SOPHISTICATED FINANCE

So Many People Interested in George Polya

2009-11-12T10:15:00-05:00

Many people say that successful blogs stay on subject. Long time readers of SF will know that I cannot abide this rule. I often post on academic papers that interest me and other somewhat eclectic subjects. A recent example would be the post on George Polya. Much to my surprise this off topic post has brought hundreds of people to my blog through Google searches. If you would like to learn more about the ever popular George Polya, who has to be one of the funniest great thinkers in history, read Gerald L. Alexanderson's The Random Walks of George Polya.

(Polya is credited with first using the term "random walk", a popular concept in finance and statistics.)

If you care to understand why I read and write about mathematics and mathematicians, let me explain.

All finance is now basically derivatives; derivatives are all about statistics and math
Strategy is not understood until it is reduced to numbers (Lord Kelvin and Hacker)
Technology starts with basic science, which is again almost all mathematics today

Last eclectic topic for today, again off point. If someone is looking for an interesting Ph.D thesis I think it would a fascinating and valuable study to show the inter-relationships between the thinking of Polya, Piaget and Papert. Seymour Papert was a renown MIT professor who combined the teachings of both Polya and Piaget to define a new concept of education for children using computers. (These concepts are the educational foundation for OLPC.) The thesis might be suitable for artificial intelligence, psychology, education, computer science or maybe even philosophy students.

Miami, FL

VCs Think of Themselves as Mentors

2009-11-12T00:21:00-05:00

It is well recognized by both academics and practitioners that there are three keys to early stage company success:

Pick the right market opportunity
Mentoring
Access to capital

Through a tweet today from @vcwatch I found a very interesting survey by Dow Jones Venture Source---A Study of Venture-backed Company Boards. The slides are here. The most interesting slides are 22-29, but if you are not familiar with venture capital read all the slides.

Based on the survey, venture capitalists see their value to their early stage companies (ranked by the percentage of respondents) as follows:

Network of contacts
Mentoring
Follow on financing
Exit strategy

Remember the VCs already confirmed the market opportunity (in their mind) when they made the initial investment.

Early stage entrepreneurs backed by VCs see the value of the VCs as follows:

Network of contacts
Follow on financing (tied with 1.)
Exit strategy
Mentoring

Maybe if the entrepreneurs saw more value in mentoring 7 out of 10 VC investments would not be a total write off. One could always argue if the VCs were better mentors, they would have fewer write offs. I am inclined to think that the entrepreneurs are typically at fault in the mentoring relationship given my 30+ years of dealing with entrepreneurs, my thousands of hours spent with entrepreneurship students and my clients over the last five years, but I could be wrong ;)

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Miami, FL

A Day of Remembrance

2009-11-11T07:58:00-05:00

Please take a moment today to remember all the U.S. veterans and to say a prayer for the U.S.

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Need Help with Book Title

2009-11-10T11:27:00-05:00

I got the idea from Twitter to consult my loyal readers for help with the title of a book I am writing. I have been working on the book for about a year and I think I am almost finished. Originally the book was going to be about lessons in entrepreneurship learned over my 30+ year career. Basically it was going to be alot of war stories to illustrate basic points about how to succeed in building a large company.

When that book was about half finished I changed the book to be a detailed discussion of my concept of a business model. This book follows the ideas that I develop in my workshops and my classes in entrepreneurship at FIU. It has many fewer war stories but it explainss my thinking on a business model to a level of detail that I have not shared before.

The book is intended to be read by aspiring entrepreneurs, but it may also serve as a textbook in a course on business model or entrepreneurship. If I focus on the popular press, I have realized that I need a catchy title. Therein lies the problem. My current proposed title is "A Business Model for Growth--a heuristic to build a company. Setting aside that nobody understands the word "heuristic", I think the title is a bit flat and will not encourage aspiring business people to read the book.

Many of you are long time readers of this blog and quite a few of you have attended my workshops. You understand how I think about business issues. Help me with title suggestions by leaving a comment or send me an email. Contacts with publishers would also be much appreciated. Thank you.

