THE STARTUP WAY BY ERIC RIES

‘’HOW ENTREPRENEURIAL MANAGEMENT TRANSFORM CULTURE AND DRIVES GROWTH’’

What caught me attention is the ‘’entrepreneurial mangement’’  terminology I recognize that I haven’t studied it in the college.In his book Eric Ries explain how organizations after they reach certain size they start to die slowly from inside.

After being involved in many projects and coached more than hundred project teams he has discovered that one of the reasons that organizations are dying is lack of innovation.Big companies inevitable became bureaucratic.

In his viewing  any organization can adopt statup way principle by following:

1)      Continous Innovation

2)      Startup as atomic unit of work

3)      The Missing function

4)      The second funding

5)      Continous transformation

Eric Ries explained why entrepreneurial management is not a replacement for traditional management is a leadership framework designed specially for 21 century uncertainty it’s discipline that help managers to become more rigorous in the entrepreneurial part of their management.

The startup way requirw reform and changes on both sides of the traditional busines.In some business and incredible amount of talent and energy gets wasted and innovation is blocked in archaic and inflexible structure.In this process of transformation not only top managers are involved and also midle  managers and all workers.

The idea of this training programmeis that anyone can be coached in the entrepreneurial way of thinking.

In conclusion I recommend this book  for every entrepreneur and who wants to become entrepreneur.The Startup Way teaches companies of all size how effectively incubate and maintain an entrepreneurial culture.

PURPLE COW BY SETH GODIN

‘’THE OLD WAYS OF MARKETING ARE DEAD AND BEING SAFE IS NOW TOO RISKY’’

A book that I founded very interested is Purple  Cow written by  Seth Godin,it’s about marketing and how you can transform your company in a remarkable one.The   idea  with name of the  book come after a trip in France he had observed cows grazing and after a while all  those cows had something in common,they were boring.

In his vision the perfect ‘’Purple Cow has to be remarkable  than the others one.For years the marketers  have talked about P’s of marketing:

• ·         Product
• ·         Pricing
• ·         Promotion
• ·         Positioning
• ·         Publicity
• ·         Packaging
• ·         Pass-along
• ·         Permission

Generally speaking companies spend  millions on advertising  in hopes that they will recreate the glory days  of the TV industrial complex.Seth Godin argues that the TV industrial complex is a hemorrahging approach that marketers don’t have a clue what  to do about it.

He has identify two rules of how marketing is working:

THE OLD RULES WAS:

‘’Create safe,ordinary product and combine them with great marketing’’

THE NEW RULE IS:

''Create remarkable products that right people seek.''

( Recently I ‘ve travelled in Germany Munich  one of the famous beer is Augustiner despite it ‘s an old company last time that spend money on advertising was 1975 this an example of purple cow)

In today and future economic environment the winners will be the companies  that innovate and figure out what’s working fast and  do it more and figure out whats not working and kill it.

In conclusion I recommend for everyone who wants to become entrepreneur  to read this book it full with examples of companies that use old fashioned approaches and with companies that innovate that are purple cow.Purple Cow is not cheap shortcut,it is however the best strategy for your company to grow and to be remarkable.

WE HAVE A DEAL BY NATALIE REYNOLDS

Negociation play an important role in our society no matter if we speak about business and personal life. A book that I found it very interested is ‘’We have a deal’’ written by Natalie  Reynolds.

She is CEO of consulting group Advantage Spring.In her book she use a straight approach by offering a lot of techniques and how we can use them. Probably  you might think that negociation is something gifted or something that you’ve learned in business schools which can be  true but not really,negociation is a fight  where each side  is looking  to claim  as much value as they can for themselves.

To be a good negociator  we need  a range of skills,strengths and practices.It’s not easy ,can be  tough and can be learned practice is key.Negociation is about  how people react and respond  each other ,is much about people and human behaviour  as it is about facts,figures and process

In conclusion I recommend  for all to read this book Natalie’s practical experience and tehniques in negociation can help us to take all the worry and fear out of it and to obtain what we want.

80/20 PRINCIPLE BY RICHARD KOCH

In this book Richard Koch explain how individuals and groups can achieve more with much and less effects and bring us happiness.Richard Koch is a british author,investor and entrepreneur.The 80/20 Principle was discovered for the first time in 1897 by Italian economist Vilfredo Pareto.

