Category: Entrepreneurship

Koch Employees Motivated by the Fulfillment of Meaningful Work

(p. A11) . . . , Mr. Koch defines “principled entrepreneurship” as the effort to maximize profit by “creating superior value,” as well as by “acting lawfully and with integrity.” What is good for business, he says, is good for society–another aspect of good profit.
The culture of a company is formed, Mr. Koch observes, when employees internalize such principles and practices. Although employees should be urged, he says, to be agents of change, to think critically and, when necessary, to challenge the decisions of their bosses, they will find that their most significant motivation is a sense of accomplishment and fulfillment. “We cannot ignite a passion for creating the greatest value,” Mr. Koch writes, “if there is no meaning in our work.”

For the full review, see:
JOSEPH MACIARIELLO. “BOOKSHELF; The Company He Keeps; Respect means treating people on their merits–not according to the rigid categories of identity politics. Merit will always create value.” The Wall Street Journal (Fri., Oct. 23, 2015): A11.
(Note: ellipsis added.)
(Note: the online version of the review has the date Oct. 22, 2015.)

The book under review, is:
Koch, Charles G. Good Profit: How Creating Value for Others Built One of the World’s Most Successful Companies. New York: Crown Business, 2015.

Focused Investing by Entrepreneurs Can Create Illiquid Wealth that Is Large But Precarious

The implications of the point made in the passages quoted below, were boldly drawn out by George Gilder in his article “The Enigma of Entrepreneurial Wealth.”

(p. B4) Wealth-X found that from July 2014 to July 2015, 45 percent of the ultrawealthy in the United States lost some part of their wealth; 11 percent lost more than half of it.

The reasons for the drop in wealth differed. But why so many ultra-wealthy people — defined as those with more than $30 million — lost so much of their wealth so quickly offers lessons in financial management, no matter how much money you have.
Sure, this group still has a lot of money. But those who lost a lot of money made similar mistakes: Too much of their money was tied up in one investment and too little of their money was in cash or some other liquid investment. And too often, they didn’t think enough about the likelihood that something could go wrong.
. . .
“A lot of people have this view that wealth is inherited,” said Mykolas Rambus, chief executive of Wealth-X. “That’s very much not the case.” Most are successful entrepreneurs who built fortunes, he said, “And most of their money is in privately held companies, not your Googles and Facebooks.”
He said 75 percent of the world’s wealth, when real estate is included, was privately held.
In the period examined by Wealth-X, overconcentration and illiquidity were big factors when someone lost a fortune.
Curtis James Jackson III, better known as the rapper 50 Cent, was worth $240 million in May 2014 and about $50 million last month, according to Wealth-X. The precipitous drop was caused almost entirely by the falling values of four of his companies, with interests ranging from clothing to film production. They declined to $7.2 million from $150 million in 12 months, according to Wealth-X’s research.
The same could be said for Mr. Charney, who was ousted from his company American Apparel, which later filed for bankruptcy protection. His share of the company was estimated at over $65 million in May 2014 and is now virtually worthless. At American Apparel’s height, in 2007, Forbes put Mr. Charney’s stake at $550 million.
“Every financial adviser in the United States says you’ve got to diversify,” Mr. Rambus said. “There is a lesson here about volatility and concentration. Rewind to the dot-com crash. There were plenty of folks who were seriously overexposed to tech and lost their shirts.”
But there’s a paradox here. Generally, it was overconcentration in one, illiquid company — whose value rose exponentially — that made people ultrawealthy in the first place.

For the full story, see:
PAUL SULLIVAN . “Wealth Matters; Reversal of Fortunes for Some Superrich.” The New York Times (Sat., DEC. 12, 2015): B4.
(Note: ellipsis added.)
(Note: the online version of the story has the date DEC. 11, 2015, and has the title “Wealth Matters; The Bad Fortune of Some Ultrawealthy People.”)

The Gilder article praised above, is:
Gilder, George. “The Enigma of Entrepreneurial Wealth.” Inc. 14, no. 10 (Oct. 1992): 161-64, 66 & 68.

North Dakota Plans a Drone Silicon Valley

For many years state governments and universities have been trying to plan the creation of new Silicon Valleys in their own backyards. Success has been elusive. Now North Dakota is tying to create a drone Silicon Valley. My take: Silicon Valleys cannot be planned, though they can be encouraged by low taxes and limited regulations.

(p. A1) FARGO, N.D. — “California and New York want what we’ve got,” said Shawn Muehler, a 30-year-old Fargo resident, gazing at a horizon of empty fields, silos, windbreak trees and hardly any people. A winged craft traces the air, mapping a field with pinpoint accuracy for his start-up, a drone software company called Botlink. “They like drones, but they’ve got a steep learning curve ahead.”

