Tuesday, March 30, 2010

Musings on Existence

In the realm of relativity everything is unreal and the search for absolute is the vain hope for a world devoid of change. Change is the only absolute in the mortal world; everything changes. And in this flux of everlasting, constant change I strive to define my life and the reasons behind it. I try to define the root of my happiness, sadness, worries, celebrations and all else in between. I try to find "me". I try to understand this creation. I don't find many definite answers, so I treasure the ones that I do find.

The subtle manifestations of cause and effect are undeniable. Yet, in the short-term life can be random. And in the long run? Well, as somebody said that in the long run we all will be dead. Perhaps there is an after-life, perhaps there is not. Perhaps God is the psychotic, vindictive, maniac people make him out to be. Perhaps he is simply a disinterested third-party observer watching his inferior experiments with disdain. I don't know. I don't know if there is a heaven or a hell, or if there is any meaning to life. I just know three things: I exist, I can think and I wish to excel.

Many philosophers deny existence, labelling what we see as an optical illusion conditioned by the mind. Having studied semantics, logic and cognition; I do have sympathy for some of their views and I can definitely see from where they are coming. Nevertheless, I think denying the entire existence is a shade too extreme. At most we can see ourselves as deluded or conditioned, from which one can escape by simply desiring to be free and by keeping an open mind.

Monday, March 29, 2010

NCIC: Conclusion

Finished reading NCIC. Overall, the book has helped me to appreciate the significant role of political risk in the life of a company. The story of Schering seems like a twisted and horrifying parody based on novels of Ayn Rand. While Rand writes about excellence and mediocrity as clearly defined and antagonistic groups working against each other, the truth is much more complicated. In making her characters so one-dimensional, Rand does manage to crystallize the essence of creativity and mediocrity. NCIC highlights the shades of grey that dictate human behaviour in the real world. This book on Schering, however, demonstrates how these colours can play with each other to produce many variations.

Between the world wars the German business, despite of its several advantages, succumbed to a destructive Nazi rule and, in some cases, even fuelled the ambitions of a destructive, racist regime. Companies like Schering simply tried to find a balance in order to ensure survival, but those like IG Farben actively exploited the adverse circumstances for profit. Schering's excellent marketing, scientific research and quality of manufacturing helped it to build a formidable brand and maintain profitability even in the most adverse of circumstances. Nevertheless, as politics took precedence over economics and as chauvinistic nationalism became fashionable, Schering struggled. Business, in general, either refused or failed to understand the power it wielded. Perhaps, the behaviour is not very different from citizens who do not vote, avoid participating in politics and complain about the quality of politicians. It is definitely not the first time that inertia and narrowly defined self-interest have caused problems for a society, but it is appalling to note that the same pattern has repeated itself for centuries without people learning from it. Indeed, who do not learn from history will be condemned to repeat it.

Concluding, there are a plenty of things to learn, both what to do and what not to do, from the story of Schering. The book will also enhance your understanding of the development of the German business in particular and knowledge-based industries in general. Finally, it will help you to appreciate the reason why the political environment of a country is critical to the success and sustainability of a business and how the culture of a country can be critical in determining an organization's strengths and weaknesses.

Monday, March 22, 2010

What Philosophy Is

Philosophy, like art, is an attempt to express the abstract with words and logic. To twist perspectives to try and synthesize all dimensions, as if the attempt would find a solution to the Unified Theory of Physics. To find the one in many and the many in one, to look for that one fundamental principle that runs through every thought that ever was and that shall ever be. It is the quest for freedom from the connundrum of life and its meaning, the song of love that the thirsty soul sings for the Goddess of thought and action. Philosophy is the real you in you, the thought behind your every action and reaction, the mark of your awareness and love for life. Philosophy is indeed love for wisdom.

Monday, March 8, 2010

Understanding Private Equity Fundamentals

In parallel to reading about pharmaceuticals, I have also started reading "Private Equity: History, Governance and Operations" by Cendrowski et al. I just wish to understand the place and importance of Private Equity (PE) from point of view of a future entrepreneur. The books consists of four modules: history, governance, operations and special considerations. I will simply record my main observations for future reference.

Reading about history, I understand that PE is a relatively recent phenomenon with its roots in the USA. In fact, the book is primarily written with US in mind. Nevertheless, I hope the basic working and attitude would not differ significantly across borders due to a close-knit PE community. It explains the structure of PE firms and general terms used in the industry (e.g. describing what is a general partner or a limited partner, the fee structure, legal agreements and other legal aspects). The books focuses primarily on two type of PE investments: venture capital (VC) financing and buyout transactions. It is interesting to learn that VC funding is further classified as Angel Investing, Seed Funding and Later Stage VC depending upon the maturity of the product portfolio. PE has developed as a distinctive alternative investment vehicle whose profitability is highly dependent on the overall performance of the economy and government policies (especially wrt Capital Gains Tax Rate).

Due to comparatively higher rate of returns many institutions and high-net worth individuals wish to invest with a PE firm. However, it is a very tightly knit circle that works on "knowing" the right people and by being successful. While the top quartile funds are plush with funds, others struggle to raise basic amounts. It is a highly competitive arena where success breeds more success. In the last decade buyout funds have apparently performed better than VC funds. Consequently they find it easier to raise money.

There are primarily two ways in which the PE firms "harvest" their investments: Initial Public Offerings (IPO) and Mergers & Acquisitions (M&A).

The book notes that IPO can be an expensive, lengthy and cumbersome procedure. It not only depends on the prevalent market condition but also it enforces more complexity and regulation on the organization. Nevertheless, it can be seen as an important step in the life of a company signifying a strong historical growth. It also allows the entrepreneur to possibly maintain the control over his company, something that he may loose in some M&A transaction.

