SOPHISTICATED FINANCE

The Best Books I Read in 2011

I am not inspired this year to do a post on the future. So I have opted to do some 2011 compilations instead. The first one is here.

These are some of the best books I read this year and recommend. They are not all recently published, but all are thought provoking examinations of interesting issues.

1. The Art of Doing Science and Engineering by Richard W. Hamming. Hamming was a world famous mathematician who also studied where great ideas come from.
2. Disrupting Class by Clayton Christensen. Christensen applies his disruptive innovation methodology to the U.S. education system and concludes that something like OLPC is the solution to the current problems.
3. Hackers and Painters by Paul Graham. Almost included this book as required reading in my entrepreneurship classes.
4. In the Plex by Steven Levy. An excellent history of the early days at Google.
5. Monsoon by Robert D. Kaplan. Excellent examination of the historical and current issues surrounding the geo-political significance of the Indian Ocean in the next 50 years. Favorite book of 2011.
6. The Next Convergence by Michael Spence. One should read a book by a Nobel Prize winner every year. Book discusses the effects of the digital world on future economic growth.
7. The Misbehavior of Markets by Bernard Mandelbrot. Mandelbrot researched in fractal geometry, which lead to chaos theory. The world of finance has not been the same ever since. Required reading for any serious student of finance.

And yes I did read Steve Jobs by Walter Isaacson. Good book but I think you need years of experience in entrepreneurship and/or business to fully appreciate the lessons from Job's. This post on Steve Job's best quote may actually explain my rather eclectic reading list.

I find it tough to find good book recommendations. My best source is Hacker News. Arts & Letters Daily is another good source.

All of these books are available on Amazon as e-books.

 

The Ten Best Posts of 2011

These posts from 2011 were the most popular here at SF. If you missed them you get another chance to read them.

1. Lessons from 100Years at IBM
2. IT Due Diligence
3. Social Entrepreneurship, Corporate Social Responsibility and Shared Value
4. Cisco Strategy vs Huawei
5. ABDI Presentation on the Future of Brazil
6. What Engineers Need to Know about Business
7. Transforming Education
8. Game Theory and Economic Development
9. Frank Gehry and Design
10. Elevate--The Movie

If you would like a reading marathon, the entire SF archive is here. Happy New Year.

U.S. Latin America Cancer Plot

Venezuelan President Hugo Chavez is speculating that the U.S. has developed the technology to cause cancer in leftist leaders in Latin America, according to this article from the BBC. The most recent head of state to suffer from cancer is President Cristina Kirchner of Argentina, who underwent emergency surgery recently for thyroid cancer. Chavez went through chemotherapy for an undisclosed cancer earlier this year.

While Chavez is renown for his baseless speculations, a negative view by the U.S. government of leftist governments in LATAM is widely believed in the southern hemisphere. Given the strategic importance of LATAM to the U.S. as a market for exports and as a source of natural resources, perhaps it is time for the U.S. to give a priority to better relations with the countries of LATAM regardless of where they lie on the political spectrum.

The election successes of leftist governments across Latin America is a trend that will not be reversed for a long time. As long as Gini coefficients remain high, oligarchies control the economies and indigenous peoples are discriminated against, populous, leftist governments will continue to have electoral success.

This story was inspired by a story in Latin Business Chronicle, which provides an excellent daily English language summary of LATAM events. Unfortunately, I cannot find a link to the email subscription I receive.

 

Related articles

• Chavez: US May Be Behind Leaders' Cancer - Bloomberg (bloomberg.com)
• Cristina Kirchner cancer: Hugo Chavez ponders if US gave Latin American leaders cancer (telegraph.co.uk)

Startup Fund Abandons Chile

Arnon Kohavi, an Israeli venture capitlist, tried to start a venture fund in Chile according to this story in TNW. After six months he pulled out. His reasons, as reported in TNW, are below:

"I took off because it will take longer for Chile to reach the tipping point. Good will from the government and a few people isn’t enough to re-create what places like Silicon Valley, Israel and Finland have.

The heart of the problem is Chile’s dramatic generation gap, between young entrepreneurs and the old generation. The Chilean society is less dynamic than Asia or the US; a handful of monopolistic families control the country, and won’t move.

Worse, these families don’t care about anything (the young, the poor…) besides their money. They don’t have to: the country’s natural resources (copper, etc.) are a disadvantage here, because it means the rich don’t need to work hard. The Asian model is better, because it focuses on exporting manufactured goods.

