Monthly Archives: May 2015

The Role of the Corporation to Employees

What is the role to the corporation to individual employees? What is the best way, as an employee, to think about the corporation?

In today’s ever changing society, there is a shift from those working long-term for a single company to making several jumps in a career to new companies, freelancing, or even starting a new company. This leads me to wonder how others view companies, but I’ll include here my thoughts (assuming things like salary, selfish desires, etc. do not play a role):

A company, to me, is an organized pool of talents. There are many resources of individuals, who do their specific task to the best of their abilities, working alongside many other individuals who do their specific task to the best of their abilities. When these individuals are organized in a way that they can collaborate, they leverage each others skills and make something even better than the sum of two parts. In other words, the role of the corporation should be to make this formula work: 2+2=5. It fails when either customers are not on board or when 2+2=<4. I’d even throw in factors like mismanagement, bankruptcy, culture clashes, etc. into the failed formula group since it means that leverage was not satisfactorily achieved and resources were not properly placed. Another reason for failure are unforeseen external factors (i.e. overall market or economy, or perhaps failure/success of a comparable company), typically this cannot be managed (outside of risk management and scenario analysis) so it doesn’t factor into this topic even though it is certainly worth mentioning.

When 2+2>5, success follows. Some reasons for this could be culture success, high performing individuals, synergy, and excellent resource management. As with before, unforeseen external factors can help a firm succeed, but in the long run 2+2 MUST > 4 so we’ll exclude external factors. The role of the corporation, in these cases, is to leverage individual skills into a singular “team” (or sum of smaller products/services). These individuals are given the right tools (or enough tools to be useful), have the right knowledge (or enough knowledge to be useful), and the right amount of time (or enough time to be useful) to create this 2+2=>5. It seems that when individuals feel their contributions to this formula do not sufficiently equate (or their contributions could be improved but are unable to improve it themselves), friction exists causing resources to leave. And, like any team sport, the whole is only as good as it’s weakest link so under-performing team members must necessarily be removed from the equation (or separated from the whole) to keep the balance.

In summation: The role of the corporation for employees should be to give them the tools they could otherwise not obtain so that their individual contributions can, when combined with the contributions of other individuals, create something better than the sum of its parts. 2+2=5. When individuals believe their contributions are not sufficiently utilized, the friction causes them to leave. If an individual believes they can do better on their own, or they (usually do to empirical experiences) find that they are better utilized outside of an organization, they create their own venture.

The question I have is, if this is all true, is the feeling of under-utilization (or alienation) of an individual come from more experience in the workforce, or is it more weighted towards our general cultures such as the Millennial generation? It’s easier than ever to venture out on our own, especially when the market is as “frothy” as it is now. Costs to create a company are way lower than ever, it’s very easy to hire freelancers to do basic (or complex) tasks if specific skills are needed, and the information is readily available to anyone willing to put the time in. Will we be seeing a “freelancer” economy in the future? (I don’t think so) or will we move back to the “company-man” culture as corporations get more data on how to retain employees and how to better utilize their individual skills? I believe we will see “leaner” organizations in the future, where companies are run solely by more “experienced” individuals looking for responsibility without the headaches of “hot-shot” companies run by young entrepreneurs or large corporations. Perhaps they themselves were ex-entrepreneurs. Think co-op but for larger scale business solutions. Run on a non-profit tax status or taxable with low retained earnings.

Venture Backed vs Community Capital – Reading Thoughts

http://www.nickgrossman.is/2015/05/22/venture-capital-vs-community-capital/

Venture Capital vs Community Capital by Nick Grossman

Great read! Interesting analysis of a presentation during the Paris OuiShareFest about the power of technology and dynamics. Specifically, it’s another interesting way to look at the platforms of technology in a way of (typically) venture/finance backed firms (such as Microsoft and Facebook) and community backed protocols/technology/firms (such as Bitcoin, the HTTP standard, and Android—though not exactly community backed it’s an open system vs iOS’ closed system which would be in this case “venture backed”).

