Play the Game of Life
Ryan Petersen's Blog

Our search engine for international trade records received a glowing review on TechCrunch which was picked up by the Washington Post today.

Labels: entrepreneurship

The Columbia Business School Entrepreneurship Program recently asked me to answer a few questions about what it was like starting a business while during the MBA program.

1. Describe your business?

ImportGenius.com provides an online tool for searching international trade records to find out where your competitors buy each of their imported shipments and who your overseas suppliers sell to in the U.S. Businesses will pay a monthly fee to access the online tool. Initially we'll be primarily focusing on importers, distributors and manufacturers, but we're building analytics capabilities to make it into a powerful tool for private equity investors, stock analysts, and consulting firms.

The Web site went live in March 2008, half way through the semester.I am joining ImportGenius.com as its first full-time employee immediately following graduation, and expect to break even by the end of July.

2. How did the Greenhouse class help you?

During the Greenhouse Program, the whole business really crystallized to a degree I didn't think possible in such a short time. The professors were amazingly supportive when I decided to change my plans part-way through the semester. Originally I was working on the online furniture distributor that I ran before school, www.backrubhub.com. But when my brother offered me the opportunity to become a partner in ImportGenius.com, I couldn't let it slip. I think Cliff and Brendan realize that a true entrepreneur is somebody who can seize an opportunity when it comes along, so they really encouraged me to go for it. This meant scrapping a lot of what I worked on all semester and starting over from scratch. This would have been very difficult without their support.

Once I committed to ImportGenius.com, the program really helped me clarify my thinking about where our business can play within the broader field. The feedback from the professors, fellow students, and outside professionals was really valuable in determining the company's strategy. Almost everybody in the class offered me at least one idea for improving the ImportGenius value proposition. I also gained access to expert legal counsel who've helped with issues around incorporation. In developing a formal business plan and a pitch for potential investors and clients, my thinking really came together to a degree that would not have been possible under a less structured approach.

So often entrepreneurs end up isolated in their little corner of the world. The Greenhouse Program is really the seed for a deep-rooted network of connections within the New York entrepreneurial community. Having so many close friends who are starting businesses is going to provide incredible opportunities for learning and growth. Cliff and Brendan have both been great mentors for me, and I expect they'll be an important part of many of our companies for years to come.

3. What other CBS classes were helpful to developing your idea?

I came in to Columbia knowing that I would start a business on graduation, so in every class I was looking for how I could apply the concepts to a start-up. This not only helped me with the business planning, but also made the classes themselves more interesting. As it turns out, the most directly relevant in the near-term will probably be Entrepreneurially Selling. Professor Eric Baron's method of consultative selling is a refreshing departure from the pushy, "always be closing" approach we are all familiar with. I expect to be much more effective in focusing on my clients' needs as a result of his class.


4. What was it like launching your business while in school?

It was really tough. During the last few months, I wanted to work on this venture full-time, but there hasn't been the time. I'd already been an entrepreneur for several years before school, so I knew that I was going to start a business after I finished. When I got here I made the decision to put those plans on hold so that I could learn as much as possible, make tons of new friends, and get the most out of my business school experience. During this last semester as the end of the road got closer and closer, it became harder to focus on school. Although my grades didn't suffer, I had to really disengage from some of the clubs I was previously active in to make time for the new business launch.

5. How will you further your business over the summer?

My first job is to win a customers for the service. I'll be really active with outbound sales and marketing starting May 1st. I'll also be working closely with the development team to build out new tools within the application.

6. What advice do you have for upcoming CBS entrepreneurs?

This is by no means a comprehensive list, but a few things come to mind:

1) Bootstrap your business. It's never been cheaper or easier to start a new business. I've made a list of free/cheap tools you can use to launch any company. If your idea needs venture capital before you can even get going, try something simpler.

2) Look for positive feedbacks and network effects. Is there some way you can get your customers working for you in some kind of virtuous cycle?

3) Don't worry too much about barriers to entry. If there were barriers you wouldn't be getting into it. Operational effectiveness is everything.

4) Communicate with your customers in an authentic voice. Real conversations involve "listening" to what your customers are saying, online or offline!

I frequently post more tips on my blog, www.PlayTheGameOfLife.org, so maybe you’ll find something useful there (no promises).

7. Anything else you want to add?

I just want to say thanks to all the faculty and administrators in The Entrepreneurship Program and other parts of the school. Doing my MBA at Columbia was one of the most special things I've done in my life, so I need to express my gratitude to everybody who worked hard to make it so great.


Read the complete Q & A.

Labels: Columbia Business School, entrepreneurship

Import Genius is a Web application that allows you to search international trade records to find out where your competitors are buying their products overseas, as well as where your overseas suppliers are selling in the U.S. The company charges a monthly subscription service to businesses that want to access the customs database. I just took a job with the firm and started working this week, so if you are interested in accessing these kinds of reports, let me know.

Labels: entrepreneurship, international trade, job search, search engines

Building the Virtual Networked Business Models of the Future

(this was supposed to be a 2-page paper for a class on Managing Growth. I wrote 9 before I caught my breath)

by Ryan Petersen
Columbia Business School
MBA Class of 2008

Your customers are in control. The Web has taught them they can get whatever they want, exactly the way they want it, when they want it. And they want it NOW. Tomorrow is too late.

Customers "pulling" the specific products they want represents a radical departure from economic models of the past. Since the dawn of the industrial revolution, corporations have been in the business of producing huge quantities of product X and then "pushing" that product to customers through expensive sales and marketing efforts. Everything about today's organizational structures was designed to serve this model.

Economies of scale were king in the push economy: Huge factories pumped out standardized products as cheaply as possible; broad retail distribution networks put products in front of consumers wherever they shopped; marketing departments created print, television and radio advertisements to interrupt customers with their messaging; sales people knocked on doors and made phone calls to do the same; and MBAs were hired to optimize the entire process.

These organizational structures have not always been with us, however. Rather, they emerged in response to economic paradigm shifts of the past. Thomas McCraw, author of Creating Modern Capitalism, has identified three distinct industrial revolutions. The first arrived with the advent of steam and water power in the 17th and 18th centuries. Business ceased being a family affair as companies organized machines under the roofs of ever-larger factories, filled with hundreds or thousands of employees.

The second industrial revolution came about with the rise of electric utilities in the early 20th century. No longer requiring their own generators, factories could situate themselves closer to customers and labor supplies. Organizations adapted to the economics of cheap, plentiful power by organizing themselves around the assembly line, resulting in a dramatic productivity gains.

The third industrial revolution came about with the rise of mass communications and containerization in the aftermath of World War II. By spending huge amounts on television, radio and print advertisements, companies found they could create demand for the standardized products they churned out en masse. Successful firms began to organize around brands and global distribution networks. Those who were too slow to embrace the trends of branding and globalization quickly became inconsequential.

To execute global strategies behind standardized brands, companies needed new mechanisms of control. Much like the human body, businesses have traditionally organized around a central nervous system (the c-suite) that disseminates market intelligence and commands down to the corporation's muscles (line employees). To a greater or lesser degree, decisions are made at the top and executed at the bottom.