Chilean family offices may still give money to Endeavor, but for them it’s not about entrepreneurship – it’s just a way to brush their ego, and they only do it because it is all conducted in Spanish.

I know people were disappointed when I left, and the Chilean government would have supported my fund, but I also wanted a commitment from the elite, and it didn’t happen. Yet, I’d be happy to come back and do business when the country is ready."

I suspect the same result would have happened in ten other countries in LATAM. Organized and supported entrepreneurship struggles in most of LATAM with the exception of Brazil. I am working with a group to organize a high tech entrepreneurship center in Colombia that is supported by the private sector, municipal and state government and local universities. With such widespread support maybe we will do better.

Blackberry, Microsoft and Nokia

Image via Wikipedia

Much press surrounds the possible takeover of Blackberry by a partnership between Nokia and Microsoft. As this article from Fierce Wireless makes clear, the three companies meet frequently to discuss ways to cooperate. I imagine the agenda for such meetings must be:

1. Apple's new product initiatives (which rumors should we believe)
2. Amazon's new tablet initiatives (and are they coming to market with a phone)
3. Google's new initiatives in smartphones, tablets and the Android operating system

If time permits, they read a chapter from one of Clayton Christensen's books on disruptive innovation and wonder how it happened that Blackberry, Microsoft and Nokia have been disrupted after being market leaders. The other topic that might be a discussion item is what Google will do with the acquired Motorola phone business.

I actually think that Blackberry may rise from the dust, provided that consumer buying behavior does not yet have too much affect on enterprise equipment decisions (a big "if"). Microsoft is toast (except as a gaming company) and Nokia was toast the day they agreed to use the Windows mobile OS on their phones and largely ceded control of the key features of the phones to Redmond. 

Wonder if there is a record for most market capitalization lost to disruptive innovation. These three companies all have to be contenders for the record which is probably still to be determined.

 

Related articles

• Microsoft, Nokia considered joint bid for RIM, report says (news.cnet.com)
• RIM shares soar on takeover rumors (canada.com)
• Microsoft and Nokia were in talks to jointly bid on RIM? (myphonearena.wordpress.com)

Twitter Strategy a Mistake

As the year ends I realize I have made a mistake in how I use Twitter. Basically in 2011 I only used Twitter to re-post my blog. Interesting articles that I found in my daily blog reading I posted directly to Facebook or Google+. The better alternative would have been to post to Twitter, which automatically updates Facebook. Considering the constant good examples from @janieC and @yaquesita, I should not be making this type of mistake.

In 2012 I plan to do more posting to Google+. I like the early adaptor audience there and I get more useful content. If it were not for about five people on Facebook who I find entertaining or care about I would just give up Facebook. Maybe the New Year's resolution should be to just devote more time to those five people.

Reading the early flow of yearend predictions I have found boring so far. Usually this inspires me to do my own predictions. Maybe I will do some further thoughts on urbanization, which will definitely be a theme on SF in 2012.

Related articles

• 5 Easy Fixes for the Most Common Twitter Faux Pas (hubspot.com)

MIT Approach to Certification in Online Learning

One of the hottest markets today is online education, part of the bigger trend to modernize education through IT technologies. One of the biggest issues in online education is certification, proof that one successfully completed a course or program. I previously discussed this topic here and all the articles on education are here.

MIT has been a leader in online education since it began its free OpenCourseWare initiative in 2001. MIT has now announced that they will offer certificates for the completion of the courses, as described in this article in The Chronicle of Higher Education. A few observations:

• The courses will continue to be free but there will be a fee for the certificate
• The certificate will be issued by a new foundation established for that purpose and not by MIT

I think it's interesting that MIT is protecting the brand value of their traditional on campus education system by using a separate foundation to issue certificates. I also wonder if people will pay for certification unless it is part of a degree program. Perhaps MIT will use the foundation to start offering online degrees.

 

Related articles

• A Free MIT Education = MITx [Dean's Corner] (scienceblogs.com)
• MITx positions to offer certification for completing courses online (web.mit.edu)

Venezuela Mortgages its Oil to China for $30 billion

The LA Times reports today that Venezuela has arranged a new loan for $4 billion from China, secured by future deliveries of oil. Loans of this type with China now total $30 billion. A few observations:

1. With future oil revenues already spent, Venezuela post-Chavez will have few resources to rebuild the country and the economy. 
2. Natural resources will increasingly become the point of friction between the U.S. and China as China increases its sourcing in the western hemisphere
3. The U.S. needs a much more active policy of engagement with LATAM in order to shore up natural resource supply from the locally popular, left leaning governments in Brazil, Peru, etc.

