By James Santagata
Principal Consultant, SiliconEdge


"October: This is one of the peculiarly dangerous months to speculate in stocks in. The other are July, January, September, April, November, May, March, June, December, August, and February."
- Pudd'nhead Wilson's Calendar


There is no doubt that the stock market can be a very unforgiving institution but does the SEC's tactics if not self-described mandate of breaking the legs of Entrepreneurs and rolling over little Retail Investors make it any safer?

This is highly doubtful as the SEC has arguably become a poster child for the economic concept of regulatory capture, having moved from their initial role of investment information disclosure in the 1960's to their current role of supposedly "protecting investors" since the 1990's. There is also the issue that the existence of the SEC and what I term to be their "SEC-anointed" stocks injects moral hazard into the system.

But who, prey tell (spelled as intended), is the SEC protecting? 

Surely it isn't the little retail investor who has had to contend with the like of SEC-anointed fraud stocks and scammers like Enron, Global Crossing, the Steve Jobs Options Backdating Scandal and, of course, the Big Daddy himself, Bernie Madoff.

What's most amazing about Bernie Madoff's fraud is not just that he got away with it, but that the SEC had no intention of stopping him!

That may sound like an outlandish or unsubstantiated allegation until one considers the documented facts. Starting in 2000 then again in 2001, and 2005, a forensics accountant by the name of Harry M. Markopolos repeatedly notified the SEC of Bernie Madoff's fraud both verbally and in writing.  Markopolos provided detailed supporting documents only to be ignored by the SEC again and again.

Here is Markopolos' complaint to the SEC regarding Madoff where he identifies 29 Red Flags:

• The World's Biggest Hedge Fund Is A Fraud (slideshare)
  

Now it appears that the SEC is continuing their assault on both individual investors who want better returns than are available through the retail market or whom just want to invest their own money as they see fit (if they can blow their money in Vegas or on penny stocks, smokes or state sponsored lotteries why not stocks?) as well as entrepreneurs looking to raise funds for their companies.

The SEC is doing this by considering to raise the financial requirements for being designated an accredited investor. Currently, an individual accredited investor is defined as follows: 

1. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;



2. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or

Apparently, too many Americans have now become cashed up and have too easily overcome this financial hurdle. In the last go round, the  SEC changed the rules so that an individual's home was excluded but apparently that wasn't enough to keep out the amount of new individuals looking to invest wholesale (as opposed to retail).

To remedy this our  "protectors", the SEC,  now want to index the SEC's individual accredited investor's  financial requirements to inflation. 

Here is a comparison of the current requirements and what the future requirements would mean:

An individual accredited investor is now defined as someone with $1 million in net worth, minus the value of their primary residence, or with annual income of $200,000 in each of the two most recent years and with a reasonable expectation to bring in the same income level in the current year..

The inflation indexed requirements would be about $2.5 million of individual net worth while the annual income requirement would rise to $450,000.

The SEC is offering some protection no doubt, but for whom? It seems this protection is more likely to benefit fraudsters and incumbent wholesale investors than entrepreneurs looking to raise money and the little retail investor.

http://m.bizjournals.com/sanjose/news/2014/05/20/more-than-half-of-angel-investors-could-be-barred.html

By James Santagata
Principal Consultant, SiliconEdge


Many companies mistakenly think that they're fighting a "War For Talent" when their policies and procedures inadvertently have them waging a "War On Talent".

The "War On Talent" takes the form of overpaying for weak or misaligned talent while rejecting and filtering out solid performers and top talent. It 's often the result when firm is mired in destructive processes and practices such as Cargo Cult Recruiting™, Cargo Cult Interviewing™ & Cargo Cult Hiring™.

Companies that are concerned about this should investigate auditing, deconstructing or tearing down and replacing their current practices and processes as needed.

SiliconEdge's Supercharged Interviewing™ and TrueHire™ Methodology was developed for just this purpose. Use these programmes to confidently hire better candidates faster and cheaper while setting the stage for strong future employee engagement from the very first interview.

By James Santagata
Principal Consultant, SiliconEdge


Have you ever wondered why companies so often overpay for talent that just doesn't perform or worse negatively impacts the company's performance?

By the same token, have you ever wondered why companies seem to so often inadvertently or even consciously block, reject and trample Top Talent?

The fact is, the so-called War For Talent most often resembles a War On Talent.

By James Santagata
Principal Consultant, SiliconEdge


This is a quick update to an earlier post I made: 
(So Where's The Next WhatsApp & How Did The Tech Cheerleader Press Miss It?)

As the Silicon Valley Cheerleader Tech Press continues to desparately look for the next WhatsApp, it's apparently been found....in China....and it's called Alibaba.

But China is apparently too far away from Sand Hill Road.  

