31 Ocak 2016 Pazar

Civilisations Retrograde

Globe

There are just a few menacing yet fascinating places left on Earth.

These places are usually active conflict zones or rugged areas where rebel groups lurk, nations with unfriendly governments, or otherwise unstable locations where battle has recently ended.

They have terrible reputations.

But nevertheless, these places are intriguing, because they weren’t always in trouble. Once upon a time every place had its heyday. Did the outside world perceive these places differently during times of peace and prosperity?

Iraq, now a sad unrecognisable shadow of its former self. But once, long ago, Baghdad was one of the Islamic world’s most magnificent cities, where the heart of an Empire beat during the Golden Age of Islam. In those days, Baghdad was well-known for its scholars, its philosophers, and its innovators.

Somalia, whose capital city Mogadishu was once the pre-eminent city in the Horn of Africa, making a fortune from its role as a major trading port with the Arabian Peninsula and India. For a long time, Somali Muslims and Ethiopian Christians even lived peacefully side by side. Eventually wars broke out, but nothing that would drag the country down far enough to become the failed state it is today.

During the Middle Ages, Somalia became a prosperous trading nation where Islam flourished and became powerful.  During the 1940s, although Somalia was an Italian colony home to over 22,000 Italians, the standard of living was one of the highest in the region, with a well-developed manufacturing industry.

Somalia later passed into the hands of the British, and finally gained its independence in 1960. But a military coup by Mohammed Siad Barre in 1969 and his establishment of a communist state heralded the beginning of Somalia’s slow descent into chaos.

Most notable is Afghanistan: known in the 1950s and 60s as a modern and progressive nation, where innovation was encouraged, where women’s equality was enshrined and upheld in law, where young people went to university to pursue their dreams unhindered by religious and political fanaticism.

During the final years of the Afghanistan invasion, British Defence Secretary Liam Fox once called Afghanistan ‘a broken 13th century country.’ This view still reflects common perceptions of Afghanistan and its inhabitants, who are often believed to be ungovernable barbarians living in a chaotic land.

In 2010, Afghan-American university president Mohammad Qayoumi, who left Afghanistan in the 1960s, made it his mission to educate the world about the country he had known and loved.

He assembled a wonderful photo essay, ‘Once Upon a Time in Afghanistan’, showcasing amazing images of an unrecognisable nation. Released online last month, the photos of Bill Podlich support Qayoumi’s theme and show Afghanistan from the perspective of an American family living there in the 60s.

Examining both collections is an uplifting, thought-provoking, yet melancholy experience. The photographs show Kabul’s female university students wearing skirts with their heads uncovered, studying alongside young men in science class, socialising casually at cinemas and coffee shops, shopping at record shops selling the latest Afghan and international hits.

Podlich’s pictures show Americans interacting normally with Afghans on the street in a relaxed manner, even with Podlich’s wife wearing a sleeveless Western dress.

Even more importantly, according to Qayoumi there was an efficient and organised government, a vibrant economy, and a strong tradition of law and order. Even the national carrier, Ariana Afghan Airlines, was reliable and well regarded internationally.

The country had many of the ingredients for great success and people had every reason to hope for a bright future during Afghanistan’s halcyon days.

How tragic then, to see the state of these nations today after decades of war, communism, and religious extremism have taken their heavy toll. The aforementioned three factors have a great deal to answer for, as these are the major causes of civilisational retrograde.

There are no excuses, no justifications. The wasted potential is immense, both for the country and for its people. Innovation, freedom of speech, modernity, fair governance, justice, all summed up into a strong, clearly communicated nation image, are necessary for any civilisation that wishes to truly thrive in the 21st century globalised world.

Any force that tries to deny them that opportunity, no matter where the force originates, cannot be called good. Let us hope that one day these razed civilisations will rise up once more and begin to establish themselves on the playing field of a new century.

This article was first published on PlacesBrands – Reputation Management for Places

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The Babel fish is Becoming Reality

babel-fishIn Douglas Adams iconic science fiction saga from the 1970s, The Hitchhikers Guide to the Galaxy, one of the alien species is the Babel fish. To quote the book, “The Babel fish is small, yellow, leech-like, and probably the oddest thing in the universe. It feeds on brain wave energy, absorbing all unconscious frequencies and then excreting telepathically a matrix formed from the conscious frequencies and nerve signals picked up from the speech centres of the brain, the practical upshot of which is that if you stick one in your ear, you can instantly understand anything said to you in any form of language: the speech you hear decodes the brain wave matrix.”

Thus, the Babel fish is a universal translator that neatly crosses the language divide between any species. The book points out that the Babel fish could not possibly have developed naturally, and therefore it both proves and disproves the existence of God.

