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 February 8, 2011
It has become increasingly clear that many large enterprises are not very good at innovation. The chart below, courtesy of Robert Ackerman, Founder of Allegis Capital, in the February 2011 issue of Global Corporate Venturing, shows that the share of U. S. Industrial R&D investment of corporations with 25,000 or more employees declined from 70.7% in 1981 to 37.6% in 2005. During the same period the R&D share of companies with 1000 or fewer employees increased from 4.4% to 24.1%.
This clearly supports the primary Capital Matters theme that future jobs growth will come from small and medium sized privately held businesses. But where will the capital come from to fund these businesses?
James Mawson has created an innovative new publication called Global Corporate Venturing which is built on two theses which may help answer this question. Mawson believes that global corporations have learned that smaller companies have advantages in innovation. He sees this knowledge playing out in two related trends:
- Even with today’s resurgence, IPO markets are a dim reflection of past glories. As a result both venture capitalists and private equity firms increasingly recognize that they must depend on acquisitions of portfolio companies by larger strategic firms as the only realistic exit for most investments. Increasingly strategic investment/acquisition has become a critical element in such firms’ growth paths as these larger entities control customer bases critical to the smaller firms’ success.
- The larger strategic entities are increasingly investing in early stage entities, often through formal internal venture capital organizations, to provide a window into new technologies and access to entrepreneurial talent.
Mawson estimates that there are now over 500 corporate venture capital organizations around the world. The largest of these, Intel Corporations venture capital arm, invests $1 billion per year in smaller firms. And the pace appears to be accelerating; … read the rest
Categories: Alternative Financing, Business Acquisition, Business Sale, Global Corporate Venturing, Growth Equity Financing, Innovation, Investment Banking, James Mawson, Junior Capital, M&A, Mergers, Mergers and Acquisitions, Venture Capital
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