This morning I attended a tour of my childrens' school by an admissions officer. Whilst we are happy with the school, we learned that should we wish to change to another school for their secondary education, we had to decide soon. (pretty alarming given that they are 5 and 6 years old!). So my wife and I decided to check out both their current school and arguably its biggest competitor.
In both cases we were shown around by an admissions officer. Our first visit was to the competitor school. We left distinctly unimpressed. Sure it has plenty of facilities and the education sounded excellent, but there was no soul. It all felt very mechanical and process driven. Today we went to the secondary section of their current school.
The difference was alarming, but not because of fabric nor because of difference in approach to education. It really came down to the person taking us on the tour and explaining their approach. This lady was clearly passionate about the school. Her own children had been educated there but the key was the enthusiasm with which she presented the school and its approach.
If I could have recorded both experiences, I would be using them when counseling entrepreneurs or business people. This has to be the holy grail. Having employees who genuinely believe in the product (or service) they are selling and are proud to be carrying the business card and doing their job. I saw this in my father and I saw this today.
I am frankly rather jealous of people in this position. It has been sometime since I've had such belief but it is something I am seeking and something that I want to encourage. There are certainly some organisations that succeed in this. I have read articles about people who have the Nike swoosh tatoo'd on their ankle. However, my fear is that this is rare and becoming rarer.
Ever since I left the world of banking, I've striven to understand how to motivate people in ways other than money. Dont get me wrong, money is important as it should be, but as this lady showed this morning, it is possible to become an evangelist for one's employer without having to be motivated by money or position but simply because you genuinely believe in the quality of the product.
Wednesday, May 25, 2011
Tuesday, May 24, 2011
Trust
As I am finding to my cost, identifying who you can trust, is the most important aspect of business.
I wonder if business schools teach this? I will ask next month when I am assessing MBA students at INSEAD.
I wonder if business schools teach this? I will ask next month when I am assessing MBA students at INSEAD.
Monday, May 23, 2011
IPO Valuations
Whilst the world continues to look in fascination at the LinkedIn valuation and anticipates what wealth will be created for the founders of Facebook, Twitter, Groupon and their ilk, another company has announced a deal which may well outstrip them all.
Ceres is a seed manufacturer focusing on plants which are used for energy. Essentially, the plants grown from their seeds can either be burned as a fuel or generate oils which can be refined and used as fuel. Last year the company generated revenues of a few thousand bucks and losses of many millions.
The company has now announced an IPO on NASDAQ to raise $100 million. It is as yet unclear what market capitalisation this will generate, but it is easy to assume that the result will be a price to sales ratio in the stratosphere. Additionally, unlike Facebook or Twitter, whilst the company has spent plenty of private equity capital and Government grants, it clearly doesn't have many users of its products yet.
I haven't gone into the company in detail, but neither will many of the investors to whom this stock is promoted. I can hear the sales pitches about the multi-billion dollar opportunity. However, how many investors in this stock are really qualified to assess the risk of such an investment?
It strikes me that this is a capital raising that would be better done in the world of private equity until such time as the company has generated real commercial validation. However, I am equally sure that no PE firm would offer the valuation that they can secure courtesy of Goldmans and Barclays.
Clearly, it isn't just social media that is attracting excess at the moment.
Ceres is a seed manufacturer focusing on plants which are used for energy. Essentially, the plants grown from their seeds can either be burned as a fuel or generate oils which can be refined and used as fuel. Last year the company generated revenues of a few thousand bucks and losses of many millions.
The company has now announced an IPO on NASDAQ to raise $100 million. It is as yet unclear what market capitalisation this will generate, but it is easy to assume that the result will be a price to sales ratio in the stratosphere. Additionally, unlike Facebook or Twitter, whilst the company has spent plenty of private equity capital and Government grants, it clearly doesn't have many users of its products yet.
I haven't gone into the company in detail, but neither will many of the investors to whom this stock is promoted. I can hear the sales pitches about the multi-billion dollar opportunity. However, how many investors in this stock are really qualified to assess the risk of such an investment?
It strikes me that this is a capital raising that would be better done in the world of private equity until such time as the company has generated real commercial validation. However, I am equally sure that no PE firm would offer the valuation that they can secure courtesy of Goldmans and Barclays.
Clearly, it isn't just social media that is attracting excess at the moment.
Sunday, May 22, 2011
The deterioration and waste of Starbucks (and their ilk)
I spend a lot of time (and money) in Starbucks. Between meetings, I am often found there drinking coffee and working on my laptop. Indeed, that is where I am writing this from. However, I have enormous frustration with these companies owing to poor execution and waste from what is hardly a cheap option.
This morning, I clearly asked for a 'tall black coffee for here'. The cashier rang up my bill and another assistant poured my coffee in a take away cup. I pointed out the error, but instead of pouring the coffee into a mug, she poured it away and poured another. A complete waste and hardly encouraging when I ask for a refill and am asked to pay an extra couple of bucks. The waste in pouring of expressos is equally annoying.
The expansion of these coffee shops around Singapore and Asia is indeed impressive, but I cant help feel that a backlash is coming soon. Slowly, some independents (that offer better coffee, better service and a better environment) are opening multiple branches. I certainly wouldn't be buying Starbucks stock here.
