SOPHISTICATED FINANCE

CEO Needs to Consider More than Profit

2009-12-03T10:33:00-05:00

A new study published by a group of academics in Arizona shows that employees are more highly motivated when the CEO focuses on more than company profitability. A survey of 520 companies shows that employees place a high value on relations with customers, their own welfare, the community and environmental issues. CEOs that ignore these concerns lose respect from employees and demotivate them. Additional detail is available in HBR December 2009.

Not a surprising set of findings but perhaps the survey results will make this type of thinking more mainstream. For those of you who do not think you can afford concerns such as the environment or the community, consider what the cost is of demotivated employees.

SFL-Social Media Calendar

2009-12-03T08:18:24-05:00

Courtesy of Refresh Miami, the upcoming events in South Florida for social media are shown below.

Refresh Lauderdale - Intro to Web Typography - December 3 @ 7:30PM
Come join us as our second Refresh in Broward county kicks off the month. Dan Rubin and Michael Montgomery will be speaking about web typography.

Pizza and sodas will be provided, and we’ll all go grab a beer/wine/drink after at Lolas.

200 East Las Olas Boulevard, Suite 120, Fort Lauderdale, FL 33301
You can RSVP on facebook here:

Refresh Miami December 16.
We'll most likely be having a holiday party, get together on the 16th. If you’d like to present, please let me know. RSVP

Upcoming South Florida Events

December 3
SFTA Holiday Networking Party 5:30PM - 8:30PM

December 4
Conversational Marketing Workshop at FIU

December 5
iPhone Developer Meetup "Hands on code to learn push notification with Appush"

December 7
Web Monday West Palm Beach December Meetup

December 8
Social Media Club South Florida - 7PM @ Transit Lounge (729 SW 1st Ave Miami, FL 33130)

December 9
Wordpress Meetup: Hack proof your WP site. Security tips.

Wine Tweetup at Jade Kitchen WPB

December 10

Terremark: CLOUD COMPUTING: IT Strategies to Rebound from Recession with Confidence

SFIMA - Holiday Wine Party : Support of US Marine Corps Toys for Tots

December 11

TechAmerica Abacus Awards

December 16
RefreshMiami Holiday Party
http://refreshmiami.org

December 21
Miami Ruby Brigade December Meetup

Overcoming Startup Fear?

2009-12-02T10:15:00-05:00

Social media tends to follow themes. I think it has something to do with the phases of the moon, but I am still researching. Recently I saw two good posts on overcoming the fear of doing a startup (here and here). Both writers basically talk about the fear that almost everybody has of a startup and illustrate their success in overcoming the fear.

Most people are afraid of failing. As you get older you realize that failing is part of life and you just need to start over. The more logical fear is the fear of losing the money invested in the project. Again, life shows that money can be replaced. The other common fear is related to what your peers or friends will think of you if you fail. Most good friends will admire your courage to strike out on your own. So go for it!...but first read every post on SF about knowing the customer need and determining the size of the market opportunity.

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Another Benefit of Twitter

2009-12-01T10:11:00-05:00

Last week I put up a silly weather tweet.

"Need wood workers to build ark in Miami. Torrential rains but low winds."

My fiend @Neilkod responded as follows.

@rhhfla no kidding. My 5:30 AM bike ride was rained out. didn't see that coming. how about an iphone app that cancels the alarm if raining?

With the current state of location-based services (LBS), the iPhone technology and NOAA weather feeds, the idea of managing alarms based on weather conditions is not far fetched. In fact the whole idea of managing alarms based on a variety of external data sources is quite intriguing. Maybe a conference call alarm could be triggered only when the host is on line or the buy dinner alarm would only trigger when the spouse leaves the office.

I think the informality of Twitter spawns creativity.

