I Don't Get It

The final passage of the Energy Bill extends Daylight Savings by 4 weeks instead of 8 weeks. I prefer the longer version - or even a permanent DLS - but will take what I can get. The news article discussing the bill had this:

Farmers said the change would adversely affect livestock.

Huh?

DLS is nothing more than a mass rescheduling of the day. Think if it as working 8-4 instead of 9-5. School goes from 7-2 instead of 8-3. So if you are retired and don't work, don't have kids to prepare for school, own a Tivo, and shop at stores that are open 24/7 (or on-line), DLS has little affect on your life.

Farmers - and cows - set their own hours. Except for occasional market events like auctions and the like, how does DLS have any change on livestock? The farmer can decide when he is going out to the barn and milk. Can someone out there fill me in, or is this just a silly argument?

The Business Experiment Moves Forward

The Business Experiment is currently casting its tenth and final vote on the "first round" of ideas. Each vote had around five business ideas, so it's been pretty interesting parsing and selecting what business is "best" from only a high-level description. But that is what the first phase of the experiment is all about. The theory is that a group - as a whole - will make a better decision based on a high-level overview than going into a deep dive analyses on all 50 ideas and then discussing each one at length.

Ideas that pass the first round, however, will have a more detailed analysis and discussion for the second round of voting, now that we have supposedly separated the wheat from the chaff. I should note that of five votes tallied so far, none of my first picks made it out of the first round. Draw your own conclusions on either me or the "crowd".

One interesting thing that has come up from the voting was an observation by Rob, who is driving the experiment:

Has anyone watched the votes at several different times during the day? It seems that, with the exception of one poll, once we get 40-50 votes, the results stay at about the same ratios.

I suggested this is a result of sample theory - which is the principle used in polling. You don't need to get a "vote" from every single person in a group to get an accurate representation of what a group wants, you only need to get a large enough sample - the result will be the same.

The interesting issue this brings up about "Wisdom of Crowds" decision making is that the whole "group" isn't needed to make a decision, only a representative sample. So what does that say about the concept in general and how you put it to work? It's a topic that a core group of us in the Experiment are now kicking around.

Another China Mystery

Reporter in the field "Shakel" sends in the following picture from his trip to China. After sending it to various Sinotologists, experts in language, and marketing guys who have logged lots of miles in Asia, no one has offered an explanation of what "Laughing Bag Counter of Entrance" means.


Anybody have any suggestions?

China Re-Evaluates the Yuan

It will be interesting to see what affect the changing the value of China's Yuan will have on the U.S. trade balance. Technically is is not a true "float" as they will limit is value in within a band of values, and the initial change is below value that U.S. trade representatives wanted. But this could change prices for everything from toys to clothes at the local Wallmart.

Update: The "re-evaluates" is a pun done on purpose, for those who asked.

Daylight Savings to be Extended?

The WSJ is carrying a story today (paid link only) on how the current energy bill that is winding its way through congress extends daylight savings one month on both ends. Instead of going from early April to the end of October, it would go from early March to the end of November.

This would put the country on non-DLS for a whopping three months a year: December, January, and February. The extension is not a done deal, but the article puts its passage at a very high probability. And it would take effect immediately - we would not go off our current DLS until the end of November this year (the Sunday after Thanksgiving, in fact, giving travelers a 25 hour day for the last day of the weekend).

Personally, I like this change. The politicians like the supposed energy savings (100K barrels of oil a day), but I am one of the large majority of Americans that like it due to the lifestyle and leisure options it opens up. I would probably approve going on "permanent" DLS, but I do understand the issues that some have with it, sending kids to school in the dark and the like (although I remember going to school in the dark plenty during standard-time winter months, so I am not sure how much of an issue this really is).

Obviously this doesn't affect Arizona and parts of Illinois that opt out of DLS, and if there are large communities (typically rural) that don't like the change, more areas could decide to opt out if they can get passage through their state legislatures. But count me as one who is rooting for its passage.

