» Posts tagged ‘Capital Markets’

“If I am through learning, I am through.”– John Wooden

Some of you will remember – back in the day – the E. F. Hutton commercials that intoned, “When E.F. Hutton speaks, people listen.” (Some of you are probably wondering – who is E.F. Hutton in the first place?) These days, the Sage of Omaha has taken their place and has the ear of many. When I finished re-reading Warren Buffett’s Annual Letter to Shareholders, it resonated with similar messages in a number of recent articles.

What is growth?

From a Wall Street Journal article on March 25 discussing Conoco/Phillips’ future plans: “We asked ourselves, ‘What is growth?’” an executive said. “Growth could be viewed as just growing absolute volumes, but we felt that in this challenging environment what’s really important is to grow the value of the company.”

Or this one, from an article in the April 5 edition of Business Week about the Sears/K-Mart merger: “Simplistic analyses … ignore the fact that negative or below-market returns on invested capital are as harmful to creditors as to shareholders.”

Finally, in Warren Buffett’s shareholder letter,

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Like big bears hovering over the waterline picking off salmon swimming upstream, the economy is not  much of a friend to small business. As you probably realize, small businesses generated 65% of the job growth between 1993 and 2008, and represent about half of the private-sector employment in the U.S., according to the Small Business Administration. “Smaller firms, with fewer than 20 employees, account for 25% of all jobs, but they generated 40% of the [job] growth in the last expansion in 2001,” says Joseph Brusuelas, a director and senior economist at Moody’s Economy.com.

Nouriel Roubini, the NYU economist,  writes in a column published in BusinessWeek that the small business economy, is still mired in an “deep and persistent recession”. In fact, a Goldman Sachs analyst recently explained that small business sentiment is out of line with other measures of the economy, like GDP.

What’s the answer? A recent meeting of chief executives concluded that efforts need to center on getting more credit to small and mid-market businesses. The CEOs argued that the main impediment to a faster economic recovery was the high level of unemployment and called for ensuring that credit was available to jump-start hiring, with an emphasis on smaller businesses. I seriously doubt that’s the holdup and am inclined to agree more with the NFIB Chief Economist.

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The Wall Street Journal blogs frequently report on the VC industry and their recent entry, Start-Up CEOs Gripe About VCs’ Lack Of Operating Experience, caught my eye.

I have sat on close to a dozen small business boards and agree that directors without real experience bring little to the table. I’m not sure, however, that I would automatically exclude directors without operating experience because there are valuable perspectives that can be gleaned from successful executives across a broad variety of disciplines.

What’s painful is watching inexperienced directors from investment firms that want their associates to “get experience” at the expense of their portfolio companies. For my money, let them tag along as “shadow directors”, attending board meetings, reading the board packages and listening. Drill down with them after the meetings to get their perspective and suggested solutions to the problems presented. Only when you’re convinced that they’re ready, and I mean after years not months, should they assume an official board role. Don’t rush it … and don’t conclude that just because you’ve got a smart associate, they’ll make a smart board member. Maybe not.

Save for the unique investment relationship, no prudent company or shareholder would ever select an inexperienced director of any kind. Why would you … and why would any investment firm violate this obvious “prudent man” rule?

The other day we learned of renewed efforts promised by the Obama Administration to stimulate small business.

This week, they announced some plans to sweeten guaranteed loan programs. The administration is allowing a few weeks for comments before finalizing these details.

1. The SBA will raise loan limits from $2m to $5M
2. Local banks can get 3% interest rates in they demonstrate how they’ll use TARP funds for small business, a reduction from the 5% big banks usually pay.

There is not a lot enthusiasm for this program among banks, however, as many of them report that the paperwork is overwhelming and that few small businesses are seeking loans. Some banks are also concerned about the “strings attached” and don’t want to be tainted by any hint of federal bailout money.

Despite all the recent publicity about the SBA’s “helping hand” to small business, recent reports tell another story. Loan volume in dollars is down $3.6 billion, around 27%, and 25,000 fewer businesses have been served this year. Pretty woeful record when programs to support Wall St. and the banking industry got delivered virtually overnight … and at least HALF of this nation’s jobs are in small businesses.

Seems a lot like the stimulus package hyped earlier this year … more smoke than fire, too much bureaucracy, slow execution …. Another frayed lifeline for small businesses which are the backbone of job recovery.