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Finance and entrepreneurs still partners ?

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Nicolas G. Hayek, founder of Swatch

Nicolas G. Hayek, founder of Swatch

Last week, I was reading in a magazine an interview of Nicolas G.Hayek, founder of the company Swatch, the watches manufacturer. This 81 years old entrepreneur, still active, was expressing on the financial crisis and the economical consequences. In this article, Hayek criticizes the “Wall street mentality”, which destroyed the wealth created by entrepreneurs. He mentions that some years ago, he was contacted by an investment fund, proposing to invest around 300 millions of dollars in his capital, but only on one condition – You have to ensure to double the investment amount in one year. The answer of Hayek was the following: “I can only ensure to you that I will not double the investment in one year. I am not there to ensure the surge in the stock value, but to improve the product and the production tool, to create jobs, to sale the greatest possible amount of watches.”

By reading this, we can remember the question: Is the economy on the service of people or the people on the service of the economy ?

Companies are trying to improve their profitability on an ongoing basis. It is obvious that a company has to be profitable in order to ensure her activities, to pay employees, to develop new products, to ensure customer service. But most of the time, the main goal is to optimize the stock price, to create value for the shareholders. Is it the only criteria to be taken into consideration, and is this criteria sustainable on a long term basis ?

Many companies are cutting jobs to reduce costs, because it is the easiest way to do it, says Hayek. There are circumstances where unfortunately, we have no choice. Nevertheless, is it the good way to ensure a sustainable activity for the company? Should the companies not have first to improve their purchase processes, the customer service quality, the logistic processes?

Henri Ford, another entrepreneur said that each employee of his company should be able to buy a car produced in the factory. This last 30 years, automation replaced people in the factories. The result is that we are able to produce more cars with less people. But if people are losing their jobs, who will buy these cars ? Does it mean we have to refuse automation and modernization ? Certainly not, but we have to keep in mind that the value of a good or a service is function of the buying power of people, in other words the supply and demand law. To be able to give buying power to people, an economy should create jobs. It is not what happens these times, and it is probably here that entrepreneur’s view differs from financials people’s view.

An entrepreneur wants to create, to innovate, has a long term vision, is questioning himself. The money is an instrument to develop his projects, and is more focusing about the realized projects than the return on investment. As example, I would like to mention a comment from Robert Caillau, who was one of the founders of the web. In march 2009, it was the 20th anniversary of the web. In an interview on the Belgian national radio, the speaker mentioned that, despite the fact he was one of the inventors of the web, he never became a rich man. Robert Caillau answered that the hours he spent to develop this technology which is used over the world, are invaluable memories.

Finance today, is focused on short term results. The investors want high returns on short term investments. There are sanctioning companies when the results do not match with the expectation, without thinking about the long term perspective of a business. Some CEO’s of quoted companies are saying that the publicized results on a quarterly basis are not significant of the evolution of their business on a long term basis, and that the reactions of the markets are only speculative.

Few months ago, I was assisting to a conference organized by one of my business partners. One of the lecturers, professor of university, was explaining that if you made a calculation over few years based on the returns expected by speculators, and if you know how to calculate the value of a share, you will notice that such expectations are totally unrealistic and unsustainable. And the fact is that there are analysts who validate such assumptions. Are they really serious? Do they know what they are talking about?

This system totally disconnected from the real economy, and this speculative profit race made that banks created financial instruments based on risky products, which weakened the financial system, and created last year, a lack of financing for industries. It is what mentions Hayek, saying that the finance destroyed the value created by the entrepreneurs.

Does it mean that entrepreneurs don’t trust on the finance ? We can understand such mistrust, but the consequences should be that some projects will never happen because they can not find financing available, what make a negative impact on the economy and what will be harmful on a long term basis for the banks too.

Is partnership finally not the best solution to develop projects and to develop a sustainable economy ?

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Written by Eric Saint-Guillain

September 4, 2009 at 00:00

Posted in Business

Tagged with , ,

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