Tag Archives: investment

Good Money, Bad Money

Embed from Getty Images

The basic idea of good money and bad money is that the type of money a manager accepts carries specific expectations that must be met. These expectations heavily influence the types of markets and channels that a venture can and cannot target. The very process of securing funding forces many potentially disruptive ideas to get shaped instead as sustaining innovations that target large and obvious markets. Thus, the funding received can send great ideas on a march towards failure.

As emergent ideas are being nurtured during nascent years, money must be patient for growth but impatient for profits.

When winning strategies become clear and deliberate ideas need to be carried out then money should be impatient for growth but patient for profit.

  • Clayton Christensen, Disruptive Strategy, HBX
Tagged , , , , , , , , , , , , , , , ,

Entrepreneurs: what is the price of your dream?

One of the most valuable lessons I have learned in the last eight years is that the valuation of a company is based on the story that is being told about its future.

Our sense of reality – our idea of what has actually taken place – is filtered through our experiences. Most of you will agree that two people can observe the same event and come out with different accounts of what happened based on a personal bias. The same holds true for an investor or partner in a business; their experience informs their decision making. Their experience with a company in the same industry, or with the same management structure, or with a similar channel strategy, or “what happened” 10 years ago, convinces them that their past experience will transfer to the new project or business.

On one hand, it’s humanity’s way of coping with new things. We look to the past in order to inform future decisions. When performing a valuation of a company, most investors take a number of factors into consideration in order to balance bias and risk. Nevertheless, we always take the future back to the present or project the past to the present in order to know how much a business, idea or project is worth in today’s world.

What do we pay today for a dream? If an entrepreneurial idea does not fit our past experiences – whether we are a seasoned investor or an amateur – how do we value the company?

Our story is essential in convincing amateur or professional investors and partners. Yet, even with an amazing story, bias still plays a critical part in valuation and decision making. What happens after we tell a story that leaves an investor wanting more? The professional investor might be thinking “how much will I get when we go public or in round two” rather thentrepreneur bikean “this is going to be interesting” (a trademark of an amateur investor according to Seth Godin’s presentation in “Nearly Impossible”).

We are always told to look to the future and we tell our children to do the same. Nevertheless, many times we base investment – and even life – decisions on the past. What is the price of your dream?

Suffering, patience, self-negation, are part of the life of an entrepreneur and often the price we pay for our dream. Money is not always the objective of our venture but it certainly is what it comes down to when we are talking about investment. Sad but true. Simple but not inclusive. Cents over sacrifice.

Net Present Value. Future cash flows. Debt and working capital. Sweat and sacrifice. What do we pay today for a dream? Sometimes the craziest dreams run by risky entrepreneurs are the ones that win. How do we make sure that the best idea wins? There really is no formula for success – however convincing your story or however poor your track record. Sometimes the best ideas look like bad ideas and sometimes disruption occurs undetected until it has slowly and fundamentally transformed an industry.

One thing is certain however. We look for value and relevance. If your story shows your investor that your idea is valuable and is relevant in the lives of people, you may just have a way of selling your dream and getting the much needed capital to make your venture grow, prosper and be valuable to you, your investor and the people you serve.

EMC

Tagged , , , , , , , , , , , , ,

What do entrepreneurs talk about?

Image of brain at work from www.fastcodesign.com

Image of brain at work from http://www.fastcodesign.com

It’s a question that I sometimes get asked. The interrogator – usually trying to make conversation – has no idea that he or she is going to get a rather less than earth shattering answer which I will share with you in a minute…

Entrepreneurs in this day and age are seen, for the most part, as “the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes…” (Steve Jobs). There is this kind of cult of entrepreneurship that even makes large industry leaders take notice and state they want to be more “entrepreneurial”. Perhaps it’s because there’s this idea (which I support) that entrepreneurs are agents of change and are people that challenge the status quo. In fact, in many of my articles for Forbes I talk about this dimension of business – the need for business today to challenge old notions of “business for making money” and restore the idea that business should be relevant to all stakeholders. Building brands that have meaning and that answer the question WHY coherently and authentically is just the first step to being change makers.