Update: A second article the following day in the WSJ says the extension is on hold due to complaints by various groups. I guess this could be on hold for a while, or indefinitely.

New Stock Option Rule Hit Lower Ranks

I once read something - I can't remember where, but I think it was Stanley Bing - that went something like this (I can't find the direct quote, but here's the essence of it):

No matter how well you do your job, no matter how well you are liked by your superiors, no matter how irreplaceable you are to the organization, your boss will eliminate your high-paying job in order to keep his high-paying job.

This seemingly obvious statement hit me for some reason, I think because it called out how little of business is a "team effort". For the vast majority of managers out there, "work" comes down to little more than keeping their job and increasing their compensation, and little else.

This concept goes all the way to the top in most organizations, which is why periodic attempts by the federal government to "rein in executive compensation" does little more than hurt the lower rank and file. This is because the corporations (run by CEOs and board members who are CEOs of other companies) just rejigger the rules and accounting to keep their compensation the same and force the brunt of the ruling onto the lower ranks - they will eliminate as many jobs or perks below them to keep what they have.

Which is why I was not surprised by a little article tucked away in the 4th section of the WSJ yesterday:

Cuts to equity-compensation plans, being made as a new expensing rule is about to take effect, will effect lower-level employees the most, according to a study by Deloitte Consulting.

...

Among those reducing stock options, 45% said reductions would occur below management level.

The secretaries and entry-level employees kissing their stock options goodbye can thank the FASB's new accounting rule requiring companies to treat employee stock options as an expense. Although it has no fundamental change to the business, it will force companies who don't want to see the income hit cut stock options - and they aren't going to cut them from the top.

A Grand Business Experiment

Rob over at Business Pundit has started an impressive project: to create a company using only blogging, podcasting and other tools of the internet. The idea is similar to Open Source software, but to applied to the whole business plan:

Yes, you heard correctly. Business bloggers and readers will test their cumulative business knowledge by collectively starting and running a business - out in the open.

Can we do it? I don't know. It seems crazy, and counterintuitive to everything that we think about business, but that is why I want to do it.

This project intersects with some concepts I have been thinking about on the "virtual corporation". I think macroeconomic developments in the U.S. economy coupled with demographic shifts and changing American work habits will force huge changes to how companies do business over the next 20 years. The networked PC has created a seismic shift in retailing, and the next phase will be to change how "work" is accomplished.

I see the project as a case study more than anything. If it becomes profitable, great, but I think its real value is as a lab experiment on new ways to do business. The web site for the project is here, and I'll update its progress here from time to time.

Free Airport WIFI

As I sit here waiting in John Wayne Airport for my flight this morning I found a free WIFI node provided by an outfit called Nextphase Wireless. I don't know why it's free, except maybe to "seed" people into using it, then once they get people using it, they can ask for money once they hit critical mass. But that really isn't necessary in an airport. Looking through their web site, their model seems to be to get property owners to provide the service, but I can't imagine a government entity providing it for free. Maybe it isn't "free", but was a 10 cent adder to my higher-than-usual cup of Starbucks (nearly $3 just for a Venti coffee).

Just a tip for the next time anyone is stuck in John Wayne (I was going to add that John Wayne is the only airport named after an actor. However, that's not true, is it? Reagan National is named after an president, who was once an actor. Maybe it is the only U.S. airport named for an actor)?

The Deal Optimism Cycle

While helping my current client out on an acquisition, I noticed that, like any deal, there is a periodic cycle in which optimism and euphoria on whether the deal will happen is followed by pessimism and dread that the whole thing has been a waste of time.


The cycle is approximately every 12 hours and is closely synched with the most recent time you had the legal team in the room, since their job seems to consist of why the deal shouldn't be done, while the finance and marketing due diligence teams' job is to tell you why it should be done.

Security No Slower Than Usual Today

After hearing about the blasts in London this morning, I thought I would give myself more time at the airport, figuring they would be on "heightened security", meaning longer waits.

I blew through faster than normal, and am now on-line, drinking coffee, and waiting for my plane, so maybe security isn't that heightened. Or maybe the regular security is so good that "heightened" doesn't mean anything. Or maybe it's because Thursday is the second slowest travel day of the week.

