It doesn't look rational that Tesla's valuation could be more than double that of two large automotive manufacturers, overnight.
As cool and sustainable as electric-powered cars sound, there is still a certain amount of runway before this eventually (if it does) go mainstream. In 2014, Nissan had initially targeted 1.5 million electric car sales by 2020. Today, total accumulated unit sales are just about 400,000.
Even so, for electric vehicles to dominate the market, that would require a tectonic shift in the demand and supply of oil globally. Until the cartels figure a way to decouple from this economic dependency, vehicles powered by traditional energy sources will likely remain a core part of the automotive sector. Hybrids however are an interesting case.
Investors are claiming that Tesla's revenue could possibly reach USD 1 trillion in 10 years - that's a really far horizon to forecast. And that's saying so much can happen in between...
No quarterly reporting is like streaming a 4K video in standard definition (SD) - it’ll look fine from afar but you won’t get the same clarity close-up.
Investors and stock punters in Singapore may have less to look forward in terms of earnings results when the new rules that do away with quarterly reporting kicks in on 7 February. I am an advocate of quarterly reporting, even if regulators now do not set this as a hard mandate for listed companies.
Dealing with the new asymmetry of information. Investors no longer have the privilege of observing seasonality in business cycles in certain fast-moving industries such as consumer and retail. This makes it potentially make it more difficult to gauge business performance, which could result in reliance on alternative sources of data including analyst research reports, stock discussion forums and market talk over kopi.
The reliability and credibility of third party information sources will become more important than ever.
“Are your quarterly financials reliable?“
With the new disclosure rules in effect, the half-year-on-half-year financial performance will gradually take precedence over the quarterly numbers. While managers will feel less pressure to show a report card every three months, these quarterly operational and financial indicators enables:
Investors to react more quickly to any near-term volatility in the business cycle and make well-informed recommendations to the board;
Management to allocate resources and budget more effectively as compared to half-yearly reporting.
A longer window of time. Without quarterly reporting, companies now have more room to move around their order book and working capital over a 6-month window instead of the usual three months. Half yearly disclosures also give companies more room and time to sweep teething issues under the carpet that could have been addressed early on through the quarterly announcements. Material and sensitive information will also have a longer time to linger within company walls and increase the temptation for insider trading.
It’s like streaming a 4K video in standard definition (SD) - it’ll look fine from afar but you won’t get the same clarity close-up.
On the private side, this should have less impact since investors may continue to request for quarterly management accounts for due diligence.
The impact on cost of capital and valuation. The basis for calculating cost of capital is predicated on risk. And risk is a function of uncertainty. For example, cost of debt is driven by viability of repayments. Financial institutions are more likely to offer more competitive rates for companies that demonstrate the ability to make quarterly repayments. More disclosures imply greater transparency and visibility which in turns reduces the risk profile of the business.
For companies that continue to maintain timely updates on their earning results, there should be some valuation premium reflected through a lower cost of capital. Companies that keep their books clean and organized on a regular basis should also be valued higher on the basis of better corporate and financial governance.
Overall, focus on the longer term. Shifting the focus off quarterly announcements will probably compel investors to take a longer term view on the company and discourage unhealthy speculation on quarterly results.
The shift to half yearly reporting will likely encourage more businesses to go public and reduce the costs for some existing listed companies. But for those companies that have fundamental problems, this isn’t going to move the needle much.
More than three years since I started out, I discovered a new-found respect for the many areas of businesses which are presumably oblivious to most people - back office functions, human resources, payroll, corporate communications, financial reporting, legal and compliance, sales and marketing and overall general management.
In short: a lot of work goes into the creation of a business and even more goes into supporting it.
I think all founders go through that same paradigm, though everyone experiences various aspects of the process differently i.e. some have more difficulty fundraising, looking for resources, developing leads and sales channels, etc.
Cashflow. You have to be really ready to be comfortable with very little cash in your bank at some point of time. Everyone’s financial background is different, make sure you evaluate and prepare yours accordingly
Do something everyday. When you find yourself at a loss, just keep moving - meet people, read stuff, pitch an idea. As long as you move, you’ll learn and achieve something.
Shareholding: respect the money. When starting out, this is tough to quantify given everyone's level of experience, capabilities and financial backgrounds. The most ideal way to do this is to have everyone commit to an agreed amount into the company and split the shareholding pro-rata based on contributed capital. Even if one party had 20 years more experience over the other doesn't mean the more experienced party deserved a larger portion of the pie. Last drawn pay is irrelevant, only the economics and spirit of the equity injection matter. Take for instance the founding of Blackstone: Pete Peterson and Steve Schwarzman both put in $200,000 of their money and split the shareholding equal ways, even though Pete was held a more senior position in Lehman Brothers.
