Category Archives: Unconventional Truth

Do you wanna be unicorn or meteor?

Hell, it’s been a while since my last post and to be honest, there is an excuse.

Ok, really there is none, one should always find a few minutes to talk about interesting stuff.

It’s just lately, the earth spins a bit faster and seems to be a little out of control. Don’t worry, this has nothing to do with Russian Meteors or other falling stars, this is more due to recent changes in my life. Extremely good changes that make me feel like a unicorn – sometimes.

A unicorn?

Well, I am still me, but if you can spare a few minutes, listen to Shawn Achor in the video below. The video is not uniquely about unicorns. The metaphor he uses is charming, but what’s even more appealing is his key message –  really impressive and shocking at the same time. Where would the world end if we all embraced the Happiness Advantage? I don’t know but I am sure we would be fewer stars falling down on us.


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Dear Facebook, Wall Street is not your problem. Your ego is.

Facebook is in the news again. And as so often after its IPO, it’s not good news because Wall Street plays strong. But also more than fair.

Facebook’s user base is declining in countries where it reached a penetration rate of 50% or above. Consequently, in sight of growing market saturation, Facebook stock dropped. Again. What’s happening right now is basically what I questioned already in January. It seems I wasn’t that wrong about how Wall Street would behave in sight of a company which has reached market saturation in most of the more lucrative world markets, especially the US. Facebook clearly seems to be clueless about this new situation and it’s a pretty new situation to them. They’ve been investors‘ darling ever since because their story was just too good. Existential criticism is totally new to them.

Today, it’s a different game with different rules. And I am not sure yet if Facebook realized this. The new shareholders are investing for one of two very special reasons – earnings per share or increase in total share value. Facebook’s previous investors poured money into Facebook because of the outlook of a positive IPO itself. That’s two totally different motives.

While Facebook did considerably well raising the IPO hopes, it is very bad at playing the Wall Street game now. And unless Facebook’s strategy shifts towards accepting this new reality and honors the new ownership by increasing (or just starting to create?) real company value and not hopes, I believe Facebook stock will continue to see only one direction – down. Some people at Facebook, those with all the shares at least, cry when they see the current stock performance and some might believe this is just not right. But it is not about right or wrong. It’s about Facebook’s ego which is still just too big. And the good story is partly to blame for that. But sooner or later Facebook needs to face the new reality. It seems to me sort of a self-fulfilling prophecy that Facebook’s valuation will continue to decline as long as their ego is so big and they continue to think that playing to the rules of venture capitalists will get them through. But Wall Street investors like big pension funds and financial institutions think differently. As it seems now, Facebook still hasn’t realized the urge to shift from a venture capitalists’ darling to a company with a management that is serious about company value.

It’s time to wake up, Facebook. You voluntarily chose to play this new game so now you have to do it. Don’t hate the players.

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From Value and Stock Performance and Apples and Oranges

Yesterday I wrote a few lines about the recent Microsoft Yammer deal for $1.2 billion. My point was that what Microsoft is lacking focus which would result in a big destruction of company value – much more than the premium they paid for Yammer. And today, I wanted to show a chart with the stock performance of Microsoft, Apple and maybe Google to underline my point here. But strangely enough, the chart doesn’t really work out. Microsoft’s stock isn’t actually doing that bad. So either I am wrong with my assumption that Microsoft lacks focus and thus destroys company value step by step or investors see things radically differently.

Or maybe it is not even a contradiction? What’s the story when you ignore the superficial data and dig deep into the fundamentals?

Superficial data cries to be compared to superficial data from others. We all love to compare and we will do it again later this year at the Olympic Games in London. We simply love to put things into perspective and do it almost every time.  We do it now with Jive Software, which sees its shares rise big time because of a comparison with Microsoft/Yammer. Jive Software is apparently in the same “space” so we compare. People and investors create “multiples” of superficial data like revenue, earnings, etc. to benchmark such ratios to similar companies and determine their value. That’s easy to do and they even look incredibly smart when they do that. It just has nothing to do with value.