Then, this morning I read an article in The Wall Street Journal, that within 10 years, a small earpiece will whisper what is being said in your native language nearly simultaneously as a foreign language is being spoken. The lag time will be the speed of sound. The article is written by Alec Ross, the former senior adviser for innovation to the U.S. Secretary of State.

Technology innovation moves at a staggering speed. We have had Google Translate for quite some time now, and both Google and Microsoft apps for instantaneous translations are already available on on smart phones. Microsoft’s cloud based Translator service powers not only text but also speech  conversation translation in seven languages (Chinese Mandarin, English, French, German, Italian, Brazilian Portuguese, and Spanish) in Skype Translator and Skype for Windows Desktop, and the Microsoft Translator Apps for IOS and Android.  I tried it out the app for the Apple Watch this morning and it works really well, although with a lag to speak into the watch and then wait for the translation to show back in text.

Microsoft_Translator for Apple Watch

EarinAt the same time, Bluetooth ear buds are becoming very capable, designed mainstream products, albeit with short battery life. Two highly praised new products are the German Bragi Dash and the Swedish Earin. Both these devices represents new, radical innovation with a technology leap beyond other wireless earpieces of recent years.

Of the two, I find Bragi Dash to be the most interesting. Tech companies the world over are looking to crack the wearable technology market, especially in terms of fitness tracking. Not only does it have audio microphone and speaker, Bragi has also integrated a three-axis accelerometer, a thermometer, capacitive sensors and optical sensors. Together with a smart phone app, the Bragi Dash can track the user’s physical conditions such as heart rate, heart rate variability, oxygen saturation, body temperature, and calories burned.

Bragi Dash earbudsFor health coaching, the Bragi Dash can track performance measures such as steps, cadence, time, g-force, rotation, turns and more, which means users are not required to wear something additional while working out. Further, with GPS added via a smart phone, it can detect the distance travelled, speed, drop rate, and altitude. Not bad for a simple earbud. Clearly the ecosystem technology is there already for cloud based apps to integrate also simultaneous translations.

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30 Ocak 2016 Cumartesi

Whether you are a lion or a gazelle: when the sun comes up, you’d better be running

This is a quote first attributed to Dan Montano in the Economist, but was popularized by Thomas Friedman in The World is Flat.  Here is the full quotation here:

Every morning in Africa, a gazelle wakes up. It knows it must run faster than the fastest lion or it will be killed.

Every morning a lion wakes up. It knows it must outrun the slowest gazelle or it will starve to death.

It doesn’t matter whether you are a lion or a gazelle: when the sun comes up, you’d better be running.

For libertarian-types like me, this quote pretty much sums up how we see the free markets. It’s a wild, open, competitive, and oddly democratic way to get the best out of people. Money is certainly not everything, but the market has a queer way of rewarding those – in the long run – who are good at what they do. Whether you are a lion or a gazelle, you had better be running.

Consultantsmind - Lion or Gazelle

The average S&P 500 company only lives 18 years. While humans live longer, companies don’t live as long as they used to. In 1935, the average company lived 90 years. Harvard Business Review calls this corporate endurance here. McKinsey argues here that you really have a choice of innovating or dying here.

90% of profits only go to the top 20% of companies. This is something Dominic Barton – global head of McKinsey – said recently in the press here. I am looking up the data on that, but he is no fool, so I am taking it as gospel. In short, winner takes all.

This echos the strategy that Jack Welch pursued in the 1980s and 1990s when he stated that General Electric would get out of any industry where it could not be #1 or #2. It is also consistent with the main thesis of my favorite industry strategy book called The Rule of Three – by Professor Jag Sheth which argues that all industries go towards oligopoly; as companies grow and merge to get scale, industries continue to consolidate until there are 3 major competitors, and a long list of niche or smaller players.

It doesn’t matter whether you are a lion or a gazelle: when the sun comes up, you’d better be running.

2015 was a record year for mergers and acquisitions. Not sure if your noticed, but last year was a monster year for investment bankers. There were $4.7 trillion of M&A deals, up 42% from 2014. The Atlantic magazine notes here that companies had a lot of cash, they are getting more confident after the recession, and they are looking to get economies of scale to squeeze out costs. Here are some of the 137 mega-deals (deals over $5 billion) from last year which accounted for more than 1/2 of the total deal value:

  • AB Inbev +  SABMiller ($120 billion)
  • Pfizer + Allergan  ($191 billion)
  • DuPont + Dow Chemical ($68 billion)
  • Charter + Time Warner ($78 billion)
  • Dell + EMC ($66 billion)
  • HJ Heinz + Kraft ($55 billion)
  • Anthem + Cigna ($48 billion)

VUCA. This is an acronym from the US military that stands for Volatile, Uncertain, Complex and Ambiguous. Situations are fluid. Multiple – unrelated things – can go wrong. Strategic flexibility is critical to having a good set of options. Even McKinsey says that 40% of the services they deliver to clients within 3 years time will be completely different from what they do now. Innovation, speed, and flexibility is the mantra of high-performing companies today.

