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GE’s flow of financial information has become fantastically muddled - Too little information
Jan 27th 2018

Jan 27th 2018

The curse of rotten information can strike companies, too. That seems to be the case with General Electric (GE), which has had a vertiginous fall. Its shares, cashflow and forecast profits have dropped by about 50% since 2015. .....GE’s boss, John Flannery, an insider who took office in August, must clear up the mess made by his predecessor, Jeff Immelt.....Is the conglomerate formerly known as the world’s best-run firm a victim of weak demand for gas turbines, a low oil price, lavish digital initiatives, timing lags in client payments, morbidity rates, bad deals, cost overruns or a 20-year squeeze in industrial-equipment margins because of Chinese competition? You can imagine GE’s 12-man board blinking at this list, like Pentagon generals huddled around maps of the Gulf of Tonkin which they are too embarrassed to admit they do not understand......Schumpeter’s theory is that GE’s flow of financial information has become fantastically muddled. There is lots of it about.....[does great granularity necessarily lead to greater insight].... it offers volume and ambiguity instead of brevity and clarity. It is impossible—certainly for outsiders, probably for the board, and possibly for Mr Flannery—to answer central questions. How much cashflow does GE sustainably make and where? How much capital does it employ and where? What liabilities must be serviced before shareholders get their profits?....GE's public accounting system reveals eight problems.
(1) No consistent measure of performance.....18 definitions of group profits and cashflow....there is a large gap between most measures of profits and free cashflow.
(2) GE’s seven operating divisions (power, for example, or aviation) are allowed to use a flattering definition of profit that excludes billions of dollars of supposedly one-off costs. Their total profits are almost twice as big as the firm’s.
(3) GE does not assess itself on a geographical basis. Does China yield solid returns on capital? Has Saudi Arabia been a good bet? No one seems to know.
(4) GE pays little attention to the total capital it employs, which has ballooned by about 50% over the past decade (excluding its financial arm). Its managers rarely talk about it and have set no targets. It is unclear which parts of the firm soak up disproportionate resources relative to profits, diluting returns.
(5), it is hard to know if GE’s leverage is sustainable. Its net debts are 2.6 times its gross operating profits, again excluding its financial arm. That is high relative to its peers—for Siemens and Honeywell the ratio is about one.
(6) the strength of GE’s financial arm is unclear. The new insurance loss will lower its tangible equity to 8% of assets. This is well below the comfort level.
(7) it is hard to calibrate the risk this poses to GE shareholders. GE likes to hint that its industrial and financial arms are run separately. But they are umbilically connected by a mesh of cross-guarantees, factoring arrangements and other transactions.
(8) is GE sure that its industrial balance-sheet accurately measures its capital employed and its liabilities? Some 46% of assets are intangible, which are hard to pin down financially: for example, goodwill and “contract” assets where GE has booked profits but not been paid yet.

Time for some command and control

GE’s situation is like that of the global bank conglomerates post-financial crisis. Citigroup, JPMorgan Chase and HSBC did not entirely trust their own numbers and lacked a framework for assessing which bits of their sprawl created value for shareholders. Today, after much toil, the people running these firms know whether, say, loans in California or trading in India make sense.

This does not happen naturally. If neglected, financial reporting becomes a hostage to internal politics, with different constituencies claiming they bring in sales, while arguing that costs and capital are someone else’s problem. Flannery is a numbers guy who seeks to slim GE to its profitable essence. But he is trapped in a financial construct that makes it hard to pursue that mission intelligently. Until he re-engineers how GE measures itself, he will be stumbling about in the murk.
measurements  metrics  GE  financial_metrics  financial_performance  level_of_comfort  John_Flannery  Jeffrey_Immelt  cash_flows  ROCE  information_overload  financial_reporting  calibration 
february 2018 by jerryking
Digital endurance runner picks up pace with Penguin deal
July 15/16, 2017 | Financial Times | Guy Chazan