For years, entrepreneurs have come here to farm and to drill for oil and natural gas. Now a new, tech-savvy generation is grabbing a piece of the growing market for drone technology and officials want to help them do it here, where there is plenty of open space and — unlike in other sparsely populated states — lots of expertise already in place.
Silicon Valley has the big money and know-how, Mr. Muehler and others say, but North Dakota can take unmanned aerial vehicles, as the officials prefer to call drones, from a fast-growing hobby to an industry. And just as Silicon Valley got its start with military contracts, entrepreneurs and cooperative universities, they believe they can do the same with drones.
“The potential up here is tremendous,” said Jack Dalrymple, the state’s governor. “It’s not about supporting a company or two; it’s creating the leading edge of an industry.”
North Dakota has spent about (p. B7) $34 million fostering the state’s unmanned aerial vehicle business, most notably with a civilian industrial park for drones near Grand Forks Air Force Base. The base, a former Cold War installation, now flies nothing but robot aircraft for the United States military and Customs and Border Protection.

For the full story, see:
QUENTIN HARDY. “A Silicon Valley for Drone Craft in Great Plains.” The New York Times (Sat., DEC. 26, 2015): A1 & B7.
(Note: the online version of the story has the date DEC. 25, 2015, and has the title “A Silicon Valley for Drones, in North Dakota.”)

Entrepreneurs Who Pay Taxes “Expect Services–Like Justice”

(p. B3) ATHENS — Demetri Politopoulos, the founder of a midsize beer producer in northern Greece, says he nearly fainted when he heard the news late one night in October.
The Greek Parliament was planning to pass a law that would increase the tax he paid for each hectoliter of beer he sold by 50 percent.
Just like that, the microbrewery he started 17 years ago would go under, as his new tax bill of 1.6 million euros would wipe out his expected 1.45 million euros in profit for the year.
. . .
He started his business in 1998, but even as demand for his Vergina beer grew, his share of the market stayed in the low single-digits as the market leader did all in its power to prevent shops and restaurants from selling his product.
. . .
In 2005, Mr. Politopoulos took his case to the Hellenic Republic Competition Commission, citing numerous examples of what he said were unfair business practices by Heineken, from persuading retailers to not stock Vergina to more serious examples of bullying and intimidation.
But as is often the case in Greece, his petition went nowhere.
With Greece under unremitting pressure to find new revenue sources, the idea to close the gap between the way small and large brewers are taxed may have seemed a good idea.
That is, until Mr. Politopoulos took the floor in Parliament on Nov. 2.
“We are proud to pay taxes in Greece, but this is going to put us out of business,” he said. “And when we do pay our taxes, we expect services — like justice. Without justice in a society, there is nothing.”
His 10-minute declamation hit a cord. A video of the speech went viral and parliamentary members rallied to his cause.
Indeed, concerns are growing here that in a rush to raise much-needed revenue, Greece and its creditors are placing an unfair burden on an already decimated private sector.

For the full story, see:
LANDON THOMAS Jr. “A Greek Dvid Lands Some Big Punches.” The New York Times (Sat., DEC. 12, 2015): B3.
(Note: ellipses added.)
(Note: the online version of the story has the date DEC. 11, 2015, and has the title “In Greece, Brewer’s Woes Reflect Struggle of Business Owners.”)

Fewer Startups and Slower Growth Among the Fewer: Double Whammy to Economic Growth

(p. 7B) Previous studies have shown that, despite the success of firms like Facebook, the number of startups has dropped sharply, from about 13 percent of all firms in the late 1980s to about 8 percent in 2011. Now, a new study from the National Bureau of Economic Research reports that the expansion of the remaining startups — which traditionally has been much faster than the growth of existing companies — has slowed considerably. By some measures, it now barely exceeds the average of older companies.
So there’s a double whammy: fewer startups and slower growth among the survivors. This could be one reason why the recovery from the Great Recession has been so sluggish, with the economy’s growth averaging about 2 percent annually from 2010 to 2014, much slower than earlier post-World War II recoveries.

For the full commentary, see:
Robert J. Samuelson. “Our rate of startups is stalling at an inopportune time.” Omaha World-Herald (Sun., Dec. 20, 2015): 7B.

I strongly suspect, but am not sure, that the NBER working paper referred to above, is:
Decker, Ryan, John Haltiwanger, Ron Jarmin, and Javier Miranda. “Where Has All the Skewness Gone? The Decline in High-Growth (Young) Firms in the U.S.” NBER Working Paper # 21776, Dec. 2015.