In Growing Pains, Eric Flamholtz and Yvonne Randle, identify three pure forms of organizational structure that have thrived in the push economy: (1) the functional structure, (2) the divisional structure, and (3) the matrix structure (Flamholtz, 190). To greater or lesser degrees, each of these structures greatly enhances top management's ability to control an organization.

Indeed, the central theme of Flamholtz and Randle's work on organizational structures is the need for managers to wield control. In this classical view, rational analysis by highly trained managers is the best way to allocate a firm's resources. Meanwhile, their arguments against more market-centric approaches like those found in the matrix organization center on the difficulty of coordination. Yet the rise of the empowered consumer demands that we push control all the way to the bottom--indeed, even outside the organization into the hands of customers, suppliers and other stakeholders. To do this, we need structures that provide for increased collaboration even at the expense of managerial control.

Throughout the three industrial revolutions, successful businesses of one era rarely made the transition to the next. More often the old companies gradually (or rapidly) faded into irrelevance as new businesses built upon new organizational structures rose to the forefront.

The rise of empowered consumers demanding exactly what they want, when they want it, represents a paradigm shift on the same order of magnitude as McCraw's three revolutions of the past. According to Seth Godin, "just ten years after the birth of the Web, New Marketing [i.e. the pull economy] has so fundamentally changed the dynamics of production and growth that the rules of the third revolution are no longer dominant" (Godin, 44). The traditional model of centralized control cannot adapt fast enough to meet the unique demands of so many individual customers.

Revolutionary new organizational structures--indeed, entirely new conceptions of the firm--are demanded. What might these new structures look like? One inspiring example can be found in a revolutionary new structure developed at SEMCO, a Brazilian manufacturing and services firm headed by Ricardo Semler.

Semler asserts that traditional businesses are built on "formats that are basically legacies of military hierarchies." Even the language we employ--words like strategy, mission, and corporate battles--are borrowed from this military tradition. In Semler's view, these structures neglect or deny the power of human intuition and democratic participation.

"We all find democracy to be a fundamental issue in our lives," he says. "We will send our sons anywhere in the world to die for it. We will not participate in a society where we can't choose our own [leaders]...but, I've never seen a democratic workplace. So it's very important for our lives, except where we spend 60% of our time."

For the past 25 years, Semler and his firm have embarked on a bold experiment in self-organization that eliminates hierarchies, organization charts, job titles, required meetings, corporate headquarters and many other trappings of traditional corporations. Employees select their own leaders--not in a required voting system, but through open discussions at voluntary meetings. They also choose their bosses and set their own salaries. In effect, he says to his workers:

"Don't cross town and get out of bed to come [to our offices]. We don't want to know how many hours you work. Let's contract for something you can do, and you do it anytime you can, anyhow you can. But it is a free market system, and it's unforgiving in some respects. Every six months, you've got to latch on to somebody's payroll. Everybody in the business unit together will write down the names of the people they think they need, and if you're on that list for enough people you have a job."

In addition to its employees on payroll, SEMCO also has more than 1,400 people in its business units who do not work for the firm, including 19 who work for their direct competitor. By putting the creative forces of self-organization and natural selection to work within the company, the firm has unleashed productivity gains that would be the envy of any business.

The net result has been 27% annual growth for the past 25 years during a period in which Brazil went through various cycles of inflation and hyperinflation, economic boom and bust. Semler recently told an audience at MIT Sloan, "The military legacy and...the analytical approach to management in a pyramidal structure is finished. That is anachronistic and if it's going to take 10, 15, or 40 years to go away, it doesn't matter, but it will be during your lifetime."

Semler's most remarkable achievement is his willingness to abandon his need for control. By setting his people free to collaborate with whomever they feel is useful to their specific task, whether inside or outside the firm, he has tapped into a wealth of human intuition and creativity unavailable to traditional firms.

Although SEMCO's democratic workplace remains the exception, examples abound of companies that are experiencing explosive growth as a result of giving up control over their products and processes.

Take Threadless.com, an online retailer of t-shirts. In the traditional push model, a t-shirt company--even one operating online--would hire a talented artist to design great shirts and then spend extensively to generate demand for these products. Instead, Threadless has created a platform for aspiring designers to submit their designs, and put these to a vote by customers. If your design wins, you get paid $1,500 and your t-shirt is produced. The company has quadrupled sales every year since 2001, reaching more than $20 million in 2007 (Godin, 61). They did this by embracing customer control and building an organization that empowers them even further.

A more well-known example of giving up control comes from the Google search algorithm. In the early days of the web, the primary way to find content was through manually edited directories run by firms like Yahoo. Then two Stanford engineers realized that by downloading the entire web onto their servers, and then analyzing all the links between the various web sites, they could actually turn every webmaster into a voter in a popularity contest. If a website received a lot of links from other websites, Google considers it important and ranks it highly.

In fact, Google has taken user participation in its search algorithm at least one step further, by incorporating the behavior of searchers themselves into the results. For example, if a large enough proportion of searchers for a particular term choose the 2nd result instead of the 1st, Google readjusts its rankings to reflect user preferences.

Like traditional media companies, Google earns its revenues by delivering advertisements. However, Google is very different in that each advertisement is tailored to the precise search term a customer types into its engine. In a sense, customers are "pulling" advertisements relevant to their needs in a particular moment.

Just as interesting, Google has taken steps to embrace worker self-organization through its human resources policies. Every employee is permitted to spend 20% of their time on any project they want, even in a completely different field or, in some cases, outside the firm altogether. At the same time, the company has created powerful tools for workers to share ideas about new projects and get feedback from their peers. The ideas that get the most votes attract resources, at first in the form of people's voluntary 20% time. If a project shows significant potential, management may decide to formalize the project with greater financial and engineering resources.

The company's leadership openly acknowledges that they don't know what direction the firm is heading. Instead, they just give their people the tools to develop great products and then get out of the way.

As soon as you give up your need for managerial control, outsourcing work to your customers makes an incredible amount of economic sense. Indeed, many traditional businesses are employing their customers without even knowing it. Kevin Kelly, founder of Wired magazine, points out that every time you track a package on FedEx.com, you are actually doing work that used to be done by FedEx employees (Gibson, 256).

Meanwhile, Amazon's customers generate thousands of product reviews every single day, each of which enhances the shopping experience of other customers--people they don't even know. The result is increased customer loyalty and soaring profits. And they are doing it for free because Amazon empowered them do so.

These new organizational forms need not be constrained to for-profit enterprises. For example, the open source Linux and Apache operating systems now power the majority of web servers, the computers that send web pages to your browser every time you visit a web site. These programs were developed by ad hoc communities of software developers working for free because they found meaning in the work.
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Wikipedia has similarly created the world's largest encyclopedia on the backs of user contributions. By giving up editorial control, Jimmy Wales and his team harnessed the knowledge of millions of readers, who collectively know far more than any team of experts.

Kiva.org has raised millions for microfinance organizations by enabling donors in rich countries to provide micro-loans to entrepreneurs in the developing world. They did this without a marketing department, offices in the countries they serve, or direct contact with their donors. Rather, they let entrepreneurs tell their own stories, which are more authentic and inspiring than anything a corporate marketing department could put out.