Takeovers are defined as horizontal (same industry), vertical (supporting industry) or conglomerate (unrelated). The can be further seen as strategic, defensive, growth or financial. Reverse Takeover is mentioned as a credible and more efficient alternative to IPO. The company can be acquired either in an auction (can turn-away strategic buyers but attract financial buyers - the company's financial advisor may favour this as it may lead to more fee. Overall useful if there are not many keen buyers) or an exclusive offering (attracts strategic buyers, can be attractive for the entrepreneur. Advisable when there exists many strategic buyers with a high level of interest). It is important for the entrepreneur to realize that he may loose control of the company in this harvesting strategy. The popularity of M&A has increased significantly since 1999, something that has further bolstered buyout funds.

Friday, March 5, 2010

NCIC: Between the Wars

Between the two world wars, Schering did reasonably well. This was done by spending substantial amount of revenues on marketing, establishing foreign subsidiaries, investing in research, taking care of its employees, localizing the product, giving cultural training to young managers and forging alliances. Marketing and advertising alone consumed as much as 30% of revenues. The wars, turbulent political and economic circumstances, rise of protectionism after the Great Depression, hostility to German products after WW1 and Schering's own bent towards socialist policies prevented the company from realizing its complete potential. To make the reader understand the circumstances in a better way the writer takes great pains to elaborate the effects of WW1, the problems faced (and created) by the Weimar Republic and the final havoc unleashed by the Third Reich. In modern context, when I read about Germany, I am reminded of how Beirut passed from total prosperity to total chaos. Something similar happened to Germany with WW1. It is a wonder that Germany is what it is today despite all the hardships suffered and problems faced. I can make out as much that the writer has a soft corner for Germany. Nevertheless, the book makes me feel pretty curious about Germans.

Another thing that strikes me is that power dynamics has witnessed an incredible amount of change in the last 150 years. The number of wars and turbulent circumstances has been shocking, and all countries have had their share of troubles. This has not only defined their attitude towards the world but also their own self-perception and way they organize themselves. Unfortunately, sometimes the response to mitigate an adverse situation makes things worse. Particularly, a culture of entitlement or one of seeking more rights and powers but lesser responsibilities and accountability can really eat away the vitals of an economy like termites. The understanding of history, politics and economics can seriously increase the efficiency of a business man, giving him a wider vision of the world in which his business operates.

Thursday, March 4, 2010

NCIC: Story Before WW2

Read till just after the WW1. Pharmaceuticals industry was historically closely related with the chemicals industry. Camphor, rubber, oil, coal, wood and turpentine oil were some key raw materials. The growth of pharmaceuticals as an important part of the economy has been phenomenal. The demarcation between a purely "chemicals" based business and pharmaceuticals was a blurry one. IG Farben, Bayer and Merck come up as the big German players in the industry. In context of the book, Du Pont also comes up as a major player; a name that before reading this book I had associated more closely with chemicals and its close relation with GM. Schering, though a smaller player, comes across an important player with many innovations, including economically viable synthetic camphor, attributed to it. Its contribution to photography chemicals and contrasting agents also stands out.

Nevertheless, I find the company a bundle of contradictions. Its innovations contrast sharply with its conservative, inward looking, relationships based approach. The way it resisted international investments and engaged in cartels are not exactly the hallmarks of a confident company. I understand that nationalistic passions were running pretty high at that point of time in the history. Germany's bitter experience with WW1 did not help things either. Nevertheless, the fearful attitude and shortage of good managers did affect the growth negatively. Relating it with the history of Deutsche Bank, I also feel that relying on private contacts and relationships was very much a part of business in those days. So much for merit, intelligence and hard-work. Connections and being in the right family could be the making or breaking point. It is good to note that in today's world the number of opportunities has increased, though not equally in all countries. I am not sure if nepotism and elitism will ever go away, but information technology advances have definitely enabled and empowered people to start a business more easily. Three cheers for IT!

Finally, after reading a lot of sugar-coated management books, it is good (though a bit bitter) to read a book grounded in facts. Hard-nosed realism. The complexity and shades of grey that it brings out are, well, enlightening. The sooth-sayers are not wrong, but it is good to know and realize that not everybody is in business with the same motive. Business history ultimately judges a company by its ability to build perception and the end results. It also brings out the role of politics and luck in the life of an enterprise. It demonstrates that there can be umpteen ways to reach the same place, and it is alright as long as you are willing to make the journey.

Tuesday, March 2, 2010

National Cultures and International Competition (NCIC): Connecting Dots

Continuing my reading blitzkrieg, I am now reading; " National Cultures and International Competition:The Experience of Schering AG, 1851–1950" by Christopher Kobrak. Down the first 100 pages, the book looks interesting.

The first thing that I gather from this book is a better understanding about German historical attitude towards business. The presence of two boards in German companies, developing a "community of interests" and legalization of cartels to counter effects of economic difficulties and capitalism, the effect of wars on German economy (and psyche) and why coal and iron were so politicized are few key points to learn. In fact, it relates very well with why coal and steel were the primary focus in the 1957 treaty of Rome. For the first time I am able to appreciate the difference in business attitudes in Germany from UK, US and India. History does help you to appreciate the present and to avoid mistakes in the future.

The second thing I realize is that Germany was in a very formidable position before WW1, with only US hoping to do as good. With WW1, US expropriated 506 German companies and 12000 German patents. This, along with the American capacity to organize and think big, the managerial revolution, elimination of its biggest rival, a favourable geographic location and war sales bonanza transformed US forever. Whatever was left was sealed by WW2, when dollar finally replaced pound. The more I read, the more events interconnect and make sense. I guess victor's justice is a truth of life, and I have to also watch out for the personal bias of authors keeping in mind that this is but one side of the story.

All in all, an interesting start. Will keep you posted.