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Miami, FL

Webinar: How to Develop the Business Concept

2009-11-09T10:59:27-05:00

I will be doing a webinar through the Pino Entrepreneurship Center at FIU tomorrow, 10-NOV, at 11am. Details are here. The webinar covers my five step process to develop a business concept and focuses on understanding the customer need and building the business model. To get a feel for my approach, this post would be informative.

A Decline in the Quality of the Press

2009-11-07T17:55:23-05:00

Many people have noted the decline in the credibility and quality of the press, especially those of us who write on line. My last post on the subject is here.

Today I read a great post on the press problems on A Major's Perspective. The Major is active duty U.S. Army and soon to be re-deployed back to Afghanistan for his second or third or fourth tour. The Major writes frequently about old fashioned themes such as democracy and freedom, human decency and the U.S. military. The major personifies everything that is good about the U.S. and is a thoughtful, analytical writer.

Today the Major wrote about the recent shootings at Fort Hood. I quote his post in its entirety below.

"I am going to keep this entry short. I'm afraid that if I write for too long on this subject the professionalism that I strive to maintain here will dissolve.

Over the last 48 hours reporters, analysts, and op-ed columnists have been making comments that are absolutely shameful. When the very first news about Fort Hood was being broadcast, the first comment from a TV News Network I heard was, "this is probably some PTSD incident." No thought of terrorism, and no thought of criminal activity. The facts are showing that the shooter had NEVER been deployed to the middle east. Therefore could NOT have PTSD. He committed this atrocity because he did NOT want to do his job. He signed on the dotted line like every other soldier in this country and did so without a gun to his head. The reporter immediately wrote it off to, "some PTSD incident" without regard to the facts, and with no respect for our service members who actually have PTSD. I was shocked, but it has gotten so much worse.

Over the last 24 hours, every other story I see regarding the Fort Hood shootings has been that the poor shooter was misunderstood and harassed. In addition, the media would want you to believe that this is all the military's fault, since the shooter's cousin has claimed he was harassed.

I have never been more insulted. Never mind that he shot and killed 13 people in cold blood. Never mind the fact that he wounded another 30. Never mind that there is only one person's comment to justify this assertion. The media have latched on to this and are running with it.

It is disgraceful, shameful, and just plain wrong. Those in the media making this assertion have shown their true colors, and what you really think about the military. The military is not always perfect, but the effort to help Soldiers and their Families is a central priority for us all. You would rather side with a mass murderer who guns people down in cold blood, than the men and women who maintain your freedom of the press.

The only news network with analysts that have actively rebuked this shameful opinion is Fox News. I say opinion because that is all that they are at this time. Thank You Fox News for being truthful and doing the right thing.

Please keep our Soldiers and Army Families at Fort Hood in your thoughts and prayers.

God Bless America"

HBS: A New Model for Innovation

2009-11-03T10:43:11-05:00

Innovation is a subject that interests me, in part, because of its critical role in entrepreneurship. Christensen may have defined the economics of innovation, but the process of innovation continues to be a subject of much continuing research and study. Today's HBS First Look led me to an interesting article about the research of HBS faculty member Karim R. Lakhani. Lakhani's area of interest is the open-source software community, but this work has lead him into research on "models for innovation".

Lakhani draws two important conclusions about the process of innovation:

Introducing problems to those with expertise at the periphery of a problem produces the quickest and most effective solutions
"Innovations happen at the intersection of disciplines."

The lessons to be derived from this research include:

Experts, such as CEOs, do not necessarily produce innovative solutions
Diversity in the workforce probably encourages "expertise at the periphery"
To be an innovative thinker one must be multi-disciplined, studying and solving problems in unrelated fields, e.g. mathemeatics, music and education

A SF post from October 2007 about my friend Jeff Stamp made both of Lakhani's points. The credit probably goes to Jeff who also teaches and does research on innovation in entrepreneurship.

