Ged Carroll

Category: business | 商業 | 상업 | ビジネス

My interest in business or commercial activity first started when a work friend of my Mum visited our family. She brought a book on commerce which is what business studies would have been called decades earlier. I read the book and that piqued my interest.

At the end of your third year in secondary school you are allowed to pick optional classes that you will take exams in. this is supposed to be something that you’re free to chose.

I was interested in business studies (partly because my friend Joe was doing it). But the school decided that they wanted me to do physics and chemistry instead and they did the same for my advanced level exams because I had done well in the normal level ones. School had a lot to answer for, but fortunately I managed to get back on track with college.

Eventually I finally managed to do pass a foundational course at night school whilst working in industry. I used that to then help me go and study for a degree in marketing.

I work in advertising now. And had previously worked in petrochemicals, plastics and optical fibre manfacture. All of which revolve around business. That’s why you find a business section here on my blog.

Business tends to cover a wide range of sectors that catch my eye over time. Business usually covers sectors that I don’t write about that much, but that have an outside impact on wider economics. So real estate would have been on my radar during the 2008 recession.

  • Microsoft Longhorn

    Microsoft Longhorn – As you may have seen over the past few days parts of the American media seem to think that the launch of Microsoft’s new operating system is turning into a bigger disaster than the war against terror. They’re wrong for two reasons:

    – The war against terror is majorly messed up because of poor leadership which has betrayed the countless men and women who have been serving their countries selflessly

    – Even in the unlikely event of Microsoft going bankrupt in the morning and the business and associated ‘intellectual’ properties disappearing into a puff of smoke (I sooo wish it were true), there are numerous viable alternatives from pirate Windows software (nice price, shame about the code), GNU/Linux, various flavours of Unix (Solaris, Openware, Mac OS X, netBSD, FreeBSD etc)

    Let’s put Microsoft Longhorn into perspective:

    – Whine number one – its late, duh show me an IT project that isn’t late, or over budget. Ever heard the one about the sales man who walks into a client, promises them the earth and then gives the programming team three weeks to build it and is then surprised when it doesn’t deliver. Microsoft is bigger than everyone else so does things like this on a bigger scale.

    – Whine number two – it won’t do what you promise, you’ve cut out all the good bits. Ok, I’m going to let you into an IT industry dirty secret, marketing people lie. They believe what they tell you when they have told you it, but they lie. I know they lie, because I’ve taken their lies and written them in an easy to understand format for journalists to write about. Journalists propagate those lies because they provide content that readers pretend to glance over whilst really checking out the job adverts and feeling aggrieved at the money they are paid. The content is a trojan horse to get those job adverts into their workplace because there are too many more interesting things to do in their own time. Everyone benefits from the ecosystem

    – Whine number three – its an omen of doom, Trey (William Gates III to those of us who know him well) has taken his eye off the ball and Monkey Boy Balmer has royally fcuked up, this would not have happened with Bill in charge. This one needs to be broken down into sections.

    First of all, Steve Balmer has done a good job fighting against the rabid autistic children that make up most of his employees, bringing it successfully through a shedload of antitrust lawsuits and helping put a more sympathetic government in the White House.

    Remember, Bill Gates’ video testimony helped with the finding of fact against the company in the first place and condemned Microsoft in the court of public opinion.

    Secondly, when Gates was in the hot seat the company made some shocking errors:

    • Microsoft Bob – don’t know about it? That’s because it bombed
    • The Road Ahead (first edition) – ghost writers had to tear this apart and rewrite it replacing up to 30 per cent of the content, Gates had dismissed the Internet and missed the boat. They spent hundreds of millions before they caught back up
    • Cairo – during the development of Windows’95, Microsoft spent a lot of money developing some wicked cool technologies that improved searching for data on a computer amongst other things. Cairo was designed to unify the DOS and NT based products on one state-of-the-art platform (this unification happened much later with Windows XP). Along the way a lot of cool stuff got culled, the market got an inferior product which sold despite being launched with a Rolling Stones live performance of ‘Start me up’. Windows’95 went on to be a technological wasteland and an unprecendented commerical success. Cairo still makes Microsoft Longhorn look good

    Thirdly it takes more than Microsoft Longhorn, a few penguins and unruly autistic children to take down the house of Microsoft. Why? Because thousands of IT people want to follow each other like lemmings rather than looking at alternatives that may provide their business with competitive advantage? The real compelling reason why Microsoft should not be scared of Microsoft Longhorn – politico-economics. Below is a quote taken from the I, Cringely column of August 14, 2003:

