter should have included, how to determine if a market opportunity is large enough to interest venture capitalists and how product differentiation is more than just a feature set. Book website.

Some Great Examples of Business Model Thinking-III

The components of a business model, as described more fully in my book, Billion Dollar Company, include:

1. the growth driver--what drives revenue (5 choices)
2. the pricing model (15 choices)
3. sales and distribution strategy

One of the more challenging things to do is to illustrate how distribution can provide comparative advantage in a business model. Fortunately a story in ReadWriteWeb provides a great example. Salesforce.com is widely known as an excellent SAAS-based CRM system, used to keep detailed information on customers and their contact history. CNS Response uses Salesforce to capture patient brain data, analyze it and report it to physicians. By using Salesforce as its IT infrastructure CNS is able to distribute the data to physicians 75% faster than with the previous manual process. Given that patient lives are involved, the improved distribution of the information is particularly noteworthy. Who would have thought of Salesforce.com as a way to improve distribution?

The previous example of business model thinking is here.

Business Thinking

Charlie Munger Image via Wikipedia

Yesterday on HackerNews a question was posted: How do geniuses think? Always on the lookout for a better understanding of great thinkers, I clicked through to read the responses. The problem solving techniques of great thinkers have application in better understanding innovation, perhaps the essence of entrepreneurship. I have been studying the techniques of great thinkers since this post in 2007 on James Austin.

Digging through the responses to the question, I found a paper referenced by noverloop. The paper focuses on Charlie Munger, legendary investor and partner of Warren Buffett, and originally appeared in FocusInvestor.com  The link to the paper is here. The article is a comprehensive discussion about how to think about business and the required problem solving.

Conclusions from the article are:

• Solve the big problems first
• Support reasoning with mathematics, statistics and related disciplines
• Think backwards when addressing problems (read the article)
• Multi-discipline approaches frequently produce the best results

The article also has some great insights into risk analysis, comparative advantage and decision trees.

Steve Jobs is Wrong

In the recent earnings call for Apple, Steve Jobs made an appearance and the following excerpted remarks (transcript from Seeking Alpha):

"Twitter client, Twitter Deck, recently launched their app for Android. They reported that they had to contend with more than 100 different versions of Android software on 244 different handsets. The multiple hardware and software iterations present developers with a daunting challenge. Many Android apps work only on selected Android handsets running selected Android versions. And this is for handsets that have been shipped less than 12 months ago. Compare this with iPhone, where there are two versions of the software, the current and the most recent predecessor to test against."

"We see tremendous value in having Apple rather than our users' be the systems integrator. We think this is a huge strength of our approach compared to Google's. When selling to users who want their devices to just work, we believe integrated will trump fragmented every time. And we also think our developers can be more innovative if they can target a singular platform rather than a hundred variants. They can put their time into innovative new features rather than testing on hundreds of different handsets."

Why I think he is wrong:

1. Most of the users of the "244 handsets" and cheap tablets running Android are not particularly interested in integrated software apps. Data shows that most people only use 5-6 apps with any regularity. Also, users of Android phones and tablets are more interested in the integration to Google apps, such as Google Mail, which will work perfectly fine with the "100" versions of Android. It's the Google experience that the customers want and not "the customer experience" Job's refers to.
2. A few weeks ago in Korea I saw the new Galaxy Tab from Samsung. It runs Android and the software integration showed that Samsung had paid special attention to this issue. There may be "100" versions of Android but this is just an early stage phenomenon. The world class manufacturers will all customize their devices for Android, garner a big share of the market and compete with Apple on price performance. Android will probably evolve like Linux, with a few dominant versions and a lot of versions with small, insignificant user groups.
3. As the Android devices increase in popularity, if the software integration and downloaded apps lead to many customer complaints, the cellular carriers will impose discipline and standards to satisfy the customers.

I think that Jobs is worried about the Android phenomena, that he is ignoring the early stage status of Android devices and that the competitive tablets running Android coming in 4Q 2010 and 1Q 2011 will show that the real "innovation" in the iPad is the touch screen (which is not a sustainable advantage).

...Toujours de l'audace..Georges Danton

Image credit

My new book, Billion Dollar Company: An entrepreneur's guide to business models for high growth companies, is available on Amazon. Learn the fourth strategy Michael Porter should have included, how to determine if a market opportunity is large enough to interest venture capitalists and how product differentiation is more than just a feature set. Book website.