Process Innovations from “an Uber of Trucking” Can Increase Transport Efficiency

(p. B1) Investors are pouring millions of dollars into startups hoping to disrupt the $700 billion trucking industry, the latest example of Silicon Valley’s efforts to upend the traditional economy.
A series of startups are vying to become an “Uber of trucking,” leveraging truck drivers’ smartphones to quickly connect them with nearby companies looking to ship goods. The upstarts aim to reinvent a fragmented U.S. trucking industry that has long relied on third-party brokers, essentially travel agents for trucking who connect truckers with customers.
Silicon Valley’s interest in trucking has accelerated in recent months. San Francisco-based Trucker Path Inc. says it is aiming to reach a $1 billion valuation next year. The latest entrant, Seattle-based Convoy, said Tuesday it had raised $2.5 million in seed funding from investors including Amazon.com Inc. founder Jeff Bezos, Salesforce.com Inc. founder Marc Benioff, eBay Inc. founder Pierre Omidyar and Uber Technologies Inc. co-founder Garrett Camp.

For the full story, see:
JACK NICAS and LAURA STEVENS. “Startups Accelerate Efforts to Reinvent Trucking Industry.” The Wall Street Journal (Tues., Oct. 27, 2015): B1 & B6.

Disney Used Money from His Cartoons to Fund the “Audacious” Breakthrough Snow White

(p. C2) The 1920s were no doubt a time much like our own, full of people who could see ways to advance and exploit new technologies, and Disney was one of those. But plenty of people have ideas; only a few manage to make them reality. Like many an Internet entrepreneur, Disney was able to do so because of a combination of serendipity and tenacity. You can read a lot into that sketch of a mouse he came up with.
“He doesn’t have the financial backing to support what it is he’s doing,” Carmenita Higginbotham, an art historian who teaches at the University of Virginia, says of his early career. “He wants to be a bigger voice than he is. And it’s a perfect metaphor, him being this small mouse, this seemingly insignificant figure or individual within this big industry that he wants to break into.”
The parallel to the Internet age is also evident in the speed of his ascension. His “Steamboat Willie” cartoon featuring Mickey Mouse in effect went viral after its premiere at the Colony Theater in New York in 1928, propelled by its innovative merging of image and sound.
That gave him enough credibility and money to try something audacious: “Snow White and the Seven Dwarfs,” a project that, we’re told, he outlined to his staff in 1934 by calling a meeting and enacting all the parts himself.
“What Disney was proposing had never been done, never even been tried: a feature-length, story-driven cartoon,” says the narration, read by Oliver Platt. There followed a typical Hollywood story of cost overruns and jeopardized deadlines — the animation technique used required more than 200,000 separate drawings.

For the full review, see:
NEIL GENZLINGER. “The Mind that Built the House of Mouse.” The New York Times (Sat., SEPT. 12, 2015): C1-C2.
(Note: the online version of the review has the date SEPT. 11, 2015, and has the title “Review: PBS’s ‘Walt Disney’ Explores a Complex Legacy.”)
(Note: Genzlinger is reviewing the two part documentary on “Walt Disney” that aired on the “American Experience” series of PBS on Mon., Sept. 7 and Tues., Sept. 8, 2015.)

Venture Capital Backed Unicorns that Become Unicorpses

(p. 1) The technology industry’s boom over the last few years has been defined by the rise of “unicorns,” the private companies that investors have valued at $1 billion or more. Before the term came into vogue, LivingSocial was among the biggest unicorns of its day. It now offers a glimpse of what some of today’s unicorns might look like several years down the road if things go awry.
. . .
Venture capitalists anointed daily deals as the way that the Internet would invade local business, and by late 2011 LivingSocial had raised more than $800 million and reached a valuation of $4.5 billion, according to data from the research firm VC Experts. The company counted Amazon and the mutual fund giant T. Rowe Price among its investors. LivingSocial spent heavily, blanketing the airwaves with TV ad campaigns. Riding a wave of momentum, the company explored going public.
Today, LivingSocial is more unicorpse than unicorn. The company never filed for an initial public offering and consumer fervor for daily deals has cooled. T. Rowe Price has written down its stake in LivingSocial to nearly zero, data from Morningstar shows. The company’s work force has shrunk to around 800 employees from 4,500 at its peak in 2011. (Groupon, which did go public, is trading at more than 85 percent below its I.P.O. price.)
. . .
LivingSocial may soon have more company. There are now 142 unicorns that are together valued at around $500 billion, according to the research firm CB Insights. Some of those highly valued start-ups are starting to show some cracks.
Snapchat, the messaging company, and Dropbox, the online storage business, were recently marked down in value by mutual fund investors. Zenefits, a human resources start-up, has said it missed sales targets and that it is slowing its hiring. On Wednesday, the payments company Square, which was valued at $6 billion by private investors last year, priced its public offering at $2.9 billion. Silicon Valley venture capitalists such as Bill Gurley of Benchmark and Michael Moritz of Sequoia Capital have warned that a unicorn shakeout is coming.