Value is not superficial. Value is fundamental. The intrinsic value of a company is its continuous ability to solve one or more problems for which one or more markets require a solution. Focus is the ability of  management to secure the company’s capabilities and resources to solve market problems. Lack of focus is the contrary. These are qualitative measures. They cannot be compared. But they are actually the source of long-lasting company value and still they are largely ignored in investors’ metrics.

Value and stock performance seem to me like apples and oranges now and I wonder why I ever wanted to show a chart to underline my previous point. I’ll never try to do that again.

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Focus is unique, vital and creates value – Lesson learned, Microsoft?

I am always late with news and that’s why I don’t blog about news. Others are much better at that anyway. I am late with news because the news sensation doesn’t interest me that much. I am more thrilled to see what’s going on after the news broke. What comes after the big bang is more crucial than the actual bang. But much too frequently, the sensation dominates the web and its long-term impact is not of interest. That’s really dangerous, and it’s even existential.

Let’s take a recent example of huge news, the Microsoft Yammer deal for $1.2 billion. It’s been huge because the number is really big. And now stories go on and on if Microsoft’s decision was right or wrong and if they paid too much and why. All is followed by lively discussions on Microsoft’s strategy, motivation and odds for making this a success story. And Microsoft probably enjoys this unusual level of attention and feel good about it.

Truth is, every company has its own DNA, its own winning formula in its markets. This can change over the years and successful companies do change a lot. At the same time, they maintain their raison d’être.  Some call this corporate strategy, but I don’t like it.

I like to call it focus. Focus is unique, vital and creates real value.

If a company executes a losing corporate strategy but maintains focus, it will sooner or later correct this strategy. But if the company loses focus, it’s the worst thing that can happen. Losing focus really destroys value. Being focused also means always being proactive. Now, acquisitions generally look like the acquirer is very proactive. And here it get’s tricky. This might be true for some acquisitions, but sometimes, acquisitions are also either a result of being not proactive enough (you may also call it innovative) or, even worse, an alarming sign of lack of focus. And when I hear that Microsoft’s R&D budget is $9.6 billion of which 90% is directed to the Cloud and at the same time $1.2 billion is spent on acquiring a social enterprise networking company, I feel like Microsoft’s losing focus of what they are and want to be. Eventually, this will destroy a lot of value, much more in fact than overpaying a few hundred millions for an acquisitions.

That’s not the news Microsoft seems to focus on. But this will eventually have a bigger impact.

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Money is just linear

If you can spare 10 minutes and 48 seconds of your time, watch the video above, it’s the best I’ve seen so far on this topic. For those who only have time to read the few lines in here, a really short summary is this:

For tasks requiring mechanical skill only the equation the bigger the reward (=pay), the better the performance holds true.

For tasks requiring even only a little bit of cognitive skill, this equation is not only rejected, it is actually inverse: the larger the reward, the poorer the performance!

As human beings, we are not predominantly driven by rewards, we are not linear. This is ok, we all knew already that those linear rewards work only so much. But that these rewards actually decrease our motivation to perform? That’s pretty big. Isn’t it exactly this behavior that inspired Steve Jobs to create the Mac? And that led so many other people in our world do the most beautiful things? It is. It is exactly this behavior what separates us from all other God’s creatures and I am not sure the saying “money rules the world” is correct. After all, money is just linear.

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Hello EU, Why don’t you care about your people?

Elections in Greece are over, the EURO 2012 in Poland and the Ukraine almost. The final match will be Italy against Spain. That’s simple, just two teams against each other. In the European Union, however, it feels like it’s everybody against everybody. Plus, our politicians still think they can play foul and fool people in every possible way. I am dead sure that there is not a single person in the European Union, neither in Portugal nor in Greece, neither in Italy nor in Ireland, Germany or France who is not desperately frustrated by this whole situation. I believe people are not frustrated by the apparent threat from the Financial Markets or the debt crisis as a whole. Many Europeans have gone through both cold and hot wars and are resilient. Much more resilient than the banker in his suit who is close to a stroke because he is worried about the speculative gains made with money he never owned.

No, people are frustrated about the political debate, the poor impression our EU politicians give and the lack of dedication to us, the people.

