Play the Game of Life
Ryan Petersen's Blog

The biggest challenge leading a large organization appears to be getting others to take the right action without consulting you first. How do I get those below me to do the right thing? Or more specifically, how can I define the “right thing” in a way that is clear as day and yet adaptable to the unforeseen?

Technology is allowing for ever-tighter connections between members of ever-larger organizational networks. While this may lead to increased cross-functional collaboration, it also increases the number of relevant stakeholders for every decision. Decision-makers now feel compelled to get buy-in from even more people before they feel free to take action. Thus, vested interests, tradition, or the mere complexity of the network may prevent us from making necessary changes to secure a brighter future.

Although my previous employers have been small companies, with just 8-10 employees, I have seen firsthand how difficult it can be to get all these different individuals behind my projects. Meanwhile, each new employee can increase the total number of relationships in an organization by a factor of ten or more. If every decision requires buy-in from all these diverse parties, even in a relatively small company paralysis seems inevitable.

As I see it, there are three ways that we can better manage these relationships to ensure that decisions can be made quickly and correctly. The first is to reduce the time delays between parties to any decision. What this will mean is more, faster technology deployed at all levels of the organization to minimize delays and transaction costs in communications.

The second way to manage increasing organizational complexity is to add more hierarchy. Layers of organizational structure can limit the number of relationships each employee must manage, and provides the opportunity for specialization of decision-making. Unfortunately, it also can lead to the creation of operational silos incapable of sharing valuable information across the firm. Clearly any reduction in cross-functional collaborations must be a drain on creativity and innovation. Moreover, hierarchy can lead to a dull and frustrating work environment and, one would think, higher turnover rates.

The third, and most desirable, means of managing organizational complexity is to develop consistency in decision-making. When you know what the answer is going to be, you don’t have to waste time asking for permission. You just take action now.

But do we want to be consistent in our decision-making in an ambiguous, fast-changing world? I am not suggesting that we remain consistent in our decisions, but rather in the processes that lead to those decisions. To succeed, our organizations must develop a principled approach to analyzing each problem we face. Solutions must be measured against a common backdrop, framed by the company’s resources, values, and goals. I expect that working out such an approach will occupy all of this semester and most of my career.

If we succeed in creating and training our teams in a principled approach to consistent decision-making, we can push decisions down the hierarchy. This will give us faster solutions that are more appropriate for the problems facing us. Our teams won’t need to wait for permission before they take action—and just as important, they won’t excuse inaction by pointing up the corporate ladder. A culture with that type of responsiveness and personal responsibility would be a dangerous competitor in any industry.

Labels: business, Columbia Business School, complexity, networks

My friend Paul is currently first place in the running to be one of eight ex-patriates to carry the Olympic torch in China next year. China Daily is conducting an online vote, which is open to all Web users.

Please take 30 seconds to vote for Paul Condrell (he's the first guy in the list, with the picture of his two kids next to his name).

Here's his story as told on the China Daily voting site:

I arrived 24 years ago never expecting to settle down here.
Many Chinese found fortune abroad; for me it was the other direction.

Raised in Washington, D.C., I came to Beijing in 1983, an eager 23 year old, to study Chinese. I began courting Stacy, an American classmate, during nightly walks around the dark alleyways on the campus of Beijing Normal University. As we talked, we dreamed. China was growing, changing, and opening, so quickly, so surely. We saw endless opportunity.

Even before marrying, we formed a company, despite carrying US$50,000 in debt from student loans. The McCall Pattern Company in New York hired us to set up a China sales network.

For years we lived in a Beijing three-star standard hotel room, with one bed removed so it could also serve as our office. We rode “Yongjiu” bicycles everywhere. We got out of debt and saved every penny we could.

As salespeople, we visited over 40 cities in China, even places like Baotou and Yinchuan where in those days a Chinese-speaking foreigner could really draw a crowd. People everywhere were so friendly and inquisitive. “Are you used to life here?” It gets better every day. “Why not do business in America instead?” We like challenges, and Chinese people are so smart, China surely has a bright future!

In late 1992, within months of Deng Xiaoping's famous last Southern Tour 南巡, we moved to Guangzhou, investing our savings in a venture called "Healthy Household" 小康之家, www.xiaokang.com. We started advertising in magazines like "Readers," and customers sent in money for products hard to find locally. We deliver by post with an unconditional money back guarantee, which has won customers' loyalty, and now employ 200.

Our son Eber (康希) came along in 2001 and son Abraham (康亚) in 2004. Both were born in Guangzhou. Thank you China for all you've given me; I hope to continue giving back for the next 20 years!

Paul Condrell 康保乐

Five Reasons I want to be torchbearer:
1 Join China’s people in celebrating the Beijing Olympics (we foreign residents are proud too!).
2 Show my two China-born sons that our family, though American, is part of Chinese society.
3 Give Chinese people a broader perspective on foreigners here.
4 Inspire other foreigners to make China their home (it’s a vibrant, exciting place to live!)
5 Motivate myself to get into better physical condition!