For the full commentary, see:
MIKE ISAAC and KATIE BENNER. “LivingSocial Offers a Cautionary Tale to Today’s Unicorns.” The New York Times, SundayBusiness Section (Sun., NOV. 22, 2015): 1 & 9.
(Note: ellipses added.)
(Note: the online version of the commentary was updated on NOV. 21, 2015. The wording of the last quoted sentence is slightly different in the print and online versions. The version above is the online version.)

Bezos Built Amazon with Methodical Patience

(p. B1) There is a simple explanation for Amazon’s rise, and also a second, more complicated one. The simple story involves Amazon Web Services, the company’s cloud-computing business, which rents out vast amounts of server space to other companies. Amazon began disclosing A.W.S.’s financial performance in April, and the numbers showed that selling server space was a much bigger business than anyone had realized. Deutsche Bank estimates that A.W.S., which is less than a decade old, could soon be worth $160 billion as a stand-alone company. That’s more valuable than Intel.
Yet the disclosure of A.W.S.’s size has obscured a deeper change at Amazon. For years, observers have wondered if Amazon’s shopping business — you know, its main business — could ever really work. Investors gave (p. B11) Mr. Bezos enormous leeway to spend billions building out a distribution-center infrastructure, but it remained a semi-open question if the scale and pace of investments would ever pay off. Could this company ever make a whole lot of money selling so much for so little?
As we embark upon another holiday shopping season, the answer is becoming clear: Yes, Amazon can make money selling stuff. In the flood of rapturous reviews from stock analysts over the company’s earnings report last month, several noted that Amazon’s retail operations had reached a “critical scale” or an “inflection point.” They meant that Amazon’s enormous investments in infrastructure and logistics have begun to pay off. The company keeps capturing a larger slice of American and even international purchases. It keeps attracting more users to its Prime fast-shipping subscription program, and, albeit slowly, it is beginning to scratch out higher profits from shoppers.
. . .
Why is Amazon so far ahead? It is difficult to resist marveling at the way Mr. Bezos has built his indomitable shopping machine, and the very real advantages in price and convenience that he has brought to America’s national pastime of buying stuff. What has been key to this rise, and missing from many of his competitors’ efforts, is patience. In a very old-fashioned manner, one that is far out of step with a corporate world in which milestones are measured every three months, Amazon has been willing to build its empire methodically and at great cost over almost two decades, despite skepticism from many sectors of the business world.

For the full commentary, see:
Manjoo, Farhad. “STATE OF THE ART; Long Game at Amazon Produces Juggernaut.” The New York Times (Thurs., NOV. 19, 2015): B1 & B11.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date NOV. 18, 2015, and has the title “STATE OF THE ART; How Amazon’s Long Game Yielded a Retail Juggernaut.”)

Do Entrepreneurial Results Excuse Entrepreneurial Arrogance?

(p. A1) Robert Whaley is a professor of finance at Vanderbilt University’s Owen Graduate School of Management and the developer of the two major so-called fear indices — the VIX and VXN on the Chicago Board Options Exchange — that are used to make bets on market volatility.

READING Right now it’s “Becoming Steve Jobs,” by Brent Schlender and Rick Tetzeli. It has a somewhat different take than Walter Isaacson’s “Steve Jobs.” I felt Isaacson’s version was a little negative. But what the books have in common is that Jobs was sheer genius. So what if he was arrogant? Consider what he’s done. We wouldn’t have iPhones and iPads if it wasn’t for his vision. I absolutely think that excuses his behavior. If everyone just wanted for people to look back and say you were kind, how would we move forward?

For the full interview, see:
KATE MURPHY. “Download: Robert Whaley.” The New York Times, SundayReview Section (Sun., SEPT. 6, 2015): 2.
(Note: the bold above is in the original. The first paragraph quoted above was written by the interviewer Kate Murphy. The paragraph following the word “Reading” is the response by the interviewee Robert Whaley.)
(Note: the online version of the interview has the date SEPT. 5, 2015.)

The Steve Jobs books mentioned by Whaley, are:
Isaacson, Walter. Steve Jobs. New York: Simon & Schuster, 2011.
Schlender, Brent, and Rick Tetzeli. Becoming Steve Jobs: The Evolution of a Reckless Upstart into a Visionary Leader. New York: Crown Business, 2015.