Posted on August 24, 2013
In this article I will review the book “The End of Competitive Advantage,” by Rita Gunther McGrath, published by the Harvard Business Review Press in 2013.
I like to think of myself as a “value investor.” That is, I believe that I invest in quality companies that are underpriced. In terms of the quality of the organizations I like to invest in, I look for firms that have established a competitive advantage in their industries and are earning at least a 15% return on equity, after taxes. To judge the quality of management and its staying power, I look for those organizations that have a sustainable competitive advantage, defined as earning a 15% return on equity, after taxes, for a period of five to eight years. And, to capture the fact that a stock may be underpriced, I look for a low price/earnings ratio.
Other factors that have been important in my analysis are the industry share the company achieves and protects and the stability of this share over time. Of course, these are the quantitative factors and must be supplemented by other factors, such as an examination of management, industry make-up, and governmental factors that might contribute to firm performance.
Well, starting right here, Dr. McGrath starts to eat away at this picture. For one, she argues that industry boundaries are no longer that important. She argues that “arenas” are more crucial in the modern environment. The important thing in today’s world is that there are connections between “the outcomes that particular customers want (the jobs to be done)” and “the alternative ways those outcomes might be met” (page 10). Industry lines are not the determinants of what products one should be producing and what markets they should be sold … read the rest
Categories: Amazon, Banking, Business Survival, Business Turnarounds, Distress, Economic Growth, Economics, Energy, Entrepreneur, Financial Services, Global Corporate Venturing, Innovation, Internet Retail, IT Services, Robotics, SaaS, Small Business, Small Business Investment Company, Software
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Posted on May 5, 2013
The world is changing. The world is changing because it must change. When the unemployment rate hits 27 percent, as it now stands in Spain, something more is going on than just a business cycle.
Unemployment is also above 27 percent in Greece. In Italy, the unemployment rate is close to 12 percent. In France, the unemployment rate is above 10 percent. The employment problems in these countries are not just cyclical, they are structural.
The same for the United States. Although the unemployment rate in the United States is under 8 percent, the startling figure concerning the U.S. labor market is that the labor participation rate has dropped below 64 percent, a figure not reached since the latter part of the 1970s when women were not as big a part of the workforce as they are now.
These structural forces are causing divisions between countries as the world tries to recover from the Great Recession and more. Angela Merkel, German Chancellor, “highlights eurozone divisions.” The unemployment rate in Germany is 5.4 percent.
But, as we know, the utilization of capital in the western world tends to be lower now, for this stage in the business cycle, that at any other time in the past fifty years. Western countries are not only not using the human capital that is available; it is not using the physical capital it possesses. The competitiveness of the eurozone is an issue that comes up over and over again.
Phillip Stephens writes in the Financial Times about The New Deal for Europe: More Reform, Less Austerity. “High unemployment in Europe is not just a reflection of recession. It often mirrors ossified labor markets that lock out young people and discourage investment and innovation.”
But … read the rest
Categories: Bailouts, Economic Growth, Economic Stimulus, Economics, Energy, Entrepreneur, Euro, Financial Services, Industries, Innovation, Internet Retail, IT Services, John Mason on Banking, Monetary Stimulus, Robotics, Small Business, Software
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Posted on October 15, 2012
Abe Garver, a Focus LLC Principal and a frequent contributor to Forbes, Seeking Alpha and other publications, was featured recently on Bloomberg TV with a big call on the Internet Retail Sector. Abe is well know for his coverage of the sector and was one of the first commentators to focus on the impending imposition of state sales taxes on Internet retail transactions that were formerly tax free.
Click on photo above to view video.
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Posted on September 25, 2012
“Republicans are heartless monsters who have no compassion for the victims of a financial crash they caused by manipulating Wall Street.”
“Democrats are committed to destroy the American system by redistributing the hard-earned products and services of America’s businesses to shiftless moochers.”
Wow, are we making progress in the current political debate!
Cyclical or Structural?
For economists the discussion revolves around a more civil discourse on whether the current high level of unemployment results from a severe cyclical downturn or from a structural change in the American economy. The Federal Reserve has forcefully adopted the cyclical downturn mantra, committing $500 billion per year to the assumption that, with more financial stimulus, the jobs will come back.
Buffalo Springfield’s insight from the 1960s is still valid:
I think it’s time we stop, hey, what’s that sound?
Everybody look what’s going down
What a field day for the heat
A thousand people in the street
Singing songs and carrying signs
Mostly say, hooray for our side
A Big Bet With Millions of Human Poker Chips
We are in the process of making an enormous bet with the American economy. The risks are not trivial: inflation, deflation, financial and social collapse are just a few. Yet what if this bet is being made based upon a misunderstanding of the problem with which we are faced.
Steven Hansen recently produced a rather depressing chart showing that, despite a period of steady economic recovery, civilian employment in relation to population flatlined beginning in late 2009, after a very sharp drop from 63% to 58% during the financial crisis.
The Robot … read the rest
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Posted on February 4, 2011
In the linked interview below George Shea, Partner and Information Technology Team Leader at Focus LLC, provides an update on the strong market in information technology deals. George shares a growing willingness in the Private Equity industry for firms to go beyond their traditional buyout structures to fund recaps that take out earlier stage investors and provide growth equity for their portfolio companies. This can be a superior option to strategic sales for management teams that want to keep control of their operations. Additionally George has found an increased willingness among the PE community to consider minority growth equity transactions and other innovative financing options for rapidly growing firms.
To see a the interview, click on the picture or link below:
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