So what is it that entrepreneurs talk about? In my 21 years of experience – started my first business at 15 – entrepreneurs often talk about implementation. That’s right, creating order (or at least the semblance of order encapsulated in a product or service) out of chaos. They integrate different models to come out with something “different”; looking at partnerships, investment and even a $3 USB cord to fix the motor of a car prototype (I’m quoting Elon Musk here).

Entrepreneurs talk about implementation and about money; not as the reason for starting our business or growing it but as a means to create our prototype, develop our “proof of concept” and scale our business.

I have had the honor and the challenge of working directly with more than 10 start-ups and I have witnessed first-hand that entrepreneurs are out to change the world but in small and incremental ways; we spend our time finding out how to implement our idea for the best impact.

EMC

Tagged , , , , , , , , , , , , , , , , , , ,

Why successful PPPs are tied to a higher purpose

Confederation Bridge connecting Prince Edward Island to New Brunswick courtesy Confederation Bridge
Courtesy: Confederation Bridge (Canada)

PPPs or P3’s– Public Private Partnerships – are becoming increasingly popular forms of private and public sector cooperation in infrastructure development and shared service offerings. We hear about successful partnerships in areas like ports, road concessions, real estate development and energy generation projects. This is especially true in countries that typically look for investment and expertise in order to free up capital for other programs or when the project involves a strategic resource, capital intense investment and long term cash flows. But little is said about the human element of the PPP and why an overarching sense of purpose – or a shared belief in what the project represents to its users– is characteristic of successful PPPs.

India has privatized several airports in the last 10 years and in August announced a fast track to privatize several more. This is in line with a global trend towards airport privatization in countries such as Australia, Canada, Chile, Costa Rica, Germany, Mexico, New Zealand and Peru. In February 2013, the Municipality of Quito inaugurated the new Quito International Airport in Ecuador; a PPP that includes direct participation by the Municipality of Quito, the Government of Canada, and the private sector.

With increased privatization and competition, successful airports – and airport PPPs specifically- have increased their focus on the airport experience and not only on development of commercial airport activities or the provision of a function or service. As we see with Mumbai’s Chhatrapati Shivaji International Airport (CSIA), branding is becoming a way for airports to distinguish themselves given increased competition in the airport sector.

csia_logo

CSIA is India’s second busiest airport and since 2006, the Mumbai International Airport Pvt. Ltd. (MIAL), a joint venture between the GVK led consortium and Airports Authority of India, has led the modernization and upgrade of Mumbai’s international airport. The CSIA’s logo is in the shape of a peacock feather (a symbol of pride) and their branding efforts position the airport as a gateway to experiencing India’s dynamic financial and movie-producing capital.

Regardless of whether airports choose to promote characteristics like infrastructure (e.g. Atlanta) or personality (e.g. Perth), branding begins when partners understand the project’s connection to users. And because a brand is the result of consistency of actions across all product and service offerings and, in the case of a PPP, across actions of numerous project partners, it follows that PPP partners need to share a belief in a higher purpose in order to be consistent with what image they are projecting and how they are positioned in the hearts and minds of users. An overarching sense of purpose brings partners to the drawing board and keeps them connected throughout the project lifetime.

Belief in a higher purpose also ensures that project promoters from the private sector are connected to users and not just particular shareholder interests. This holds true with governments that have PPP expertise; Canada, India, Australia and the UK all conduct comprehensive government PPP programs and are more likely to reap the benefits of engagement with their private sector partners and the users of the PPPs. Partners share a sense of purpose and a belief in how the project will contribute to society as well as to specific communities and stakeholders.

In general, when there is an overarching purpose to a PPP there is more space for problem solving; it opens up possibilities for collaboration because project members are focused on the things they believe in rather than the things that they are responsible for. Decisions are made with the larger project purpose at heart; resulting in unexpected connections between departments, functions and organizations operating in industry sectors and markets with a connection to the PPP core business.