Related articles

• Android no nightmare says TweetDeck CEO to Steve Jobs (slashgear.com)

Miami-Dade Mayor Recall--Foul Play

Today we are diverting SF from its usual coverage of technology, entrepreneurship and world affairs to discuss a troubling story in Miami where I live.

A recall petition has been launched against current Miami Mayor Carlos Alvarez related to property tax hikes and their use to pay for a baseball stadium in Miami. The recall effort was organized by Norman Braman, a local auto dealership magnate. Details on where to sign the petition are in this Miami Herald story. So far, all I have done is describe the rough and tumble world of local politics in the U.S.

What bothers me is shown in the photo below. Miami city government cars are blocking the entrance to the location where people need to go to sign the recall petition. These cars are directly under the control of the Mayor subject to recall. This kind of behavior in a national election would bring about an FBI investigation. Perhaps we should recall the Mayor just for for his complete disregard for or interference in democratic processes.

Please re-tweet the story and distribute it through other social media. We need to defend our democracy, starting at the local level.

Related articles

• Petition Drive Underway To Recall Miami-Dade Mayor (npr.org)

Further Thoughts on Tablets

Image via Wikipedia

Last week at the MIT Media Lab anniversary celebration I met the director of R&D for one of the large Taiwanese computer manufacturers (not Quanta). We were talking about the emergence of the cheap (<$120) Android tablets in China. These machines are forecasted to have sales in China in 2011 of 7 million units. He felt that these tablets were really just advanced media players and should not be considered computers. Also, with no Internet connectivity, an Android tablet has very limited uses given the reliance on cloud computing.

When I asked him whether the iPad was just a fancy media player he said no. The iPad had much greater functionality than its Android competitors and was a new form of computer. I disagree with him on the notion that the iPad is a new form of computer. Clayton Christensen, the HBS professor who  coined the phrase "disruptive innovation" characterized such innovation as a subset of features at a lower price. I think that the iPad is just a subset of features, albeit a great set of features, but not a new form of computing.(As a historical note, the touchscreen was invented at the Media Lab twenty years ago.)

Youngme Moon, another HBS professor, in her new book makes the point that product features proliferate as a product reaches maturity. In other words, excess, unneeded features are added as products mature. The iPad and the XO computer from OLPC may be the proof that current computers have an excess of features. It was only a matter of time before one of the large computer manufacturers realized it.

Great post on iPad interface here.

My new book, Billion Dollar Company: An entrepreneur's guide to business models for high growth companies, is available on Amazon. Learn the fourth strategy Michael Porter should have included, how to determine if a market opportunity is large enough to interest venture capitalists and how product differentiation is more than just a feature set. Book website.

Five Observations from MIT Media Lab Anniversary Event

Marvin Minsky Image via Wikipedia

On Friday I attended the celebration of the 25th anniversary of the MIT Media Lab. Many interesting ideas on innovation, technology and the culture to foster breakthrough ideas. My observations:

1. Nicholas Negroponte, the founder of the Media Lab, who perhaps launched the digital age said that the digital age is over. The fundamental science and technology in digital  has all been discovered. Therefore, the Media Lab should focus on emerging technologies such as nano technology and neuro-science. Interesting that almost all the young faculty at the Lab are doing research outside digital.
2. Eric Schmidt, the CEO of Google, was a featured speaker and he talked about how Google launches new products. There is no ROI analysis of new business ideas and no market/customer analysis. They just launch an idea and the customer analytics determine whether an idea succeeeds. About 1 in 90 ideas succeed. This is about the same success rate for new projects as at the Media Lab. (Note: a lack of capital constraints and high capital efficiency is required to successfully operate with these success rates.)
3. Marvin Minsky, a legendary thought leader at MIT and professor to many of the early Internet pioneers, had a very interesting observation. He said that when you see a great idea do not bore down to better understand the idea. It is much more important to ask the person how they came up with the idea. Understanding how original thinkers think about problems is the especially valuable part because a similar approach could be used to solve other big problems. Minsky also mentioned the concept that great ideas frequently come where several disciplines intersect. (I always find it fascinating when a great thinker is interested in how other great thinkers come up with their ideas. Obviously a lesson for all entrepreneurs.)
4. Alot of examples of embedding computing power in objects, such as lights that automatically adjust for changes in ambient light and building materials that adjust for atmospheric conditions. One example was the idea that within 20 years the porosity of glass will adjust to let in air (no more opening windows).
5. Many examples of using the cell phone not as a phone or data device. One example focused on using the camera and the high resolution screen for vision tests. Another example turned the cell phone into a musical instrument similar to a marimba. Given the ubiquity of cell phones, many new non-traditional business ideas using cell phones will emerge based on the features in the phone, especially in the developing world.