Consumerism Threatens the Enterprise Cloud

This story from ReadWriteWeb just cracks me up. I quote:

"Nearly two-thirds of CIOs surveyed say that now, their IT mobility tools and services rollout plans have been rendered impossible. Their fear plays out quite literally like this: Consumer trends have driven demand for more bandwidth on public wireless networks, and for public cloud services. Because the public cloud exists, businesses are compelled to adopt it. Adopting public cloud exposes businesses to new dangers. For which consumers are to blame."

Please be more considerate in adopting new, more productive IT technology because you are stressing out the corporate IT people ...who are scared to death of being replaced or eliminated by simple technology that does not require any knowledge of Microsoft technology. Please excuse the enthusiasm below

Related articles

You can’t dictate which tools your employees use (Gigaom.com)

Decentralizing Education Good Strategy for Peru

Much speculation surrounds the new administration of President Humala in Peru. One of the early decisions by Humala was to decentralize the management of education to the regional level in Peru. This approach is in sharp contrast to the former President, Alan Garcia, who used a federal or centralized approach to education.

The regional approach in Peru is very similar to Brazil where states have managed education since the abolition of slavery in the late 19th century. This is also the approach used by the world renown education system in Finland where cities exercise most of the power.

One of the advantages of a regional approach is that it better enables the matching of the curriculum to the local culture and language. Peru has about 60 indigenous languages and ethnic groups.

This working paper from Harvard Business School may support President Humala's decision through an analysis of the better performance in education by Brazil compared with China, India and Russia.

I think smaller countries, such as Uruguay, can be very successful with a centralized management of education. Larger countries, particularly those with rugged, remote regions such as Peru, may be better off with a decentralized approach that gives more authority and resources to regional, state or city governments.

Problem Solving in Crisis

Over the year's I have been involved in solving a lot of business problems. My experience is not particularly unique and I reach conclusions following a three step process:

1. Reconfirm the objective
2. Confirm that you are treating the customer, employee, supplier.....fairly
3. Demonstrate that marginal benefits equal or exceed marginal cost...or know the negative cash flow consequences are acceptable

Shake twice and out comes a good solution.

This method works well with routine business problems, say 99.9 percent of management issues. However, every 5 to 10 years along comes that gut wrenching, killer problem that threatens to put your company out of business. When faced with such a problem the first thing to remember is Hacker's first rule: if they are not shooting at you, it's not a serious problem. Problems are rarely as bad as they first look.

After you calm down, assemble a small team of no more than five. Include one subject matter expert, one street smart guy/gal, one really good problem solver, one really smart person and the leader. (Really smart person could be any of the other four but not necessarily.) Very important to pick people from different disciplines. People from the same discipline tend to have the same problem solving approaches because of similar training. Only invite A+ players and avoid B and C types (who should not work for you anyway) even if political correctness requires it. In a crisis politics should not be important.

Now comes the key part for the leader in finding a good plan forward or solution. Do not state the problem and absolutely do not propose a solution. When the building is on fire the leader may need to give orders immediately, but most business problems do not require such an immediate solution. Confident leaders do not have to appear to always have the solution.

Next have the subject matter expert state the problem. This serves to provide everybody with basic facts and more details and let's everybody vent their emotions over why the idiot did not (fill in the blank). Next confirm whether the real problem has been identified. The smart guy will identify the real problem(s) if necessary. That's why he is part of the team.

Next discuss thoroughly why the problem occurred. Again, the leader should facilitate but not lead the discussion. Solutions to prevent the reoccurrence of the problem are then discussed. Lastly, starting with the most junior person ask for solutions to the critical problem that may put you out of business. This gradual approach to solving the "life threatening" problem serves three purposes:

1. By the time you get to the final solution discussion, all the emotional energy has been vented
2. Everybody has complete information because you have really discussed the problem from three perspectives
3. Consensus for the solution has been established without the leader forcing a solution.

This approach produces magical results. Exactly what you need when your business is on the line.

This article from Fast Company presents a similar view but advocates such an approach for all management situations. Well worth a read.