    Why aren’t Apple Macintosh computers more popular in large mainstream organizations? Whatever the gigahertz numbers say, Macintoshes are comparable in performance to Windows or Linux machines. Whatever the conventional wisdom or the Microsoft marketing message, Macs aren’t dramatically more expensive to buy and on a Total Cost of Ownership basis they are probably cheaper. Nobody would argue that Macs are harder to use. Clearly, they are easier to use, especially on a network. So what’s the problem? Why do Macs seem to exist only in media outfits? Apple is clearly wondering the same thing because the company recently surveyed owners of their xServe 1U boxes asking what Apple could do to make them more attractive? For those who own xServes, they are darned attractive — small, powerful, energy-efficient, easy to configure and manage, and offering dramatic savings for applications like streaming. Yet, Apple appears to be having a terrible time selling the things.

    I used to think it came down to nerd ego. Macs were easy to use, so they didn’t get the respect of nerds who measured their testosterone levels by how fluently they could navigate a command line interface. Now, I think differently. Now, I think Macs threaten the livelihood of IT staff. If you recommend purchasing a computer that requires only half the support of the machine it is replacing, aren’t you putting your job in danger? Exactly.

    Ideally, the IT department ought to recommend the best computer for the job, but more often than not, they recommend the best computer for the IT department’s job.

    Now another question: Why are Linux computers gaining in popularity with large organizations while Macs, which are based after all on BSD Unix, aren’t? While there is certainly a lot to be said for Linux in competition with various flavors of Windows (Linux is faster, more memory-efficient, more secure, has more sources of supply, supports many more simultaneous users per box in a server environment, and is clearly cheaper to buy), the advantage over Macintosh computers is less clear.

    Again, it comes down to the IT Department Full Employment Act. Adopting Linux allows organizations to increase their IT efficiency without requiring the IT department to increase it’s efficiency. It takes just as many nerds to support 100 Linux boxes as 100 Windows boxes, yet Linux boxes are cheaper and can support more users. The organization is better off while the IT department is unscathed and unchallenged.

    I am not claiming that every organization should throw out its PCs and replace them with Macs, but the numbers are pretty clear, and the fact that more Macs don’t make it into server racks has to be based on something, and I think that something is CIO self-interest.

    Macs reduce IT head count while Linux probably increases IT head count, simple as that.

    I didn’t come up with this very smart idea, it came from a reader. That same reader made the point that every part of an organization ought to be concerned with improving the bottom line, which is to say with being more productive. Yet IT typically doesn’t work that way.

    All you aspiring ‘Neutron’ Jack Welch’s out there, you have an ideal target to squeeze for efficiency get liquidating staff and taking technological change out of the hands of the IT director (better still fire his ass and buy the mortgage on his property for peanuts). Before you ask, outsourcing just ships the problem out of the country but not out of your life.

  • Who is Gary Winnick (and why I am writing about him?)

    You may not know Gary Winnick, but at one time the fund manager who looked after your pension probably knew his name.

    For over two decades, Gary Winnick worked at the sharp practice end of capitalism. In the 1980s he worked with Michael Milken Drexel Burnham Lambert (Drexel) selling junk bonds. These were used to finance some of the most savage slash-and-burn management takeovers in modern history.

    Here’s a simplest version of it

    The ability of a company to get credit to grow depends on a number of factors including market sentiment towards the company, its industry sector and its credit rating. Junk status when a company is viewed to have fallen below investment grade material by a credit ratings agency such as Standard & Poor or Moodys.

    A bond is piece of paper that can be bought and sold like a company share, however it is really an IOU, a company sold the bonds to raise money and promised to pay a set amount of interest on that money and repay it at a set time in the future. They are used by companies and governments to borrow money (you may have heard of them mentioned as gilts or t-bonds, in the UK premium bonds are a government loan but with the interest divided out via a lottery selected by a computer called ERNIE), government bonds are commonly used in a portfolio as a low risk strategy or to hedge against interest rate declines.

    From a practical point of view junk status means that credit becomes more expensive, the company is considered to be a higher risk loan. Consequently, companies seeking credit and having junk status generally had a low share price and relied more on the bond markets to provide their capital requirements. Investors generally seek a higher return for higher risks so bonds from junk status companies (junk bonds) are also known by the more benign name of high-yield debt.

    Anyway, somewhere along the line some bright spark (possibly Milken himself) realised that just because a company had junk status, it did not mean that it would disappear overnight. Many large household names and solid industrial performers had junk status, because they were steady but unspectacular performers. This meant that there were bargains to be had. Investments providing high returns because of an unfair high risk status. Junk bonds became the new HOTNESS.