In each of the preceding examples, we see a blurring of the lines between organizations and their customers, suppliers, and competitors. As these boundaries become less clear, a new conception of the firm is needed, one that can account for the dynamic, interconnected nature of the business world.

The militaristic perspective of the past must be replaced by the more accurate biological systems perspective. The biological systems framework not only creates a much more useful understanding of the corporation, it is also much more than mere analogy: Composed of human beings, businesses are biological systems in every sense.

As with any living system, companies are open systems that do more than simply take inputs from their environments and turn them into outputs. Much like biological organisms, as they process inputs and generate outputs, businesses are simultaneously creating their environments. In the natural world, it is meaningless to refer to competition between two organisms without taking into account the environment in which they exist. The winner will depend as much upon its inherited characteristics as upon the external factors provided by the environment. Those external factors, in turn, are co-created by all the various organisms within the network. What you have, then, is a competition between networks, rather than between organisms.

The significance of this analogy for the business world should not be overlooked. The future will be characterized by not competition between firms, in the traditional sense, but rather by competition between networks. Successful organizations will be those that can rapidly assemble team members and resources as project work demands. They will be flexible enough to quickly scale up to take advantage of opportunities or overcome challenges, and adaptable enough to scale down before cost pressure eliminates profitability.

As with successful genes in the natural world, successful business modules will be copied and spread widely, tested in new market environments and gradually adapted to local conditions. Unsuccessful modules will die out, though perhaps stored in somebody's mind (or computer database) for use in another situation at some future date.

In this biological model of the organization, there is no need to worry about whether a resource lies inside or outside the formal boundaries of your firm. What matters is whether they lie within your network where they can be brought together on short-notice when they are required.

Biological systems at all levels of complexity--from single-celled organisms to entire ecosystems--take on a life of their own with properties distinct from their constituent parts. These emergent properties arise as the result of the many local interactions of the system's components. In this light, corporate culture itself can be seen as an emergent property resulting from the countless interactions taking place between the members of an organization and its outside world.

While useful for developing a theoretical view of the firm, the biological systems view also generates actionable insights into creating high-performance cultures. To that effect, Robin Good and Ken Thompson have undertaken a systematic study of biological "teams" such as ant colonies and immune systems. These living systems manage to achieve incredible levels of coordination and productivity without advanced intelligence or centralized control. In the "Bioteaming Manifesto," they present a list of these characteristics, along with recommendations for how they can be applied to virtual networked business teams.

Most executives will acknowledge that technology often fails to provide promised productivity gains. Instead of the oft-heralded benefits of always-on connectivity, technology often becomes a time waster. Good and Thompson place blame a lack of norms, behaviors and beliefs properly adapted to the nature of virtual teams. They have therefore outlined twelve rules and seven beliefs that "bioteams"--biologically inspired virtual business teams--can adopt to achieve unheard of levels of coordination and productivity.

Unlike the rules of a traditional business environment, however, these cannot be driven from the top-down. Rather, they must emerge naturally from the bottom up collaboration of team members. Managers are no longer in control. Instead leaders--that means us!--will naturally emerge from within a team because of their ability to exert influence on team behaviors. We can do this in many ways, but the most likely candidate is, as always, leading by example.

Indeed, the first attribute itself is to "stop controlling." Good and Thompson argue that team members should communicate “situational information to team members who are trained to judge themselves what they should do in the best interests of the team.” No more command and control. Communicate what needs to be done and let them decide how.

The next attribute of high performance virtual teams is that all members take responsibility for identifying threats and opportunities. Team intelligence will be distributed, not driven from above. They argue that successful virtual teams must eliminate the "layers of permission" used by traditional teams to protect themselves from team member mistakes. "The only permission structures kept in place by a bioteam are those needed to protect the team against the potentially critical mistakes which would threaten the bioteam's own mission." In a virtual networked team, transparency and reputation are the basis for accountability.

Next the authors exhort us to "treat external partners as fully trusted team members." Partners should be chosen very carefully, but once admitted to a team, they should be granted full transparency and trust. Here they draw the analogy between the porous membrane of an organism, which accepts energy and useful inputs but keeps out poisonous toxins.

In a traditional team, the number of team members is decided in advance, and the group quickly scales up to achieve this optimal figure. Bioteams, on the other hand, acknowledge that they will never be able to calculate the optimal number in advance, and instead allow the growth of the team to rise or fall naturally as circumstances allow. The team should always be on the lookout for useful new members. Here the authors contend that successful teams must acknowledge their own lack of certainty, preferring to learn through "experimentation, mutation and team review" rather than through analysis.

While the lessons outlined above provide clear benefits to any virtual networked business team, Good and Thompson are also careful to acknowledge the key differences between human teams and other biological systems. Indeed, the differences themselves provide lessons that may be just as valuable in creating the dynamic business networks of the future.

The first difference is obvious to anybody who has compared ants and humans: We are much smarter than our six-legged counterparts. The important thing, according to Good and Thompson, is that "team members be able to self-select when to utilize personal 'intelligence' and critical thinking and when to rely on team intelligence before acting." While no team can achieve perfection in this area, trust built on experience working together, transparency, reputation and talent are key to achieving this level of self- and team-awareness.

The second critical difference is the subject of many religious tomes: between stimulus and response, humans are given free will. Because each team member can choose our response to a given set of circumstances, there is far more autonomy in the system, which may lead to less predictable results. Acknowledging that the actions that team members choose are the direct result of their beliefs, Good and Thompson identified the seven beliefs at the core of successful virtual cultures.

The beliefs shared by high performance virtual teams include clear and public accountability, trusted competency, give and take, total transparency, shared glory, meaningful mission value, and outcome optimism. Without these beliefs, virtual teams cannot succeed in mimicking high performance biological teams. However, with these beliefs in place, we can exceed the performance of even the best of today's human teams.

You needn't be a dot com superstar to take advantage of the attributes of biological teams to build a virtual networked business module. For example, in just four years, Wasauna.com has grown to be one of the leading suppliers of luxury bathroom fixtures--yes, toilets--in the U.S. In 2007 the firm sold more than $6 million of toilets, bathtubs, sinks and other 'old' economy products. They did this entirely through the Internet. Without showrooms or a strong dealership network, the firm is running circles around big name competitors like American Standard and Kohler.

How do they do it? Wasauna's management team has created a porous organizational membrane that can quickly assimilate team members with expertise the founders do not possess. They acknowledge their own core competency in web marketing and seek outside team members--whether employees, contractors or vendors--for everything else.

In addition to its ability to quickly assemble outside resources, Wasauna has taken advantage of nature's own form of generating creativity: the genetic algorithm. Before launching new products, traditional corporations appoint committees to size markets, analyze the competition, and build extensive cost-benefit analysis. Wasauna, on the other hand, relies on team member intuition and an acknowledgement that they will never really know what the market really wants until they try. So they roll-out competing products in parallel, as quickly and inexpensively as possible.

The result is a series of live controlled experiments that tighten the feedback loop with its market. As in natural selection, when a product is a hit, the company redoubles their efforts behind it. When a product is a dud, they learn from the lesson and move on--quickly.

