Today, I attended the first of the “Building a Business” lecture course at the Said Business School, which was given by Tom Hockaday, the managing director of Isis Innovation Ltd. His talk was titled “Taking the First Steps, Company Basic”. These are my notes (the lecturer’s slides are here):
A Company
- Legal Entity
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Defines things like liability,
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Has a set of documents called the Memorandum and Articles: these define the purpose and rules concerning the running of the company.
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A Company Secretary handles bureaucratic aspects of the companies legal status.
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Minimum Requirements for a Company
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A name
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A share
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A director
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An address
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Insurance
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the Companies Act 2006 covers company law at the moment. It covers, among a lot of other things, directors’ duties: there are good resources online for this. Companies must keep accounts and not trade insolvently. Directors are personally liable for what a company does if it gets into trouble.
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Tax
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boring but important. There are corporation and personal tax issues to address: the Enterprise Investment Scheme and the Enterprise Management Scheme help investors and managers small companies save money.
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There are lots of grants and free advice and expertise available.
People
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If relationships get strained, it’s important to stop trading and fix the problems.
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Deal honestly and decently with people in your company and the relationships will be more effective.
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The MD plays a crucial roles
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Advisors: it’s important to work out who’s paying – take free advice, and get it early.
The Idea
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Not a business plan but a value proposition – “the elevator pitch”.
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(1) Do something – product/service
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(2) Sell it to someone – customer
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A lot of startup companies will have predominantly intellectual property – make sure you protect your rights.
The Money
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Companies need to make money. Most companies need some initial investment.
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“Money changes people and never for the better. [Founders] usually start out as mates, but if one of them is getting much more money than the rest can lead to jealousy and resentment”.
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“Cash is King”
There 
are many reasons why you should shop for your groceries online. It is true that it is convenient, and that you save time by not having to traipse around the store collecting items, and that there’s a certain thrill to be gained from shopping at Tesco at 4am for the first time in the comfort of your pyjamas, but all of these reasons have been covered many time before. Having glided through the virtual aisles for the first time this month, it struck me that there was a strong environmental case for forgoing a trip to your local supermarket. For most people, the weekly shop involves getting in their car and driving, which seems to me the lowest hanging piece of fruit on this particular tree. Obviously, the delivery vehicle is probably burning fossil fuels too, but a sensibly planned “milk-round” delivery service covers less miles than a “hub-and-spoke” model for the same number of houses, and will reduce congestion at the store itself.
There are several other ways that this type of shopping can benefit the environment too: in my experience, less packaging is used, as either the food is put in boxes which are carried into your kitchen and then taken away, or the food is brought in strong plastic bags that can be reused again and again. Those that have researched Internet shopping will know that there are broadly two ways for the food to come to your door: the first is direct from the warehouse and the second is when someone walks around the shop for you collecting your goods as a regular shopper would. The former is by far the more environmentally friendly: the warehouses can be more tightly packed, so less heating is needed, you save the added trip of taking the food from the warehouse to the store and lastly there’s no need to have open refrigerators, which seem to me the most wasteful piece of equipment in modern retailing as you’re simultaneously heating and cooling the same air.
Tonight 
I was lucky enough to go to a question and answer session with James Rubin, Democrat and foreign policy expert, ably hosted by the chief economist of HSBC Stephen King. The questions were very diverse, and of a high quality as one would expect from an audience of fund managers; they compared well with those at the Oxford Union, which tend to show the audience’s comparative (and understandable) unfamiliarity with the topics, and with those at the Reform Club, which tend to lack focus on the questioning aspect and sometimes sound awfully like statements.
One subject of discussion that I found particularly fascinating was Russia. Rubin compared Russia with China, styling the former as a country with a need to be a global power, in contrast to the latter which he described as a regional political power, with geopolitical concern only for Taiwan and recognition in Asia, which restricted it’s global policy decision making solely to economic concerns. He cited the Russians renewed muscle flexing around the former Soviet Union, for example in Eastern Europe and most recently Georgia. Continuing this theme of a global outlook, Rubin predicted that the Kremlin would use Russia’s vast quantities of oil and gas for political purposes.
Of course, in the context of the wider debate, we heard his thoughts on the difference in approach that the two presidential candidates would take: McCain, he said, would be more willing to use force, presumably not directly against Russia, and not worry about bringing the United States’ allies in Europe and elsewhere along with him. Obama, on the other hand, was predicted to be more focused on dialogue, considering force as a last resort. It was also interesting to hear that he thought Joe Biden, who he used to work for would be well suited to a role drumming up support for US actions among its allies.