Bertelsmann's latest big investment, in Penguin Randon House (PRH), a traditional ink-on-paper publisher. .The German group, which already owns 53% of PRH, will pay $780m to buy an additional 22% from its partner, Pearson......The deal seems at odds with Bertelsmann's digital-first strategy. Rabe sees no contradiction....Bertelsmann must maintain a balance between high-growth investments and stable, cash-generative businesses like PRH....It margins are high,[and it] contributes to the cash flows Bertelsmann needs to invest in new businesses with higher growth potential than book publishing.....Mr. Rabe has responded by diversifying Bertelsmann out of Europe, investing in digital start-ups in China, India and Brazil and branching into online education in the US. The bright digital-first future is still far off. But Rabe , an endurance runner, relishes a long and winding road.
CEOs  digital_media  Bertelsmann  online_education  high-growth  Pearson  publishing  digital_first  cash-generative  cash_flows  privately_held_companies  Germany  German  cash_cows 
july 2017 by jerryking
The Economy Needs Amazons, but It Mostly Has GEs
the country as a whole badly needs some rules-defying risk-taking. For business, that means a bit more Amazon in the boardroom and a bit less GE....The purchase of Whole Foods by Amazon introduced a level of volatility and turmoil (at least singularly to the retail sector) which had been absent from the market for a long time....The rest of the market remained placid. And months of historically low volatility has begun to look like dangerous complacency....... another, potentially more troubling explanation: stagnation. Muted markets may be an inevitable product of steady, sluggish growth, low and predictable interest rates, declining business startups and failures, and decreased competition. In other words, the problem is, there aren’t enough Amazons disrupting the stock market and the economy.....Jeffrey Bezos founded Amazon in 1994, he has prioritized expansion and innovation ahead of profit. In its early years, free cash flow—cash from operations minus CAPEX—hovered around zero. Mr. Bezos approaches new products like a VC. Many will flop (like the Fire smartphone), but some will be home runs (e.g. AWS). Amazon launched Prime, which offers free delivery in exchange for an annual fee, in 2005. John Blackledge, notes Amazon has repeatedly innovated in ways that make Prime even more valuable to subscribers.......Amazon is now profitable, yet cash retention remains secondary to building great products and delighting and retaining customers.

....If Amazon is one extreme in how companies invest, General ElectricCo. is the other. It has long been fastidious about capital and cash deployment......CEO Jack Welch perfected this approach in the 1990s.. it continued under Jeffrey Immelt. Last week, Mr. Immelt said he would retire, after 16 years struggling to restore growth. In part, that reflected how financial engineering had inflated profits under Mr. Welch. Yet Mr. Immelt ’s investment decisions too often chased the conventional wisdom on Wall Street and in Washington. ...........growth is hard for any company that dominates its markets as much as GE does. GE’s size also attracts debilitating political scrutiny. ....In response to new regulations and pressure from Wall Street, Mr. Immelt largely dismantled the business...........Investors still want GE to return cash to shareholders, and it has obliged,.....while good for shareholders in the short run, this is no recipe for growth in the long run. GE’s cash flow is shrinking despite the company’s focus on preserving it, while Amazon’s is growing despite that company’s readiness to spend it.......North American boardrooms desparately needs some rules-defying risk-taking. For business, that means a bit more Amazon in the boardroom and a bit less GE

[ See John Authers article which references Vix]

The "Minsky Moment" occurs when investors realize that they have paid far too much for the credits that have bought, no buyers can be found, and the system collapses. Aka Wile E. Coyote running-off-a-cliff....The greatest dangers to us are not from things we perceive to be high-risk, because we generally treat them carefully. Trouble arises from that which we perceive to be low-risk.
digital_economy  Amazon  GE  Amazon_Prime  risk-taking  volatility  Greg_Ip  stagnation  cash_flows  long-term  growth  start_ups  complacency  instability  conventional_wisdom  Jeffrey_Immelt  Jack_Welch  conglomerates  delighting_customers  capital_allocation  Jeff_Bezos  financial_engineering  rule_breaking 
june 2017 by jerryking
The humbling of Valeant’s Michael Pearson - The Globe and Mail
TIM KILADZE
The humbling of Valeant’s Michael Pearson
SUBSCRIBERS ONLY
The Globe and Mail
Published Tuesday, Mar. 22, 2016

What we’re left with: A “Canadian” company we should happily disown, and critical reminders that certain business rules should never be broken. Chief among them: Debt is never a problem until, suddenly, it is; markets will love you until, suddenly, they don’t; and the roll-up game, driven by endless acquisitions, is nearly impossible to sustain.....By slashing R&D spending costs, Mr. Pearson freed up cash flow to buy more companies – whose R&D departments were then gutted to repeat the same trick. To juice earnings, he acquired Ottawa-based Biovail in 2010, which came with a Barbados-based subsidiary. Valeant started ushering U.S. profits to offshore tax domiciles – marking the first-ever pharmaceutical tax inversion and sending its corporate tax rate to the mid-single digits.