In traditional corporations, on the other hand, analysis and optimization still rule. But while you can continue to optimize your products and processes, unless you are continually experimenting with radically new concepts, you are unlikely to make the shift to a paradigm-shifting new way of doing things. You may spend all your time climbing higher and higher, only to find you've reached the top of an ant hill, while Mount Everest looms on the horizon. Unless you step back, moving away from "optimization," you have no chance to find this new peak in the fitness landscape.

Successful business modules are those that constantly send scouts to feel out the landscape, testing new products, processes and ways of organization. While most experiments will fail, the success of one or two may give the company a chance to continue exploring.

The days of the military-inspired corporate pyramid are numbered. Markets are changing so fast that the commands coming down from the top start to bear little resemblance to the reality faced down below. The result is corporate dizziness. While many traditional corporations are taking advantage of the new forms of organization inspired by biological systems, far more will fail to make the shift. Extinction is a natural--indeed, necessary--part of evolution, so we should not lament their fall.

Instead, let this be a call-to-action for today's generation of entrepreneurs. The era of blundering corporate giants thriving on the production of average products for average consumers is rapidly coming to a close. To be sure, many good jobs will be lost in the process. But let historians find someone to blame for this. There is, in other words, no time for sympathy. Wel be too busy building new businesses, creating new jobs, and reinventing the very meaning of work.



Bibliography:

Beinhocker, Eric. The Origin of Wealth: The Radical Remaking of Economics and What it Means for Society. Harvard Business School Press, 2006.

Brafman, Ori and Rod Beckstrom. The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations. Portfolio Hardcover, 2006.

Capra, Fritoj. The Web of Life: A New Scientific Understanding of Living Systems. Anchor, 1997.

Carr, Nicolas. The Big Switch: Rewiring the World from Edison to Google. Norton, 2008.

Gibson, Rowan. Rethinking the Future: Business, Principles, Competition, Control & Complexity, Leadership, Markets and the World. Nicolas Brealey, 1997.

Godin, Seth. Meatball Sundae: Is Your Marketing Out of Sync?. Portfolio Hardcover, 2007.

Good, Robin and Ken Thompson. “The Bioteaming Manifesto” http://www.changethis.com/19.BioteamingManifesto, 2005.

McCraw, Thomas. Creating Modern Capitalism: How Entrepreneurs, Companies, and Countries Triumphed in Three Industrial Revolutions. Harvard, 1998.

Semler, Ricardo. “Leading by Omission.” Talk on December 11, 2005 at MIT Sloan School of Business. http://mitworld.mit.edu/video/308/

Semler, Ricardo. The Seven Day Weekend: Changing the Way Work Works. Portfolio Hardcover, 2004.

Labels: business, Columbia Business School, complex adaptive systems, complexity, entrepreneurship, organizations

The entrepreneur's guide to cheap (or free!) online tools to help you build the dynamically networked virtual businesses of the future.

oDesk.com - hire, manage and pay remote workers with a transparent, easy to use interface. Workers only get paid when they are logged into the system. And when they are logged in, you get access to actual screenshots at random intervals, along with a measure of keystroke activity throughout this time.

Basecamp HQ - get your team members' activities aligned with this cheap/free project management tool

eLance.com - similar to oDesk but without the tools for monitoring your workers activities in real-time.

Google Apps (gmail for your domain, wiki collaboration/corporate intranets, google docs, google spreadsheets, google calendar)

Google Adsense (earn revenue from your publishing assets)

Google Adwords (drive traffic to your site)

Google Analytics (monitor your web traffic to find the keywords, pages, visitor types that perform best)

Google Website optimizer (enhance your performance through multivariate testing)

Google Webmaster Tools (ensure Google is listing you properly in its index, find out who is linking to you, identify errors with your site)

Google Base - Product Search (get listed in product search results for free)

Google Local Business Center (get listed in local search results)

Blogger (publish a free online blog to promote your business)

Wordpress (a free online blog to promote your business--or even better, create a business out of blogging, generating ad revenue from AdSense)

Amazon Marketplace - list your products in Amazon's catalog. You can sign up for the Gold membership to add new products to the database for $40/month. Just sign up, add all your products at once, and then cancel the membership. You'll only be charged for one month. Once they are in the database, you don't need to be a Gold member to list them for sale!

Amazon S3 - unlimited data storage for very cheap.

Amazon Web Stores - run unlimited e-commerce sites for just $60 / month plus 6% sales commission (the commission is too high, but if you don't have the capability to build out your own secure e-commerce platform, this may be a great option)

eBay Stores - list all your products for just $0.02 each for a $40/month flat charge – note: these will NOT appear in standard ebay searches, so you'll need to run standard ebay listing promotions for 1 product at a time in each category. These will in turn drive traffic to your store's listings.

Magento.com - powerful open source e-commerce platform

Labels: entrepreneurship

Next week my brother and I will be attending Search Engine Strategies New York . The premiere search marketing industry conference, SES provides direct access to the world's most creative and influential figures in the search engine business.

In my view, attending this conference for 3-4 days will add far more value for my new businesses than a full month at Columbia Business School.

Labels: entrepreneurship, search engine marketing

Mike Michalowicz, CEO of Obsidian Launch, an incubator for young entrepreneurs, gave a talk this week about what it takes for entrepreneurs to succeed. Refreshingly, his talk was not about how to finance your venture, or the management and operational skills you'll require. Rather, Michalowicz focused on the entrepreneurial mindset, and how to get yourself to overcome limiting beliefs. Both his message and his delivery style both carried strong echoes of Tony Robbins, a man who's books have had a profound impact on my life.

Mike Michalowicz claims to read a book every two days, which would make him the only person I've met in a long time who reads more books than me. CNBC has posted Mike's list of "Top Books Every Entrepreneur Should Read," which I've cut and pasted below. Also, here's a video of Mike on CNBC courtesy of Google Video.

If you're looking for a coach in getting your new business started, Mike and Obsidian Launch might be just what you need.




From CNBC,

The Starfish and the Spider - By: Ori Brafman and Rod Beckstrom – This book clearly identifies the changing pattern in successful business launch and management strategies. They show how to build a dynamic powerful business, and it is easier and less conventional than you think.
Small Giants – By: Bo Burlingham – The title says it all, small business is the new big business.
The E-myth Revisited - By: Michael Gerber - The new entrepreneur's bible!
Mastering the Rockefeller Habits - By: Verne Harnish - Strategies for rapid growth.
Get The Edge - By: Anthony Robbins - You gotta have the right mindset to succeed. Read this!
The 4-Hour Workweek - By: Timothy Ferriss - Takes the E-Myth and applies tips & tricks.
Automatic Millionaire - By: David Bach - In short a "401K" for all parts of life.
Raising the Bar - By: Gary Erickson - A grassroots entrepreneur story through and through.
Purple Cow - By: Seth Godin - This book is remarkable! You'll get the joke when you read it.
Rich Dad, Poor Dad - By: Robert Kiyosaki - Make money, don't blow it.Motivational!
The Art of the Start - By: Guy Kawasaki - Key insights to starting a company.
Made to Stick - By Chip & Dan Heath - Marketing your company the right way.
Good to Great - By Jim Collins - The modern classic entrepreneurs book. A mandatory read.
How to Win Friends and Influence People - By: Dale Carnegie - Written years ago, but even more relevant today.

