Just Do It! Yourself

Because of my busy weeks, whenever I come across an interesting headline on my Twitter timeline, I favourite it and read it later. Last week I saw a headline that read “Can Entrepreneurs Be Made” by Anthony K. Tjan (@AnthonyTjan) in the Harvard Business Review (@HarvardBiz).

The article discusses the big question of whether entrepreneurs are born or made. Do they carry a genetic formula that destines them for success or can anyone, with the correct interventions, be an entrepreneur. As you know I have covered this question before, albeit from one Prof Muhammad Yunus’ point of view, in my blog instalment Every Single Human Being Is A Potential Entrepreneur.

But what really caught my eye in Tjan’s article were two points he made at the end of his article. They resonated with me deeply.

“Entrepreneurs start from that place we call Heart, inner passion and desire that is not easily malleable. We are what we feel”

I am sure you have heard many entrepreneurs say don’t start a business with the sole objective of ‘making money’. Others have gone further to say “Money is not Everything”. Ever noticed how that always sounds better when it’s said by someone who HAS money, yet when you hear it you can’t help but think “Are you out of your mind. Why else would I start a business if my ultimate objective is NOT to make money? That’s why it’s called a business right?! And besides money may not buy you everything, but it certainly buys MOST things”

My view is ‘yes and no’. Let me explain.

Tjan talks about what drives entrepreneurs, or what makes true entrepreneurs in the context of whether they are born or made. Just like ‘anybody can father a child but not all are fathers’, anyone can make money but not all are entrepreneurs.

Just like making a child, making money really isn't that hard. Buy something for R100, and sell it R120. There! You have made money. That doesn’t make you an entrepreneur, though.

Entrepreneurs take risks for greater reasons than making money. It’s that Heart. That desire to achieve something of greatness. For some greatness is writing and publishing African language books for children and for others it’s inventing the Internet.

So please, don’t choose the life of entrepreneurship if all you want to do is make money. Choose it for more than that. Create something sustainable. Something that changes human behaviours. Something that changes lives. Something that makes the world a better place for you, those you love and your community at large. That, requires "heart, and inner passion".

However, money is important. Life is a lot easier WITH money than WITHOUT money. An entrepreneur WITHOUT money spells doom for the entrepreneur, the enterprise and those supporting the entrepreneur.

As one veteran entrepreneur once told me many years ago, “Andile, you must make sure your business can feed you my boy. You see if the stomach is empty, all your mental strength is driven by the empty stomach. So effectively, you start thinking with your stomach. And that’s the beginning of the end for you. You see stomachs weren’t made for thinking. We have brains for that. Ok?”.

I remember nodding slowly and hoping that all of this will make sense to me one day. It did.

Make no mistake money is important, in fact its critical. It supports the lifestyle you want to live. It supports those that support you as an entrepreneur and for some, it serves as a scorecard!

So by all means, please make money, make tons of it! But don’t become an entrepreneur just for the money. Find that inner passion and desire, first. You are going to need it.

Tjan goes further and says: “Turning that passion into a business reality obviously requires executing on it. It requires Guts. Unimaginable amounts of potential lie dormant because people don't have that minimum threshold of Guts to just initiate and not overthink it”

Over my years in business, I have grown to appreciate, immensely, the art of DOING. Most entrepreneurs want to see themselves as the Thinkers, the Strategists, the Innovators. Nobody ever wants to be the Doer.

In fact, once we have conceptualised the idea (which any case is often by chance rather than design), and strategized how we are going to take it to market with all sorts of innovative technologies and marketing stunts, we want to bring in someone else to EXECUTE.

Many entrepreneurs often think this is the way to do it, because of what they read or see about other entrepreneurs who have made it big. They see the likes of Steve Jobs, Bill Gates, Jay-Z and Richard Branson dishing out instructions to staff and delivering great products to the world and they figure “I need to be the ‘ideas’ guy. I then need to get some people to execute. Then I have arrived”.