I don’t want to add too many of my own thought: I broadly agree with Rubin and I would say that it is a brave man who bets against Putin, who has sucessfully held onto power even after his move from being President to Prime Minister. Russia never really went away and they are certainly here now with memories of the humiliation they suffered in the 1990’s on their minds.
Has it ever struck you the similarities between playing Championship Manager (circa late 1990’s) and asset management? Today, I noticed how alike the two activities are: first of all in the modus operandi: essentially, you take large amounts of data, both in the form of written news reports and analysts’ reports (or advice from coaches and scouts) as well as large arrays of numbers, which include the basics of the income statement and the balance sheet (in addition to the almost infinite number of ratios and metrics that people have devised) on the financial side and the players’ attributes (both shown and hidden), form and average rating on the football side.
And what about the purpose of the exercise: in asset management you pick a portfolio of stocks and then you adjust that portfolio over a given investment horizon: in Championship Manager, you assemble a squad of player, and then change your starting lineup as the season progresses. The two fields even share some terminology: rotation, for example, can be applied to football (as in squad rotation: changing your team to ensure that the players don’t get overly tired) and sector rotation (where some sectors increase in value relative to others).
So, are there any lessons to be learnt by one side from the other. Well, I would certainly not be surprised to find out that many of today’s fund managers first learnt the numerical skills that they use in their job embarking on a cup run or wining the league and I certainly think the makers of the Bloomberg terminal could learn a thing or two from the game designers. And what about the other direction? Well, maybe you might say that the gamers should take on some of the fund managers’ seriousness, but rest assured, if you’ve ever played one of these games, you’ll know that after a few virtual weeks you’ll be taking it quite seriously enough!
One of my favourite programs to watch on the television is Dragons’ Den, in which entrepreneurs pitch their companies to a panel of five “dragons” for investment. Although primarily a form of entertainment, I think there are some important lessons to be learnt about business from the show.
The first is the art of pitching, whether you are pitching your company, your product or yourself. The television show is a rather unusual pitch to make: although you’re pitching to the dragons for investment, most companies are also pitching their product to the TV cameras: even if they don’t any funding, I’m sure that an appearance on the show is massively beneficial to all but the most crazy products, given you are getting national exposure to a large audience, a large proportion of which fall into demographic categories that advertisers swoon over.
If you watch the show regularly, as I have over the last month, you will quickly see a pattern in the questions that are asked by the dragons. They are
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What is your product: This can either be implicit, or if the pitch went badly or the product is complicated, explicitly,
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What are your projected earnings: this usually involves some combination of market size, ASP (average selling price) and projected market share.
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What is the margin on the product: there is no point in selling a product if you’re not going to make any money out of?
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Are there any significant competitors in the market place, or are the barriers to entry to the marketplace so low as to mean that there?
Finally, there are usually some questions about the valuation of the business, usually involving the assets and liabilities of the company: I’m sure a lot more of this is done in the due diligence stage once the television cameras are turned off and the real work is done (the dragons are allowed to back out of any deal that make).
So, the key take away from this is that if you are planning on investing in a company, or starting one for yourself (which clearly involves an investment of time and money), then you should ask these questions about your company, and you don’t get the right answers, then have another think as to how you can make it a more attractive business proposition.
Last week I started to do an internship at a city investment management firm, in the US equities team: now I’ve been doing it for a week, now seems like a good idea to jot down some thoughts. I don’t really want to get into investment philosophy – the team I work with seems to spend most of its time looking at charts and then trying to find a catalyst for change in the company, which causes its share price to go up. It seems to work reasonably well, although I’d be interested to find out the rate of return (after tax and fees) of this fund compared to, say, a bank account or gilts.
What I do want to talk about is how I’ve worked, and what I’ve picked up from others. One things I’ve noticed is that everyone – even me – has two or more 15” monitors, which are suspended so that when sat at the desks you don’t need to bend your neck at all. This must ergonomically be the best way to work at a computer – there’s also an exercise ball which people sit on, which I’m yet to try but I imagine this too is very good for your posture. Most senior people have four (not, I imagine because of their seniority, but simply they’ve been around long enough to acquire more. The sales people have eight, as is normal in that job. I read somewhere that more screen real estate increases your productivity, and given my experience this week I would say that is true, but clearly there is a diminishing rate of return. I would definitely consider such a setup were I to have a home office, I expect you can buy this size screen very cheaply on Ebay. While I’m on this subject, I would definitely consider getting a good keyboard – I’ve been using a Bloomberg keyboard and it’s rubbish!