Labels: books, Columbia Business School, entrepreneurship

Over the past decade, leading African business schools have adopted the traditional case method. But how much can students really learn from these cases when they are about American companies that routinely leave Africa out of their operating plans altogether?

So during winter break, I was one of 30 CBS students who traveled to Africa to write case studies about successful entrepreneurial businesses on the continent. (See previous posts here and here.)

Our goal was to develop a world-class business school case study about Computer Warehouse Group (CWG). This project presented the opportunity to dispel the myth that there are no sophisticated businesses on the African continent--or worse, that businesses there can only get ahead through corruption.

We knew only that the firm had experienced explosive growth over the past few years, achieving some $100 million in revenues in 2007. We knew the firm was an early reseller for Dell, and that it was an important partner for a variety of blue chip Silicon Valley firms, including Cisco, Sun Microsystems and Oracle. We understood CWG's strategy to position the firm as a strategic partner capable of delivering turn-key IT solutions for big companies, and we knew that a well-known global private equity fund had made an offer to purchase a minority stake in the company.

And until we got to Lagos, we didn't have any sense of this company's culture. Was it a one-man show, heavily dependent on its charismatic founder, Austin Okere? Or did it have people and processes in place to ensure continued growth into the future? Did employees at the bottom live the values expressed by those at the top? Or was it more of a show to impress customers, potential investors or other stakeholders?

To answer these questions about the company's culture, we interviewed dozens of employees, from the most senior management to the most junior customer service and sales teams.

As it turned out, we couldn't have picked a better company to lay these stereotypes to rest. The company has thrived in difficult circumstances because of an entrepreneurial culture that embodies the work ethic, personal responsibility and integrity of its founder. The firm has distinguished itself from the competition by consistently delivering on promises to customers and is one of Nigeria's 50 fastest growing companies.

A rep from Cisco told us that the firm is "probably the most entrepreneurial company in Nigeria, certainly in the most entrepreneurial in IT sector." The founder of the competing firm, who has since sold his business to a larger international player, expressed similar respect for his former rivals.

Labels: Africa, Columbia Business School, entrepreneurship, Nigeria

The non-profit just scored major grants from the Gates Foundation and Google.org. The chairman, Paul Tierney Jr. (who is one of my professors at Columbia) told me that after all these years of asking everybody for money, he finally feels like they have all they need to carry out their mission. But he is also feeling the pressure to scale up fast!

Paul will be giving a talk about TechnoServe's initiatives and their recent fund-raising success at Columbia Business School on February 21st.

Please contact me if you'd like to attend.

Labels: Columbia Business School, entrepreneurship, social enterprise

Today Columbia Business School launched Public Offering, a new community blog for the students and faculty of the school. I was honored to be asked to write the first student post on the blog about my current project in Nigeria. We're here in Lagos writing a case study about Computer Warehouse Group, Nigeria's leading IT systems integration company. Our project was mentioned in a Financial Times article about Columbia's Entrepreneurship in Africa class on Monday.

Labels: Africa, Columbia Business School, entrepreneurship, Investing in Africa

Columbia Business School's new master class, "Entrepreneurship in Africa," could just as well have been called, "Optimism about Africa." Lead by professors Paul Tierney, Jr. and Murray Low, a diverse mix of thirty-five graduate students spent the fall semester studying the current climate for doing business on the African continent.

Throughout the semester, we were visited by an impressive array of entrepreneurs, investors, and non-profit directors. Each shared their experiences from years of doing business on the continent, along with their outlooks for the future. The consensus is overwhelmingly positive: time and again we've been told that Africa lies on the cusp of an economic boom the likes of which it has never experienced before.

As experienced Africa-hands, many of our guest speakers offered sage advice as we work to produce business school case studies about successful African entrepreneurs. In January, all thirty-five students will be traveling in teams of five to complete the case study in Tanzania, Ghana, Nigeria or South Africa. Upon completion, the cases will be made available to African business schools, where they will provide more locally relevant points of departure for classroom discussion.

The Entrepreneurship in Africa course grew out of a broader initiative led by Columbia Business School Dean Glenn Hubbard to link the school more closely to the African continent. Hubbard believes that Columbia can best help people in Africa by focusing on what we do best--educating the next generation of African business leaders.

To do this, we have partnered with the African Association of Business Schools, a network of top African business schools to identify and address their most pressing needs. Columbia professors, including Murray Low and Charles Calomiris, have led seminars for African professors to improve their ability to lead students through the “case” method of participatory learning.

As this initiative progressed, it quickly became apparent that the case method would be rather ineffective without cases relevant to local contexts. Our course was created with the dual goals of providing Columbia students with greater insight into the opportunities of doing business in Africa and creating a series of exceptional business school cases about world-class African companies. In doing this, we hope to dispel the myth that African businesses and their leaders are somehow less sophisticated than their counterparts in the rest of the world.

My own team is working with Lagos-based Computer Warehouse Group, the largest IT systems integrator in West Africa. We'll visit with many of the company's employees in Nigeria, including founder Austin Okere, as we chart the firm's success over the past two decades. With no substantial sources of external financing, the company has now reached $100 million in revenues from a client base including some of the world's biggest brands. Stay tuned to FT.com for an update from our team's trip to Nigeria in mid-January.

As the first trip to Africa for many in the class, it affords the opportunity to see for ourselves which is closer to reality, the hopeful picture of robust economic growth painted by African business leaders and New York investment professionals or the bleak image of nations devastated by poverty, disease, corruption and conflict presented by the mainstream media.

In this sense, our class offered a deeper perspective on the backlash against the more conventional view of Africa--a movement whose epicenter can be found in the now annual TED Africa Conference. Indeed, we were even fortunate enough to share the same kick-off speaker as last June's conference in Tanzania, Euvin Euvin Naidoo of Standard Chartered Bank and the South Africa Chamber of Commerce Americas.

Naidoo is quick to point out that although AIDS, corruption and armed conflict remain serious impediments to Africa's potential, these are not the most interesting stories emerging from the continent. Rather, what fascinates him most are the now common stories of resourceful entrepreneurs with the tenacity to build thriving businesses within this context.

For at least the past five years, the majority of Africa's economies have experienced GDP growth almost twice as high as here in the U.S. To large degree, this growth has been built on foundations of expanded democracy and improved governance. As the first two generations of post-colonial leaders have finally begun to fade from the scene, there is evidence that many of the new governments are committed to economic liberalization and public-sector reform.

Although the run-up of commodities prices over the last few years can account for much of Africa's growth, sectors outside of natural resource are also booming. Scalable businesses in the telecommunications, construction, consumer lending, and retail sectors are appearing across the continent. For the first time since independence, international investors are actively seeking business plans targeting domestic markets as opposed to exports.

With a growing track record of steady economic growth across the continent, foreign direct investment is surging. Among those attracted by domestic consumer markets is Kofi Bucknor, managing director of Kingdom Zephyr, a joint venture between the private equity firm Zephyr Management and Prince Alwaleed bin Talal of Saudi Arabia. The group's first fund, Pan-African Investment Partners, realized returns greater than 300% over just a few years by investing in banking and cellular communications companies on the continent.