And most Valley VCs don't do China....sure they dabble, but they don't do China...

http://www.businessinsider.com/american-investors-missed-out-on-alibaba-2014-5

By James Santagata
Principal Consultant, SiliconEdge


With Apple's rumored acquisition of Beats Electronics for up to $3.2 billion USD it begs the multi-part question:

Is this something that Steve Jobs would have done during his tenure, is this good for Apple or does it suggest that Tim Cook is simply a corporate lackey?

Looking at the M&A transaction history for Apple, even when adjusted for inflation, we see that Apple has never made an acquisition approaching this size, not even the acquisition of Next Computer.

Why is this?

Well, for one, Steve Jobs had massive business acumen, he apparently understood that in these large acquisitions there are two main risks.

First, is the integration risk of corporate cultures. 

Second is the fact that in many cases companies are just paying for goodwill that never existed or quickly evaporates once the acquisition is completed.

$500 million USD is a good chunk of change. $3.2 billion USD is even larger. With that kind of money, a stud like Steve Jobs could have built something from scratch and then owned the market.

Evidently, Tim Cook can't create or drive organic growth; he seemingly can only acquire and focus on accretive growth.

Nothing wrong with that, if it works and that's Apple's new "strategy" but it would be a massive departure from Apple under Steve Jobs since firms like Google and Microsoft are the ones who buy billion dollar businesses; Steve Jobs is the one who creates them.

And what exactly makes Beats Electronics so valuable to Apple? This reader comment found on the Register website didn't seem to think there was much there:

By James Santagata
Principal Consultant, SiliconEdge


After Facebook's massive $19 billion USD acquisition of WhatsApp,  two question have arisen.

The first is my question. How exactly did the Tech Cheerleader Press miss out on WhatsApp? That is, after countless posts over the years pimping Quora as "it", Twitter and others, where was the love for WhatsApp? This is actually a rhetorical question so no reason to answer it.

The second question is now coming from the Tech and even Business Cheerleader Press.

"Where's The Next WhatsApp", they ask.

Take a couple seconds now and do a quick search on that phrase and you'll be greeted by almost a dozen recent articles that are predicting or searching for the next WhatsApp. 

You'll also find that these articles specifically target audiences ranging from the tech community to business folk, ad agencies and the general public.

That is to be expected, of course, when such large amounts of money such as $19 billion USD are thrown around. I can live with that. In fact, I expect that from the Cheerleader Press. It's just par for the course.

But here's the part that no one or at least very few will tell you.

The next WhatsApp is already out there and it's running fine. It may even be LINE for all I know.

But it doesn't matter, because whatever it is, the Cheerleader Press probably won't find them until they make it and even if they did, they wouldn't understand them due factors such as trait ascription bias.

Further, just like WhatsApp, the future WhatsApp may be running their operation out of a moldy warehouse and they probably aren't or won't be at Launch or Disrupt or any other events.

Why? 

First because many of these startups have very little capital reserves and they are more concerned about eating and keeping the lights on. It's prioritizing capital outlays vs expected returns.

Second, even if they have the funds, they are most likely focused on building and refining their product while engaged in customer acquisition, retention and growth, perhaps employing Lifetime Value analysis or a traditional RFM model.  Going to conferences takes not only time but energy. It's draining. And what again, is the ROI?

That's just the way it is.

And that's why people are or were like, "Hey, who the hell are the WhatsApp guys?"

Where did you guys come from? How did you build this thing? Why haven't we heard about you?

And now, suddenly they are treated like rock stars, as they should be.

And yet the Cheerleader Press will never get it,because they are victims of drinking the Kool-aid cocktail of social proof, the halo effect and various cognitive biases while subscribing to the standard Myths and Memes.

By James Santagata
Principal Consultant, SiliconEdge


If it seems that we're under a constant barrage by the Western Media Myth (WMM) that (a) Japan is "failing" and that (b) this "failure" of Japan's is primarily due to Japan's "talent problem", it's because we are.

We're also told through this WMM that Japan's supposed "lack of talent" has further manifested itself in such as way as to be responsible for Japan's supposed "lack of creativity" and "lack of innovation", thus, contributing to again, the so-called "Lost Decade".

However, just when the WMM would have us give up all hope that Japan can saved, the WMM preaches that these "unique problems" that Japan faces can simply and quickly be solved by (a) increasing the number of English-speaking Japanese and (b) internationalizing the apparently "backwards" Japanese-only speaking speakers and/or (c)  increasing the number of immigrants  Japan accepts. Apparently, the WMM proponents believe that even a US-Open Border policy would "help" the Japanese economy if not "save" it.

To support such silly myths, memes and the previously proposed "solutions", the Western Media often holds up statistics showing Japan's lack of internationalized workers (however you define this), Japan's relatively low TOEIC and TOEFL scores compared to other Asian countries as well as the dearth of Japanese college students now studying overseas compared to the figures thrown up by countries such as India and China (for the record, the Japanese figures are low even when comparing this on a per capita basis, but this begs the question -- so what?).