No dude, you haven’t even taken off!

You see, what most people forget is that it’s not always been like that for these guys. In fact, quite the contrary! All of the examples I have mentioned above got their break into big business, by EXECUTING THEIR OWN IDEAS.

Writing about Jay-Z, a BBC article journalist says:

“As a young rapper he worked hard on getting his flow perfect, on making his lyrics full of the right references, on never writing down a lyric. When he couldn't get a record deal for this first CD, he and friends used the same street entrepreneurial skills they had used to sell drugs in Brooklyn's Marcy Projects. "We knew we had something the people wanted, so instead of quitting we built it ourselves," says Jay-Z. They sold copies of his first CD out of the boot of their car next to Gray's Papaya, a famous hotdog store on 6th Avenue and 8th Street in Manhattan. Jay-Z was determined to become the rapper with the best flow, and if selling his CD himself on the street was necessary to achieve success, so be it”

So Jay-Z conceptualised HIS own album, memorised HIS own rhymes (Yes, he doesn’t write his raps), and then recorded his own album and when he couldn’t get a record deal, HE sold HIS own album out of a boot of a car.

So, you say you want to be an entrepreneur, huh? Stop talking about it then. Just do it! Yourself.

 

AK

Every Single Human Being is a Potential Entrepreneur

I've been reading this book "Banker to the Poor" by Muhammad Yunus, the economics professor, turned social entrepreneur. He started the micro-lender, Grameen Bank, in Bangladesh that changed the lives of the poor women of that country and beyond.

He says something in the book, which I find extremely profound about entrepreneurship:

"Microeconomic theory, which plays a central role in the analytical framework of economics, is incomplete. It views individual human beings as either consumers or labourers and essentially ignores their potential as self-employed individuals. This theoretical dichotomy between entrepreneurs and labourers disregards the creativity and ingenuity of each human being and considers widespread self-employment in Third World countries as a symptom of underdevelopment”

Talking about changes he proposes in the basic features of capitalism he continues to say:

“The first change relates to this overblown image of a capitalist entrepreneur. To me, an entrepreneur is not an especially gifted person. I rather take the reverse view. I believe that all human beings are potential entrepreneurs. Some of us get the opportunity to express this talent, but many of us never get the chance because we were made to imagine that an entrepreneur is someone enormously gifted and different from ourselves.”

“If all of us started to view every single human being, even the barefooted one begging in the street, as a potential entrepreneur, then we could build an economic system that would allow each man or woman to explore his or her [own] economic potential. The old wall between entrepreneurs and labourers would disappear. It would become a matter of personal choice whether an individual wanted to become an entrepreneur or a wage earner.”

Part of the reason why South Africa’s unemployment problem will take longer (than it should) to resolve is precisely what Yunus is talking about. Entrepreneurship is not seen as an option. Human beings in our economy are largely either seen as consumers and/or labourers NOT as entrepreneurs.

Like Yunus, I am convinced that entrepreneurship must climb up the agenda. Surely the recent emergence US start-up businesses, now worth billions of dollars and employing hundreds of thousands of people, should be driving a shift in paradigm from our policy makers. And I'm not only talking about the Google’s and Facebook’s. I'm also talking about the Microsoft’s and Apple’s.

Every single human being is a potential entrepreneur, yes even the barefooted beggar. Profound!

AK

Afrikaans Capital, African Consumption

This week I read about the imminent listing of Transaction Capital, the investment firm led by Massmart Chairman, Mark Lamberti. It was reported that the company plans to raise R500 million from next month's JSE listing.  Other than Mr Lamberti at 7%, the company's shareholders include Ethos, a leading SA private equity firm at 10% after investing R100 million; and Futuregrowth, which has invested a whopping R340 million of equity in the venture.

Now, at this point I'm thinking: “Wow, how amazing is this: a brand new business, likely to create hundreds if not thousands of jobs in our economy, about to list on the JSE, with THAT calibre of shareholders, who have committed THAT much equity. This is awesome”. 