During a recent visit to New York to raise the firm's new $500 million fund, Bucknor provided our class with a unique opportunity to hear his pitch to investors first-hand. His strategy is relatively simple: By providing growth capital, improved corporate governance, managerial expertise, and access to managerial expertise, his fund can transform loosely managed start-ups into more professionalized enterprises with the discipline to deliver consistent results. If it weren't for the $5 million minimum buy-in, he almost certainly would have left the session with a fistful of checks.

Simon Harford, CEO for West Africa of Actis Capital, a UK private equity firm, helped put these inflows of private capital into perspective. He pointed out that investments from foreign companies are already beginning to dwarf aid money from the UN and loans from the World Bank. Harford characterized Nigeria's current economic boom as perhaps the greatest investment climate since independence.

Later Sev Vettivetpillai, CEO of Aureos Capital, a global private equity firm with several offices in Africa, believes investments in the $5-10 million range are most appropriate for the African context. Where private equity funds aiming for larger deployments will find it increasingly difficult to find attractive acquisition targets, he believes Aureos will have access to more high quality deal-flow.

Meanwhile, according to Jon Chew and Mark Tunmer of Botswana-based Imara Holdings, fund managers are increasingly attracted to African markets because they represent one of the last asset classes not correlated to global markets. Stock markets in Africa have continued marching along unconcerned by the sub-prime fallout that has roiled markets across the globe. Although this is an attractive feature for institutional investors, the duo were quick to point out that as more funds flow into the market, it will become increasingly difficult for them to deploy their capital in ways that make sense.

Perhaps the speaker with the most intriguing--if a bit idiosyncratic--opportunity in Africa is Ben Howell, manager for emerging markets of the Houston-based hedge fund HBK. His firm has purchased a minority stake in Clark Sustainable Resource Developments, a Canadian venture that is logging the hardwood forests submerged beneath Ghana's massive Lake Volta. Since 1965, a forest of pristine old-growth hardwoods has been submerged in some 100 feet of water thanks to the construction of the Akosombo dam. By harvesting the trees with technology from the off-shore oil industry, Howell and CSRD believe they may be able to supply some 20% of the world's environmentally certified hardwoods.

During another session, Scott Malpass, Chief Investment Officer for the University of Notre Dame, presented his view of Africa from his perspective as the manager of one of the largest university endowments. Malpass has realized unprecedented success in growing his school's assets through a strategy of diversifying into emerging markets, particularly China and India. The recent success stories out of Africa have not gone unnoticed, however, as he is actively seeking to move a larger portion of his $X billion under management into the region.

In addition to an impressive line-up of business chiefs, we were also fortunate to host several leaders of non-profit groups. Bruce McNamer, President of TechnoServe, told us about his organization's decades-long effort to help entrepreneurs on the continent move up the value chain. We looked closely at TechnoServe's successful efforts to boost the prices received by a Tanzanian coffee cooperative. McNamer was one of many speakers to stress that nearly every African is an entrepreneur at heart, eager to seize opportunities wherever they may be found.

Antony Mwaniki, CEO of Mobile4Good.com, shared his experiences leading a start-up that uses cell phone text messaging to match job-seekers with employers in Nairobi, Kenya. Leveraging technology to help people find employment, his company aims to be profitable while addressing a societal challenge. Funded by Jim Harmon, a New York investor looking for a meaningful avenue to contribute to Kenya's economic development, Mobile4Good is the perfect example of a new, more productive replacement for traditional philanthropy. The venture's backers echo the sentiments of NYU economist William Easterly, journalist Andrew Mwenda and others who argue that its time to rethink our approach to foreign aid.

Perhaps the most inspiring story to emerge from the class came from Isaac Shongwe, a black South African who scored a coveted scholarship to attend an American university in 1989. He later earned a Rhodes scholarship, completing his MBA at Oxford and returning to his native country where he has become a leader in Black Economic Empowerment financing.

Shongwe showed how the combination of humility, brilliance and determination can lead to success in even the most difficult of circumstances. It is with precisely this entrepreneurial spirit that our class now departs for Africa.

Labels: Africa, business, Columbia Business School, entrepreneurship, Investing in Africa

Columbia Business School's new master class, "Entrepreneurship in Africa," could just as well have been called, "Optimism about Africa." Lead by professors Paul Tierney, Jr. and Murray Low, a diverse mix of thirty-five graduate students spent the fall semester studying the current climate for doing business on the African continent.

Throughout the semester, we were visited by an impressive array of entrepreneurs, investors, and non-profit directors. Each shared their experiences from years of doing business on the continent, along with their outlooks for the future. The consensus is overwhelmingly positive: time and again we've been told that Africa lies on the cusp of an economic boom the likes of which it has never experienced before.

As experienced Africa-hands, many of our guest speakers offered sage advice as we work to produce business school case studies about successful African entrepreneurs. In January, all thirty-five students will be traveling in teams of five to complete the case study in Tanzania, Ghana, Nigeria or South Africa. Upon completion, the cases will be made available to African business schools, where they will provide more locally relevant points of departure for classroom discussion.

The Entrepreneurship in Africa course grew out of a broader initiative led by Columbia Business School Dean Glenn Hubbard to link the school more closely to the African continent. Hubbard believes that Columbia can best help people in Africa by focusing on what we do best—educating the next generation of African business leaders.

To do this, we have partnered with the African Association of Business Schools, a network of top African business schools to identify and address their most pressing needs. Columbia professors, including Murray Low and Charles Calomiris, have led seminars for African professors to improve their ability to lead students through the “case” method of participatory learning.

As this initiative progressed, it quickly became apparent that the case method would be rather ineffective without cases relevant to local contexts. Our course was created with the dual goals of providing Columbia students with greater insight into the opportunities of doing business in Africa and creating a series of exceptional business school cases about world-class African companies. In doing this, we hope to dispel the myth that African businesses and their leaders are somehow less sophisticated than their counterparts in the rest of the world.

My own team is working with Lagos-based Computer Warehouse Group, the largest IT systems integrator in West Africa. We'll visit with many of the company's employees in Nigeria, including founder Austin Okere, as we chart the firm's success over the past two decades. With no substantial sources of external financing, the company has now reached $100 million in revenues from a client base including some of the world's biggest brands. Stay tuned to FT.com for an update from our team's trip to Nigeria in mid-January.

As the first trip to Africa for many in the class, it affords the opportunity to see for ourselves which is closer to reality, the hopeful picture of robust economic growth painted by African business leaders and New York investment professionals or the bleak image of nations devastated by poverty, disease, corruption and conflict presented by the mainstream media.

In this sense, our class offered a deeper perspective on the backlash against the more conventional view of Africa—a movement whose epicenter can be found in the now annual TED Africa Conference. Indeed, we were even fortunate enough to share the same kick-off speaker as last June's conference in Tanzania, Euvin Euvin Naidoo of Standard Chartered Bank and the South Africa Chamber of Commerce Americas.