Management Insights from the Israeli Army

2009-11-30T13:43:55-05:00

I have written about the military 11 times on this blog, with these two posts the most popular (here and here). I find the military to be an excellent source of management techniques and lessons. Today I read a terrific post (terrific being my highest level of praise) from the Israeli Consulate in Los Angeles. The post is titled "Soldiers of Fortune-How the Israeli Army became the most prolific innovation engine on earth". Setting aside the hype, this article is worth about three blog posts. You definitely need to read the full article if you have even a passing interest in management. Very valuable also if you are in a resource constrained environment.

The management lessons to be learned from the Israeli Army are:

Flat organizations work best when you are resourced constrained
Put the most talented person in charge of a mission, not the most senior person
Foster open communications that ignore organizational rank

The economic development lessons to be learned are:

Universal military conscription fosters a country-wide set of values
Everyone serving in the military creates more cohesiveness because people are exposed to all social classes and are forced to work together
Mandatory military service creates more mature, experienced and serious students when they later enter university

The human resource lesson to be learned is that participation in elite units, such as military intelligence, is a very good indicator of future performance. Elite organizations, whether it be MIT, the Seals or JP Morgan, all screen for certain qualities that will also benefit your organization. Pick people from elite organizations.

Another interesting thing about the article is we could have changed Israel for Singapore and the story would have been identical. The only difference is that in Singapore they encourage the most talented people to stay in the military for 20 years and then to retire into senior positions in the leading quasi-government companies. Singapore is also more hierarchical. Nearly the same model for another successful small country.

So if you are running something small with limited resources--such as a startup--there are many good ideas here from the Israeli Army. Next post we will talk about innovation and the Israeli Army.

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Mercosur Trip

2009-11-27T10:33:00-05:00

Next weekend (December 5) I will be leaving for a trip to Monteveideo, Uruguay and Buenos Aires, Argentina. I will be attending a conference in Uruguay and then visiting client prospects in BA.

I am especially looking forward to my first trip to BA. BA is one of about seven cities that I have left on my list of places to see. The others are Istanbul, Athens, Rio, Johannesburg, Moscow and Cairo. Most of the rest of the world's great cities I have visited.

Would appreciate reader thoughts on places to visit in BA and especially restaurants to eat at. Please leave your ideas in the comments.

Would be happy to meet with SF readers in Paraguay and Argentina. Send me a tweet (@rhhfla) or email me.

Blogging should continue uninterrupted that week, but post topics could be even more eclectic than usual. Will try to restrain myself and avoid five posts on economic development :)

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Thanksgiving

2009-11-25T10:50:00-05:00

Ralph Waldo Emerson said:

For each new morning with its light
For rest and shelter of the night
For health and food, for love and friends
For everything Thy goodness sends.

For more quotations on graditude, try Quote Garden

To everybody in harms way, be safe this Thanksgiving.

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Miami: New Incubator

2009-11-24T16:19:39-05:00

Courtesy of a tweet from @bobwhite7, I am pleased to announce that Miami has a public incubator run by EDC, a non-profit development organization focused on South Florida. EDC also runs an incubator north of Miami at an "unnamed" state university with whom I am not affiliated ;)

More information on the new incubator is here. Appears challenging to find a phone number or email for EDC but maybe someone can provide that info in the comments.

UPDATE: Complete contact info for EDC is now in the comments

Chrome OS--Matching the Customer Need

2009-11-24T10:41:00-05:00

Some experts argue that you develop the product and then match it to the customer need. I strongly believe that you first identify the customer need(s) and then design the product around those needs. As the video below demonstrates, Google developed Chrome OS based on a profound understanding of users. This new OS boots fast, has a simple intuitive user interface based on the web browser and an open app framework which allows it to open any application that has a web/browser version. In summary, Chrome OS has speed, simplicity and security--a nice summary of most people's needs for a computer.

Talent Rarely Matches Ambition

2009-11-23T10:22:00-05:00

The ambition and passion of young entrepreneurs is rarely matched by their talent and experience. The Netsetter has a good post entitled "Replace Yourself--A Guide to Delegating Your Workload" which encourages founders to trust employees and delegate. This may speak to the point about supplementing talent but it is a less effective solution in filling in for the missing experience.