It seems that in Grossman’s analysis of the community type ventures, their primary motive is to disrupt the incumbent industry. Using Microsoft as an example, he mentions that they’ve survived two waves of community disruption: the OS and Office productivity suite. Well known competition includes Open Office, which as the name implies is “open” software available to the community. The community version attempted to disrupt Microsoft’s stranglehold on the productivity suite via it’s open capabilities but in the end Microsoft overcame the obstacle. While I agree that community backed ventures are commonly disruptive, I believe they have great potential to create something bigger.

Thinking about how credit cards make the bulk of their profits, they charge fees (both monthly and per transaction) to businesses when their card is swiped. One of the reasons why American Express (Amex) is not available to use everywhere is because they charge a higher per transaction fee, which they counter by offering better customer service. There are now TONS of competitors trying to break into this space by eliminating credit card margins, charging smaller or even no transaction fees to the consumer or business (such as Square). I assume some are open standards, available to use anywhere by anyone, but in the end success in this area will come down to two factors relating to volume: number of users (consumers using the platform) and number of transactions made. Software is free, the ability for software firms to scale is virtually unlimited (mainly constrained by data servers), so I imagine there is still HUGE potential for open platforms to disrupt the way most businesses interact with their customers and business “partners” (such as credit card providers)

By offering the “open” platform, community backed ventures in the industry of credit cards can grow the number of transactions (since nobody likes paying fees) but are severely limited by the number of users. It makes me wonder, if the open platforms are free (or significantly cheaper) and only limited by marketing (getting people to actually use it), what value does the large corporation give? The answer, I’m guessing, is service.

Which leads me to my final point: When community backed ventures can be an essentially free, more disruptive, version of an existing product, companies can profit by offering services. The United States is a service based economy, and the cycle between actual product (community backed) vs service (venture backed) can be a clearly paved path to mutual success.

VCs on Private Equity

http://avc.com/2015/05/what-vc-can-learn-from-private-equity/

What VC Can Learn From Private Equity by Fred Wilson

 

This is an interesting read, pointing out the main differences between Private Equity investing and Venture Capital investing. It’s something that has run through my mind several times as I’ve struggled to find what interests me. I’ve always had a fascination with Venture Capital, especially the non-glamorous side of it: investing, figuring out financing methods and terms, and performing market research (the glamorous side is also interesting but that’s more ‘bells-and-whistles’ to me: sourcing, finding investments, etc.) Private Equity, on the other hand, is a much larger beast to handle.

In general and assuming my knowledge is correct, Venture Capital (VC) tends to rely on limited partners, smaller angel investors, and endowments for funding whereas Private Equity is financed through major banking and wealth management firms. Their goals are similar: make more money than you put in; but their methods are much different. Venture Capital is the ‘buy-and-hold’ methodology with a lot of talk now of value add (value of a VC firm as an investor vs another). The leading VC firm typically gets one or two board seats able to influence the company leadership, and a priori rights to invest in the following rounds.

Private Equity (PE) on the other hand is the ‘buy-and-build’ methodology, believing that the companies they invest are underperforming. They typically buy a commanding share of the firm allowing them to dictate (rather than influence) management. Sometimes they invest in order to break up a company and sell off the pieces, sometimes they replace management all together, and sometimes they just build the company (sometimes they also fail at all three). Private Equity is a much more active type of investment and for job candidates it’s much more difficult to get into (not that VC is an easy task).

Having thought it over many times, I’m surprised at how Fred talks about value add by VC firms. My interest in VC took a much more PE approach. I believe VC firms have a lot to offer start-ups, much more so than one or two board members. VCs are well connected (at least they should be) and have their hands in many different pockets. Most of their investments are expected to fail, sure, but it seems like VC firms are simply not managing the risks appropriately. I’m not saying VCs should make smarter bets, I’m saying they should treat every investment like an active investment. After all, the more money an investment makes, the more money the VC firm can return to investors. Perhaps there is a lot VC can learn from PE, a lot more than I expected.

