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Tag: business (page 5 of 9)

Links from May 25th

Forget green consumerism

Does buying “green” products rather than the more conventional alternatives really make a difference in terms of improving the environment? Environmental activist Joel Makower says not so much.

He argues that the drive for efficiency and cost savings in business makes a bigger difference:

But there’s a deeper problem with green consumerism: It’s often hard to know which companies are improving their environmental performance—and how. The key element of making consumer choices—knowledge—is missing. Companies’ environmental improvements (or lack thereof) aren’t usually obvious, even to the experts. In fact, some of the most environmentally improved products make no green claims at all.

Here’s why: To save money, reduce risks, improve quality, and remain competitive, companies in nearly every sector are continually engineering waste, inefficiency, energy intensity, and toxicity out of their manufacturing and distribution. A few have upended their business models in the name of efficiency and enhanced productivity. They sometimes do this because of the reduced environmental impact, but mostly they do it because it makes good business sense—not something companies usually bother to tell their customers.

The fundamental problem is not post-consumer waste, but rather the waste that’s generated in creating things and delivering them to consumers. The numbers are staggering:

What’s the point? It’s only a matter of time before the story of GNT gets told and the public recognizes that for every pound of trash that ends up in municipal landfills, at least 40 more pounds are created upstream by industrial processes—and that a lot of this waste is far more dangerous to environmental and human health than our newspapers and grass clippings. At that point, the locus of concern could shift away from beverage containers, grocery bags, and the other mundane leftovers of daily life to what happens behind the scenes—the production, crating, storing, and shipping of the goods we buy and use.

This is not altogether bad news. An inefficient power supply in a computer may raise your electricity bill by $5 or $10 a year, and isn’t something you’re likely to worry about. If Google used that power supply, it would cost them millions of dollars in power bills. So they build their own servers and fund research into improving power supply technology.

Higher commodity prices create incentives to limit waste, but also make increasingly invasive extraction methods economically feasible. There was a recent article in National Geographic about mining for gold in the face of rising gold prices that exemplifies this problem. Rising commodity prices lead directly to habitat loss, which is the primary cause of species extinction.

It’s tough being an environmentalist.

MySQL founder on Oracle’s buying Sun

Michael Widenius, the founder of MySQL, has posted his thoughts on the acquisition of Sun by Oracle. I agree with this sentiment:

The biggest threat to MySQL future is not Oracle per se, but that the MySQL talent at Sun will spread like the wind and go to a lot of different companies which will set the MySQL development and support back years.

I would not like to see this happen and I am doing everything I can do to keep this talent pool together (after all, most of them are long time personal friends of mine). I am prepared to hire or find a good home (either at Monty Program Ab or close to it) for all core MySQL personnel.

I think that the best thing that could come out of the merger is the combination of the InnoDB and MySQL teams.

GM mortaged the future

FiveThirtyEight.com has a simple explanation of why GM is dying:

GM was willing to cut its employees some very attractive deals in the 1950s through the 1980s — provided that they took them in the form of retirement benefits rather than salary, which wouldn’t hit GM’s books until much later and which until 1992 weren’t even required to be carried on its balance sheets all, making its financial statements (superficially) more appealing to its shareholders. That health care costs have risen so substantially in the United States have made a bad matter worse.

This issue is wrongly portrayed by both the liberal and the conservative media as one of management versus labor, when really it is a battle between General Motors past and General Motors present. In the 50s, 60s and 70s, everyone benefited: GM and its shareholders got the benefit of higher profit margins, and meanwhile, its employees benefited from GM’s willingness to cut a bad deal — for every dollar they were giving up in salary, those employees were getting a dollar and change back in retirement benefits. But now, everyone is hurting.

Reinventing business credit ratings

There was a presentation at ETech today on a topic that interests me — how to reinvent credit ratings given that the existing system failed catastrophically. The job of ratings firms like Moody’s and Standard & Poor’s is to rate the ability of businesses to repay their debts. Many firms that have collapsed retained AAA ratings right up to their moment of failure.