As I have argued for over a decade now, these claims and even statistical comparisons by the Western Media are not only useless but downright dangerous to those that want to fully understand Japan's current situation as they ignore the real root causes of Japan's underperformance.

And note that I say "underperformance" here and not failure. As the third largest economy in the world (behind China that has ten times the population along with zero controls on economic externalities), it's pretty silly to continue to paint Japan as an economic basket case or the "sick man of Asia".

The key to all of this is to understand that Japan lacks leadership. That is what is hampering Japan.

Japan doesn't lack creativity, Japan doesn't lack innovation, Japan doesn't lack talent and Japan doesn't lack  English-speakers, although Japan could improve in all of these areas. 

The Western Media's arguments or framing of these issues, especially in terms of Japan's supposed lack of  "English-speaking" talent becomes even sillier when we consider that it ignores what I have deemed the "tip of the spear" or "tip of the sword" strategy.

As I have stated many time before, business is warfare, the only difference being that in business there is no Geneva Convention and prisoners aren't routinely taken.

In a war, it is considered completely unwise to judge the strength of an army solely by the total number of troops. One must judge an army by its effectiveness in killing and maiming people as well as smashing, burning and breaking things. One would also be well advised to measure an army's effectiveness in terms of its ability to project power. Again, the number of troops is mostly irrelevant.

This becomes even clearer when we analyze a war dominated by air power,

In such a case you don't measure a military's effectiveness by the number of pilots deployed in theater or even the total trained (and active) pilots but rather you measure a military's effectiveness (related to these air campaigns) by the efficacy of the pilots that are deployed and the results which they attain.

For instance, even on a conventional basis, one pilot and perhaps one navigator can wreak enormous havoc on an enemy force, and yet, this one pilot and navigator are backed up by thousands of others ranging from ground crews that handle maintenance, fueling and ordnance. Air traffic controllers to mid-air refuelers (who in turn are supported by their own ground crews) and this ripples through the entire supply chain from the men and women who cut the paychecks, the cooks, the water purification teams, the truckers, the doctors and dentists to the nurses and so on. 

Thousands and thousands of non-combatants are involved to support a relatively small group of pilots and this doesn't even include all of the time and effort that went into designing and producing each plane and each weapons systems, all to support one pilot and perhaps one navigator.

And yet it works because that plane and that pilot are, indeed, the tip of the spear.

You can see this as well in a US Navy Carrier Task Force when you consider how many personnel are on one aircraft carrier -- mutiple thousands. And this one carrier in turn supports a relatively small group of pilots. But it goes far beyond this, because that one aircraft carrier is in turn supported by a group of other ships - submarines, cruisers, destroyers and so on.

All of these assets and personnel are supporting this one aircraft carrier which in turn supports her air crews who are, by definition, the tip of the spear.

Unsurprisingly, businesses and economies work in the same way. This should be common sense and yet evidently the Western Media still doesn't get this nor does most of the Silicon Valley "Cheerleader Press".

In concrete terms, what does this mean for Japan?

Well, this means that in Japan not every person or employee needs to speak English or be internationalized. It's a silly notion to assume that they do. Moreover, even if each Japanese worker did have these skills there is no guarantee that the Japanese economy would stronger since there is a huge opportunity cost to skill-up in these areas which could, in fact, dampen Japanese creativity, innovation and productivity.

In any event, today I was back on site at a client (a Japanese domestic firm), running interviews for 2015 college graduates. I had eleven Japanese and several foreign student candidates lined up for today. This was in addition to the 15 Japanese candidates I had interviewed for the same client the week before.

And once again, I am and have been extremely impressed with the quality of all candidates, both Japanese and foreign candidates.

This simply adds more empirical evidence to my long made argument that Japan doesn't suffer from a lack of talent, creativity or innovation.

No. 

Japan suffers not just from a lack of but a dearth of aggressive, quality leadership which is able to effectively and profitably deploy and monetize the outstanding domestic and international talent that is already onboard or can be readily acquired.

To counter balance this lack of leadership and the resultant underperforming or ossified firms it produces, Japan must create and maintain a very healthy entrepreneurial ecosystem.

An ecosystem that can continually challenge, engage, kill and compost underperforming  incumbent Japanese corporations, especially ossified incumbents, wherever they may be found.


Related Background Articles:

• Japan's Problem: Severe Lack Of Leadership Not A Lack Of Innovation Or Creativity (Full Interview) (The Globe & Mail)
  
• The Truth About Japan: Can Japan's New Startup Spirit Revitalize The Japanese Economy?
  
• Can Japan Compete Globally? You Betcha And Here's Why
  
• Japan May Be Able To Compete Globally But Not Yet
  
• Can Japan Compete Globally? You Betcha And Here's How