Current Schedule

On my schedule:

1. Practice Case Studies – Mainly doing this to prepare for interviews, but also see the more practical and immediate use of fostering my creativity. Also, it’s kind of fun. Book: Case in Point

2. Programming in Python – Python seems to be a very useful language, and was recommended to me during a recent interview I had to support my SQL skills. Also, I plan to create some mobile games and obviously (see the books I’m reading for this stage) it’s practical. Books: A Programmer’s Guide to Data Mining; Invent Your Own Computer Games with Python; Making Games with Python & Pygame; Python Reference Book

3. Making the aformentioned Mobile Game – The idea I have now is quite simple and should be easy to make using the skills I gain from the previous point

4. CAIA – Deciding if this is something worthwhile to me. Seems like it is so far, but really depends where my next job is. If it’s in Product Management (or similar) I might look more into Six Sigma, if it’s in FP&A perhaps CAIA or CMA (possibly even CPA but more likely one of the other two), and if it’s in Consulting I’d need to see where that leads. But I do enjoy the challenge and fun learning something new so these certifications are great.

To sum it up, in the short term I’m going to continue as I am, which should put me around my August deadline at work (contract end) in which case I’ll probably have the idea for #4 and launch into a new phase of my career. At least, that’s what I hope.

Timeline: #1: 2 weeks; #2: 4 weeks (realistically); #3: 4-6 weeks; #4: long-term

Future Needs

The future has many needs. Resources are a top priority: water, food, habitable land, and housing are the main ones. Environmental needs are strongly linked with that: we are pulling out WAY too much ground water and will see more sinkholes than ever before, deeper problems related to a drought, and too much pollution sinking in to what little remains of our earth’s top layer. Food (obviously related to water) is a major concern especially with GMO seeds destroying our farmland and destroying not only our lives (namely increased cancers) by the lives of our insect life (bees!), fauna, etc.

The key culprit is obvious, but rarely discussed: our earth is over populated.

1) Why is it rarely discussed? I’m not sure, to be honest. I think there are a lot of hands trying to keep ‘mum’ on the issue (read: corporations and politics). It’s obvious that for large corporations, the larger the market (the more people there are) the more profits can be made. In the long run, a rising population means more opportunities to sell and make profit. For countries, population size can also be a competitive metric. The larger the population, the higher potential GDP, larger the size of a standing army, the more competitive the country can be. Politically, it makes sense for the US to avoid discussing it since power, in the long run, would shift from a medium sized country to a large sized country like China, India, or Russia. It’s a bad reason, and is probably not the reason it’s not discussed in US politics. It’s probably just not a topic anyone wants to debate over. You’ll have neo-cons and liberals both saying that the government is putting limitations on our freedoms and also bring up Japan’s declining population as an example.

But, like many difficult decisions, it’s the hard choice that is the best one. If we look at the demographics of our population, I’d wager on average it’s the lower and middle classes that have more children than the upper class. Not always true (Mitt Romney), but that’s what an average is for. I don’t believe or agree with a class system, and I hate to use it, but it’s a demographic that is very real and present.  Just like there is a demographic for gender, with some people not fitting into either. We can use these demographics as one way to check that any policy is made to be fair to all. It’s unfair that the rich should be able to pay to have extra babies (see China). It’s unfair that we would limit the number of babies the lower classes can have, and unfair that we would impose restrictions or give incentives to the lower or middle class (see our current welfare system incentivizing large families).

My first step would be to allow a maximum of two children per couple. This is population maintenance, not reduction. There would have to be some kind of policy in place for new couples, couples that separate and form new couples (e.g. divorce and then remarry), the death of a child or children, birth of twins or more, and single or separated parents. For example, a couple has their second child: congratulations and here is your required (free and reversible) vasectomy. For those receiving welfare, the added benefits for more than two children are stopped (if you have new children starting “now”) and replaced with subsidized birth control methods. Vasectomies would be free, as would birth control pills, and abortions would be subsidized (with limits, you can’t and shouldn’t do multiple abortions in a year just because you don’t like condoms).