Naidoo is quick to point out that although AIDS, corruption and armed conflict remain serious impediments to Africa's potential, these are not the most interesting stories emerging from the continent. Rather, what fascinates him most are the now common stories of resourceful entrepreneurs with the tenacity to build thriving businesses within this context.

For at least the past five years, the majority of Africa's economies have experienced GDP growth almost twice as high as here in the U.S. To large degree, this growth has been built on foundations of expanded democracy and improved governance. As the first two generations of post-colonial leaders have finally begun to fade from the scene, there is evidence that many of the new governments are committed to economic liberalization and public-sector reform.

Although the run-up of commodities prices over the last few years can account for much of Africa's growth, sectors outside of natural resource are also booming. Scalable businesses in the telecommunications, construction, consumer lending, and retail sectors are appearing across the continent. For the first time since independence, international investors are actively seeking business plans targeting domestic markets as opposed to exports.

With a growing track record of steady economic growth across the continent, foreign direct investment is surging. Among those attracted by domestic consumer markets is Kofi Bucknor, managing director of Kingdom Zephyr, a joint venture between the private equity firm Zephyr Management and Prince Alwaleed bin Talal of Saudi Arabia. The group's first fund, Pan-African Investment Partners, realized returns greater than 300% over just a few years, primarily through shrewd innvestments in banks and consumer lending firms on the continent.

During a recent visit to New York to raise the firm's new $500 million fund, Bucknor provided our class with a unique opportunity to hear his pitch to investors first-hand. His strategy is relatively simple: By providing growth capital, improved corporate governance, managerial expertise, and access to managerial expertise, his fund can transform loosely managed start-ups into more professionalized enterprises with the discipline to deliver consistent results. If it weren't for the $5 million minimum buy-in, he almost certainly would have left the session with a fistful of checks.

Simon Harford, CEO for West Africa of Actis Capital, a UK private equity firm, helped put these inflows of private capital into perspective. He pointed out that investments from foreign companies are already beginning to dwarf aid money from the UN and loans from the World Bank. Harford characterized this as perhaps the greatest investment climate since independence.

Later Sev Vettivetpillai, CEO of Aureos Capital, a global private equity firm with several offices in Africa, believes investments in the $5-10 million range are most appropriate for the African context. Where private equity funds aiming for larger deployments will find it increasingly difficult to find attractive acquisition targets, he believes Aureos will have access to more high quality deal-flow.

Meanwhile, according to Jon Chew and Mark Tunmer of Botswana-based Imara Holdings, fund managers are increasingly attracted to African markets because they represent one of the last asset classes not correlated to global markets. Stock markets in Africa have continued marching along unconcerned by the sub-prime fallout that has roiled markets across the globe. Although this is an attractive feature for institutional investors, the duo were quick to point out that as more funds flow into the market, it will become increasingly difficult for them to deploy their capital in ways that make sense.

Perhaps the speaker with the most intriguing—if a bit idiosyncratic—opportunity in Africa is Ben Howell, manager for emerging markets of the Houston-based hedge fund HBK. His firm has purchased a minority stake in Clark Sustainable Resource Development, a Canadian firm with a contract to log the hardwood forests submerged by Ghana's massive Lake Volta. Since 1965, a forest of pristine old-growth hardwoods has been submerged in some 100 feet of water thanks to the construction of the Akosombo dam. By harvesting the trees with technology from the off-shore oil industry, Howell and CSRD believe they may be able to supply some 20% of the world's environmentally certified hardwoods.

During another session, Scott Malpass, Chief Investment Officer for the University of Notre Dame, presented his view of Africa from his perspective as the manager of one of the largest university endowments. Malpass has realized unprecedented success in growing his school's assets through a strategy of diversifying into emerging markets, particularly China and India. The recent success stories out of Africa have not gone unnoticed, however, as he is actively seeking to move a larger portion of his $15+ billion under management into the region.

In addition to an impressive line-up of business chiefs, we were also fortunate to host several leaders of non-profit groups. Bruce McNamer, President of TechnoServe, told us about his organization's decades-long effort to help entrepreneurs on the continent move up the value chain. We looked closely at TechnoServe's successful efforts to boost the prices received by a Tanzanian coffee cooperative. McNamer was one of many speakers to stress that nearly every African is an entrepreneur at heart, eager to seize opportunities wherever they may be found.

Antony Mwaniki, CEO of Mobile4Good.com, shared his experiences leading a start-up that uses cell phone text messaging to match job-seekers with employers in Nairobi, Kenya. Leveraging technology to help people find employment, his company aims to be profitable while addressing a societal challenge. Funded by Jim Harmon, a New York investor looking to give something back, Mobile4Good is the perfect example of a new, more productive replacement for traditional philanthropy. The venture's backers echo the sentiments of NYU economist William Easterly, journalist Andrew Mwenda and others who argue that its time to rethink our approach to foreign aid.

Perhaps the most inspiring story to emerge from the class came from Isaac Shongwe, a black South African who scored a coveted scholarship to attend an American university in 1989. He later earned a Rhodes scholarship, completing his MBA at Oxford and returning to his native country where he has become a leader in Black Economic Empowerment financing.

Shongwe showed how the combination of humility, brilliance and determination can lead to success in even the most difficult of circumstances. It is with precisely this entrepreneurial spirit that our class now departs for Africa.

Labels: Africa, Columbia Business School, entrepreneurship, Investing in Africa

Last week Columbia Business School had the thrill to host Isaac Shongwe, a South African entrepreneur, trustee of the Aspen Institute and head of the South African chapter of the African Leadership Initiative.

Shongwe was one of the few black South Africans fortunate enough to receive a scholarship to study in the United States during the early 1980s. He attended Wesleyan University in Connecticut, and during his first summer worked at the ANC offices in New York City. Because it was still banned in South Africa, New York must have played an even more crucial role in the organization's operations. During this summer, he realized that while there were many South Africans working on political solutions for post-Apartheid era, nobody was working on economic issues. He realized that in order for the condition of black people in South Africa to be materially improved after the regime change, economic solutions would be critical. And besides, says Shongwe, he would make a bad politician because he likes to argue, asks too many questions and is too honest.

When he looks at the incredible progress that has been made in his home country in the last 15 years, he is always amazed. "If you asked those of us at ANC in that summer how things would turn out, they couldn't have dreamed that things would have progressed as far as they have today." Much of that progress is due to the miracle of 1994 and before that, the miracle of '91 when Mandela was released from prison. Then when the ANC rose to power, they legislated Black Economic Empowerment (BEE), a statute designed to enhance black involvement in the economy at both employee and ownership levels.

Shongwe's response to BEE is that it doesn't encourage entrepreneurship but it does encourage redistribution. At the outset, it was necessary because things were so badly skewed toward the whites that some level of redistribution was necessary, but in the long run the goal must be to have a society that does not require race-based legislation of this type.

In 1988 Shongwe, having finished his degree in the United States, returned to South Africa and joined one of the big companies there. By this time he had already decided to go the entrepreneurial route, but would first spend five years learning about the industries he was interested in. So he joined an industrial conglomerate and spent several years working there while living in a township. At that time, blacks in the township where he was living still were very much opposed to private enterprise because they felt capitalism provided the economic support that perpetuated an evil system of government. He was actually embarassed to tell people that he worked for a business at that time, and believes that to this day South Africa suffers from a lack of entrepreneurial and capitalist mindsets as a legacy of the apartheid years.