To fuel acquisitions, Mr. Pearson borrowed tens of billions of $ of incredibly cheap debt. By mid-2015, Valeant had $31-billion (U.S.) in debt and paid over $1-billion a year in interest.

There were warning signs these bold acts would backfire. Last March, Warren Buffett’s inner circle started to inflict damage. At an investor meeting, Charlie Munger, one of the value investor’s best friends, said he was “holding his nose” by looking at Valeant, adding that the company “wasn’t moral.”

That cautionary message did little to deter two of Valeant’s top investors: the Sequoia Fund – which has ties to Mr. Buffett – and Bill Ackman’s Pershing Square Capital Management. Whatever criticisms were hurled at the drug maker, they stood by it, repeatedly stressing that they believed in Mr. Pearson. Their faith in him seemed nearly biblical. And because they showed resolve, hedge funds kept piling in – momentum investing at its very worst. By the end of June, nearly 100 of them had stakes in the drug maker........One of the best lessons from the global financial crisis was that everything became correlated when the U.S. housing market crashed. The same is true for Valeant. Investigations into its pricing policy made investors worry about revenue; worries about the income statement morphed into fears about balance-sheet debt; leverage woes prevented Valeant from borrowing more to fund future acquisitions.

The cynicism turned investors’ momentum strategy on its head.
Valeant  Bay_Street  CEOs  pharmaceutical_industry  Charlie_Munger  Warren_Buffett  M&A  boards_&_directors_&_governance  correlations  hedge_funds  Pershing_Square  William_Ackman  debt  R&D  cash_flows  roll_ups 
march 2016 by jerryking
Hunting the gazelle
DECEMBER 7, 2007 | The Globe and Mail | by SEAN WISE.

If one is attempting to build relationships with fast growing companies, how does one decide which ones (of the thousands of small companies starting out) will become big companies - big enough to justify the cost of investing in them now?.......in an effort to ensure a shared nomenclature, here's a communal taxonomy to help classify the various types of ventures encountered.

• Mice are small companies that are likely to stay small. Think "Bob's Pizza"- they can serve a great slice of 'za but it is unlikely they will double in size annually.

• Elephants are large companies whose growth is constant, but at a low level. Think Royal Bank. Its revenues grow annually, but it is so large that the growth is negligible over the short term, yet noticeable over the long term. Unfortunately, these companies have a high client acquisition cost.

• Dogs are medium to large companies that are experiencing low or negative growth. Think "AOL". A great company, but its revenue is shrinking. In the venture capital business, I often refer to these companies as kennel capital, i.e., companies that should be put to sleep.

• Gazelles are young companies that are experiencing extreme, massive growth. For those that pitch them early, the CAC is low and carries with it a high return on investment. Think "Facebook".

From a cash flow perspective, all four business animals start at similar points, however, they diverge rather quickly. The green Mouse stays fairly consistent, growing and shrinking its cash flow over time - possibly as a result of seasonal conditions. Never is it losing money, but it's never really hitting it big, either. The yellow Elephant starts in the best cash flow position and grows consistently at a relatively reasonable CAGR (Compounded Annual Growth Rate - a common business term used to represent the annualized growth of the business). Backing an elephant is never a bad idea, it is in fact, the safest bet (no one ever got fired from trying to land an Elephant). Unfortunately, Elephants are hunted by all, and this in turn, drives up the customer acquisition cost (CAC).......The Gazelles are where it's at from a business development (aka hunting) perspective. Gazelles tend to have the highest CAGR. They're also non-bureaucratic, and are flat in their organizational chart, which contributes to shorter sales cycles and lower CAC.

How to pick a Gazelle?
(1) Focus on those in industries with CAGR > 25%. If an industry is growing annually by 25% or more, then even those companies who finish second or third in their niche will do well. After all, a rising tide floats all boats.

(2) Look for Scalability. If a company can scale, it means they can produce their products for ever-increasing margins (i.e., the 1000th widget costs less to make than the 10th).