Seven Reasons I might be chosen:
1 Over 20 year resident likely to stay a lifetime.
2 A story of rags to riches (in Chinese: "the first pot of gold").
3 Lots of votes. (thanks to friends and customers!).
4 Children born and being raised here (aren't they cute?).
5 Fluent Chinese speaker. (although that’s not unusual anymore).
6 Reads China Daily online every day (not kidding).
7 Has a Lenovo “ThinkCentre” computer on his desk (Honestly! Dozens of my employees do too).

Labels: china, Olympics

Tom Barry, founder of Zephyr Management, one of the early pioneers of private equity in Africa, visited our course on Entrepreneurship in Africa this week. He spoke to us about his involvement with the first private equity fund in Nigeria, Capital Alliance, and the difficulties behind that fund's first investment.

Capital Alliance bought a 25% stake in GS Telecom, a business to business network solutions provider offering satelite connectivity for banks, mining and oil companies throughout Nigeria. Tom says one of the mistakes made on that deal was that the negotiators at both sides of the table spent too much time focusing on the percentage split of the pie, and not enough discussing whether their equity infusion would provide enough cash for the firm to truly prosper.

As it turns out, the business (renting satelite networking equipment) was far more capital intensive than they ever imagined. They had to constantly go back to the capital markets to raise more money--both equity and debt. Perhaps as a result of insufficient capital, and to the difficulty of the Nigerian business environment, the firm was not able to meet its original financial projections.

The firm got stuck at about $25 million in revenue for a number of years, and Capital Alliance did not exit their investment until nearly a decade later. Although they made a 3x return, the long time horizon and the high risk environment meant that the investment did not meet the required risk adjusted returns. But it was a great learning experience and a reasonably successful first foray into private equity in the Nigerian context. In the end, it would be enough to encourage investors that there were genuine possibilities and helped lay the ground-work for future successes.

As professor Murray Low says, private equity and venture capital is a lot like pinball. When you win, what do you get? More balls so you can play again!

Labels: Africa, entrepreneurship, Nigeria, private equity

Kofi Bucknor, Managing Director of Kingdom Zephyr, a private equity fund investing in African businesses, joined our class on Entrepreneurship in Africa at Columbia Business School last week. He spent over a decade in investment banking and is the former chair of Ghana's Stock Exchange. A member of the Columbia Business School class of 1979, he says this was his first time returning to speak at Columbia, which he was quite embarrassed about. It won't be his last, as he'll be receiving many invitations.

Kingdom Zephyr is a partnership between Zephyr Management, L.P. and Kindgom Holding, the investment company of the Saudi prince Alwaleed bin Talal. They raised an $80 million fund, "Pan-African Investment Partners," with money not only from the Prince but also institutional investors and development finance institutions like the IFC.

The fund made its first two investments in December 2004 and has since made three others. In total, they have invested $73.5 million, and already have exited three of the investments for $80 million. That means they made $6.5 million and got the other two investments, with unrealized profits about about $110 million, essentially for free!! Quite a track record.

So far the investments have been primarily in the financial sector, not suprising given Kofi's expertise and vast network of contacts in this area. Although considering themselves a private equity fund (with a correspondingly high fee structure), the fund has actually purchased large stakes in several publicly traded companies.

The investments they've made so far include:

• 23.7% stake (purchased at $13.4 million) in Letshego, a publicly traded consumer finance company in Botswana
• 0.37% stake in Celtel (purchased for $5.2 million just prior to the sale to MTC of Kuwait, sold at $12.5 million)
• 4.5% of ETI ($18.3 million), a West African Bank. They sold this stake to a strategic buyer for $64.8 million in April 2007
• 12.3% of CNIA ($18.2 million), a privately held insurance company in Morocco.
• 1.3% of UBA (for $18.3 million), a publicly traded Nigerian bank. The value of this share went up by nearly 300% between purchase date in February 2007 and September 2007

Despite the 3x return over just 2 years, investors in this fund need to remember the fee structure: 1% of initial commitments, 2% of assets under management (including capital gains) per annum, and %20 of profits after a preferred return of 7.5% is earned.

The professor, Paul Tierney Jr., asked me to determine the returns to an investor after these fees are taken into account. Through some analysis, my friend and I determined that an investor in the fund is up 147% since December 2004. This sounds jaw-dropping until you remember that African stock markets have been on a tear since that time. An unweighted average of the indexes of Kenya, South Africa, Nigeria, Morocco and Egypt are up 145% since that time!

Kofi's now raising a $500 million fund, Pan-African Investment Partners II, with $250 million already commited from the Prince. They will be looking at investments in the telecommunications, financial and other sectors across the African continent.

The minimum buy-in is $5 million. If you had $100 million, would you invest some of it with these guys?

Labels: Africa, entrepreneurship, private equity