When I was still at school, I grew up in a post-cold war Hurray Europe and everybody except former communists were huge fans of that. So me. During my first travels in Europe, I still had to exchange money and carry traveler’s cheques, the Euro wasn’t there yet. People all over the place were friendly and happy to live in a Europe without threat of a cold hot war. And life was made even easier with the Euro. Although it’s a small continent, there is an abundance in culture and diversity among Europeans. Still, the many people I met so far share a common European spirit. They like living in this Europe as much as they hated living in a cold war stress and during real war times. So, don’t blame the European idea, it’s a great one. At the same time, the same people I met hate that monstrous political construct that calls itself European Union.

These 350 words sum up pretty much how we feel in Europe.

Hello EU, why don’t you care about your people?

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Belief and trust melts digital divide for the Warrior King

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LinkedIn is in some kind of trouble these days with 6.5 million passwords being stolen, but to me LinkedIn is a hero. Because it was thanks to LinkedIn that I discovered something incredible today: The Meltwater entrepreneurial school of technology or MEST in Accra, Ghana. This school is a NGO spin-off from the Meltwater Group, a highly successful software company founded in 2001 in Norway – started with just US $15,000, a trusty coffee machine and a really exciting vision:

“The Meltwater Group enters growth markets where new technology enables outsiders to challenge existing business models and market leaders sleeping in class.”

Today, over 800 employees in 55 offices work for the Meltwater Group. This is impressive and still, they took it to the next level with MEST. Not only do they invest money in new start-ups and entrepreneurs in Ghana, which means ‘Warrior King’ , just in case you wondered about the title of the post. But they provide training, mentoring and education in this region. And this is in my opinion even more important. Having started his own business with little capital as well, Meltwater’s CEO John Lyseggen, who developed the MEST concept, probably thinks the same way and consequently follows his belief that talent is everywhere and that people can achieve great things everywhere with the right support and guidance.

There seem to be a few more initiatives of this kind  in Africa already. It looks to me, as if these are mostly limited to financial funding and don’t share the same belief and trust in people. But in general and for Africa in particular, the combination of financial investment and altruistic training, mentoring and education is the winning formula. And I am so glad to see this happen with MEST.

Thank you, John and Meltwater. Your MEST NGO is melting the Global Digital Divide.

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At 81, Warren Buffet has the balls

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I don’t know much about Warren Buffet, except the boring things that the press tells us – things like that he is one of the richest guys in the world, he is the “Oracle of Omaha”, he gives away all his wealth, et cetera. Apparently the media is content with this sensationalism and superficiality. But I found something really surprising and in its way fascinating in Warren Buffet nobody else seemed to care to write about. Maybe because it is a simple thing, but it is powerful.

I recently looked for the first time at Warren’s latest Shareholder Letter from 2011 which he publishes openly (disclosure: I am not in any way affiliated to Berkshire Hathaway, Inc.). It is a pretty long letter, but if you find time you should look at it in detail here – it is totally worth it. Not because it provides a great investment advice how to become as rich as Warren, in fact I couldn’t find much of advice in it that you could use.  But it is an example of what character traits one person needs to be able to come as far as Warren Buffet. Reading through this letter to his shareholders, you find text passages such as:

A few years back, I spent about $2 billion buying several bond issues of Energy Future Holdings, an electric utility operation serving portions of Texas. That was a mistake – a big mistake.

Wow. When was the last time you’ve seen any external manager telling publicly “yes, I made a mistake, let’s go on”? Let alone any politician! I’d even say no politician in the last 20 years has come up with that level of truth. People are simply no longer straight forward.

And it goes on:

I totally miscalculated the gain/loss probabilities when I purchased the bonds. In tennis parlance, this was a major unforced error by your chairman.

So this is not just a one-time thing, this is an essential feature in Warren Buffet’s character and certainly one of his secrets to success. It is fascinating and living proof that being honest, straight forward, direct but not unfriendly are the foundations to build the necessary trust among whoever surrounds you to achieve great things. At 81, Warren Buffet has the balls.

Will Facebook’s market saturation saturate Wall Street’s greed?