Think about it, if Ethos' 10% is worth R100m then this is (at least) a R1 billion business before it even lists!

So, I was intrigued. I wanted know what is it that could've convinced the stubborn minds of Fricker Road to invest at such levels. So I did some research, and the activist in me, saw more than I should've.

Transaction Capital has 4 subsidiaries.

Subsidiary 1: MBD Solutions, is a company that collects debt for retailers such as Woolworths, Truworths, Edgars and Jet, basically the Wooltru and the Edcon groups. This business turns over R635 million, and delivers a Profit Before Tax of R91 million. Very nice! I wonder who holds that much debt in retail purchases.... oh of course it must be 'those people'....

Subsidiary 2: Bayport, is a company that provides unsecured lending to consumers that were historically ignored by "traditional" banks. Historically ignored???? By traditional banks??? Mmmmmmm, who could THAT be? Aha! Its 'those people'!

Bayport turnover is R1,4 billion per annum. I couldn't find any profit numbers but keep in mind that unsecured lending tends to be a very profitable segment in retail lending (think: High risk, High return). 

And whilst everyone is ranting and raving about the risks of unsecured lending growth in SA and even comparing it to the US sub-prime crisis that sparked the global economic meltdown, Lamberti is quoted as saying "Unsecured lending in the country is about R110 billion and our book is just under R3 billion, so we can afford to be very selective about who we grant credit to and how we grant credit". 

Translation: "Don't stress my fellow investors, there are enough Black people in SA who have no assets to place as security but are responsible enough to pay your loan back with interest (priced just below uMashonisa rates), simply because they are good, gainfully employed, responsible citizens of the country who want the best for themselves and their families. Trust us, not everyone is a Julius Malema. We’ve done the research!"

Subsidiary 3: Paycorp. This is a clever business that consists of "off-bank" ATM's. You know these. These are the ones you find at filling stations, with no identifiable retail bank attached to them. Yes, the ones which you tend to always encounter when in an emergency for cash and have no time to drive around to find ‘your’ bank’s ATM. Funny how you always think: "This withdrawal is about to cost me a lot of money”, but you always withdraw anyway.

Paycorp, puts about R22 billion through its 4,000 ATM's every year. The business is busy with plans to grow into remote areas to complement their footprint in forecourts and shopping malls. Who lives in these remote areas? Yes, you guessed it: "those people"...

And now..... *drum roll please*..... for my personal favourite:

Subsidiary 3: SA Taxi. Yes, you heard me, the company is called "SA Taxi". SA Taxi provides lending services and insurance products to more than 20,000 taxi operators. This business is said to be poised to benefit from the taxi industry when the national taxi fleet is renewed as the current fleet is aging. Who OWNS taxis? Who DRIVES taxis? Who RIDES in taxis? Yes, you guessed it again: "those people".... "I like your perm, but not on my window". I wonder if Mr. Lamberti has ever seen one of these?

The Transaction Capital group's overall income is R3,6 billion. Their total loan book is R6,7 billion. In short, if you add up all the credit they have granted to Black taxi owners and loans to the many Black families with no assets, plus 'who knows what', these add up to R6,7 billion. That will buy you two Avusa's, plus some healthy change to take back home!

I have lots of respect for entrepreneurs. In fact, the concept of making something out of nothing, other than an opportunity, a great idea, a conviction, has taken over my life and arrested me and sentenced me to a life-long dedicated entrepreneur.

I am fascinated by how Transaction Capital has identified gaps in the market and the markets in those gaps. Look at a business like Bayport. Most banks have literally fled from these unbanked Blacks with no assets to put up as security for loans. Bayport is in there and most importantly is making tons of money doing it. This is good. This is very good.

How about a business like Paycorp? The big 4 retail banks have had to be forced to create "access to financial services" sites in remote areas for Black people, who have historically not been considered part of the economy, except as the necessary "cheap labour" evil. Should Paycorp succeed in providing ATM services to remote areas, this means our people in the many remote villages of the country can have access to basic electronic banking services offered by a simple ATM. This is good. This is very good.