In 1989 Shongwe won a Rhodes scholarship to do his MBA at Oxford. He then joined Monitor Group, a consulting firm founded by Michael Porter. He spent several years there and eventually moved back to South Africa to help launch the firm's first office in the country. His stay with Monitor was really geared to ward acquiring the skills he would need to open his own consulting firm, known as Letsema Consulting focused on corporate transformations and BEE. He and a friend lined up one client and then launched a strategy consulting company.

Today they are a major local partner for McKinsey, employing sixty people and generating sizable profits for the partners. They have differentiated themselves from other BEE partners by creating intellectual capital that businesses in South Africa would really need. In '98 they set up the investment arm that began approaching firms in need of BEE partners (by law any company doing business with the government in South Africa must be at least 25% black owned), with the proposition that they would provide value-added consulting work that would vest as ownership stakes over a period of time. This allowed partners to meet their BEE requirements while receiving more in exchange than other BEE investors could offer.

Since '98 he has also launched a public relations and communications firm. Meanwhile the holding firm, which employs six full-time staff, is now invested in six companies.

His company’s largest investment to date is a 25% in Barloworld Logistics, a huge player in the South African transportation and logistics business. Because BEE laws mandate that all companies in the country must use suppliers that are black-owned as well, it made a tremendous amount of sense for a B2B firm like Barloworld to take on a BEE partner. And as noted above, Shongwe makes an ideal BEE partner because his company brings a tremendous amount of black intellectual capital as opposed to simply providing financing. So when his company purchased 25% of Barloworld, he became CEO of the firm, not just a BEE partner.

The motivation for him becoming CEO is that to finance the deal, his firm had to take on $150 million in debt. It was therefore very important to see to it that Barloworld was managed for growth while simultaneously providing the cash flow to meet the interest payments. They have since more than doubled revenues to about $6 billion U.S., exceeding forecasts so that his investment firm can pay down the debt faster than expected.

At the core of opportunities in the new South Africa is the massive expansion of opportunities for black people. The economy is really being fueled by new spending power on the part of the black population, which can be seen in the growth in mortgages, autos, and other spending on consumer goods. As the tax base has increased, the government is in a strong position to develop badly needed infrastructure. Huge sums are now earmarked for water, sanitation, and electricity.

Meanwhile, there is a backlog of housing, which has meant that construction firms are operating at full capacity trying to meet this demand. There are also huge shortages in education infrastructure as well as in roads, rails and ports. Add to all this the 2010 World Cup, with the first subway going into Johannesburg at a cost of $10 billion Rand ($1.3 billion US). All these projects are leading to surges in international interest, which we saw most recently with the Industrial and Commercial Bank of China’s $5 billion US investment in Standard Bank.

Perhaps the greatest shortage in South Africa remains a lack of entrepreneurship. According to Shongwe, this has its roots in an apartheid system that provided so few opportunities to blacks that they did not develop the mindset needed to develop their own businesses. A big part of this is simply the lack of education provided during that era, and building up that educational infrastructure is not something that can be done overnight.

In conclusion, Shongwe sees big challenges and some serious risks ahead for the country. However, as he looks around the world, he asks which country doesn’t have a risk of some form or another. But when you go to South Africa, things work, some parts are really like the first world. And in general, since 1994, the black government has done a great job to the point where democracy is now a way of life in the country. The next president of the ANC will be decided in December, so there is a polarized situation within the ANC. However, he is optimistic that sanity will prevail and that the country’s economic trajectory will continue to be pursued by the new government.

Labels: Africa, BEE, business, Columbia Business School, entrepreneurship, Investing in Africa, South Africa

With barely 24 hours advanced notice, more than seventy-five CBSers attended an October 1 talk by Simon Harford, CEO for West Africa of Actis, a pioneer in emerging markets private equity.

Mr. Harford began the discussion of private equity and entrepreneurship in Africa by painting a very rosy picture of the economic outlook for the continent, with particular emphasis on Nigeria, a place he has called home for the last several years. He expressed optimism in the ability of the private sector to succeed in creating progress in places where decades of foreign aid and poor governance have accomplished little.

However, he emphasized that Africa suffers from a shortage of well-trained managers who are prepared to lead the next generation of business ventures on the continent. Mr. Simon concluded by saying that before Africa can ever come close to its potential, it must handle the problem of corruption.

A native of the UK, Mr. Harford first moved to Nigeria three years ago as the founding CEO of Virgin Nigeria, a joint-venture between Virgin Atlantic and Nigerian institutional investors. He joined Actis to run its West Africa arm 1.5 years ago, and is currently helping to raise the group’s next fund. Professors Murray Low and Paul Tierney, Jr. invited Mr. Harford to visit CBS as part of their new master class, Entrepreneurship in Africa.

Mr. Harford pointed out that Nigeria’s economy has averaged +/- 6 percent economic growth for the last several years, and emphasized that if you remove the oil industry from these statistics, growth approaches 8-9 percent. Likewise, foreign direct investment has doubled in recent years to about $6 billion in 2005, while FDI in the non-oil sector have increased from $0.3 billion to $1.7 billion.

Mr. Simon pointed out that investments from foreign companies are already beginning to dwarf aid money from the UN and loans from the World Bank. Similar trends can be seen across the African continent, presenting what may be the greatest investment climate since independence.
Not surprisingly, then, stock markets across the continent are soaring. Indeed, according to Mr. Harford, the stock market in Lagos is arguably approaching levels of “irrational exuberance” comparable with those seen in Shanghai. He attributed the run-up in Nigeria’s markets to three factors: GDP growth and pension reform has lead to greater savings, which are being invested in the markets; government crack-downs on money laundering have made it harder for “dirty” funds to be transferred overseas; and finally, the influx of foreign capital flows.

The country’s burgeoning capital markets ensure that raising money for a business venture in Nigeria is no longer the biggest problem. If an entrepreneur or business person tells that they cannot raise the money they need to grow, one can assume immediately that there is something wrong with the business plan, the management team, or some aspect of the operations themselves.

Rather, the major obstacles to entrepreneurship are corruption and a shortage of management. Mr. Harford said that several of his friends had tried starting businesses in Nigeria but were frustrated by the obstacles and costs of bureaucracy and demands for bribes. He also shared several stories about such challenges he faced as CEO of Virgin Nigeria. Although he says that he maintains a zero-tolerance policy for corruption, and that he has never paid a bribe of any sort—not even in his personal life—he acknowledged that such a policy is both extremely difficult, and vastly easier for one in his position managing a relatively large and high profile business, whereas a small business owner will often face greater challenges.

In addition to endemic corruption, Mr. Harford also pointed that African companies often cite their concerns of insufficient management pool. However, from the looks of enthusiasm in the audience, it appears that at least a dozen or so African CBSers are eager to prove him wrong.

Labels: actis, Africa, corruption, entrepreneurship, private equity, simon harford

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 millio