  • What are you and your company doing to disrupt yourself?  
  • What are you doing to run faster? 

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28 Ocak 2016 Perşembe

McKinsey gets phase 2 on NY jail project for $7M

McKinsey & Company is a premiere management consulting firm with a long legacy of influential alumni, thought-provoking research, top-shelf billing rates, and legions of ivy-league smarties.They get called in to solve difficult problems – everything from corporate mergers to changing the organizational design at the CIA here. So, it is only with a bit of humor and amusement that I read this headline here:

Consultant Gets $7 Million More to Plan Reform at Rikers Jails

Apparently, McKinsey was hired in 2014 to put together a roadmap to help reform the NY prison system for $1.74M.  Apparently, they did a good enough job to win a phase 2 of work worth $7M. The goals of the project will be to:

  • Focus on measures to reduce violence
  • Follow up from the phase 1 interview of 9,000 uniformed correctional officers
  • Reduce the use of solitary confinement, and replace with an alternate method

Consultantsmind - McKinsey Prison

Although the executive sponsor (Mayor Bill di Blasio) liked the McKinsey work, one of the main stakeholders (Norman Seabrook, president of the correctional officers union) has been much more skeptical, almost antagonistic.  All big talk.

“I do not think McKinsey has done anything impressive enough to justify giving them another contract worth millions of taxpayer dollars. . .There has never been a dialogue between the union and McKinsey that resulted in better services being provided”   – Seabrook

Consultants solve problems. We work across industries and melt down the relevant data so that executives have options to choose from.  As Seth Godin often talks about – the simple problems have already been solved. The problems left are the perfect problems – the ones where the core assumptions and constraints need to be re-examined. Maybe solitary confinement is not the best way to punish trouble-makers and keep the other inmates safe.  Maybe the correction officer’s satisfaction and inmate satisfaction are positively correlated.  Maybe there is a win-win.

Don’t judge the situation or industry. Remember, difficult and good business problems come in all shapes and sizes. The head of McKinsey’s first project was counting pieces of chicken for KFC’s chicken nugget box after all.  Do great work and create great stories to share with the next generation of consultants.

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25 Ocak 2016 Pazartesi

Accounting 101: What is depreciation?

In my mind, depreciation has two meanings – the common sense definition most people know intuitively, and the financial accounting definition which dictates how costs of fixed assets are spread out over many years. Note – if you are CPA, feel free to call me out on things I describe incorrectly. All feedback welcome.

1) Common sense definition: Something goes down in value. No surprise – after all – it’s just the opposite of appreciation, right? Think about your car, computer, or roof. The older stuff gets, the more worn out it gets, and the less valuable it is.

Old stuff gets worn out and less useful; they say a new car depreciates in value about 20% the minute you drive it off the car dealer’s lot. Likewise, if you bought a home in Las Vegas in late 2006, you can see here that the average house fell from $298K to it’s current value of $194K. I wrote about rental properties here, explaining that it can provide good cash flow and a solid return on equity, but not to count on capital appreciation, because the graph below shows that values depreciate too.  If prices do go up, good for you – just don’t bet your retirement on it.

Consultantsmind - Zillow Las Vegas Depreciation

2) In accounting, depreciation means something different.  Here, it refers to the costs of a fixed asset (something that lasts many years) being allocated over several years. During MBA days we learn the “matching principle” which says to allocate revenues and costs to the the time period when they occur – that is why we have things like deferred liabilities, accrued expenses, and depreciation.

As an example of depreciation, if you buy a piece of equipment for $70K which will last for 10 years, you divide up the cost by 10. For your taxes, you can only deduct $7K of depreciation expense annually. Seems like a crappy deal, right?

In terms of cashflow, you spent $70K already (sad bank account), but your financial statements will only show a $7K depreciation expense in year one.  The only upside is that you get $7K in expense in years #2, #3, #4 . . . #10, until it is fully depreciated.

Non-cash expense.  Depreciation tends to understates profitability in the early years, and over-states it later on.  On the balance sheet, this also gives a more accurate (albeit, still flawed) estimate of the salvage value. So after year four, you have taken $28K in depreciation expense, and the remaining (salvage) value is $42K.

Depreciate over how many years? This is a good question. The US government has multiple schedules which tell you the “expected average life” of your asset. It’s approximate and actually imperfect, but at least it is consistent.