I, therefore, have great regard for what Mr Lamberti and his colleagues have achieved to date and I wish them every success in their listing and beyond. It is no simple feat to build a R100 million business let alone a R1 billion business. So well done, gentlemen.

However, reading the story I realized something that is NOT an indictment of the entrepreneurial team of Transaction Capital but a SERIOUS INDICTMENT for the Black people of South Africa.

The story of: Afrikaans Capital, African Consumption.

Why is it that the largest financier of unsecured lending is an Afrikaans run bank?

Why is that most Black taxi owners borrow from white run (and controlled) banks? 

Why can't Black people think-up, develop and roll out these ideas for themselves by themselves.... to themselves?

Is Stellenbosch going to continue to be the economic capital of South Africa, whilst Africans, in their townships and villages, remain the systematic consumers of its myriad of goods and services?

Think about where you do groceries? Afrikaans Capital.

Think about where you bank? Afrikaans Capital.

Who grows your food? Afrikaans Capital.

And if Stellenbosch has its way, your children will go to an Afrikaans capitalized private school, pitched ‘not as expensive as St. Johns, but not as cheap as Orlando High’. And you and I know, we will send our kids there. Not because it's funded by Afrikaners, but because it a great idea developed by great entrepreneurs. Except that these entrepreneurs are not Black. And yes, Political Correctness aside, that is an issue as it creates a systematic threat to the continued stability of the democracy we hold so dear.

Black man, wake up! Your 'real' freedom is being outsourced to the minority, whilst you occupy yourself with meaningless politics and tenders. You are busy drinking skinny cappuccinos in Melrose Arch, whilst your markets are being penetrated by those who dare to dream, and do. Access to capital is a poor excuse. I keep saying, and will never stop saying “Great ideas, always secure funding”. Transaction Capital has proven it so far, and I have my money on them to prove it when they list.

So, what is it about Blacks that make us comfortable being market takers, and never market makers? Why are we not leading in market segments that sell to our people? We understand the cultural behaviours and disparities of Black South Africans, more that any research house could, simply because we ARE the market. Yet, we take this invaluable IP and do nothing with it.

To borrow from the leader of the Black Consciousness Movement, Steve Biko, we are sitting and spectating in a game that we should be participating in.

Asked about how he juggles what must be a very demanding Chairmanship of leading retailer, Massmart (yes, the one that has just been bought by Walmart) Mr. Lamberti concludes by stating that Transaction Capital takes up 12 hours of his day and he is "having a lot of fun".

I'm sure you are indeed, having a lot of fun, Mr. Lamberti.... as you should, you have earned it. I, further wish you and your colleagues all the best in your business endeavours.

In the meantime, please excuse me whilst I try and wake up my sleeping brothers and sisters who are more concerned about Mangaung than Stellenbosch and are too blind to see the relationship between the two.

AK

Sources: Sunday Times, May 13, 2012

A Lesson From Canada

I just came across a very interesting movement started by Canadian business for Canada. Yes, you heard me, not by government but by business in order to help the nation become more globally competitive, grow the economy and create more sustainable Canadian jobs.

It made me think for a second why, whether you agree with Dr Reuel Khoza or not, it is critical that business and government are engaging about the state of our nation. In particular our economy, and not have such topics be for the exclusive consumption of a few.

The Canadians have come up with something called "Start-up Visa Canada". This is their pitch:

"In an increasingly globalized world the economic success of a city, a region or a whole country depends increasingly on their ability to attract the best and brightest from all around the world.

This has been the driving force behind the rise of Silicon Valley as the technology hub and whole countries like the US and Canada.

But often we make it too hard for (technology) entrepreneurs to come to our country and build great companies that can create thousand of new jobs. Entrepreneurs and Venture Capitalists in the United States have recognized this first and have lobbied the US government in the past months to encourage immigration on the valuation of their business ideas and legislation is now pending in Congress.