This morning, I clearly asked for a 'tall black coffee for here'. The cashier rang up my bill and another assistant poured my coffee in a take away cup. I pointed out the error, but instead of pouring the coffee into a mug, she poured it away and poured another. A complete waste and hardly encouraging when I ask for a refill and am asked to pay an extra couple of bucks. The waste in pouring of expressos is equally annoying.
The expansion of these coffee shops around Singapore and Asia is indeed impressive, but I cant help feel that a backlash is coming soon. Slowly, some independents (that offer better coffee, better service and a better environment) are opening multiple branches. I certainly wouldn't be buying Starbucks stock here.
Thursday, May 19, 2011
The Wonders of Asian Small Caps
Yesterday we saw the launch of 2 IPOs which generated significant attention.
Glencore is justifiably interesting as it marks the culmination of a transformation from a an outfit with a somewhat 'questionable' reputation run by Marc Rich to one of the worlds more active commodity traders. This has happened as commodities have become of increasing importance to the world. After a short period (in historical terms) when hard physical assets were derided as being old fashioned (atlas no long contained maps of resources held but of satellite coverage and broadband connections). Today, the importance of oil, iron ore, coal and the like has never been greater. Portfolio investors have created a new asset class, commodity traders are the new financial whiz kids and wars are being fought over access. The ascendency of Glencore has been timed meticulously.
Ironically, the stock fighting for equal billing upon its IPO is Linked In, a company that belongs to the family of companies that resulted in commodities being ignored as of little importance in the 90's. I dont profess to understanding 'LinkedIn'. I am a member, have a few hundred connections, but dont really know how to use it properly, how to trust it and, most importantly, how the company is going to make any money out of me. However, this probably summarises my doubts about Social Media in general. The reality is that the company has first mover advantage to the stock market and the people responsible for buying and selling the stock, are probably more familiar with it than they are with Glencore.
However, whilst these two important IPOs have met with considerable attention, the quality of journalism (and I include sell-side stock analysts here) has, not untypically, been fairly poor and demonstrated a lack of understanding of the stock markets and how they work. I may have an answer.
Before anyone is allowed to be published, have them take a test with the following question:
Explain the stock price performance between December 2010 and May 2011 in a HK listed stock called Pacific Plywood (0767:HK). This is a stock I owned in the early 90's as a punt. It has really never been about plywood, but more about it being a shell that could be used for something exciting. I sold out years ago, but always have kept an eye on it for fun. At the end of December it was trading around HK$0.05. Then in January, something started happening. In March it had reached HK$4.53. During this period, the stock was suspended for short period, announcements of a rights issue were made, but in the end, nothing particularly exciting happened. Today, the stock is trading at HK$0.096. Not a bad trading range for a few months.
I wont, at least in this post, answer my own question about what has happened here other than to point out that these moves still happen in Asia (and may well do so elsewhere). Is it market manipulation, is it insider trading, is it fraud........it isn't for me to say, but in my opinion, understanding such moves is an important dynamic in understanding the behaviour of markets. Pacific Plywood may be a world of difference from LinkedIn or Glencore, but today's financial commentators would do well to understand how and why such moves happen before they start writing about the reasons for an IPO's pricing and its first day performance.
Glencore is justifiably interesting as it marks the culmination of a transformation from a an outfit with a somewhat 'questionable' reputation run by Marc Rich to one of the worlds more active commodity traders. This has happened as commodities have become of increasing importance to the world. After a short period (in historical terms) when hard physical assets were derided as being old fashioned (atlas no long contained maps of resources held but of satellite coverage and broadband connections). Today, the importance of oil, iron ore, coal and the like has never been greater. Portfolio investors have created a new asset class, commodity traders are the new financial whiz kids and wars are being fought over access. The ascendency of Glencore has been timed meticulously.
Ironically, the stock fighting for equal billing upon its IPO is Linked In, a company that belongs to the family of companies that resulted in commodities being ignored as of little importance in the 90's. I dont profess to understanding 'LinkedIn'. I am a member, have a few hundred connections, but dont really know how to use it properly, how to trust it and, most importantly, how the company is going to make any money out of me. However, this probably summarises my doubts about Social Media in general. The reality is that the company has first mover advantage to the stock market and the people responsible for buying and selling the stock, are probably more familiar with it than they are with Glencore.
However, whilst these two important IPOs have met with considerable attention, the quality of journalism (and I include sell-side stock analysts here) has, not untypically, been fairly poor and demonstrated a lack of understanding of the stock markets and how they work. I may have an answer.
Before anyone is allowed to be published, have them take a test with the following question:
Explain the stock price performance between December 2010 and May 2011 in a HK listed stock called Pacific Plywood (0767:HK). This is a stock I owned in the early 90's as a punt. It has really never been about plywood, but more about it being a shell that could be used for something exciting. I sold out years ago, but always have kept an eye on it for fun. At the end of December it was trading around HK$0.05. Then in January, something started happening. In March it had reached HK$4.53. During this period, the stock was suspended for short period, announcements of a rights issue were made, but in the end, nothing particularly exciting happened. Today, the stock is trading at HK$0.096. Not a bad trading range for a few months.