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So, it seems Facebook has achieved market saturation in the US in 2011. Now the fun begins, at least I am beginning to smile. While some already ask for more and different social networks, I could fall in love with the idea of a giant failing to fulfill dreams, expectations and desires from now on and taking some of its investors with him. Market saturation for a company which hasn’t gone public yet is a very interesting constellation and, at least to me, it is new. That makes it dangerous, as markets don’t like new that much, they are rather conservative. From now on it will be much harder for Facebook to convince sometimes irrational, conservative markets. Because imagination and dreaming potential is now reduced to more boring and sublime facts which in addition might also be more difficult to communicate. Instead of user growth, Facebook will need something else, another edge, another angle where it can excel, to convince public markets and its traders in the future, when it will be a public company. That is really hard to do, even for Facebook.

Previously, in the era before market saturation, investors could argue with impressive figures from Facebook and build up dreams that were fueled by user growth. It is simple math. Take existing, impressive figures and multiply it by an expected user growth rate and you get imaginary, but even more impressive figures. It is what you call a ‘run rate’ and Wall Street likes that. Private Investors certainly have taken into account future user growth when they valued the company in the many private rounds in the past. Facebook’s impressive ‘run rate’ was always priced into the pre-IPO valuation.

In the era post market saturation, that formula is no longer viable, the run rate slows down, the goal is achieved. Facebook made it and achieved market saturation. Yet the question will be if investors and Facebook itself can make the switch to a different formula that will have as much dream potential and imagination and at the same time is easy to communicate? No doubt, Facebook is a valuable asset. For some, it is indispensable. But for years, Facebook’s value was only limited to its impressive user growth and ‘run rate’ by too many people. Back then, it was good, because it is an easy to understand parameter where Facebook outpaced competition every time. And it is easy-to-understand parameters that Wall Street loves.

Now, it will be very interesting to see if sometimes irrational markets are ready to evolve and apply to Facebook different valuation standards than before market saturation and if Facebook finds that other easy-to-understand-and-still-full-of-dreams measure or formula. No doubt it will be interesting to see, as dealing with a company that achieved market saturation is something Wall Street hasn’t much experience in, at least to my knowledge.

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Hello EU, haven’t you seen the relationship between democracy and debt?

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2011 has been a strange year.

A year full of strange words nobody wants to hear such as ‘debt crisis’. ‘Greece‘ is no longer a beautiful country with white-sand beaches, blue Mediterranean Sea and great sunny weather. In 2011, ‘Greece’ has become the synonym for a country where the only thing that still grows is its debt. During all the intellectual discussions made around the debt crisis not only in Greece, but also in the whole European Union and as well in the US, it is fascinating how politicians find all kinds of causes but never question probably the biggest reason for debt: themselves and democracy.

To be exact, the lack of direct democracy in a state.

I’ve always been a fan of direct democracy because I believe that the mass is always more intelligent than a few elected intellectuals. James Surowiecki is of the same opinion and has illustrated this pretty impressively in his book ‘The Wisdom of Crowds’. Also, it is much more difficult and expensive for lobby groups to bribe a whole society than influencing some politicians in order for a favorable vote. Another convincing argument is that in a representative democracy a few decide on spending the tax money of all. Spending money you have never earned yourself inevitably leads to waste and the more you get used to it to debt.

In a direct democracy the society has the ultimate veto right, which leads to a more reasonable way of spending tax payers’ money and as a consequence less debt. Now a great, recent extensive study by Patricia Funk and Christina Gathmann revealed that there is in fact a relationship between direct democracy and government spending. Who is interested can download the complete study here (PDF).

Basically, the study revealed that the more direct the mass in a direct democracy can exercise its veto right towards spending, the more reasonable is government spending as a whole and the ‘leaner’ or less ‘bloated’ is government itself. That is bad news for the European Union bureaucracy beast. Politicians keep thinking they are indispensable and try to resolve the debt crisis with more government. The contrary should be done. And while the masses will realize the validity and importance of this study and would reasonably act and apply it, we will have to wait a long time until EU politicians will accept this truth. They will neglect any relation in order not to lose their power or influence. Their individual motivation will be more important to them than the good for the community.

And there is it once again. The lack of direct democracy harms us all.