So it is about time that we pursue similar ideas in Canada and we are therefore happy to announce the launch of the Startup Visa Canada initiative.

Here is what we are proposing:

Currently, the federal and provincial governments’ entrepreneurial immigration programs contain minimum personal fixed asset provisions and a long approval process that make it nearly impossible for today's immigrant entrepreneurs to start companies here.

The Startup Visa Canada Initiative would create an additional new visa program that:

• would allow for an investment of $150,000 into a newly formed Canadian technology startup to qualify in place of the minimum asset provisions.
• would enable approved local investor(s) to endorse qualified entrepreneurial immigrants to obtain their temporary work permits which this permit would only allow the immigrant to work for a newly formed company, and thus not take jobs away from qualified canadians.
• would require immigrants to have at least a third equity position in their companies, be active in management and create at least 3 full-time equivalent (FTE) jobs over the course of a 2-year program period.

It would be truly fantastic if we could beat the US to the punch and be the first to extend an invitation to the best entrepreneurs out there: Entrepreneurs of the world, Canada is open for business!"

As I read this it got me thinking about us, South Africa. Imagine if we set out on a mission to entice the best entrepreneurs in sub-Saharan Africa to  come and set up their businesses here in South Africa. Imagine the potential. Imagine the impact on job creation, on innovation, on global positioning, on economic growth, on international relations, and the list goes on.

But no, not us. We have the rare ability think of all the reasons why we SHOULDN'T do what the rest of the world is doing. The developed world thrives on attracting the best skills in the world to grow their economies. I can already hear the debates in the media about 'these foreigners taking our jobs', and not realizing that these 'foreigners' are more likely to create jobs for your own children than any government and any slow, innovation-bankrupt, conglomerate driven economy like ours.

It's time we catch a wake up, and start doing things for ourselves. We need to start being overtly and unapologetically competitive. The world doesn't owe us anything, anymore. No one is gonna give us a head start in this competitive race just because we conquered apartheid and have Nelson Mandela.

That's the old world. The new world is competing for everything, most notably talent, and they couldn't care less about us and our history.

There are a very few entrepreneurs I meet in the rest of our continent, who don't see South Africa is a big player in the global economy and see the value in being linked with SA Inc.

South Africa has a rare opportunity, one that will be taken by either one of Kenya, Ghana, Nigeria, Egypt or another if it doesn't grab it now. That is the opportunity to entice the best entrepreneurial brains and talent on the continent to operate from right here eMzansi.

Like the Canadians we should be saying: Entrepreneurs of Africa, South Africa is open for business!"

The Year 2012 May Be Better Than We Expect

I know that the realists amongst us are generally against the idea of a "New Years Resolution". They pride themselves for not making any such resolutions because to them the 1st of January is just another day in the calendar and a continuation of this long drawn-out thing called life, so who cares about the first day of the year. 

 

However, it crossed my mind whilst enjoying the company of friends in early hours of 1 January 2012 that, irrespective of how smart you may want to sound, the first day of anything, is something human beings tend to treasure. Think about the first day of your life, the first day of school, the first day of University, the first day you saw her and the first day of 'the rest of your lives together'.

So, its human nature to attach some importance to the 1st day of a year. For many it has meaning. It provides an opportunity to make a fresh start. It's as if the universe has restarted the clock. It's as if you have just finished the race of 2011. Checked your distance. Checked your achievements. Took a breath. And now you get to start another race. The race of 2012.

Irrespective of whether 2011 was good or bad to you, the 1st January 2012 is an opportunity to give this thing we call life another shot.

Today, I came across an article entitled "If you've got a job, be happy" by Maya Fischer-French which got me thinking about what 2012 holds for South Africans in light of the turmoil in Europe, the growth slowdown in Asia, and many other domestic factors.

This article gave some evidence to the "gut-feel" I have that 2012 may be a better year than we all expect. Economically that is. Mangaung remains a topic for another day!