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The Discipline of Writing

2009-11-02T13:44:31-05:00

Will Price is a blogger who I like very much. In a post today he references a quote from William Faulkner, which is below.

"Faulker said, "I don't know what I think until I read what I said." That's not just a joke. You learn what you think by codifying your thinking in some way. Codifying one's thinking is an important step in inventing oneself. The most difficult way to do it is by thinking about thinking - it helps to speak or write your thoughts. Writing is the most profound way of codifying your thoughts, the best way of learning from yourself who you are and what you believe."

Will goes on to expand upon this quote in the context of blogging, but I think it also directly relates to my post The Discipline of Elegance and Simplicity.

Clear and measured writing requires a discipline to distill the complex into a more understandable form. In fact, I would go so far as to say that people who do not write well usually have not, in part, thought something through completely. If you are not using writing as a means to refine your thinking, you are missing out on a valuable tool.

To improve your writing (so you have fewer excuses not to use the technique), Elements of Style is a classic instructional text. It was written in 1918 and is still widely used in colleges and universities. It is only about 100 pages, so it is an easy read.

Social Media Strategy in 4 Words

2009-10-28T10:32:00-04:00

Listen. Learn. Communicate. Engage.

Yesterday's post discussed the power of simple and elegant communications to explain complex ideas. A reader sent me a description of corporate social media that brilliantly distilled the whole subject down to four words, as shown below:

"Listen. Learn. Communicate. Engage."

(The explanations that follow are mine.)

Listen A corporation must first listen to the social media stream, learn the differences between Twitter, FaceBook, LinkedIn, blogging, etc. in terms of participants and messages, follow the competition to see what they are doing in social media and what their message is, and determine whether your target customer is participating and where.

Learn Social media is in large part about learning (about a wide range of personal and professional subjects), which explains why it has greater credibility than traditional media. A company needs to understand how its subject matter is presented in social media, what the hot topics are and why, what are the most popular tags on Twitter and what search terms dominate a particular industry or segment.

Communicate Everybody will soon be using social media for business purposes. The key is in picking the proper channels to communicate to customers and prospects.

Engage Social media is about the two way exchange of information, in contrast with traditional media which is a one-way "push" model. One must expect feedback and dialogue and be prepared to constructively and honestly participate 24/7. Purely crass commercialism is insufficient and not in keeping with the real objectives of a firm. The company image will in large part be shaped by the quality and responsiveness of the exchange of information.

The four words--Listen. Learn. Communicate. Engage.--said it much more simply and elegantly than I did, but I did not want to one up Hemingway.

Note: The four words were derived from this post by Lee Odden.

The Discipline of Elegance and Simplicity

2009-10-28T10:15:00-04:00

I have a long held interest in both good design and mathematics. The common thread in both these subjects is that properly done, both achieve an elegance and simplicity in the expression of complex ideas and concepts. To achieve the necessary simplicity and elegance requires considerable discipline. In fact the discipline in some ways becomes the methodology to produce the end result. This type of discipline also applies to how you think about your business and communicate it to customers, prospects, employees and shareholders.

I try to avoid controversial issues in this blog, except for my occasional advice to President Obama on foreign affairs :) I am not violating my own policy, but a bumper sticker I saw yesterday illustrates the power of simplicity and elegance. The bumper sticker said:

"It's a child..not a choice"

I thought that this phrase was the best framing of the anti-abortion position that I have seen. Clear, simple, focused, but with the ability to generate an emotional reaction from the reader. In fairness to the pro-abortion side, perhaps this phrase is equally compelling:

"Do not legislate...in my body"

The point here is not about the abortion debate but to illustrate the power of distilling a complex issue down to its simplest concept. Simple elegance is very compelling. An example from the One Laptop Per Child project illustrates this point yet again. The one liner to explain the project is:

"Give a laptop. Change the world."

Equally strong might be the following:

"One child...One laptop"

Ernest Hemingway, the renown writer, was once challenged to write the shortest story possible. The result was a six word story, which Hemingway later went on to describe as the best story he ever wrote. The story in its entirety follows:

"For sale. Baby shoes. Never used."

