Archive | November, 2007

Leveraging the Spirit of Giving to Do Good

29 Nov

Several months ago, one of my work assignments involved looking at “new trends in international development.” It was a large, difficult to structure task, but one which revealed a number of exciting and interesting organizations which are doing great things to try and improve the world in the places that need the most help.

I found that the simple ideas were often the most powerful. Kiva, an organization which allows users to provide small loans directly to entrepreneurs in the developing world, was an example of one of those ideas. By matching a face, name, and story to charitable donations, the “feel good” factor of giving to a cause is substantially increased.

A further extension of that idea, equally simple and powerful, was pointed out in a recent blog post by Guy Kawasaki. Gift certificates, essentially a charitable pledge, can be given to a friend or family member, who then decides which entrepreneur should receive the funding. Over time, that recipient repays the money that is lent to them, enabling the new user to invest in a new recipient.

What a wonderful way to build your user base and encourage a net increase in the amount of money being donated. Good work, Kiva.

Kiva Diagram 2

Economic Weapon: "Oil to Hit $200 if Iran Attacked"

18 Nov

I woke up this morning to the fantastically eye-catching lead headline in the Arab News‘Oil to Hit $200 if Iran Attacked’.  Below it, a sub-headline reads “King Rejects Using Oil as a Weapon.”  The obvious disconnect between those two statements did not apparently dawn upon the kind editors of my morning newspaper, but drew me in to read more.

I discovered that they were, in fact, both accurate headlines.  I worry, however, that the press in the Western World will pay substantial heed to the threats delivered by Venezuelan President Hugo Chavez, and ignore the words of moderation, restraint, and stability from Saudi’s King Abdulla.  Great headlines are produced by the former, but my hope is that the latter prevails.

That said, if I were in the shoes of Chavez or Ahmadinejad, however, I would be aspiring to make sure a few more headlines like the one that appeared this morning reach the White House.

Power-ful Information: Efficiency in Energy

15 Nov

People are far more likely to take action when they have the necessary information to target their actions and measure their success. In the absence of high quality information, action becomes riskier, by for instance increasing the possibility of wasting resources on inefficient tasks.

PowerStationIt is with this in mind that I am particularly excited about a powerful new source of information that can help the world take smarter, better action in the fight to slow global warming and protect the environment. The Center for Global Development released yesterday CARMA (CARbon Monitoring for Action), a website and database of the carbon emissions of over 50,000 power plants and 20,000 power companies around the world. Using a combination of official information and computer models, they have captured the amount of electricity generated and resulting carbon output. With this information, they have been able to identify the worst polluting countries (USA) and most inefficient countries per capita (Australia).

The one thing which bothers me about CARMA is that they have failed to make efficiency the center of attention. Similarly, articles in Nature and BBC catch the significance of carbon emissions per capita, but fail to highlight the least efficient power stations, instead focusing on the worst polluting ones.

The city of Taichung in Taiwan is home to a power plant that emits more than 37 million tonnes of carbon dioxide into the atmosphere each year, the highest of any plant in the world.

Frankly I don’t care which power plant produces the MOST emissions, I care which ones are not only fouling the air, but doing so without producing a large amount of energy.

So what ARE the lease efficient power stations in the world? It is actually difficult to tell using the tools on their site, because you cannot easily manipulate the data. Without an easy filters for minimum size of plant, if you sort by “intensity” (tons CO2 per MWh Energy) you end up with a large number of very small power stations which, while inefficient, are producing relatively tiny amounts of emission. I can tell you this, however:

  • Of the top 10 largest power stations in the USA, Jeffrey Station in Kansas, Owned by WESTAR ENERGY INC is the least efficient, pumping out 16,300,000 tons of CO2 while producing only 13,900,000 MWh of energy (intensity = 2,355)
  • Abadie Station in Missouri is the most efficient of the top 10 in the USA, producing 16,400,000 tons of CO2 while generating 17,700,000 MWh of energy (Intensity = 1,849). Good work AMEREN CORP
  • By contrast, the worst of the top 10 in China is Tongliao Station, owned by CHINA POWER INVESTMENT CORP, producing 17,800,000 tons of CO2 and only 12,300,000 MWh of energy (Intensity = 2,902), nearly 25% worse than the worst offender in the United States

With more time, and the right tools, this database could yield some powerful insights. Here’s to hoping that those insights can lead to important changes in policy and investment.