My new book, Billion Dollar Company: An entrepreneur's guide to business models for high growth companies, is available on Amazon. Learn the fourth strategy Michael Porter should have included, how to determine if a market opportunity is large enough to interest venture capitalists and how product differentiation is more than just a feature set. Book website.

Related articles

• Negroponte on the Media Lab's 25th: A Salon des Refusés That Could Only Have Happened at MIT (xconomy.com)
• MIT Media Lab celebrates 25 years (photos) (news.cnet.com)

Google Apps for Education

Google has made amazing progress in introducing its Google Apps for Education to education programs at all levels in the U.S. Particularly of interest is the focus on children K-12. The Google offering stresses two attributes that are also important to One Laptop per Child:

1. Collaboration--which permits students and teachers to easily share their work, which accelerates the pace of learning
2. Communications--which fosters collaboration by the ease of use and variety of alternatives means that the student can use to communicate with peers.

As reported in ReadWriteWeb, Google is now being used in five states including New York in K-12 classrooms. As schools come under increasing budget pressure, I expect that Google will continue to replace other higher priced alternatives and students will more quickly come to appreciate the benefits of open source software, cloud computing and collaboration. Some day soon it will be time to go short Microsoft stock. It is only a matter of time.

Related articles

• Over 10 Million Students Now Use Google Apps for Education (nytimes.com)

Some Great Examples of Business Model Thinking-II

An industry that is historically unprofitable or operates at low levels of profitablity is the private club industry. Last night in a private club on the 55th floor of a building in downtown Miami someone suggested a good example of business model thinking. Before citing the example, let me once again list the components of a business model, as described more fully in my book, Billion Dollar Company:

1. the growth driver--what drives revenue (5 choices)
2. the pricing model (15 choices)
3. sales and distribution strategy

The example that someone gave me last night was to sell the space in the club in small areas. Every club has 4-5 locations with special, great views. Why not sell these spaces to members to insure that the special location is always available to a particular member or company. This is a variation on pricing model whereby you create additional income from "selling" the club and not just the club services.

Previous posts on business model are here and here. There are an additional 30 posts on business model available through the Lijit search in the right column.

Thoughts on China-III U.S. Policy

The most pressing question from my trip to China was what strategy should the U.S. (government) pursue. China was the largest economy in the world until the late 18th century and will regain that position some time in the early 21th century. They will achieve this position without an aggressive military behavior, which appears to not only be their stated policy but a fact at this point in time. How the U.S. adjusts to this new scenario will be a key question not only for the U.S. but for the entire world. A few thoughts on this dilemma follow:

1. Today the U.S. is the world's policeman and until the Bush Administration a certain morality guided foreign policy. 911 lead to an increase in foreign policing through wars in Iraq and Afghanistan and ongoing efforts to eradicate terrorism. While we need to continue to actively protect the U.S. homeland and its citizens, I think we need to withdraw from policing the world and let other countries such as China, Japan and the EU assume a greater initiative and responsibility. We need to reduce the unproductive spending on defense and channel this capital into more productive investments such as green technology.
2. We need to become self-sufficient in energy. China's demand for commodities and particularly oil will strain existing supplies beyond the breaking point and force prices to unheard of new levels. To withstand the increase in commodity prices we need to develop substitute materials and alternative energy technologies as soon as possible. If Exxon does not like it they can reincorporate in Bejing.
3. The U.S. needs to build up trading relationships in Latin America. These countries need to be encouraged to become the principal suppliers of consumer goods and certain foods for the U.S. This type of relationship would also slow down the increasing influence of China in Latin America. To support this program we need to aggressively offer scholarships for university education in the U.S. to thousands of students in LATAM.
4. The U.S. university education system is still the best in the world. We need to exploit this comparative advantage as a business and as a matter of foreign policy. We need to return to the simpler visa system for foreign students from certain countries, such as China and Latin America, in order to build better relationships with these areas.
5. We need to relax immigration policies with the idea of increasing the U.S. population by 100 million on top of organic growth. The U.S. just needs to be bigger to compete with China. We are a land of immigrants and we should not forget it.
6. We need to reduce the budget deficits and Federal debt. The creditworthiness of the U.S. will decline as China continues to grow as an economic entity, as commodity prices rise and as China's influence in foreign affairs grows. Regrettably we probably need to invest less money in social services or rely more on the private sector and non-profits to solve these social problems. The government needs to invest monies in more productive investments that contribute to U.S. technology development and growth. Otherwise we will become like lethargic Europeans with a great social support system but no real economic strategy.