Belief is what makes talent and opportunity unite to create something of value for humanity; something that PPPs typically try to do given at least one partner’s public sector mandate. When partners grasp the partnership aspect of a PPP and sketch out and communicate the project’s vision, they not only lead a successful project but also create a successful brand.

Modern organizations understand the emotional connection to doing business and the “why” behind purchase decisions and client loyalty. Nevertheless, PPPs – and proponents of PPP – have yet to take full advantage of the emotional and human connections with their projects. Perhaps it is because of the number of partners involved in a typical PPP that branding does not take place but the dynamic nature of a PPP is precisely the reason why shared belief in a higher purpose and a unified brand is so vital to success. If a PPP has the potential to be managed as a brand, then every tangible and intangible experience associated with the project is part of the brand and can therefore contribute to the project’s equity. And who is not interested in project equity when we talk about investment and partnership?

Tagged , , , , , , , , , , , , , , , , , , ,

Savvy Saturday September 28th, 2013

twitter

“The lesson of Twitter has been that the really great outcomes seem kind of crazy at the time you have to decide.”

Today’s quote comes from Mike Maples who was an early investor in Twitter. If you want to check out a great Bloomberg article on early Twitter investors and the IPO click here.

Tagged , , , , , , , , , , , , ,

What is corporate governance?

Corporate Governance is more than just restoring or maintaining (public) confidence in a company; it’s about organizations making better decisions.

A few months ago I was in touch with a former colleague who I greatly admire – not only for his excellent management skills but also for the person that he is – kind, generous, honest and down to earth. We were talking about my consulting business and he asked me: “what is corporate governance”?

I realized that while many people (including very smart and skilled managers) might know that corporate governance relates to managing a corporation, they might not know exactly what it means. And it got me thinking that if more people know about corporate governance it might influence a shift towards creating more responsible and relevant organizations – especially those companies that we interact with as investors, employees, consumers, partners, etc.

Corporate governance to me, as a consultant, means helping boards (board of directors) make better decisions. It is a framework and a practice (within that framework) that ensures that corporate decisions benefit all stakeholders.

It is said that the introduction of the Sarbanes-Oxley Act in the US in 2002 ushered in a (renewed) interest in corporate governance because it was seen as a way to restore confidence in a “system”.

There is no doubt that corporate governance is a balancing act; organizations are good corporate citizens when they are not just concerned with profit but also short, medium and long term effects of their actions on the environment, community and their investors (including employees, suppliers, government etc.) It’s as much about PR as it is about internal controls, disclosure and performance management and compensation. For example, executive pay and benefits is a corporate governance issue if bonuses are tied to making short term decisions that could harm the organization. Such issues are kept in check by having an oversight committee or board of directors that examines executive actions, pay and risk.

So what does corporate governance mean to you? To me it means making sure that different voices are heard and that key decisions are not biased towards just making money or keeping a special interest group quiet. Corporate governance means that key decisions are made by taking into consideration different stakeholders in order to support the well-being of the entire organization.

Tagged , , , , , , , , , , , ,

5 Trends Impacting Growth in Latin America

5611309-map-of-latin-america

While doing research for a project I’m currently working on, I discovered a list of mega trends from Frost & Sullivan (report for purchase on their website). These are trends that underscore Latin American growth prospects in the next 10 to 15 years.

Below is my list of five trends. Each item on the list has been studied and researched by Hipona Consulting in order to understand their impact on growth and business in Latin America. Some may change and some may fade (10 years is a long time!) but organizations that take these trends into consideration will be better able to adapt and take advantage of opportunities in Latin American markets.

1) Increased participation by women in decision making (at corporate level, in politics, buying decisions) (see my AmericaEconomia article in Spanish or my blog post on corporate governance)

2) Urbanization

3) Rising middle class

4) Increased connectivity (private and public sector spending)

5) Investment in infrastructure (traditional: airports and roads as well as innovative: industrial parks/clusters)

What trends do you see in the next ten years?

Tagged , , , , , , , , , ,