Monthly Archives

February 2009
Ryanir CEO Michael O'Leary
Ryanair CEO Michael O’Leary claimed seriously on BBC that the airline is considering charging for – get this:

using the bathroom.

Airline’s PR chief Steven McNamara sensing an public relations disaster downplayed the chief’s bright idea: “I don’t think it’s going to happen in the foreseeable future.”

I say abolishing check-in desk – fair cost cutting, but coin-operated airline toilet -  just plain stupid.

wolf3

Wolves are circling the prey

I have been asked several times in the past six months – if and when will the mega-rich start buying up the best of the distressed assets. I must admit having heard rumors about local business tycoons and groups of wealthy Swedish business sharks hoarding piles of cash, ready to pick the low hanging fruits. But my honest answer is – I am not sure if Estonia has that much of valuable assets to buy up at all, distressed or not. In Estonia and its neighboring countries there is little to no transparency to determine the actual purchasing power and liquidity of the rumored buyers. 

In US however, the wolves are ready for a moose hunt and their preys know it. Kara Swisher pointed out that high-tech giants are sitting on a huge amount of shiny acquisition dollars. Take a look at these enormous reserves:

  • Microsoft (MSFT): $20.7 billion
  • Cisco (CSCO): $29.5 billion
  • Apple (AAPL): $25.6 billion
  • Intel (INTC): $11.8 billion
  • Oracle (ORCL): $10.6 billion
  • Hewlett-Packard (HPQ): $10.2 billion
  • Google (GOOG): $15.9 billion
  • Yahoo (YHOO): $3.5 billion

To continue the fauna analogy, this wolfpack (clearly on steroids) is patiently following the moose herd (i.e. start-ups) to go after the ones that show sings of weakness and can’t keep up with the pace of others (i.e. run out of money). It is clear that the wolves could already make their move right away, but they are holding it back to maximize their gains. They bet on the dire economic landscape that will become even harder to pass for the moose, allowing the hunters to optimize their attack when the prey is completely exhausted.

Thanks to the internet, we have front row seats for witnessing the brutal outcome of this hunting season. Stay alert and let the chips fall as they may because there is little hope for the moose.

Technology Partner at PVP

Technology Partner at PVP

Sim Simeonov of Polaris Venture Partners offered good advice on writing better executive summaries and described the VC’s love/hate relationship with these summaries:

You need to sell enough to get there but no more. Don’t over-educate or over-sell. It will lead to a wordy and heavy exec summary. Avoid the common hyperbole such as “this is a $56B market” or “we have no competition.” Statements like these only make you look immature.

read more at High Contrast Blog. Simeonov also makes reference to another good posting entitled “Writing a Compelling Executive Summary” by Garage Ventures which can be found here.

Nouriel Roubini

Nouriel Roubini

Nouriel Roubini has achieved almost cult status for years of consistently predicting the current financial crisis. In all fairness, Roubini notes in the February 21 article in the Wall Street Journal that there were many other notable commentators that had the same vision -  Robert Shiller, Steve Roach, Ken Rogoff and Nassim Taleb all predicted the coming financial crisis.

Now that the major US financial institutions are in severe trouble (Citigroup – C – currently trading at $2.15 Bank of America – BAC – at $3.91), Nouriel predicts that Obama administration will soon support at least temporary nationalization of the major US banks:

People like Graham and Greenspan have already given their explicit blessing. This gives Obama cover. I think that we’re going to see the policy adopted in the next few months . . . in six months or so.  Six months from now even firms that today look solvent are going to look insolvent. Most of the major banks — almost all of them — are going to look insolvent. In which case, if you take them all over all at once, you cause less damage than if you would if you took over a couple now, and created so much confusion and panic and nervousness.

Between guarantees, liquidity support, and capitalization, the government has provided between $7 trillion to $9 trillion of help to the financial system. De facto, the government is already controlling a good chunk of the banking system. The question is: Do you want to move to the de jure step.

In the midst of the current financial crisis some VC funds are having trouble raising additional financing, and have even turned to selling portions of their portfolios at substantial discounts. The cash drought is largely due to institutional investors’ (retirement funds, hedge funds, insurance companies, and others) inability to meet investment commitments as they lose money on investments and cannot liquidate assets. When Limited Partners do not invest then VC funds have limited resources to invest in companies. In this environment entrepreneurs should know the financial status of the VC they are negotiating with.