Venture Hype has a new post that shows that the average high tech founder launched their business at 40. VH stated the following advantages for the older founder:

They offer a lot of experience

They are more cautious

They are likely to have their own funding

They have nothing better to do

They have credibility with bankers and customers

Bottom line, experience comes with time, which young entrepreneurs can rarely make up. The good news is that many of you will live to be 100. Maybe taking ten years off to work for a really good company before you start your business is not such a bad idea. As St. Augustine said:"Patience is the companion of wisdom".

Social Media Affects Information Presentation

2009-11-20T08:27:48-05:00

Yesterday I met with a lady who is the director of marketing for a bank. She was interested in my views on how to use social media to get the bank's message out to clients and prospects. One can not live on finance alone :)

I basically made the following argument.

The world has created more information in the last 10 years than in the entire history before that time
Consequently people are challenged to aggregate and filter this huge flow of information to be useful
Therefore, customers will participate in only a limited number of information sources and the challenge for marketers is to identify the flows used by prospects and customers
Younger prospects are probably using different information sources from older customers (e,g,Twitter vs blogs) so marketing probably has to use multiple channels in social media simultaneously

Nothing too earth shattering so far.

Then I said that because we are all becoming information managers, customers will come to expect the ability to manipulate the information received in the format most useful to them. In other words, no longer will customers be satisfied with a single format, static presentation of information such as a monthly credit card statement. Customers will want the ability to sort and re-format the information in the way most useful to them. The companies that are first to provide this flexibility may gain a temporary competitive advantage.

Perhaps the more important point is that habits and behaviors related to real time, multi-channel social media will have an affect on how we want to deal with traditional information (such as monthly credit card statements).

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The Role of Principles in Management

2009-11-19T09:06:00-05:00

A Major's Perspective is one of my favorite blogs. I particularly enjoy the quote of the day because he frequently references people that I have not studied in depth. The quotes are particularly poignant when you realize that the Major wrote them from an outpost in Afghanistan or is just back from such places.

Today's quote was from Winston Churchill.

"In critical and baffling situations it is always best to return first to principle, and simple action"

Management also faces critical and baffling situations, rarely as dire as warfare but never the less serious. The question becomes what principles should management return to. What I have found over the years is that the principles that get you through tough business situations such as a government overthrow, a financial crisis or a natural disaster are:

A respect for human life and the treatment of all people as equals (as taken from the Bible, the Koran, the Talmud and the teachings of Buddha). Price gauging, massive layoffs, store closings, etc. are usually not in the company's best interest. Staff and customers remember your bad behavior and expect it to be repeated even if things return to normal.
Micro-economics, the class everybody sleeps through, provides the best set of basic decision making principles. Concepts such as marginal cost and opportunity cost almost always lead to the correct decision, provided you follow #1.
Risk-reward trade off, the most fundamental concept in finance, is a necessity in good decision making. While most people focus on the reward side, the energy and intellect should be focused on thoroughly understanding the risk, especially in times of crisis. Remember the biggest risk is almost always on the liability side of the balance sheet.

Sir Winston's last point--simple action--applies all the time and not just during a crisis. As I have said here before (post), you do not understand something until you can explain it simply. From simple explanation usually comes a simple action plan--particularly important in times of crisis when stress levels soar. And always remember, if life is not at risk, its not really stressful.

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International Finance Lecture

2009-11-18T10:34:00-05:00

Last night I lectured to a class at the MIT Sloan School on topics in international finance. Giving the lecture I realized that my entire career has involved international finance--project finance, Eurodollar loans, currency swaps, IPOs and risk management. I covered four themes.