An interesting story on the trip illustrates another point. Samsung, the giant Korean consumer goods company, was planning to open their first plants in China as a means to lower their labor costs. The Korean government vetoed the plans and Samsung did not open plants in China. Perhaps it is time for the U.S. government to start exerting more control over U.S. businesses instead of the other way around. Minimal government was an underlying pillar of the phenomenal U.S. business success, but it may be time for a better alignment between government and private sector strategies.

Recent thoughts on China from George Soros, legendary hedge fund operator, are here.

My new book, Billion Dollar Company: An Entrepreneur's guide to business models for high growth companies, is available on Amazon. See the fourth strategy Porter should have added, determine if the market opportunity is large enough to interest venture capital and learn the 5-step process to really develop a business model. Book website.

Related articles

• China Momentum Continues, But What Does It Mean? (blogs.forbes.com)
• Study: Commodities Can Fuel Latin America's Growth (abcnews.go.com)

Thoughts on China-II Social Media

The Chinese social media scene is alive and vibrant, lead by the leading search engine Baidu who dwarfs Google in China marketshare. Facebook and Twitter appear to be blocked in China (except through my Blackberry), which has resulted in locally developed alternatives. Much of social media is accessed by cellular phones rather than other alternatives.

However, the point I noticed is that social media appears not to be leading the economy the way it is in the U.S. China's economy is being lead by infrastrucutre development, cellular and networking investment and exports. In other words China's economy is building real, tangible products and not overly focused on social media and derivative industries.

My concern is that the U.S. is losing competitiveness by the focus on social media. America's young and most talented entrepreneurs are being diverted away from more productive endeavors by the focus on social media while the Chinese economy is focused on more traditional industries. While I talk alot about social media on SF, I think I am going to try and spend more time highlighting technology related to tangible products. I am worried that the U.S. is losing competitiveness in traditional industries by the excessive focus on social media. We cannot just be a country of bits and bytes.

The first post on China is here.

My new book, Billion Dollar Company: An Entrepreneur's guide to business models for high growth companies, is available on Amazon. See the fourth strategy Porter should have added, determine if the market opportunity is large enough to interest venture capital and learn the 5-step process to really develop a business model. Book website.

Image credit

Thoughts on China-I

I first visited China in 1982, when China had yet to re-emerge as a world power. The last week I spent in Shanghai, China's largest city with a population of 14.6 million people. The transformation in China in almost 30 years can only be described as astounding. Shanghai is a modern city comparable to Singapore and Tokyo and the infrastructure in terms of airports, roads and public transportation is much more modern than most major U.S. cities.

The investment in infrastructure in China is the first thing you notice. Perhaps not being burdened by high expenditures for defense (like the U.S.), China can devote more funds to infrastrucutre. Also, China's foreign policy involves largest investments in foreign country infrastrucutre, which cannot be carried out with out proven modern technology. China also realizes that the country is going through a major urbanization as people move to cities for jobs and these cities cannot survive without infrastructure. Lastly, I saw little foreign technology in the infrastructure of China and the modern locally developed resources are surely cheaper than foreign sourcing.

If you are interested in urban planning, Shanghai must be visited.

More posts on China to follow.

Image credit Bund Shanghai

Thoughts from Taipei

I have been coming to Taipei for about twenty five years. Early in my visits we talked with a Taiwanese company about purchasing Bloomingdale's, which was for sale at the time. We were unable to convince the investment bank managing the sale that a Taiwanese company had the wherewithal to close. Those days are fortunately in the past and Taiwanese companies are now world leaders in several fields.

The thing that I notice in Taiwan is that as they modernize their country the government makes few mistakes. High speed trains, the road system, the subway and urban development are all executed in exemplary fashion. Part of this success is undoubtedly attributable to a well educated population and significant financial resources, but the insight into how to use modern technology to improve the quality of life is what impresses me.

The photo is in front of the headquarters of Quanta Computer, the largest manufacturer of laptops in the world. They build the One Laptop per Child XO laptops and are really excellent partners to work with.

Korea Press Conference for OLPC

ZDNet Korea posted this video after attending the OLPC press conference in Seoul, Korea friday. Some nice cuts that include me.

My new book, Billion Dollar Company: An Entrepreneur's guide to business models for high growth companies, is available on Amazon. See the fourth strategy Porter should have added, determine if the market opportunity is large enough to interest venture capital and learn the 5-step process to really develop a business model. Book website.