The Downside Of Having Excessive Capital In A Volatile Economy - For CEO's And Investors

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Business & Mgmt

Published on February 18, 2009

Author: TheEdge

Source: slideshare.net

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The Downside Of Having Excessive Capital In A Volatile Economy - For CEO's And Investors alike.

The Downside Of Having Excessive Capital In A Volatile Economy For VC / PE Backed Firms & What It Means To Your Shareholders “ DEVELOPING POSITIVE AND WINNING MENTALITIES IN BLEAK MARKET CONDITIONS ” Copyright 2009 @ Mark Lee (marklee@maxis.blackberry.com )

No#1 Non-Lucrative / Blinded Acquisitions “ The tendency to snap-up lower cost / failing companies is very high and especially tempting to say the least. A great deal of CEO’s from Fortune 500 companies can attest to this. If you are certain that an acquisition will bring you a great deal of returns or minimizes competition, have a checklist that may contain sustainability of the new outfit, competition, HR, all financials and projected financials, organizational structure, and potential liabilities. A good example will be to take a look at Cisco and Oracle and their non performing acquisitions. Value-destroying mergers is another issue at hand. ” Copyright 2009 @ Mark Lee (marklee@maxis.blackberry.com ) The Downside Of Having Excessive Capital In A Volatile Economy For VC / PE Backed Firms & What It Means To Your Shareholders

No#2 The Tendency To Focus On Losing Strategies “ The tendency to focus on losing strategies in a volatile market for cash rich companies are excruciatingly high. Take a look at some cash rich firms, they seem to lack the ability to innovate further or add more ‘depth’ to the marketplace. It is only when their funds start to dry up that they only start to panic and kick-start their engines to focus on tackling the market. Take a look at how bootstrapped companies or companies that are failing operate in this kind of environment. They are NOT on auto-pilot; they diversify if they have too, they move markets, they adopt winning strategies and they remodel their business strategy to capture their markets RAPIDLY. ” Copyright 2009 @ Mark Lee (marklee@maxis.blackberry.com ) The Downside Of Having Excessive Capital In A Volatile Economy For VC / PE Backed Firms & What It Means To Your Shareholders

No#3 Tempted By Attitude Of Complacency “ For cash rich companies, occasionally medium sized ones, they are tempted by the attitude of complacency at best – entitlement at worst. They lack motivation and the much needed driving force to succeed. A small fraction of employees see this as a downside to their employment as there are not enough challenges in the company and see the company as a non-performing or non-ambitious. What happens next is to state the obvious – you lose a gem in your firm. That’s not the worst, you would see your team or employees develop a very lazy and non performing attitude, a lack of continuity some may say.” Copyright 2009 @ Mark Lee (marklee@maxis.blackberry.com ) The Downside Of Having Excessive Capital In A Volatile Economy For VC / PE Backed Firms & What It Means To Your Shareholders

No#4 Attaining A Risk Aversion Mindset “ Yes there are pro’s and con’s of instilling a risk aversion mindset for CEO’s and their investors. When you have money you look at things from a preservation and protection standpoint and when you don’t, that’s only when you have the winning mindset mentality to succeed. And because of this CEO’s and investors should cap their expenditure for the year(s) ahead to ensure that their capital is not eaten up unnecessarily.” Copyright 2009 @ Mark Lee (marklee@maxis.blackberry.com ) The Downside Of Having Excessive Capital In A Volatile Economy For VC / PE Backed Firms & What It Means To Your Shareholders

No#5 Insecurity “ Why should a firm or a CEO feel insecure from a financial standpoint when you have tons of money in the bank to sustain? Think about it; let’s say you ‘have it all’, at times these individuals do not know who they are, what they want, what their goals and milestones are in life or in their corporate roadmap or what they are capable of because they never had to earn anything. Thus one has to develop strong corporate values and ethics and is one that is willing to demonstrate restraint and frugality especially in this economic climate.” Copyright 2009 @ Mark Lee (marklee@maxis.blackberry.com ) The Downside Of Having Excessive Capital In A Volatile Economy For VC / PE Backed Firms & What It Means To Your Shareholders

No#6 The Overpayment Issue Is At Hand “ Being cash rich, the tendency to be ‘pressed’ for prepayment or to overpay debtors is surprisingly at high levels. This is from a psychological perspective. A recent study in a European based psycho-scientific journal reported that it is human nature that these firms or individuals tend to be more generous in these volatile environments to please their ego’s. ” Copyright 2009 @ Mark Lee (marklee@maxis.blackberry.com ) The Downside Of Having Excessive Capital In A Volatile Economy For VC / PE Backed Firms & What It Means To Your Shareholders

No#7 S-Curve REVISITED “ For a majority of global firms and even numerous firms and especially tech or engineering based companies, attaining or sailing through the S-Curve has got to be the single most difficult hurdle to leap over. For companies that have attained the ‘S-Curve’ and are in tough market conditions, one must understand that your not so lucky competitors are on striving-mode and thus ‘innovation’ in the space is more likely to happen. You will be NOT be surprised because we all know that adoption rates for a number of innovations or inventions are high. And because of that, you must DO AWAY with the ‘lackluster’ attitude to meet tougher challenges and not lose out in the marketplace or to lose market share.” Copyright 2009 @ Mark Lee (marklee@maxis.blackberry.com ) The Downside Of Having Excessive Capital In A Volatile Economy For VC / PE Backed Firms & What It Means To Your Shareholders

No#8 You Forget The Number Rule For Setting Up A Corporation “ Why do companies like Microsoft, Intel, Nokia, Apple or even Google retrench, reduce headcount or implement cost-cutting measures in these environments? Why? Let’s put it this way; the basis (on most occasions) for setting up a corporation or to spearhead a corporation is to increase shareholder value. Profit from year Y is used to cover cost and expenditure for year Y . Profit from Year X is not supposed to be carried on to cover losses for Year Y .” Copyright 2009 @ Mark Lee (marklee@maxis.blackberry.com ) The Downside Of Having Excessive Capital In A Volatile Economy For VC / PE Backed Firms & What It Means To Your Shareholders

Thank You “ CEO’s and investors should take heed of these warnings ahead and not wait till they end up in dire straits when capital in their bank shrinks in the years ahead. Being ahead of the game or being positioned to be a global leader in a marketplace may not be difficult for some, but being able to sustain to be at the top can be quite a challenge for many as many case studies have shown.” Copyright 2009 @ Mark Lee (marklee@maxis.blackberry.com ) The Downside Of Having Excessive Capital In A Volatile Economy For VC / PE Backed Firms & What It Means To Your Shareholders

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