(3) Focus on Sustainable Competitive Advantage. If the company you are reviewing lacks any sort of proprietary intellectual property (i.e., patents), or has no barrier to entry, how will they stop others from flooding the market and eating their lunch? Gazelles continue to grow faster than their competitors by being able to differentiate their offerings to their clients.

(4) Look for the 10x rule. Being a little better, a little faster; or a little cheaper isn't enough to turn a startup into a Gazelle. For that to happen, a company has to offer a solution that is 10x faster, 10x better, 10x more secure, 10x cheaper, etc. To sustain double digit growth over the long term, and/or to obtain dominant market position, you will need a 10x solution, a solution that is exponentially better.

The Bottom Line

Whether you are a startup, an angel investor looking to back the best startups, or a service provider looking to serve either, you need to be able to spot high growth companies earlier than others. You need to be able to separate the wheat from the chaff - the potential world leaders from those that will become kennel capital.

If you are looking to find the next Google, Facebook, or Workbrain, you need to strap on your pith helmet and start tracking the Gazelles. Doing so will most likely ensure the greatest returns on your efforts,
10x  barriers_to_entry  business_development  CAGR  cash_flows  competitive_advantage  culling  customer_acquisition  gazelles  high-growth  howto  return_on_effort  scaling  small_business  start_ups  taxonomy 
february 2015 by jerryking
The Fallacy of ‘Disruptive Innovation’ - The Experts - WSJ
Nov 6, 2014 | WSJ | by Karl Ulrich,vice dean of innovation and CIBC professor of entrepreneurship and e-commerce at the University of Pennsylvania’s Wharton School.

Disrupt is perhaps the most misused term in entrepreneurship.

Successful new companies can indeed disrupt an industry. Amazon disrupted book retailing. Its ascent caused the failure of the incumbent Borders.

Two conditions are required for disruption.

First, a substantial fraction of the market must prefer the product or service of the new company.

Second, the incumbents must be unable to respond and replicate. When those conditions are met, a new entrant can gain sufficient market share that existing firms fade into irrelevance.

But disruption is rare, and it’s not required for entrepreneurial success....listen to the elevator pitch of essentially any startup in a business plan competition and the template is mind-numbingly standard: [ new company ] will disrupt the [ established industry ] by [ new company technology or business model ].

Yet, most of them will not.

If they are successful, they will find an underserved market segment, deliver a great product, garner some share, and achieve positive cash flow.

That’s a great outcome that will result in the creation of value. It is not disruption.
disruption  innovation  start_ups  Amazon  cash_flows  underserved  booksellers  incumbents  fallacies_follies 
november 2014 by jerryking
Africa calling
March 10, 2013 | FT.com | By William Wallis.

African entrepreneurs pre-empted this interest. One of the first deals that Mr Karim pulled off, acquiring the west African franchise for Costain, a UK construction group, speaks volumes about the changing times. Like other European contractors, the company was facing intense competition from Chinese rivals. When Mr Karim placed his offer, Costain was also wrestling with increasingly stringent western transparency regulations, a predatory governing elite and threats from insurgents and kidnappers in the oil-producing Niger delta.

After buying the company’s assets, Mr Karim replaced costly expatriate managers and freed up colonial-era villas in Ikoyi – the perks of expatriate office – which he rented out. In a flash he had cash flow to refloat the business and leverage other ambitions. These have seen him launch a power generating company and in November acquire an oilfield – a totem for any successful Nigerian businessman – in a joint venture with UK wildcat explorer Heritage, from another European company under pressure to adapt: Royal Dutch Shell, the oil major.
Africa  entrepreneur  China  Wal-Mart  L’Oréal  P&G  Nigeria  Nigerians  cash_flows  Royal_Dutch_Shell 
march 2013 by jerryking
Taking Risk To the Marketplace
March 6, 2000 | Fortune Magazine | By Thomas A. Stewart.