Really have a shareholder agreement. Even a simple one is good, because everyone is committed (at least statutorily) to the business.
Do up a budget. But don’t be overly conservative, especially when it comes to IT infrastructure and travel.
Banking and money matters. Where bank and money matters are concerned, always use a joint signatory for check and balance.
"Cheerleaders" are good but the will to execute is more important. It is important to differentiate real founders who are sacrificing money and opportunity costs against those who are simply thinking up of ideas and cheerleading. The founders' will to execute is important, sometimes even more important than ideas and certainly more important than cheerleading.
Everyone in the boat must paddle. All co-founders must be individually strong. Each co-founder has to enter a business with strong technical competencies which are aligned with the core business, and ideally complementary to each other.
Resolving disagreements. In pushing a point across or in any disagreement, no one should ever say “I don’t need to do this”. Co-founders may never agree on everything, but when the decision is made, everyone must fully go with the motion.
Trust is important. More important than you think - there is trusting in a person's integrity but also trusting in a person's ability to deliver. Both are important. Trust through years of friendship should not cloud your judgement in trusting a person's execution or their ability to deliver.
Change and growth. Be fully prepared that your idea and vision of your start up will evolve and change significantly along the way. This is mostly a good thing. Be aware that what you’ll end up with will definitely look different from what you set out to do.
Share options. Dilute no more than 20% of the company (in my personal view). Then comes the how and when to give share options: Reward those who have contributed to top-line and growth of the business - customers are the blood of the business. You can follow these guidelines: (i) Contribution to the business top-line (revenue) (ii) Where revenue is irrelevant, evaluate based on overall execution support
Never give away equity. Period. See point above on respecting the money.
Human Resources. Talent identification, sourcing, acquisition and employee motivation post-hiring are ultimately key in growing and sustaining the business. As founders, always: (i) Lead by example, be hands-on and show the way (ii) Invest in your strongest staff: train them professionally but also develop them personally as individuals (iii) Hire for attitude over aptitude (iv) Always be upfront and honest in your communication All employees will leave the firm one day, but the social goodwill generated during their time at your firm will be intangible and will go a very long way in establishing both you and your company's reputation.
Beautiful presentation decks do not win deals. Good ideas, actionable strategies and the executing the plan builds credibility and THAT IS WHAT WINS DEALS.
Leverage good decision making to achieve multiple benefits. In making any decision, try to see if it can achieve multiple purposes.
Don't undermine the importance of a healthy digital footprint. Anyone who tells you not to publish your background on LinkedIn is smoking you. In today’s digital age, a website, LinkedIn portal and a proper email account is almost tantamount to legitimacy. Corporate "mileage" or existence can also be a fairly strong indicator, register your company as early as possible.
Stay positive and be comfortable with uncertainty. Complain less, do more. Be comfortable with uncertainty. There is always a possibility that an idea will not work, but if you fail, fail fast and pivot quickly to another strategy that works.
Failure is an opportunity to learn. When you make a mistake, just get up and just move on. Otherwise, you may never grow as a person. Failure makes you a humble person, adversity builds character, and makes you a better person.
Never victimize yourself. Our strengths and weaknesses are all shaped by our experiences and our will to do things. No one will bail you out from your self-pity and self-limitations.
Be solution-oriented. Instead of close captioning the problem at hand, think of ways to solve the problem, then execute it.
Make time for sanity, whatever the definition of sanity is to you - chilling over coffee, taking time to travel, spending time with family, etc. No one should work 24-7. At the end of the day even if you make it at the expense of the things that matter most to you, think about it: is it worth it?
Everyone who is getting a fixed and regular pay check is fundamentally an employee. An employee’s mindset is different. Remember this always when you manage staff, work with partners, negotiate with clients and even raising funds from investors.
You can learn a lot by working on the day-to-day mundane stuffs. You learn a lot when registering a business, making payments to mandatory employee provident funds, pay suppliers, write invoices and chase for payments.
Trade receivables is a very real thing. Working capital and debt collection are some of the most important aspects of any business. Watch this very closely but don't spoil market, always pay your suppliers on time.
Take responsibility for your decisions. Good or bad, you are always responsible for your own actions.
Never look desperate. When fundraising or getting customers, never ever be desperate. Prospective investors and clients can smell desperation
The world works in ways more complex than you can think. Don’t believe everything you see and read.
Teamwork is everything. There are no heroes in starting up.