    The outcomes

    – There was blood in the water and Milken was eventually prosecuted for massive corporate fraud, after Ivan Boesky ratted him out rather than take the full rap on a number of insider trading charges

    – Many companies were gutted by modern-day robber barons who borrowed money to buy companies, and then paid back the debt through the placement of junk bonds and asset stripped the company. Books that outline this include Barbarians At The Gates

    – Savings and Loans scandal – S&L are kind of equivalent to mutual building societies in the UK and Ireland. During the 1980’s, they were deregulated and their money poured into the stock market. This deregulation fuelled a feeding frenzy causing many S&L collapses due to fraud and speculation. Since there were regulations still on what S&l’s could invest in, merchant banks put together complex financial instruments (derivatives – so called because they are derived from something else, like orange juice and pork belly futures in the film Trading Places) that would allow them to get into the ‘high-yield debt’. Initially the idea of these derivatives was to bind just enough government investments like T-bonds (treasury bonds) into the deal so that credit ratings agencies like Standard &Poor would not rate the derivative as a junk status investment. These instruments (known as derivatives) were very arcane and complex making it virtually impossible to understand their true investment value or how they would be impacted by changes in the market. Think of the childrens story The Emperors New Clothes. If you would like to know more read Liars Poker by ex-derivatives trader Michael Lewis. The S&L mess was bailed out by the Fed.

    Global Crossing

    Gary Winnick parted company with Michael Milken before Drexel flamed out and set up an unspectacular investment company called Pacific Capital. In the mid 1990s, Winnick saw the telecoms gold rush and founded Global Crossing.

    The telecoms goldrush came about due to a number of factors:

    – Deregulation allowing competition in the telecommunications sector

    – The rise of the Internet created an increased demand for new networks

    – Sustained economic growth in the developed world and a collapse in some emerging markets and Japan meant that there was too much money chasing too little investment opportunities. Gary Winnick raised and destroyed some 20 billion USD. Much of which would have come from pension fund managers in the US and Europe, or was invested into similar companies like Worldcom or RSL Communications (RSL COM).

    – Companies pay to get their credit evaluation from the likes of Standard & Poor and Moody

    – Grow and the profits will come became a mantra for bankers, VCs, analysts and business leaders due to cheap capital and as a way of keeping the castle in the sky; making it exceptionally easy to sell in a new business strategy

    The telecoms market came apart because:

    – Too much telecoms capacity was supplied as companies rushed in to profit from the gold rush. Global Crossing and its peers built out network capacity first and thought about getting customers later

    – Technology, competition and excess supply drove down prices to make the industry less profitable

    – Many of the companies had the same disease of corporate corruption and creative accountancy that occurred in the 1980s in S&L and junk bonds; inflating the value of deals, booking sales before the money was in (when is a sale a sale is a question that has been of interest to accountants for years) or fabricating them as inter-carrier deals

    – Accounting techniques were shockingly useless allowing Winnick and Co to distort reality

    – Equity analyst hyped stocks that they privately admitted were dogs

    – High yield debt was being used to finance a low-yield industry

    – Much of the growth was promoted through equipment-vendor financing, which allowed the likes of Lucent, Nortel and Cisco to bill higher than normal growth-figures and artificially inflate share prices. A friend of mine who was a telecoms analyst at a brokerage in the city of London at the time of the bust was afraid that Cisco would get severely damaged because of vendor financing. He outlined an allegation that new IP-based carriers were being set up by people close to the Cisco channel, financed by equipment for equity as part of a glorified Ponzi scheme to inflate the value of Cisco

    In Global Crossing, Winnick managed to extract his own position two weeks before the firms lawyers stopped internal share trading due to the companies terminal financial decline. Winnick is back in court this week and you can read all about it here. Many see Gary Winnick as a criminal, he sees himself as a business visionary. More on telecoms here and finance here.

  • Cash divide

    The 1990s had a cash divide. A number of years ago in college, I wrote an essay about the role of technology exclusion in society. This internet as a thing was only really starting to get going and we had just changed over the web browsers at the college from Mosiac to Netscape.

    I used to surf the web in 16 shades of grey available on my battered PowerBook 165, when I jacked into the JANET network. Why am I rambling about a geriatric computer and the ‘net before Google?

    Well, I used the web to research my essay and came across an article on the Washington Post about the cash divide discussing a ‘cash ghetto’, increasingly if you had to deal in cash you were on the margins of society. Part of this was down to the laundering of money from organised crime, including the drug cartels. It made sense to move as many people as possible out of the cash economy, but it created a cash divide. The cash divide separated illegal migrants from citizens; criminals from law abiding citizens.