* "You should always value the ability to move and change, because that creates options, and options are valuable,"
* Traditional risk management, with its emphasis on real property and financial events, isn't enough for knowledge companies, whose big risks are intellectual assets, such as brand equity, human capital, innovation, and their network of relationships.
* you have to know what's at risk-- which isn't always easy for intangible assets.
* Each intangible asset has a different risk profile.
*Thinking like a portfolio manager works for risk management as well as for strategy, says Bruce Pasternak, head of the strategic leadership practice at Booz Allen & Hamilton. In either case, adaptability is a cardinal virtue; the top goal is organizational flexibility. All-or-nothing bets like insurance have limited use in protecting cash flows from intangibles because their value is so uncertain, says Anjana Bhattacharee, director of Aporia, a British startup developing tools to manage those risks. Hedging also has problems. Says Bjarni Armannsson, head of the Icelandic Investment Bank in Reykjavik: "It's difficult to find a counterparty for intellectual risks." To hedge against falling gas prices, Enron can sell the risk to someone who fears rising prices, like a utility, but how do you hedge against a loss of expertise or brand equity

* Markets are full of risk, but it turns out that they're a lot safer than rigid structures. Intellectual assets and operations obey no one's command and are subject to discontinuous--i.e., quantum--change. There are four ways to respond to risk: Avoid it, reduce it, transfer it, or accept it. The one thing you can't do, if it's intellectual risk, is tie it up and subdue it.
Thomas_Stewart  risks  risk-management  organizational_flexibility  adaptability  binary_decisionmaking  intellectual_risks  human_capital  insurance  intellectual_assets  brand_equity  intangibles  networks  interconnections  discontinuities  expertise  portfolios  options  portfolio_management  cash_flows  generating_strategic_options  optionality  brittle  antifragility  step_change  counterparties  network_risk 
december 2012 by jerryking
Introducing Creating Value - NYTimes.com
September 13, 2012, 7:00 am3 Comments
Introducing Creating Value
By JOSH PATRICK

Most owners know more about running their businesses than anyone else in the organization. When it comes time to sell or transfer the business, prospective buyers aren’t interested in the skills of the buyer; they’re interested in cash flow. Buyers want to see regular growth and profit margins and a business that has systems that work without the owner.

I’ve been trying to understand how businesses build value for more than 35 years. One of the things I’ve learned – from the businesses I’ve owned, from reading a book a week for 35 years, from developing seminars for others and attending several educational sessions a year – is that value is in the eye of the beholder.
running_a_business  value_creation  blogs  entrepreneur  owners  cash_flows  internal_systems  professionalization 
september 2012 by jerryking
Hey AT&T, Drop That Coconut
September 25, 2000 | WSJ | Andy Kessler.

CEO C. Michael Armstrong is about halfway through reinventing the company, and needs a high stock price as a strategic weapon to fill in the chess pieces he’s missing — optical pipes, cable assets and wireless licenses — to offer bundles of services. So with a dozen different rate plans to confuse consumer and the FCC, he’s using long distance to milk an estimated $8 billion in consumer cash flow this year. Big mistake. You don’t manage a tech business for cash flow — the banana. You want to be investing in innovation.
Andy_Kessler  AT&T  cash_flows  exploitation  FCC  innovation  mature_industries  reinvention  VoIP 
july 2012 by jerryking
Managing Risk In the 21st Century
February 7, 2000 | Fortune | By Thomas A. Stewart.

Take risk management, a responsibility of the treasury function. Most risk managers haven't begun to cope with the real threats 21st-century companies face. Like the drunk in the old joke who looks for his lost keys under the streetlamp because the light is better there, risk management is dealing with visible classes of risk while greater, unmanaged dangers accumulate in the dark.

Risk--let's get this straight upfront--is good. The point of risk management isn't to eliminate it; that would eliminate reward. The point is to manage it--that is, to choose where to place bets, where to hedge bets, and where to avoid betting altogether. Though most risk-management tools--insurance, hedging, diversification, etc.--have to do with reducing loss, the goal is to maximize the gains from the risks you take (alpha? McDerment?)

So where should we look for these new risks?

--Your reputation or brand. When a bad batch of carbon dioxide in Coca-Cola sickened some Belgian children last summer, Coke's European operating income fell about $205 million, and Coca-Cola Enterprises, the bottler, incurred $103 million in costs. What about the cost to brand equity? One highly imperfect proxy: Coke's market capitalization fell $34 billion between June 30 and Sept. 30, 1999.

--Your business model. Asset-free, knowledge-intensive competition is to entrenched business models what the Panzer was to the Maginot Line. MP3s changed the music business more fundamentally than anything since radio. E*Trade, 18 years old, forced Merrill Lynch, 180, to change its way of doing business. Yet the new guys' very nimbleness creates its own risks, which traditional risk management can't help. You can protect the hard assets of a brick-and-mortar mall. Click-and-order stores are much more exposed: Cash flow is just about all they've got.