A good benchmark for this imbalance is 80% of output result from 20 % of inputs

The 80/20 Principle is used in business and investments IBM was one of the first company which discovered that that 80% of  computer time is spent executing about 20 % of operating codes.

A startup company called Belgo and MSI a hotel company realised that 20 % of the net worth come from 80 % of the investment gains.

General speaking  some business are inefficient and wastefull they not focus on what they should be doing, the 80/20 principle can reduce the complexity and raise profits.The 80/20 principle can easy move to 90/10,95/5 or 99/1, I have in mind some companies like Nokia,Motorola,Ericson have  lost their market share when Apple intoruduced the new concept of smartphone.

I deeply recomand everyone to read this book Kock show how working  and worrying less can transform our lives.

ELON MUSK BY ASHLEE VANCE

I always  wanted to discover  the man behind companies like :Tesla ,Space X and SolarCity.Ashlee Vance brought me the chance to discover entirely his evolution for the man who wants to save our Planet and colonise Mars.

Elon Musk was born in 1971 in Pretoria South Africa.Being child he wanted to follow the American dream.At 17 years old he left South Africa and moved to Canada.Elon enrolled at Queen University in Kingston Ontario in 1989.

His first entrepreneurial experience started in 1995  when he launched ‘’ Global Link Information Network’’ after spent some time in Silicon Valley in entership  renamed Zip 2.In February 1999  Compaq Computer offered 307 mil$ for Zip 2 and Musk got 22 mil $ for this deal.

Another startup that he launched was Paypal  ,eBay offered 1,5 billion $ and Musk got 250 mil $ .

Since he was a child had a passion for rockets.Probably to most challenging project that he is involving is Space X.Tom Mueller  was one of the first person that helped Musk and developing and creating rockets.After many falling attemps on 22 of May 2012 Falcon 9  rocked off from Kennedy Space Center In Cape Canaveral Florida rached to International  Space Station .Is first the first time on a private company  dock at the ISS.

Space X declared that would send unmanned mission to the Red Planet b y 2018 with human mission still on schedule for 2025.

In the fall of 2003 Musk meet Straubel come with the idea of an electric car.Straubel showed Musk ‘’Tzero’’  which went from 0-60 miles/hour in 4,9 seconds and so  Tesla  starting to take shape.Von Holzhausen joined Tesla didn’t know that the company was a verge of collapse.In may 2009 Tesla had been unveiled the Model S.Daimler acquired a 10 % stake in Tesla for 50 millions $ and the Departament of Energy offered 465 million loan .On 29 June 2010 Tesla went public it raised 226 million .

In conclusion I recommend  for everyone who aspire to be an entrepreneur it’s very motivating and inspiring.Elon Musk is not only a genius entrepreneur but also a good manager who has the quality to  recruit good people.From making rockets to electric cars he is visionary that he is changing our world,hard worker close to fanatism we can include him in the select group that changed our world togheter with Bill Gates and Steve Jobs.What admire most of him is the syntagm that everything is possible if  you have passion and never never give up is the quality that fascinated me.

BUSINESS ADVENTURES BY JOHN BROOKS

’THE BEST BUSINESS BOOK I’VE EVER READ’’ – Bill Gates  .

Being curios at what Bill said about this book,I’ve chosen to read it and I want to say that the book is an amazing story and presents events that market the XX century or corporate America.

One the story that caught my attention was the ‘’EDSEL ‘’ project which was introuduced and implemented by Ford Motor Company.’’Edsel was car prototype that which has proven a total failure.A real example of  how to through from the window 350 mil $.

In antithesis with EDSEL is ‘’Xerox ‘’ which was started in 1906  in Rochester by Joseph C Wilson  under name ‘’ Haloid Company’’ which was involved in manufacturing photographic papers and copying process.The company has growth rapidily  because it’s revolutionary product and services.

One more time it’s proven that  anyone with great vision  and skills which it’s able to pick up the right persons can do great things.But picking the rights persons and work with them it’s not an easy task.

People in greed for money can do illlegal things like sotck manipulation. Clarence Saunders  is the right example,man with no education and no ethics  created a tsunami on the stock market.In 1919 he founded Piggly Wiggly a chain of retail situated in South Wales .Saunders will remain in history the man who invented ‘’the supermarket’’ whitout to know that.

