Wednesday, October 8, 2008

Investing to Make Money? Radical New Idea

Does reading the news make your stomach turn?

We went through the crisis that was called the dot-com bust. What happened then? Investors put money into small firms at a value that was not 'real.' They gave lots of money to these pre-IPO firms that were losing money, and then these businesses moved into the quarterly nightmare cycle when they finally did their IPO in order to make Wall Street happy in short spurts. The firms made no real money, and eventually everyone figured out that the valuations made no sense, and the dot com bubble burst.

Today we are witnessing a madness of similar making. Albeit, more complex, basically a lot of bad investments were made. Markets grew and grew in order to satisfy the quarterly measurement cycle, make bonuses, grow rich on promises, and then use an elaborate system of borrowing non-existent money to move over to non-existent accounts and somehow along the way convince everyone to just keep getting more mortgages and keep borrowing and lending until one day, the promise was, most of the ‘people’ would become incredibly wealthy.

And now - billions and trillions of dollars (I can't even imagine that much money) is being handed out to the people who made the mess in the first place. I know.. it's necessary, but it does not make sense.

Here's what I'd suggest. Since we have billions available to toss 'out there,' what if we find a way to create a 'real' wealth creation vehicle?

I want someone to restart the IPO market with REAL companies that agree to do business under a completely new set of rules. Start out with a new fund for real companies that follow the real company mantra.

Real company mantra:

1. They make something real - that you can see, touch, or use (it adds value); they have a real place where people go to work, and they have real employees.

2. Their shareholders have access to the BEST communications and data that any shareholder has ever had before.

3. Short-term quarterly results are less important than annual progress. No short-term incentives will be in place for executives.

4. All employees have stock options or equivalents.

New data that stakeholders will have access to:

* Employee survey data - done monthly - with open-ended comments about all the things the board and clients care about. The Board gets this data directly.

* Customer survey data - done quarterly - with open-ended comments about all the things board and clients care about. Board gets the data directly.

* Key Investor survey data - to get feedback about what they are seeing in the market, what they are looking for, how they think their investment dollars are being managed. This also is given to the Board.

* Partner, supplier, and community survey data - to assess how the investment is doing in the community, working with key stakeholders, etc. Yes, these data too are given to the Board.

* Summary report given to all stakeholders, and summaries that are used for regular, interactive, and healthy board discussions on a regular basis. These discussions inform and help us redirect strategy because we know that the strategy making process must change (high rate of change is forcing us to alter our models of how we do business).

* Third-party firms does the data collection, benchmarking (within the fund), and provides the reports to the Board and other interested parties. This is a new ‘stakeholder audit’ function.

The firms grow; they sell real stuff; they hire employees; they create wealth, and then these firms go public. The data gathering and sharing with the board and clients continues after going public. A new type of audit function is built out; strategizing is more nimble, agile, and on target.

Quarterly and annual meetings are held with all the stakeholders in the pre-IPO fund to share best practices and learning. Thought leaders are included in the programs to teach what is learned from all the data that the firms in the fund have collected because these types of data can change what we know in management theory.

This is the organizational learning fund, designed to grow great businesses that continue to succeed - to take them public - and to rebuild confidence in the economy. We could do it via entrepreneurial firms; the fund should be global because entrepreneurial firms that can grow like this are all over the world.

The IPO market just may be the place to grow wealth again in the shortest time possible.


V Berg said...

This applies to all firms, not just to the IPO market.

Large firms are suffering because of their lack of transparency, responsibility and accountibility. This has directly led to these firms having much more liabilities than assets, forcing them to borrow billions to maintain even normal operations.

We are now in a global credit crunch of the likes of 1929.

Transparency, effective use of information and effective use of capital is critical for survival in this environment.

I just wish this had been in place a few years ago.

Skip Reardon said...

Agreed - not just for the IPO market, but this would be a great directive moreso for small and midsized businesses, where the communication challenges are less complex.

We're only 50 years into the Information Age, and we're still managing and leading as though we were still in the Industrial Age!?!

Time to break down the walls, and start anew!

Might find some solace by reading the new bestseller, Six Disciplines Execution Revolution, by Gary Harpst, which details the revolution that can finally take place in the way businesses can attack their biggest challenge (executing strategy)