I wont, at least in this post, answer my own question about what has happened here other than to point out that these moves still happen in Asia (and may well do so elsewhere). Is it market manipulation, is it insider trading, is it fraud........it isn't for me to say, but in my opinion, understanding such moves is an important dynamic in understanding the behaviour of markets. Pacific Plywood may be a world of difference from LinkedIn or Glencore, but today's financial commentators would do well to understand how and why such moves happen before they start writing about the reasons for an IPO's pricing and its first day performance.
Monday, May 16, 2011
Arrogance of Power - Guilt by Association
If I knew that someone had robbed a bank, and kept it to myself, I'd be opening myself up to arrest. So why is it that the folks who say that DSK's behaviour was well known, are not themselves worried about the police coming knocking?
I dont believe it is a French issue. Sure the French have a history of accepting affairs in politics (M. Mitterrand is a prime example), but they dont accept sexual assaults. I tend to believe that it is another case of the arrogance of power that provides the sense that DSK was allowed to get away with this.
I dont believe it is a French issue. Sure the French have a history of accepting affairs in politics (M. Mitterrand is a prime example), but they dont accept sexual assaults. I tend to believe that it is another case of the arrogance of power that provides the sense that DSK was allowed to get away with this.
Has Microsoft become a SPAC?
A few days ago, a friend forwarded a research article about the importance of individual behaviour on stock prices. I strongly agree with this so read the article, but was disappointed that it treated the subject in a very superficial fashion. It then went on to discuss and recommend Microsoft as a roaring buy! It argued that Microsoft has an outstanding product list, great innovation and didnt spend money on big ticket acquisitions.
Following the skype acquisition, the analyst is probably feeling a little silly (but actually I suspect that so long as he continues to be paid, he isn't too worried!). However, it does highlight the question as to whether Microsoft is little more these days than a SPAC (Special Purpose Acquisition Company).
SPACs were popular a few years ago as listed companies that were basically cash shells looking for an acquisition candidate (or candidates) in a specific industry. Not surprisingly, few worked but many made good money for their sponsors! However, my point here is that there is surely a justification for questioning whether Microsoft has a future on its own and actually needs to spend its huge cash pile on an acquisition. If I am correct, then, as with a SPAC, it has a limited amount of time to do so.
The problem for Microsoft is that its genuine innovation has taken place in product areas that are niche. Kinect is a great product, but it is unlikely to secure Microsoft's long term future. Their office suite remains a stellar product, but equally is coming under enormous attack from cheaper rivals.Whilst unlikely to kill 'Office' in the near term, my guess is that their margins will collapse. Windows is also under attack. Frankly, who knows whether in 5 years time we will be using 'Chrome' type OS, or iOS or 'Android' based computing devices or other OS that we haven't heard of before. My guess is that it will be none of the above, but will be something that arises out of the knowledge and confidence that there is an alternative to the desktop and that consumers and businesses will consider something other than Windows.
I remain to be convinced that Microsoft has a specific plan for Skype, and fear that it acquired it more out of fear of it falling into Google's hands. If this is the case, then Microsoft could well be split into two. The first, a declining operating business which remains profitable for a number of years,but whose valuation is a fraction of its previous multiples. The second is a SPAC in search of the next big thing. Keeping these apart may be far more sensible than looking for the new business or technology that will support the Windows/Office franchise.
Following the skype acquisition, the analyst is probably feeling a little silly (but actually I suspect that so long as he continues to be paid, he isn't too worried!). However, it does highlight the question as to whether Microsoft is little more these days than a SPAC (Special Purpose Acquisition Company).
SPACs were popular a few years ago as listed companies that were basically cash shells looking for an acquisition candidate (or candidates) in a specific industry. Not surprisingly, few worked but many made good money for their sponsors! However, my point here is that there is surely a justification for questioning whether Microsoft has a future on its own and actually needs to spend its huge cash pile on an acquisition. If I am correct, then, as with a SPAC, it has a limited amount of time to do so.
The problem for Microsoft is that its genuine innovation has taken place in product areas that are niche. Kinect is a great product, but it is unlikely to secure Microsoft's long term future. Their office suite remains a stellar product, but equally is coming under enormous attack from cheaper rivals.Whilst unlikely to kill 'Office' in the near term, my guess is that their margins will collapse. Windows is also under attack. Frankly, who knows whether in 5 years time we will be using 'Chrome' type OS, or iOS or 'Android' based computing devices or other OS that we haven't heard of before. My guess is that it will be none of the above, but will be something that arises out of the knowledge and confidence that there is an alternative to the desktop and that consumers and businesses will consider something other than Windows.
I remain to be convinced that Microsoft has a specific plan for Skype, and fear that it acquired it more out of fear of it falling into Google's hands. If this is the case, then Microsoft could well be split into two. The first, a declining operating business which remains profitable for a number of years,but whose valuation is a fraction of its previous multiples. The second is a SPAC in search of the next big thing. Keeping these apart may be far more sensible than looking for the new business or technology that will support the Windows/Office franchise.
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