I'm Old for a Blogger

MIT is running a blogging survey. Like any on-line survey where participants are self-selecting, there is an issue of how accurate the results are, but with over 50,000 people participating so far, my guess is that the results are statistically accurate.

I thought the age distribution graph to date was interesting. When you re-log in to take a look at the results, it highlights your answer. So you can see in the graph below where I stick out as an old man in blogger land, although my guess is that all the "majors" are up there with me.




Click on the below to take the survey yourself.

My Corporate Valuation Workbook

I'm really good at writing business plans. I can put together a slide set and related text showing why - from a marketing perspective - a certain idea should be funded, an acquisition take place, or a division spun out to stand on its own.

Unfortunately, "C-level" type executives also like to see a financial analysis to back up the pretty slides and marketing shtick, so I have had to develop - with help from others - what has become my standard financial model for corporate valuation. So, at the request of Dutch, I'll share an overview of what this looks like (I am taking the screen shots from a start-up that never got funded, so no proprietary data will show up).

First, the Excel workbook contains all the basic financial aspects of the enterprise, each having its own tab:

These are all linked together, so a change in, say, average sales price (ASP), cascades through the workbook and shows up the cashflow, income statement and breakeven tabs, so "what-if" analyses are easily done on the fly.

The spreadsheet is broken down by quarters throughout the analysis, with yearly roll-ups provided as needed. As seen here in the Capital Costs sheet, there is not a lot of detail in some of the headings, so I usually add additional sheets that provide a full breakdown, and link the sum into this sheet. I also usually tie the spreadsheet into any written analysis I have done, which is why in this example you see "phases", which were outlined in the written business case.

The Operating Expense sheet has proven pretty valuable since most people don't consider a lot of the little things that add up while running a business: postage, long distance, consultants like me. In most of my spreadsheets (although not this one) most of the operating charges are based on headcount, so changing headcount changes not only the salary line, but all other expenses for the business, such as required square footage.

I am not going to bore you with screen shots of every tab, so let's just say that the sales tab is based on product volume and ASP, and that Cost of Goods Sold (COGS) is based on variable costs. Everything rolls up into the tabs that everybody really wants to see: income, cash flow and break-even:

This spreadsheet evolved over several iterations, and I've been toting around the current version for about half a decade now. It's proven very valuable since it is a necessary part of writing a business plan.

New Look or Old?

Reader Ed points out that Blogger fixed the problem with my old format - right after I spent a good deal of time getting the new layout to a point where I sort of like it.

So what will it be? Do you like the new look, or the old look, archived here?

My Job Opportunity Keeps Going Down with the Valuation

As noted previously I have been brought on as a consultant to help a due diligence team in an acquisition. The deal is that if the acquisition goes through, I will be brought on as a full time employee to run the new division.

That's quite a carrot to make the thing go through, but the catch is that I have to make the acquisition work after it's done. In other words, if I don't make the new division live up to the forecast I created for it during due diligence, my job will be short lived.

So the CFO and I have been batting the valuation for the "acquiree" back and forth for the last few days. My number started off high, being the optimistic marketing guy that I am. His number started off low, being the pessimistic bean counter that he is. The problem is that as we went through the differences in our models, he convinced me to take his side a lot more than I convinced him to take mine.

So the valuation keeps going down with each revision (we are now on "E"). That is normally a good thing since this means the price of the company - and thus the acquisition cost - keeps going down, but the problem now is that the latest revision valuates the company lower than the last round put into it by the VCs. In other words, we are at a valuation that is lower than what the investors put into the company.

Now this includes only one aspect of the company: the net present value of future cash flows (NPV). This leaves out of the calculation certain assets on the company's balance sheet that we would jettison, cash on hand, and other items that would actually increase a negotiated sales price.

So maybe it's not a lost cause, but I think the probability of the acquisition going through - and my permanent job prospects with this company - went down with each revision of the spreadsheet.