The biggest problem: these mandates need to be made world-wide. As we’re seeing with climate change, it’s great that some countries are tackling their pollution well, but China and India really seem to make up for that. Let’s work together to stop this problem before the problem stops us.

Operationally Focused CFOs

What I’m reading this week includes:

http://www.bothsidesofthetable.com/2015/05/02/how-great-operationally-focused-cfos-can-transform-your-business/

How Operationally Focused CFOs Can Transform Your Business by Marc Suster

Great read about how CFOs can lead business from a not only a financial perspective, but also an operational standpoint. I fully agree with Marc, finance is getting a bigger hand in the operations field. The ability of great financial leaders to see the ins-and-outs of the firm are vital to how businesses operate.

Finance teams have the ability to merge the two by setting budgets (finance), creating forecast (finance), and analyzing metrics (operations). They have the inside view into how the company is performing from a financial perspective, and can leverage metrics and KPIs to assist operations to out perform. They can assist HR & Legal negotiate contracts and gather resources since analysts understand how they ultimately affect our revenues and expenses.

Operations still play a key role, especially important in fast growing businesses. The need to implement, refine, and define processes are far outside the finance per-view. Enacting LEAN and Six Sigma processes are great tools for the operations teams. I still believe that any great non-finance team member should find learning the concepts behind finance to be great value. Similarly, for non-engineering team members (and most anyone in general), programming skills are becoming an increasingly essential skill. The value chain is a great model for all as well, since understanding how their role plays a piece in the larger picture can be a great asset allowing members to be more effective.

Elon Musk – SpaceX

http://www.bloomberg.com/graphics/2015-elon-musk-spacex/

Elon Musk’s Space Dream Almost Killed Tesla from Bloomberg Business

 

Elon Musk, our real life ‘Tony Stark’ (Iron Man) and one of my personal inspirations. I’m continually reminded by how little I’ve achieved and reminded of how much more potential I have to offer if only I can reach deeper into my own gut (in cockney: “Nut Up”) every time I read more about the man.

He’s a great business leader: ambitious, smart, and proactive. His current mission: Space. I’ve had many chats about what my interests are and Space is always one of the consistent passions of mine. It’s certainly a concept that my ideological brain knows will be the future of humankind, but it is such a complex and complicated concept that it’s intimidating. I’m one of those people who struggle to answer the question: “What are you passionate about?” My answers are usually not in the right place at the right time. I’m passionate about bringing humanity to its next level of evolution. I’m passionate about making the world a better place. I’m passionate about making enough money to do what I want without having to be concerned about worldly (material) desires like a speedboat or something. But that’s not a good answer, I think, because if you ask my “Why?” or if you ask me “What do you think you could do about it?” my answer is not one many people would agree with. Or, more often, the answer goes completely against the cookie-cutter answer the interviewer is looking for.

Example: Interviewing with a company: “What are you passionate about?” “Space” “Then why do you want to work here?” Umm… I guess because in the end I only really want to get more experience (and a paycheck). I have immediate needs that conflict with my goals. I do get interviews with some companies I want to work for, but I’m swimming with some real sharks for one spot.

Elon Musk’s ambitions are fantastic, seemingly un-selfish (for the good of all), and he makes it clear that anyone can do it. His stepping stones worked out, probably a testament to how intelligent he is and his network. I’m sure there are lots of intelligent people whose stepping stones did not work out, but it’s inspiring to know that it can work out. He steps outside of the status quo, marching over mediocrity by example, and is rewarded for it. He’s also got a sizable wallet which surely helps. If that’s the formula to success, I’m interested in knowing how large the wallet has to be for a similar system of success. If it’s replicable without a wallet (which I doubt it is), when and where is the next opportunity? I want to think rare-material suppliers are in pole position for that.

Commodities (like workforce/worker-bees) are dimes in a bank. If you’re a commodity, how can you break out? Another reason why working for someone else rarely gets you where you want to go. Elon Musk proves that theory, his skills are great to have but it’s really his ambition that makes him who he is. That’s something you can’t put on a resume.