--Your human capital. The obvious human-capital risk is flight--especially in a tight labor market--but it's only part of a larger, subtler problem. When the CEO intones, "People are our most important asset," he's wrong, even if he's sincere. People are your most important investors. Your stock of human capital matters less than your flow of it. Any turbulence--and is there anything but turbulence these days?--can disrupt the flow, damaging your ability to attract human capital or people's desire to collaborate. Says Thomas Davenport, a partner at Towers Perrin: "Uncertainty is a real enemy of human capital. People rebalance their ROI by cutting back the investment."

--Your intellectual property. Many risks to intellectual property--theft, for example--can be dealt with in obvious, if sometimes onerous, ways. Here's the cutting-edge question: How do you manage risk in the process by which new intellectual property is created? How do you cope with the fact that the safer a given R&D project is, the less likely it is to be a big-money breakthrough? How do you balance the virtues of specialization against those of diversification?

--Your network. No company is an island, entire of itself; odds are your business is embedded in a network you do not control. It's not just that AOL might crash and cost you a few days' sales; your whole business may depend on tangible and intangible assets that belong to outsourcing partners, franchisees, sugar daddies, or standard-setters.
There are a couple of patterns here. First, an ever-greater part of business risk comes from sources your company can't own--people, partners, environments. Second, volatility isn't just a currency or stock market risk anymore. Labor markets, technologies, even business models oscillate at higher frequencies--their behavior more and more resembling that of financial markets.

In those patterns are hints of how to manage intellectual risks--which we'll examine next time.
risk-management  21st._century  risks  Thomas_Stewart  reputation  branding  business_models  financial_markets  talent_management  intellectual_property  networks  human_capital  turbulence  uncertainty  volatility  instability  nimbleness  labour_markets  accelerated_lifecycles  intellectual_assets  e-commerce  external_interaction  talent_flows  cash_flows  network_risk  proxies  specialization  diversification  unknowns  brand_equity  asset-light  insurance  hedging  alpha  Michael_McDerment 
june 2012 by jerryking
Critical maths
.June 2004 | Financial Management | by Mike Brooks.

The basic principle here is to ensure that the timescale of the financing and the grace period for the repayment of the principal and interest matches reasonably closely the timing of the cash flows resulting from owning the asset.
ProQuest  start_ups  small_business  funding  memoranda  private_placements  cash_flows  working_capital 
april 2012 by jerryking
Due diligence
Apr. 1997 | CMA - the Management Accounting Magazine. 71.3 (): p17.| James G. Webster.

...Woodgate's own process of due diligence started with market conditions and customers, and then worked back through the product line to manufacturing and technology issues and, finally, to detailed financial information, which he believes was the right sequence for someone coming in from the outside.

They conducted an in-depth analysis of the market, sales history, channels of distribution, competition, customer base, and growth opportunities. The profitability and cash flow generated by each product line was analysed, as was the need for product rationalization and investment in technology....After comparing the company's products with those of the competition and interviewing four of Allanson's customers, it was concluded that the company's products were competitive in terms of quality, cost and technology. In fact, Allanson dominated the Canadian market and had a significant share of the U.S. market....Analysis of the size and dynamics of the electric sign industry was based mainly on a detailed report contained in Woodgate's business plan. The report's findings indicated that the market for the company's electric sign products had stabilized and there was reasonable growth potential for Allanson. The statistics and premises of this report were confirmed by independent sources....Woodgate says his most important asset throughout the process was his team of consultants. "Perhaps the greatest test of their skills lies in the last five per cent [JCK: i.e. last_minute] of the due diligence process when important problems sometimes arise with the potential to kill the deal. The buyer, at this stage, has become emotionally committed to the deal and is in no position to assess danger in a balanced, thoughtful way.
buying_a_business  cash_flows  dispassion  due_diligence  emotional_commitment  emotional_connections  howto  last_minute  product_portfolios  product_profitability  RoyNat  unsentimental 
november 2011 by jerryking
The Door-To-Door Billionaire Daryl Harms knows how to turn dull businesses into big profits. But can he really do it with your garbage? - May 1, 2003
By Ed Welles
May 1, 2003