    An article in the Arizona Daily Star, which my RSS feed aggregator picked up talked about the pervasive nature of Visa and MasterCard where cash was once king reminded me of the college essay.

    Visa and Mastercard have moved in alongside cheque cashing services and remittance businesses to bridge the cash divide profitably. Poor people tend to pay more charges than richer members of society.

    You don’t even need to have a credit record or a banking account. There are ways to provide pre-loaded credit cards in the US to bridge the cash divide. From intern payments to staff bonuses can be provided on cards form Visa, Mastercard and even American Express.  Interesting reading check it out. More finance related posts here.

  • Pitching VCs

    Eric Dunn, general partner with Cardinal Venture Capital wrote the following guide for pitching VCs. This was originally posted on AlwaysOn:

    Figure out what the audience already knows. If you have included a long market overview in your presentation, but are presenting to an industry veteran, you almost certainly win points for skipping quickly through the overview. Figure out what the audience doesn’t know. Conversely, there’s no rule against giving a brief introduction before starting your prepared pitch: “Just in case you aren’t familiar with the automated test equipment market, let me outline for you the major categories and who the market leaders are….” Then take a few minutes off the cuff.

    Pretty basic business presentation skills summed up in pitching VCs – there are no silver bullets beyond nepotism.

    Explain acronyms and terms of art. Your audience is probably ashamed to ask what the LEAP protocol or the IFX standard is, so unless you are sure that everyone in your audience knows what it means, give them a break.

    Track your audience. If you are getting blank stares from the audience, it could mean that they don’t understand, or it could mean you’re belaboring the obvious. Break stride and ask to find out which it is.

    Answer questions crisply. It’s better to say “I don’t know” or “I’ll have to get back to you on that” than to waffle with an incomplete or inaccurate answer.

    What Doesn’t Work

    Unbalanced presentations. Don’t succumb to the temptation to dwell on your personal area of expertise. A dozen slides on the technical attributes of the product, or on the details of the proposed sales organization, is almost certainly too much.

    Spelling, grammar, and punctuation errors. Although your audience will cut some slack for non-native-English speakers, there’s really no reason not to get this stuff right.

    Math errors. Not fatal, but math mistakes definitely chip away at your credibility.

    Hiding the ball. If your CTO is about to resign, you lose far more points when potential investors find out later than if you are up front about it.

    Arrogance. Most entrepreneurs have a lot to be proud of, but the best I have seen retain their humility no matter how successful they become.

    Selling the wrong point. If the critical question is price performance, don’t spend 15 minutes on channel strategy.

    Preaching to the choir. If an investor says “OK, we accept that this is a $5 billion market,” stop! Once you have convinced your audience of a point, you lose ground (for obtuseness) by going on to make additional arguments.

    For many entrepreneurs, these suggestions for improving investor pitches will be old hat. But all entrepreneurs should recognize that even a great business can’t shine through a low-quality pitch. Good pitches mean investment decisions are made on the merits of the underlying business, and that’s in everyone’s interest.

    More related content here.

  • The number

    Whilst catching up on my backlog of mails I came across this from CBS Marketwatch on Yahoo! making the number. The number is the consensus that market analysts think that a company will make in a given quarter:

    NOT MUCH SHOUTING GREETS YAHOO EARNINGSYahoo shares (YHOO) got the boot after the company kicked off a fresh earnings season for the online-media group by only just measuring up to expectations, demonstrating what American Technology Research analyst Mark Mahaney called a mantra: “in-line quarters don’t cut it for Internet stocks.”

    Ok, basically what this guy Mahaney is saying that because Yahoo! managed to get their profit for the quarter in line with what a number of market anlaysts expected them to be (based on a guestimate set maybe 90 to 180 days back) then they deserve a kicking.

    Unbelievable, accountancy despite the use of numbers is not an exact science, why?

    • Bills and sales are constantly coming in and out of a company
    • What does a sale really mean? If you sign a 3 year deal for online advertising, should Yahoo! claim that as a sale all at once or claim as the money comes in
    • When is the money in? When you invoice for it, or when it sits in your bank account
    • Is the capital gains made on the building you own and work out of profit?
    • If you had a bumper quarther this time but you know that the next quarter will be soft, should you avoid booking all the sales in to give you an income cushion next quarter?
    • How should you write off the depreciating value of computer equipment, chairs or a forklift truck? There can be more than one way of doing it that will affect the figures

    With this in mind, I would recommend that you read The Number by Alex Berenson, which takes you through the insanity of it all in greater depth.