In emerging markets one should always eliminate risks. There are so many economic and political risks (not to mention the occasional war) that if there is a vehicle to eliminate a risk, pay the price and reduce or eliminate the risk. For example, I always swap floating rate interest risk for fixed rate because I have seen interest rates increase 10 percent in a single day. Likewise I always try to borrow through term loans to reduce the refinancing risks. Twice I have had banks cancel all short term loan facilities in a country. Obviously I am speaking here about risks related to liabilities on the balance sheet.
On the asset side of the balance sheet, never chase extraordinary returns in asset investments. Most companies should park operating and excess cash in the safest investment with the lowest counter party risk they can find. Investing in exotic derivatives such as mortgage-backed securities to get additional return usually adds risk to the business, which is already risky enough in an emerging market. Related theme: do not invest in derivatives you do not understand.
In emerging markets raise cash well in advance of the need for it. I recommended 1-3 years in advance. The carrying cost of the surplus cash is far outweighed by the benefits of knowing that you can continue to execute the business plan despite riots, government overthrows, devaluations, etc.
All finance is now derivatives or synthetic instruments. The best way now to finance a business is to explain to the banker the objectives of the financing and the risks that you want to mitigate. Let the banker craft the financing instrument using derivatives rather than telling the banker what you want.

In the spring I am invited back to Sloan to give a lecture on the Asian Financial Crisis (1997). May be the most memorable lecture I will ever give. Can't decide whether to start with the story of my being shot at, the overthrow of the Indonesian dictator or how to lose $1 billion trading the Rupiah-Dollar. (The $1 billion loss was incurred by a prominent hedge fund.)

Scientific Thinking as a Management Method

2009-11-17T06:48:42-05:00

Yesterday I spent the day with one of the most well known academics in the U.S. This man has spent a good portion of his life successfully working with real student geniuses to develop break through technologies. Our day was devoted to working through some complex business issues. What was interesting to observe was how the world renown thinker participated in the discussions. His style is summarized below.

He rarely spoke more than a sentence or two at one time
He questioned people's logic and not their conclusions
He was not afraid to be thinking about the issues and his own positions evolved during the meeting
He let people go off on tangents to see if anything meaningful would be discovered
He frequently let people discover the conclusions rather than giving his position

This man's style was so in contrast with most CEOs I have seen that it was noteworthy. Perhaps a lifetime devoted to science and research shaped this approach. Two lessons to be noted.

If as the leader you begin by stating your position, there is little chance to develop a better solution
Letting people discover conclusions gives them a more profound understanding of the material

Jean Piaget said "scientific knowledge is in perpetual evolution; it finds itself changed from one day to the next." Perhaps the other lesson to be learned is that we should be slow to reach conclusions. We can act on the conclusions developed to date but we should constantly be refining them.

How to Make VC Mentoring Work

2009-11-16T10:12:00-05:00

@philmur posted a good question in response to yesterday's post on VC mentoring. He asked:

"How specifically would you recommend entrepreneurs better experience the mentoring potential of their VC's?"

Most entrepreneurs are usually good at some of the following:

product development/tech
selling
story telling

Most entrepreneurs have little experience in:

starting a new business
business strategy
managing an organization
raising capital
cash flow management

Most VCs are good at:

evaluating business strategies
forecasting operating performance
forecasting cash flow requirements
raising follow on capital
managing an exit

The key to develop the maximum benefit from VC mentoring is to recognize where the VCs have vastly superior knowledge and show respect for that expertise. The ill will that undermines the mentoring relationship usually develops in either the area of business strategy or capital raising. If the VC disagrees with the proposed strategy, they rarely will tell you that you are wrong. However to barge ahead with your plan and not take the time to reach an agreement with the VC is almost always a mistake and can lead eventually to management changes. The same is true with capital raising. If you and the VC disagree it means that you have not convinced the VC and you need to continue the dialog. If after 2-3 board meetings you have not convinced the VC, you are probably wrong!

Like with good marriages, keep talking until you reach an agreement.

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Miami, FL