Harms spots trends sooner and bears down harder than most entrepreneurs--a combination that has made him wildly wealthy, if not exactly famous. But his next venture--more on that later-- just might transform him into a household name on the order of, say, Warren Buffett. Like Buffett, Daryl Harms, 51, patiently trolls for perfect businesses in which he can build long-term value via his Masada Resource Group, based in Birmingham. He hunts down overlooked opportunities that don't trade on trendy brand names or cutting-edge technologies...When selling cable service, Harms went block to block, zeroing in on houses with the tallest antennas. Other salesfolk reflexively bypassed such homes because they assumed that better reception wasn't an issue for them. Harms targeted those customers first. "I told them, 'I can see you stand tall. Of all the people on the street you understand the value of TV,' " he recalls saying. " 'If we put cable in, you can compare it with what you have now. If you don't like it, we'll come back and take it out.' " Such "influencers," in Harms's lingo, made it easier for him to convert whole blocks....Spurred by a poll that showed that 92% of Americans considered themselves "environmentalists," Harms and his employees spent a year studying the recycling market only to decide that the real money lay in garbage. From there they sought out the best ethanol conversion technology. Having found it--at the Tennessee Valley Authority--they worked for five years to tweak the science, an effort that has earned Masada 18 patents. "Today's risky business climate warrants thoroughness," Harms says..."The theme is that there is always a consumer need to be addressed," explains Wheeler. "People will always talk on the phone, watch television, and produce garbage."...Asking the right question, it seems, comes naturally to Harms. Entrepreneurs fail, he believes, because they "get too microscopic in their thinking. In business it's very easy to get the right answer to the wrong question." According to Wheeler, Harms failed to ask the right question when he set up a venture called Postron, which allowed cable TV subscribers to receive their bills via cable and print them out on a printer attached to their TVs. What Harms didn't ask, says Wheeler, was "whether consumers wanted another piece of hardware." They didn't...Harms finds customers where no one else thinks to look. When he started selling burglar alarms in 1985, he didn't target high-crime areas. Instead he identified places where the perception of vulnerability was greatest--which he determined by calculating how much space the local paper devoted to crime. The first cellphone license he sought was for a desolate stretch of highway between Lincoln and Omaha rather than in a major population center. Why? Because, as Page says, "what else were people going to do in their cars but talk on the phone?" Aside from overlooked customers, Harms seeks another component to every business: recurring revenue of roughly $25 a month per user. "That's a bite that most people can get used to paying," he reasons. For him it translates into healthy cash flow, which fosters predictability and enables a business to survive hard times. Besides, "the more reliable the cash flow, the higher a multiple of that cash flow you can get for your company," he notes.
asking_the_right_questions  cash_flows  consumer_needs  counterintuitive  entrepreneur  hard_times  hidden  latent  moguls  overlooked_opportunities  missed_opportunities  predictability  questions  subscriptions  thinking_big  trend_spotting  unglamorous  wide-framing 
november 2011 by jerryking
WSJ: The War for the Web
May 06, 2008 | THE WSJ | Andy Kessler:

The Cloud. The desktop computer isn't going away. But as bandwidth speeds increase, more and more computing can be done in the network of computers sitting in data centers – aka the "cloud."

There, search results can be calculated, companies' payrolls processed, even the complex graphics for video games can be drawn. But it's not cheap. These clouds are multibillion-dollar investments. Google spent $842 million in the last three months on servers, data centers and fiber optics.

Not only hasn't the Internet yet matured, it's becoming an ever-more high stakes game

Today, there are several major clouds: Google, Yahoo, Microsoft, Amazon and smaller players IBM and Sun. Can there be more? Sure, but it would require a business model that could not only pay for it, but could rip it out every few years and modernize it. Google's $20 billion Web advertising business gives it the cash flow to do so. Advantage Google.
Andy_Kessler  cloud_computing  platforms  FAANG  Microsoft  cash_flows  Yahoo!  high-stakes  Google  advertising  data_centers 
october 2011 by jerryking
Black Oak Capital Partners company profile
Black Oak Capital Partners will acquire and manage California
agricultural lands for investor returns and land conservation outcomes.
Black Oak pursues an "agriculture-plus" investment strategy. Black Oak
will source and manage lands in partnership with land trusts, brokers,
and farm managers. Agricultural cash flows and asset appreciation are
primary value drivers, while exposure to new environmental markets
provides additional upside. Environmental markets help to align
financial and environmental objectives. Markets include mitigation
banking, organic transition, water transfers, and conservation real
estate development.
venture_capital  vc  sustainability  cash_flows  farmland  private_equity  agriculture  farming  California 
april 2011 by jerryking
For Small Business, a Cash-Flow Crisis - BusinessWeek
March 24, 2011, 5:00PM EST text size: TT
For Small Business, a Cash-Flow Crisis
More companies are getting squeezed between late payers and tighter credit terms