 

 

 

Related articles

• Negotiating Conflicts (toddlohenry.com)
• Solution-Focused (bmc24me.wordpress.com)

Business Plan Templates

Several people sent me links to enloop, a new business plan template site. I spent a couple of hours playing with it this weekend. I thought it was pretty much the same as all the other business plan websites. 

To do a proper business plan, the Sequoia Capital site gives the best outline here. I have used this outline for years in my classes and workshops. This outline highlights the key questions to answer. By the nature of the questions posed on the right hand side of the page, one realizes that a template is not likely to be useful in preparing a description.

The other major failing in most templates is that there is inadequate attention to developing the revenue assumptions in order to understand the growth drivers in the business. My book provides considerable detail on how to develop revenue assumptions and understand growth drivers. The absence of the detail also prevents the preparer from demonstrating their business logic. 

New Business Ideas 2011--III-Academic Portfolios

I have privately been advocating that schools help students create portfolios of their academic work. With all the digital and sharing technology available, eventually universities are going to ask students to submit a portfolio of their work with their applications. I am not talking just about creative types--designers, painters, fashionistas--but rather traditional academics such as history and physics students. 

The key to a good portfolio will not be just the last paper in AP History or the senior science fair project but the ability to demonstrate intellectual growth and maturity. This would imply that students should start their portfolio in junior high school or early in high school.

I think these academic portfolios will include papers, videos, photos and perhaps diaries, blogs, websites and links to FB pages.  Presentation will be in a Flipboard style with tags and full search capabilities. Everything posted would be downloadable.

Someone once told me that Sean Taylor, the late, great UM and Washington Redskins safety, was identified in junior high school as a future Pro Bowl player. The same is true for academic genius. If universities could search the portfolios of younger students, they could follow their intellectual development and perhaps begin a recruiting dialogue much earlier.

Many academics also believe that creating a portfolio benefits the student's intellectual growth. Portfolios encourage reflection on one's work and develop critical thinking abilities.

 Image credit: dickblick.com

Related articles

• ePortfolios: Tool or More? (folio-magic.com)
• Should Portfolios Replace Placement Tests (Good Education)

How to Capitalize on Urbanization

Yesterday's post touted the entrepreneurial opportunities in the trend toward urbanization. For those less energetic folks, Bloomberg provides another way to participate in the trend. As shown in the Bloomberg chart below, NYC taxi medallions have outperformed housing and gold.

Wonder if they use medallions in Shanghai?

Note: DJIA appreciation 1980-2011 +1456.

Hat tip to the Finance Professor blog.

Related articles

• The Best Investment on Wall Street? A New York City Taxi Medallion (dailyfinance.com)
• Want to drive a cab in New York? That will be $1,000,000 please! (politicsandfinance.blogspot.com)

Urbanization: A New Business Opportunity

At the end of every semester I give a lecture on what markets offer the best opportunities in entrepreneurship over the next fifty years (the working lifetime of a typical student). I will not bore you with the standard answers, such as education and healthcare. I think two opportunities that are under emphasized are:

1. Urbanization
2. Agriculture

In 2008 the percentage of the population living in cities passed 50% for the first time. As incomes increase in Africa and Asia over the next 20 years the percentage of urban population may approach 60-70%. Conservatively, that represents a migration of 700 million additional people into cities. Given the limited financial resources and antiquated infrastructure in most cities, cities face almost insurmountable challenges. Water, sewage and transportation will be big opportunities for innovation. Two interesting articles on urbanization are this report from the UNFPA, the UN group studying population, and this HBS Working Knowledge article by John Macomber, an HBS professor.

With increased population over the forseeable future and some estimates reaching a world population of 10 billion, the critical question is how to feed these people. Improved standards of living for those new urban dwellers will also exacerbate the situation. While just production may be an issue, where will the fuel come from to power machinery and provide fertilizer. The graphic below shows that energy efficiency in U.S. agriculture has improved significantly, but most of the improvement comes from the switch from gasoline to diesel fuel and provides no significant improvement in CO2 emissions. A .9 units of energy for each unit of food looks to me like a big opportunity for innovation.

Source: USDA

Related articles

• Planning for the billions (thehindu.com)
• Challenges, Opportunities and Action in a World of 7 Billion (prweb.com)
• Cities Gobbling Up Huge Land Masses (scienceblog.com)