Enjoy.

"IF YOU'VE GOT A JOB, BE HAPPY"

by MAYA FISHER-FRENCH - 

20 Jan 2012

"If you have a job and some assets, you are better off than you realise. Indicators of economic activity released over the past few months suggest that our economy is starting to find its footing and 2012 may be better than we expect, despite the general pessimism about the eurozone.

Bond originator ooba recorded a 33% increase in the value of bonds approved in November, the highest recorded since May 2008 before the global financial meltdown.

The FNB estate agent survey shows that more first-time buyers are entering the market. After collapsing to 15% of total buyers in 2008, the percentage of first-time buyers rose from 17% in 2010 to 23% in 2011. This is the highest percentage of first-time buyers since 2005. Affordability affects this market the most as they require a significant deposit and find it more challenging to get credit without a track record.

On the upside, retail sales growth has continued to surprise economists and the good news is that we are doing it without taking on additional debt. Credit extension figures for households are the weakest ever recorded post-recession and, according to FNB's household debt-service risk index, the vulnerability of the country's household sector when it comes to being able to service its debt appears to be diminishing. The index shows that, although household debt is not at a comfortable level, it is moving in the right direction.

Revenue collection figures at the end of November showed that government revenue collection exceeded expectations, with value-added tax (VAT) revenue up 26%, excise duties up 37% and a 14% increase in personal income tax. VAT and excise duties are good indicators of spending, and higher personal tax collection suggests either higher wages or more jobs. Either way there is more money to spend.

Although it may not feel like it, South African consumers are, on aggregate, substantially better off than they were a decade ago. The issue, though, is that the wealth effect is not yet broad-based and remains limited to those who are employed and have assets.

Reserve Bank figures show that household net wealth clocked in at R6.5-trillion at the end of last year, increasing by 9.7% on the previous year. This is a record level despite the recent global economic turmoil.

Over the past seven years, household wealth increased by slightly more than R3-trillion, an average annual growth rate of 12.9%. Most of this is in the form of financial assets (R4.6-trillion), including bank deposits, pension funds and unit trusts. Residential property makes up R1.6-trillion.

South Africa's household debt makes up R1.2-trillion, which leaves us with a net asset base of R5.3-trillion. According to Stanlib economist Kevin Lings, although some homeowners may be struggling to keep up their bond instalments, on aggregate the value of residential property was equal to 210% of the amount owed on these properties."

The Negotiated Settlement

Last week, I set out to blog about my strong view that BBBEE needs to start wielding a very big stick. How BBBEE can no longer rely on the goodwill of white corporate SA to accelerate the effective participation of Blacks. Then I realised that I hold another view about where this actually comes from: CODESA.

CODESA is effectively the series of negotiations between 1990 and 1993 that ‘officially’ ended the apartheid system in South Africa. These negotiations took place between the governing National Party, the African National Congress, and a wide variety of other political organisations. Negotiations took place against a backdrop of political violence in the country, including allegations of a state-sponsored third force destabilising the country. The negotiations resulted in South Africa's first multi-racial election, which was won by the ANC.

In my view there were only two agenda items at CODESA: Political Transformation and Economic Transformation.  Obviously I was not privy to the discussions that took place there. I wasn’t even old enough to vote in 1994, let alone understand CODESA. I have, however, since seen a few snippets of Nelson Mandela telling FW de Klerk where to get off during negotiations. That was fascinating to watch. However, based on the policies that came out of the ANC on economic transformation post the 1994 elections, one started to see signs of what was perhaps agreed or more importantly, what was conceded!

Why am I concerned about the concessions? Well, it is my strong view that ‘our‘ victory over apartheid was somewhat undermined by what eventually became a ‘negotiated settlement’. Some may argue that the negotiations saved the country from what could’ve become a bloody and devastating civil war that would have taken the country back decades in infrastructure development and economic prosperity.