Simplicity and elegance can initiate an emotional response that engages the reader/customer. If you can not distill your business concept down to a single elegant phrase, you probably do not sufficiently well understand the concept. The discipline to achieve a simple and elegant description will help you to really understand your business, greatly improve your message and probably help all the constituencies you need to communicate with to better understand the business concept.

Notes:(a) to encourage simplicity and elegance throughout your organization, stop telling people the length of the document you want. One of the best student papers I ever received answered three questions in only ten sentences about the complex book by Israel Kirzner-- Competition and Entrepreneurship. (b) the best book on simple and elegant PowerPoint design was written by Stephen Kosslyn, who has a new book coming out that I received from Oxford University Press as a pre-release draft. More on that later.

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Miami, FL

Open Forum Pulse--Twitter Really Goes Corporate

2009-10-27T19:07:58-04:00

About a year ago I wrote a story here and here about the future of Twitter as a large corporation method of communicating with customers and prospects. Today by email I received an invitation from American Express to join Open Forum Pulse. AMEX describes Open Forum Pulse as follows:

"Every day, more and more business owners are sharing their insights on Twitter. To help them find each other—and potential customers—we're introducing OPEN Forum PulseSM, a unique online experience that brings together the Twitter feeds of some of the most-followed business owners and industry leaders. We understand that connections can drive growth, even in this economy, so we've created Pulse as an innovative way to help you make those connections."

Basically AMEX is organizing tweets from small business owners into a branded forum. If you are interested in small business owner views on business and life, you no longer have to create a search on Seesmic or a group on TweetDeck to aggregate tweets. Just visit the link for Open Forum Pulse.

Not a bad implementation of social media by AMEX and it expands the reach of AMEX's Open Forum website. I wish they had created an RSS feed for Pulse because going to a website to get constantly updated information is a bit clunky in this day and age. (Email invitations are also kind of clunky.) I am sure they will change that when they read this post, which will be in a tweet about one minute after I post it.

Now if AMEX had just hired me a year ago as their social media advisor, they could have saved a year in implementing Twitter. I expect their call right after Microsoft and Google call for help with their strategies.

As an aside, I think there is a business opportunity to establish companies that provide "social media relations". Basically this would be a PR type firm that specializes in developing the daily social media content for larger corporations. I have yet to meet a PR firm that really understands social media or is set up to provide daily content on Twitter, FB, blogs, etc. There is a secret to how to make this business successful, but I am keeping that to myself. Client inquiries are welcome.

Miami, FL

Mac Tips

2009-10-23T10:35:00-04:00

I am a big advocate of keyboard commands rather than using a mouse or clicking on tabs. One of the all time most popular posts here was Excel Keyboard Shortcuts. I like keyboard commands because they are much faster than the alternatives. I am not a productivity maven, but keyboard shortcuts must improve ones productivity, if that is an issue you need to address.

Through @JanieC I founded a great Mac blog called Minimal MAC which lead to my discovery of LaunchBar. LaunchBar is so good that it challenges one to describe it and do it justice. Suffice it to say, it enables one to launch any file, program, web page, bookmark or application with keyboard shortcuts and I swear launch times are faster than native Mac. What makes all this possible is a search engine and file indexing system that puts Finder to shame. The program also makes the use of Spaces or icons in the Dock unnecessary because LaunchBar is a faster and easier way to find open apps or files. LB also is a terrific way to do command line prompts, which I will admit I was never able to find on my Mac before LaunchBar. LaunchBar costs about $48 but time savings will pay for it quickly.

To all my readers who are old hands at Mac and have already found LaunchBar, my apologies. While I thought my blogging would decrease this week while I was in Asia, I failed to take into account jet lag-- which provided additional periods for writing in lieu of sleeping.

not Miami, FL

New Blog Features

2009-10-21T10:41:00-04:00

Courtesy of the fine folks at TypePad, my blogging platform, I have added some new features to the blog. Given that they are not large widgets, I thought a heads up was in order.