By John Tozzi
crisis  small_business  Freshbooks  cash_flows 
march 2011 by jerryking
Lessons From a Soloist Who Reached the Inc. 500 List
November 8, 2007 | Inc Magazine | Posted by Terri Lonier

Recognize and Seize Opportunities - Lesson: Where others see problems,
creative soloists envision business opportunities.
Cut to the Chase --- Lesson: Candor can be a refreshing alternative for
clients, and can create a competitive advantage.
Keep Cash Flowing -- Lesson: Mixing project sizes and timetables keeps
cash flowing, builds skills, and sustains interest.
Do or Delegate---Lesson: Expand your company without increasing overhead
by creating a virtual team of experts you can rely on.
Focus on Profits, Not Revenue --- Lesson: Stay focused on profits and
net income, particularly when facing the siren call of growth.
Work the Network -- Lesson: Invest in creating and sustaining long-term
professional connections that lead to mutual success.
Choose Growth Carefully ---- Lesson: When facing decisions about growth
and the lure of higher revenues, consider all aspects, personal and
professional, immediate and long-term.
solo  ksfs  opportunities  networking  lessons_learned  entrepreneur  virtual_teams  competitive_advantage  cash_flows  jck  candour  growth  delegation 
december 2010 by jerryking
How to Succeed in the Age of Going Solo - WSJ.com
FEBRUARY 8, 2010 | Wall Street Journal | By RICHARD
GREENWALD. Anybody can become a consultant. But not everybody does it
well. Here's what you need to know to thrive. (1) Think Long Term.
think in terms of the long haul, preparing for a marathon, not a
sprint.; (2) Join a Network. successful consultants are in a network or
community of consultants. These networks are important sources of new
clients. ; (3) Have Your Own Space; (4) Think Like an Entrepreneur.
Don't drift from project to project. That's a mistake. Have a business
plan or mission statement.
Be known for the work that you do/ don't do. Organizing your business.
Use invoicing software to track billing, don`t mingle personal &
business finances, and keep good records for taxes or expenses. Think of
cash flows, future investments & downtime.
affirmations  howto  solo  freelancing  entrepreneurship  management_consulting  networking  jck  ksfs  long-term  cash_flows  downtime  long-haul 
september 2010 by jerryking
Letters - How to Build a Successful CEO - NYTimes.com
May 20, 2009 | NYT |

Successful chief executives combine four abilities:

¶The ability to allocate cash flow for growth. Without growth, little else matters.

¶The ability to pick the right managers for the operating jobs. C.E.O. “vision” is largely realized through the people in the critical posts.

¶The ability to inspire the troops. Charisma comes in many colors; getting others to be excited about the mission is one of them.

¶The ability to be aware of and understand all the moving parts. Chief executives don’t need in-depth knowledge of every discipline — accounting, marketing, sales, benefits, taxes and so on — but they need to know enough about each one to ask the right questions.

None of these four are easy, and in combination, they are very hard to find.
letters_to_the_editor  CEOs  howto  ksfs  fingerspitzengefühl  contextual_intelligence  growth  hiring  executive_management  charisma  cash_flows  capital_allocation  hard_to_find  asking_the_right_questions  talent_acquisition  the_right_people 
may 2009 by jerryking
Upstart Quigo breaches mighty Google 'moat' - and I missed it
March 1, 2008 G&M column by Avner Mandelman on the need for
companies to build a protective moat (competitive advantage)--such an
advantage should GROW year after year. Once in place, it is easier to
calculate cashflow and cash flow certainty.
Avner_Mandelman  competition  competitive_advantage  cash_flows  certainty 
february 2009 by jerryking

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