There have been some proposals that the federal government take over the traditional role of the ratings agencies, but I’ve been persuaded that’s not the right answer. Could an open data effort supplant the private ratings firms? It seems possible, given that the private agencies do not insure their predictions in any way. There was no financial penalty for the ratings agencies for completely missing the boat on AIG’s horribly bad bets on the real estate market.

I am very interested in seeing some real innovation in this business. It’s certainly overdue.

The trouble with giving advice

Joel Lovell writes about the trouble with giving investment advice (professionally):

I mention this less as a confession of my own incompetence than as an example of how difficult it is to say anything with genuine authority these days, at least when it comes to financial advice. Should you jump into the market now and buy low? Should you keep everything in cash for the next year or two or five? Should you invest in China or natural gas or gold? Beats me. I’ve been writing this column for about a year and a half, so I’ve done my research, talked to a bunch of investment analysts and made an effort to understand what’s going on now and where we might be headed. But really, I can’t begin to claim to know. And when I think back on the advice I’ve given and realize that my readers would have been far better off if each month I’d said, “You know what, let’s stick with Plan A and just stuff our money into a satchel and bury it beneath the swing set” — well, it makes me feel like a bit of a fraud.

The trouble is that advice is almost always overvalued. I have an unwritten blog post in me about my general loathing of advice across the board. You’re usually better off without it, and giving advice is almost never a good idea.

Entrepreneurship 101

Fred Wilson explains how to run a business:

Let me explain. Businesses are worth the net present value of future cash flows. Cash flows means profits basically (capital expenditures are important but I’m going to leave them out of the discussion on this post). So a business is worth the sum of all of its future profits, discounted back to a net present value. For those who don’t want a lesson in finance, you can simplify this theory even more by using a cash flow multiple as a proxy for a net present value. I like to use a 10x multiple for cash flow as a simplistic proxy for net present value.

So with that simplification, the value of a business is approximated by 10 x (revenues – costs). You can focus on creating value by driving revenues or you can focus on creating value by driving profits. And they are not the same. Because costs don’t have to grow linearly with revenues.

The bottom line is that successful businesses need positive cash flow. Anything else is a shell game of sorts. Sometimes you can get people to give you money by way of debt, acquisition, private investment, or public stock offering on the promise that positive cash flows are attainable, but positive cash flows are always the goal. In a crappy economy, it’s tougher to convince people to bet on the future, so the goal has to be positive cash flows right now.

By the way, positive cash flow is the key to personal finance as well. Ever meet people who make lots of money but feel like they don’t? It’s because they aren’t managing their cash flow very well.

How to lay people off

Just a quick note on two companies that recently had layoffs. I respect this a lot more than this. Honestly I have no idea what O’Reilly is doing in terms of outplacement, so it would be wrong to pass any kind of judgement on how they’re treating the people who were laid off. The lack of transparency is a bit unsettling.

These are tough economic times and layoffs are happening all over the place, but I still think employers ought to take Tim’s advice and make sure they’re creating more value than they capture in their relationship with their employees.

Update: Never mind what I said (about O’Reilly). Here’s Tim’s blog post on the layoffs.

Porche’s financial maneuvering

Back in May I mentioned that Porsche is more a hedge fund than a car company. Little did I know that Porsche is actually a hedge fund that kills. That link is to a great explanation of how Porsche acquired Volkswagen and managed to earn billions of euros playing the financial markets in the process.

Bank will pay executive bonuses in illiquid assets

This is the best idea I’ve heard of in some time. Credit Suisse Group AG is going to pay its executives bonuses out of a pool of toxic mortgage-backed assets that it cannot currently sell. I love this because it is both just and clever. The executives at the bank now have every incentive to figure out a way to make these rotten assets turn into something less rotten, and if they don’t, they’re in the same boat as the investors who purchased them.

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