Others have also been characterizing CARMA around the web.

E*Trade Crash a Boon for the Likes of Zecco?

13 Nov

News of E*Trade Financial’s stock collapse on Monday made me wonder if there is an opportunity for new up-and-comers in the stock brockerage market such as Zecco to poach fleeing customers.

If so, what are the best short-term tactics to attract them over?  Perhaps an easy “migrate your account” process with step-by-step guidance on the main page?

E*Trade Financial is a leader in the new generation of Internet-only lenders. But its stock got crushed Monday amid fears about a distinctly old-fashioned problem: a run on the bank.

Shares of E*Trade lost more than half of their value after the company said it expected additional asset write-downs and an analyst suggested that it might be forced into bankruptcy protection. While the bank assured customers that it remained “well capitalized by regulatory standards,” the analyst, Prashant Bhatia of Citigroup, theorized that a rush of withdrawals might leave the bank without enough funding to operate.

It also made me wonder if those firms were exposed to the same kinds of risks.  I don’t have any statistics, but my understanding and personal experience from the dot com bubble is that during a recession there is less interest in stock market investment.  Could that mean that some of the same E*trade challenges could affect the new shops?

Owners vs. Operators: A Career Choice

9 Nov

One of the fundamental separations in the business world is between the owner and the operator. Owners have a fundamental role of identifying and valuing business opportunities, as well as setting a firm’s fundamental direction. Operators develop a strategy for achieving that direction, and ensure its execution. This is the separation that exists, for instance, in most public companies between the roles of the Board of Directors and the CEO. This distinction is of particularly relevance in job hunting because having one or the other as an aspiration should, in theory at least, influence a person’s career path.

This simple but powerful observation was courtesy of David Wong, a former colleague and fellow Georgetown alum who now works as an Analyst at a mid-market private equity firm in Boston. As I continue to explore career opportunities that will build off my experience as a management consultant but move me closer to my goal of working with small and medium businesses, I called David to get his perspective on whether working in private equity would a step in the right direction. His candid advice was powerful, clear, and refreshingly candid, something which can frankly be difficult to gain during a career search (after all, it is difficult to be impartial on something so personal).

Private Equity is About Being an Owner:

Private Equity is fundamentally about being the owner of a company. It requires being able to identify companies with promise to either be grown in size and value, or which could be restructured to release additional value from the existing business.

From David’s perspective, private equity is much more often a destination than a path to anything. Whereas consulting and investment banking are highly transient industries, with analysts and associates spending two or three years then departing for other opportunities, investing jobs tend to be long-term commitments to a particular business mindset.

Someone who moves into private equity (buyouts, to be more precise) looks at companies with proven business models and how to gain further value from them. While she might decide she wants to focus instead on identifying promising new business models and technologies, and therefore move into venture capital, she would still be doing so with an owners mindset. Similarly, she might decide that rather than worrying about individual companies, but instead on valuable industries, sectors, and types of investments, she might move to a hedge fund, but she would still be thinking like an owner.

David suggested that you could not take someone from any one of these careers and put them at the helm of a company or at the head of its strategy group and expect that he could be successful. Identifying the opportunity and actually executing against it requires fundamentally different skills and attitudes.

Career Paths for Operators:

David suggested that if my goal was to be a successful operator of a small / medium company, private equity would be only marginally helpful. While it would expose me to high growth businesses and how those companies achieve their success, my fundamental job would not be to understand how to replicate those successes on my own in the future.

As David pointed out, there is a fairly clear path from consulting into an operating role in a larger business. Many consultants move their way up the ranks of their firms until they discover a client who finds their advice indispensable and hires them to run an internal functional area (e.g. marketing, strategy, or operations).

What our conversation left fundamentally unanswered was how someone could best position himself for an operating role in a small or medium business.

The challenge for someone in strategy consulting is twofold. First, with only a few years experience, he is still inadequately experienced to run much of anything or be dropped into a COO-type position and be successful. Second, because consulting firms charge hefty prices for the privilege of their advice, clients are rarely small or medium businesses, limiting the networking and “watch-and-learn” opportunities.