People with good skills can be in great demand  like Donald  W Wohlgemuth  manager department of ‘’ B.F. Goodrich’’ which was responsabile with designing and construction of suits for astronauts.In one day he got a job offer to work for a large company ‘’ Dedware International Latex Corporation’’ to do research and development on space suits for Appolo.The management of the company  offered Wohlgemuth the position of the manager of engineering with annual salary of 13 700$.

He accepted the offer and the problems for him just started because B.F. Goodrich  didn’t want to let  him go,because to one paragraph in his contract that was stipulated cannot work for company in the same industry and cannot share the secrets of B.F.Goodrich.In the end the court gave him the accept to work for Dedware International Latex.

In conclusion I recommend this book ,even this book  was written many years ago rules of running business and creating value haven’t changed.For all organizations humans factors are very important dosent matter if you have the great,idea,vision you still need to have the right people to implement those.

THE SNOWBALL OF WARREN BUFFETT BY ALICE SCHROEDER

It’s a big honor for me to write about Warren Buffett,being  my idol and the person who admire most from business leaders.About him have told a lot on media but what caught my attention was the book written by Alice Schroeder where she presented entire his prodigious career since he was a child until present.

When I read the book I discovered things that have never been told before.As many of you probably know Warren Buffett is the CEO& Chairman of Berkshire Hathaway.

Once Buffet called Berkshire Hathaway  one of his bad investments that he ever made.Sounds strange considering that today Berkshire Hathaway is 223 billion $ company according to Fortune 500 global ranking.

The story began with many years ago when Buffett had started to buy small stakes in the company until he bought entirely company.In that period Berkshire Hathaway was a textile bankrupted company.He bought the company with the intention to resale,but he didn’t  ,he liquidated the textile business and transformed it into conglomerate holding company.

Only him could be able to do this kind of performance .for those who don’t know Buffet investment strategy in the early stage of his career was ‘’Cigar Butt’’  approach,that means to buy company at cheap price but being cheap dosen’t mean certainly good.

His a value investor by definition his using Benjamin Graham investment philosophy.Benjamin Graham was economic professor at Columbia University,Buffett professor and mentor.

At Charlie Munger (Vicechairman Berkshire Hathaway)  suggestion Buffett have changed his investments strategy from buy cheap companies at cheap price to buy good companies.

He later exaplained: ‘’It’s far better to buy a wonderful company at fair price than a fair company at wonderful price’’

In conclusion I recomand to everybody to read this book you  will  discover the lifeof one of the most respected men in the world.The Snowball is a financial success story of capital accumulation.

BANK OF IRELAND EARNINGS POWER VALUATION(STUDY CASE)

In my last article I’ve presented a business valuation technique using cash flow projections,but  today I will present another valuation technique which implies actual earnings.

This method is  known as Earnings Power Value was popularised by Professor Bruce Greenwald from Columbia University.My study case for today is Bank of Ireland one of the imporatant financial institution in Republic of Ireland.In my evaluation I will focus on earnings.Why earnings? Warren Buffet once had said that earnings are  key valuation tools of bank and not book value.

Step 1 Find and adjusted resonable EBIT margin

	2012	2013	2014	2015	2016
Revenue	3471	3989	5051	4804	4672
EBIT	-2138	-546	920	1135	998
EBIT Margin(EBIT/Revenue)	-61.00%	-14%	18%	23.62%	21.36%

Average EBIT Margin	20.90%
Adjusted EBIT Margin	23.62%
Normalized EBIT(Revenue*Adjusted EBIT Margin	4662656
Research and Development
Selling ,General and Administrative Expenses	3206
Normalized EBIT	4665862

I will choose and adjusted EBIT Margin of 23.62%  The reason is that can I observe that earnings margin of company will increase that because the bank reduced their non performing loans portofolio from 14.7 billion in june 2015 to 7.9 billion euros dec 2016.