Brad Feld has provided sensible advice in his article for Entrepreneur.com regarding due diligence that you should do on your potential VC partner:

… ask your venture capitalists these important questions:

  • What year (vintage) is your fund? Almost all VC funds are set up as 10-year partnerships that can be extended several years. They usually spend their first three to five years investing in new companies and the balance of the partnership managing those investments.
  • Have you raised a new fund since you invested in our company? The long-term health of a VC firm can be measured by how recently it has raised a new fund. Optimally, a VC firm raises a new fund every three to five years, so it’s always actively investing in companies.
  • When are you planning to raise a new fund? If the answer to this question is sketchy, pay attention. It usually takes at least a year to raise a new fund unless your VC firm is well-established with a long history.

Do not be afraid to ask fair questions regarding financial health of the fund and to clarify the potential for any follow up rounds. Unnecessary politeness may come back to haunt you.

Dan Roam's Back of the Napkin

Dan Roam's Back of the Napkin

Dan Roam’s book The Back of the Napkin: Solving Problems and Selling Ideas with Pictures is a must read for people preparing to pitch a business idea or making other presentations where it is essential to  communicate complex ideas in a very limited time.

The book is a practical person’s dream – full of clear advice with the main ideas distilled to their essence, followed by how-to diagrams and explanations of actual application in real life. Roam is able to convincingly show that glitzy Power Point presentations are often unnecessary visual overkill if you do your homework properly. The static visuals used in Power Point may even detract from the audience “getting” the message. He recommends walking through the process of creating visuals with your audience so they see the images come alive as you dynamically create and walk them through your presentation.

Roam’s method involves the presenter first properly analyzing the topic of the presentation by using simple visual sketches and a basic framework of diagramming “who, what, where, when, how and why” to first clarify to himself what is the real message. Then the presenter uses the suggested SQVID scale to determine how to most effectively tell the story to the audience. The entire method presented in the book is essentially pulled together in one graphic (each element is seperately described and demonstrated seperately throughout the book):

Visial Thinking Codex

Roam's Visial Thinking Codex

Those with very limited time, don’t let the 278 pages the page count scare you – pages are half size and full of pictures.  I finished half of the book on the three hour plane flight to Rome and the other half on the way back. Time well spent even if you so not often present to big audiences but seek an effective method for clarifying your own ideas.

There are several videos explaining the ins and outs of the credit crisis, but the following video, created by Jonathan Jarvis, is by far one of the best in getting the message through via excellent visualization.

Donalds Selling Steaks in 2007

Donalds Selling Steaks in 2007

In yet another sign that the economy is need of a respirator stat -  Donald Trump’s business interests have gone bust again, with 9 companies associated with Trump Entertainment filing for bankruptcy protection. The big names include – Trump Taj Mahal Associates, Trump Marina Associates, and Trump Plaza Associates. Trump has been arguing (apparently unsuccessfully) with one of his major creditors Deutsche Bank, whether the current recession qualifies as an act of God which frees him at least temporarily from payment obligations.

Last time Trump’s development businesses went bankrupt  was in 1992 on the heels of the 1987 market crash and real estate recession, then restructuring for a few years and falling into insolvency again with the next Chapter 11 bankruptcy filing in 2004.

No need to shed tears for the Donald, unlike a lot of employees he can retire to his mansion, TV show or even go back to selling “super premium Trump Steaks” at Sharper Image or affordable luxury office chairs “that use stain resistant, heavy duty rated fabrics and leathers and have an 11-step scuff resistant wood finish” at Staples as he did in 2007.

Nokia today announced the opening of Ovi (Finnish word for door) – it’s version of the App Store. The first smart phone that can take advantage of the service is N97.

Developers can upload applications at publish.ovi.com. The revenue sharing system is identical to Apple’s 70%-30% split.

Tesla's $128K Electric Vehicle

Tesla's $128K Electric Vehicle

The promised breakthrough of clean fuel vehicles into the mass market has failed to materialize in 2008 and will likely not happen for another few years.  Not only have hydrogen powered cars faded from the scene, even electric vehicles are having a tough time breaking into the mass market. GM has recently announced that it will not be starting the construction of the factory for making its flagship EV Volt’s engines, and  according to CEO Elon Musk even the much publicized Tesla factory construction will now be canceled, and the roll out of the Model S (the $60K “mass model”) put on ice.

There are plenty of factors going against this cleantech sector – the recession has cut into financing both on the investor side and the tech buyer side, low oil prices entice the buyers back to other cars, and the technology still has not resolved many of its limitations.

In 2008 Chris Morrison wrote an article about EVs and listed the 30 major companies involved in the field. Several of these companies have gone bust, including American Electric Vehicle and Spark EV, while others have not been able to come out with their models. 2009 promises to be an even tougher year for the industry.

There is a bit of hope on the horizon, Pres. Obama’s revitalization plan looks to invest into renewable energies which might boost the EV sector, and John Doerr of Kleiner Perkins in a New York Times article is promising a near term solution from his stealth Lithium ion company to the biggest problem with the EV industry that would double EV battery capacity.