Two ideal career path options for a strategy consultant with an eye towards being an effective operator would therefore seem to be either take an operating role directly (either literally in operations or in product development, sales, or marketing) in an industry of particular interest, or continue in an advisory position (as a consultant, either in a professional services firm or perhaps internally in a company with an internal strategy group).

Helpful Clarity, but Further Questions:

Whether anyone else will find the above helpful is of course an open question. I certainly found it to provide helpful structure to a question that is difficult to navigate.

It leaves open some deep questions for personal reflection. At the end of the day, do I want to be an operator or an owner? Does the challenge posed to an entrepreneur bridge both? Do any of the careers I described above (e.g. investing, industry operating roles, or strategy advisory) really prepare someone to be an entrepreneur, or does it all just come down to trial and error of starting a few companies and seeing what works?

“Green” Seal: Opportunity for Consumer Badging

2 Nov

Energy Star LogoI see a significant opportunity for someone to create a credible and well-branded “green seal” for products which are environmentally friendly. This application of a certification to an existing, branded product is often called “badging” and measures a product against a specific set of standards. It enables a company to say “look, we care!” and justifies charging a price premium.

While today many companies make claims about being environmentally friendly, most do so without applying a rigorous, broadly-recognized standard.

Consumer Badges:

Three consumer badges come immediately to mind in this area. Each involves a certification that a product has met certain criteria:

Energy Star: A certification for things like computers, appliances, lighting, etc. created by the US Environmental Protection Agency (EPA) and Department of Energy to create an incentive for manufacturers to meet certain energy efficiency requirements on their products.

Fair Trade: A US certification based on an international standard for specific agricultural crops that their producer is being paid a fair price, that they work under fair labor conditions, under fair terms, in a sustainable manner.

Organic: A relatively new certification regulated by the US Department of Agriculture (USDA) which sets criteria for products made without the use of synthetic chemical inputs (e.g. fertilizer, pesticides, antibiotics) or genetically modified organisms, produced on farmland that has been free of such chemicals for at least three years. It also regulates how they can be labeled.

What is Missing:

In light of the growing chic-ness and popularity of products that help demonstrate a consumer’s environmental conscience, there is an eco-branding opportunity. Beyond products that just claim to be “environmentally friendly,” however, the real opportunity would exist for an organization which could actually credibly certify products as “green.” Not only that, but the brand could actually be a force for good – driving consumer product and service manufacturers to strive to reach a certain high standard or bar.

So who could feasibly create such a standard?

  • The Government: Similar to Energy Star and Organics, individual country governments, or an international governance organization like the UN, WTO, or EU could establish a standard and related brand
  • An NGO: An organization which has credibility with consumers (particularly liberal ones), perhaps the Sierra Club, Green Peace, or even something like the National Academy of Sciences could certainly create a “green seal”
  • Individual Businesses: Companies such as Proctor & Gamble could create their own “clean” brands, but might lack real credibility with consumers. This is the current status quo and will likely continue in the absence of some superior option
  • Industry Association: An industry organization, such as the National Retail Association of the US, could set a standard through the cooperation of its member businesses.
  • Brand Licensing Company: An individual business could be built as a brand with a corresponding set of standards, whose sole operation was the licensing of that standard to other companies for application on their products. I cannot think of a good analogy here, and an obvious challenge once again would be gaining credibility.

Some Business Opportunities:

There are two major revenue opportunities that I see here. One is licensing, and the other is testing and certification. Both could generate a lot of money for the right organizations.

Licensing: The organization which established the standard and the brand could license it to a broad group of audiences for a small fee. Any company wishing to apply the brand to their product or service would need to pay a small royalty, which would cover administration and monitoring of the brand (i.e. preventing its application without permission) as well as providing a small kickback to its creators.

Testing and Certification: A quick look at the similarities of the companies that certify Organic and Fair Trade labels and those which certify financial statements should hopefully be sufficient to convince you that there is a lot of money in auditing. These companies would ensure that client organizations and their products / services are meeting the established standards in order to qualify for the brand. Any company that wants access to the brand would have to hire a certified auditor – the fewer and more differentiated they are, the greater value they could capture.