However, every negotiated settlement has concessions. No party gets everything they want in a negotiated settlement. The question we now have the benefit of hindsight to ask is: What exactly did ‘we’ concede, what was the real price of these concessions, and what do we have to do to reverse these losses?

Let me first say that I don't profess to know what the black political leaders were going through on that CODESA table. I am certain that they did the best they could at the time. I imagine though, that they would’ve carefully considered the concessions they had to make, against the wins they needed to secure. After all that's effectively what negotiation is about: You lose what you value less, in order to gain what you value more. Its a relative measure, not an absolute one. Everything is important, but certain things are critical. You secure the 'critical' and live with conceding some of the 'important'.

Back to the agenda. I am certain that economic transformation was a bigger debate at CODESA. The writing was on the wall in so far as political transformation was concerned. There would have to be free and fair elections to allow the people of South Africa to decide for themselves who shall rule. The economy though.... not that easy.

Fast forward a few years, and we start getting some indication on what was agreed on this thorny issue: Economic Evolution NOT Economic Revolution.

In summary, it was agreed that the Government of National Unity would chart a programme whereby Black people would be accelerated to become economically active and be part of mainstream economy. We would start with ownership. We would have a programme called Black Economic Empowerment. This programme would seek to have at least 25,1% of the economy transferred to Black hands over a period. The Nats probably thought: 'This would surely satisfy the call by the ANC for the people to ‘own the means of production’. The ANC was probably thinking: ‘It's not everything we want, but it's a start. Lets concede on this one, keep the economy stable. Tell our people there will be a process, whilst we get to grips with running a country. Besides we would now be running the state coffers!’

It's been 17 years since the first democratic elections. Where are we on this 'negotiated settlement' of Economic Evolution?

To fully appreciate where we are, let me preamble by restating the population demographics of South Africa, according to Stats SA’s mid-year Estimates 2011.

Mid-year population estimates for South Africa by population group. Mid-Year Estimates 2011	Total
	Number	% of total population
African	40 206 275	79,5
Coloured	4 539 790	9,0
Indian/Asian	1 274 867	2,5
White	4 565 825	9,0
Total	50 586 757	100,0

Chew on these statistics as we review the state of economic transformation in South Africa today over the next few blogs!

The United States of America

Earlier today i received an email from a friend entitled "The Unites States of America".

It wents as follows:

"It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit. Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to choose one. The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher. The butcher takes the 100 Euro note, and runs to pay his debt to the pig grower. The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel. The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town's prostitute that in these hard times, gave her "services" on credit. The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there. The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything. At that moment, the tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town. No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism. And that, ladies and gentlemen, is how the United States is doing business today" - Email from Sanah Gumede, 18 August 2011, 12h13

I had an internal meeting at 13h00 and decided to share this story with my meeting and as I was reading, I appreciated its profound message even more so.

It is a reminder of how financial markets actually work. It reminded me of the sub-prime property bond models that spiralled into a financial markets disaster, a drying up of liquidity, an unprecedented credit crunch and, along with other factors, it all snowballed into what we experienced (and some may argue, still experience) as the Global Economic Crisis.

It is a timely reminder that in all the business models we hang our hats on, no matter how clever and 'cutting edge' it may seem, there are business fundamentals that remain a constant. If these business fundamentals are absent, it eventually shows.

You cannot argue that everyone in the story RECEIVED cash. You can even argue that everyone EARNED their 100 Euro note based on the services they provided prior to receiving payment and best of all, everyone used the cash to settle debt!

In 20 transactions that we come accross, we generally pursue 1. Very often we are on the receiving end of criticisim that we walk away from "great opportunities" because we are "far too commercial". It is somewhat ironic that some expect an investment firm NOT to be commercial in its investment decisions. You see, whether its time or money both are capital and one must be 'always commercial, seldom emotional' about deploying their capital.

If it doesnt make sense, its probably not worth pursuing.....not matter WHO is selling it.

Stay with the fundamentals.

AK