  • For rental properties here, the duration of assets can vary from 5 years (carpets, appliances) to 27.5years (roofs, buildings).
  • For agricultural assets here, the duration can vary from 3 years (hogs and tractors) to 15 years (drainage facilities) to 39 years (non-residential buildings)

Last year, I bought 2 air conditioning units for rental properties. They cost about $4K each and when i did my taxes, my CPA said the units had to be depreciated over 27.5 years. I was pissed. Trust me, those things do not last that long. My CPA made it clear – that is what the US government has on their schedule – ergo – that is how much I can expense.

  • I spent $8K (out of pocket)
  • I can only expense $291 of it in year one. That sucks.

Depreciate or Expense? As someone who has rental properties, I would rather expense costs than depreciate them – after all –  I have already spent the money.  Would I rather reduce by taxable income today or s.  l.  o.  w.  l.  y.  over time.  Hell ya, deduct now.

Looks like a few months ago, the IRS raised the minimum $ that you can deduct as an expense. . .from $500 up to $2,500. Nice. so if you buy a $2,400 car for your business – deduct it immediately. If you buy a $2,600 van, it is a depreciating asset and you only get to deduct 1/5 of the cost (5 year average life).  Remember kids, $2,500 is the threshold now.

Depreciation

What happens if I replace it early? My CPA explained that is the equipment goes bad before the 27.5 years, I can expense the remaining cost when I throw it away. Sheesh.

Accelerated depreciation. The government – in their increasing complexity – has different ways you can depreciate assets. There is straight-line depreciation that I mentioned earlier (simply dividing by the number of years). Then there is accelerated depreciation – where you can deduct more of the cost earlier. This is clearly more advantageous for the company, and some argue that this is the single biggest tax break for corporations here.

Watch out for EBITDA. This stands for earnings before interest, tax, depreciation and amortization.  Forbes makes the case here that it is this is a poor way to evaluate businesses because depreciation is not a cash outlay. You are looking in the rear-view mirror because the company has already spent the money, and just benefiting from the lingering depreciation years later. Remember, depreciation is a non-cash expense. The money has already been spent. It does not reflect cashflow.

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6 Tips to Create the Ultimate Consulting Landing Page

Your consulting website and landing pages shouldn’t just look good. They should be marketing assets. Research has revealed that 92%+ of website visitors will never come back to your site again. Which means that it’s more critical than ever that your website converts. In this infographic I’ve laid out 6 tips to creating the ultimate […]

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22 Ocak 2016 Cuma

Consultant, what are you doing to get retired?

I look forward to retirement. Who doesn’t? I recently went on a road trip to Key West and Sarasota Florida. Seriously, 80 degrees in December with a breeze? Walking on the beach watching while drinking mojitos? Debating whether to buy scallops or tuna at the fish market for dinner? Choosing between waffles and french toast for breakfast? Here is a sunset and a sunrise in Key West.  Retirement will be awesome.

Consultantsmind - Sunset sail

Consultantsmind - Sunrise

Question: What are you doing to get yourself retired?

Passive Income.  For me, I think consultants and other folks in the well-paid professional services bracket (yes, talking about you lawyers and accountants) need to more aggressively put their money to work. Right now, we are simply trading time for money. We bill out at $250-$500 an hour. If we don’t give the clients the hour, we don’t get the pay. Simple math and unfortunate math. We need passive income, not get-on-a-plane-on-Monday-morning-and-live-at-a-Marriott income.

Are we saving enough? At the end of the day, it’s the old-fashion strategy of spending less than you make (duh), and getting that money working for you. Remember that the average American saves less than 5% of their income. As Dave Ramsey – financial coach, radio host, and author – reminds us, average sucks.

How much of your income do you save?

What are you doing with your savings?

  • Buy assets. This sounds simple, right? Buy things that pay you. Buy things that get more valuable over time. Buy things that help you to buy things in the future. Dividend paying stocks, rental properties, cash-flowing businesses. All assets.
  • Don’t buy liabilities. Just the inverse. Don’t buy things that go down in value or depreciate over time. Don’t buy things that cost money to upkeep, and cause you to spend more money. Houses, boats, cars, electronics are all liabilities.

Return on Equity. We do all kinds of complicated business cases, and financial models for our clients, yet, when is the last time you applied that level of rigor to your finances? Are we eating our own dog food? Are we getting a good return on our equity?

Return on Time. As I get older, I think this is even more important. Time is the only thing you cannot get more of. Are we spending our professional and personal lives on things that give us meaning, move us in a forward direction, and make life good? Retirement is more than just having enough money to do nothing – it is NOT HAVING to work, and putting time to only the things you want to.  Amen.

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