As shown in the picture below, under my byline there are now two new buttons in addition to "Share This". "Tweet This" allows you to directly post to Twitter the title and http:// address of any post you like (or don't like) with comment. "Favorite" is admittedly self-explanatory but it gives me and anybody who has a TypePad profile additional information on the popularity of the post. (Share This is a also a great button because it allows readers to easily share posts on FaceBook, Stumbleupon, email and seven other services.)

One last site note, especially for my fellow bloggers. The "You Might Also Like this" section shows Sophisticated Finance posts related to the post being read. YMAL generates approximately 15 percent of my page views. It's been on the site for awhile, but I just wanted to recommend it to fellow bloggers.

Miami, FL

Best Posts--Management

2009-10-20T09:32:00-04:00

This week I am traveling in Asia for a client. Posts may not be as frequent as usual. What follows are the best posts in management.

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George Polya--Problem Solving and Heuristics

2009-10-19T10:17:00-04:00

I have been re-reading Seymour Papert's Mindstorms, perhaps the seminal work on the use of computers in children's education. Papert trained originally as a mathematician, which heavily influenced his thinking on the use of computers in education. Papert states in the book that much of his thinking was influenced by another famous mathematician, George Polya. Polya is famous for his thinking on problem solving and heuristics in mathematics. Naturally I had to start reading about Polya. Polya's writings helped me to resolve two questions about myself that have troubled me for over thirty years:

Why is it that I can listen to a company problem and come up with an excellent new strategy in 5-10 minutes; I see my ability to develop strategies as somewhat akin to the way some people can do bar tricks.
Why is it that I can solve certain kinds of problems but I can not solve large, complex conceptual problems; I appear to specialize in solving concrete problems that are suitable for a zen like approach--focused and simple.

The answer to the first question comes from a quote from George Polya:

"In order to solve this differential equation you look at it till a solution occurs to you."

If Polya can just look at a math problem and solve it, why can I not just look at a business problem and develop a new strategy. While solving differential equations may be a different kind of problem from developing a business strategy, I think both Polya and I have developed heuristics. In the case at least of Polya, the heuristics are quite profound in their own right. This recognition of the role of heuristics gives me additional motivation to clarify my thinking on my formal concept of business model, which is clearly an heuristic. (My original thinking on business model is here.)

The second question was answered by a description of Polya in The Random Walks of George Polya by Gerald L. Alexanderson:

"It was not given to him to solve very difficult problems or to build vast conceptual structures. Yet he could perceive the significance, the beauty, and the promise of a rather concrete, not too large problem, forsee the possibility of a solution, and work at it with intensity. And, when he had found the solution, he kept on working at it with loving care, till each detail became fully intuitive and the connection of the details in a well-ordered whole fully transparent."

If a thinker as profound as Polya can have limitations in problem solving, so can I. Somebody else can solve the difficult conceptual problems.

If you are interested in problem solving, education or artificial intelligence, you should read both Papert and Polya. The applications to artificial intelligence will become apparent after you read the books. Papert also discusses epistemology in the context of learning, but Polya dismisses philosophy in this famous quote:

"I am too good for philosophy and not good enough for physics. Mathematics is in between."

Now I am off to see if Polya ever wrote about Bertrand Russell or whether Godel's Proof, developed in thirty minutes (obviously using a heuristic) was sufficiently elegant to settle the matter. Godel, arguably the greatest mathematician of the 20th century, mathematically proved that the basic principle in Russel's Principia Mathematica--mathematics was grounded in logic --(therein lies the link to philosophy) was incorrect. (The other candidate for the greatest mathematician of the 20th century was John von Neumann, a student of Polya.)

If I had studied math with a teacher trained by Papert, maybe I would have pursued math instead of philosophy in college. One interesting thing is how Papert and Polya show that epistemology is perhaps the link between mathematics and philosophy :)

If you are wondering how any of this relates to management or finance, learn about heuristics for problem solving.

Image credit George Polya

Miami, FL