Step 2 : Add Research and Development Costs and Selling,General and Administrative

Research and Development:

Selling ,General and Administrative Expenses 3206 2012 2013 2014 2015 PROFIT AFTER TAX -1824 -487 786 940 TAX(EBIT-PROFIT AFTER TAX) -314 -59 134 195 TAX RATE(TAX/EBIT) 17.21491228 12.11498973 17.04834606 20.74468085 AVERAGE TAX RATE 18.59482538 ADJUSTED TAX RATE 20% Step 3: Account for possible under/overstate depreciation and amortization NORMALIZED EARNINGS AFTER TAX 3732689 DEPRECIATION,AMORTIZATION 132 CAPEX (CORE BANKING PLATFORM) 41 3732862  Step 4:          WCCO( Weighted Average Cost of Capital) TOTAL DEBT 113728 FINANCE COST(EXPENSES) 3466 COST IN DEBT% 3.047622397 EQUITY 9401 ESTIMATED COST OF EQUITY 10% RATIO OF EQUITY 76% RATIO OF DEBT 2.77% ESTIMATED COST OF CAPITAL 16.76%  Step 5: Discounted Normalized Earnings and add cash less debt EARNINGS DISCOUNTED AT COST OF CAPITAL 22352467.07 ADD CASH 5192 LESS DEBT 113728 22243931.07  Step6 : Calculate EPV/share: NO OF OUTSTANDING SHARES 1077884401 EPV/SHARE 20.63EURO/SHARE ACTUAL SHARE PRICE:7.23 EURO/SHARE Conclusions: Bank of Ireland shares  might be undervalued.The problem of this valuation is the calculation of WACC(Weighted Average Cost of Capital.I've calculated WACC after the formula: WACC+E/V*Re+D/V*Rd*(1-Tc) Where: Re- cost of equity                 Rd-cost of debt                 D-market value of the company debt                 V-marked value of the company combined(E+D)                E/V- percentage  of the total financing consisting equity                E/D-percentage of the total financing consisting debt                Tc-(the corporate Income tax rate) (all rights reserved for this article)

KERRY GROUP PLC BUSINESS VALUATION (STUDY CASE)

It passed some time since I’ve witten the last article.Today I wish to present a short and quick valuation of Kerry Group Plc,I will not insist on performance measures like (profitability,liquidity and risk.)

In this article I ‘ll focuse on’’Intrinsic Value calculation,but before to start I wish to say something about the company.Kerry Group Plc develops ,manufactures and deliveres technology based ingredients flavours for the food and beverage industry.

After the researches that I’ve made studying public irish companies ,I consider is the best by far public irish company.It’s paying  their shareholders with increasing dividends since 1987 .

In investing is important to understand and try to establish what company’s shares really worth.

We can defined intrinsic value simply: ‘’It is the discounted value of cash that can be taken out of a business during its remaining life.’’ - Warren Buffet CEO Berkshire Hathaway INC

Extract Cash Flow Statement 2015 (mil euros)

Cash Flow from Operating activities

Depreciation and amortization
Accounts receivables	(11.20)
Inventory	45.40
Account payables	21.60
Other working capital	9
Other non-cash items	656.50
Net cash provided by operating activities	721.30
Free Cash in flow
Operating Cash flow	721.30
Capex	(248.40)
Free Cash Flow	472.90

Assumptions:

Starting cash flow :472.90

Expected growth rate:           8,20%

Discount rate              :            9,85%

Projected cash flow 2017-2021(mil E)

2017	511.67
2018	553.63
2019	599.03
2020	648.15
2021	701.30

(Assuming that the company will follow the expected growth rate 8,20%)

                                        INTRINSIC VALUE CALCULATION  

YEAR	CASHFLOW	DISCOUNT FACTOR 9%	PV
2017	511.67	0.917	469.20
2018	553.63	0.842	465.62
2019	599.03	0.772	462.45
2020	648.15	0.650	455.84

                                                                                                                         NPV  :    2312

NPV     :                                                                                       2312

YEAR 5 NPV*12     :                                                                    701

Total cash,cash equivalents and short term investments:  8415.6

Total  Intrinsic value:                                                                 :        11 993

No of outstanding shares 31 Dec 2016                                   :176 mil

Total Intrinsic Value per share                                                  :68.14/euros

Actual Stock Price                                                                        :69.81/euros

RGV  (RELATIVE GRAHAM VALUE)                                             :0.97

INTRINSIC VALUE/STOCK PRICE   :68.14/69.81=O.97

AN RGV LESS THAN ONE INDICATES THAT THE STOCK IS OVERVALUED AND SHOULD NOT BE BOUGHT.

MARGIN OF SAFETY:                                                      2,45%

 1-    STOCKS CURENT PRICE/STOCK INTRINSIC VALUE

CConclusions:   Despite that Kerry Group Plc is an amazing company my advice is to not buy this stock because his intrinsic value is less than curent stock price.2.45 % margin of safety is not enough to buy the company in this moment at 50 euros/share or less is ideal.

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