Financial Management for start-ups

Most founders of start-ups want to end up in one of two places; Becoming a public company (by having it’s IPO) or being acquired by another company. Each of these scenarios has played out at 2 of the last three companies at which I’ve worked. If, as an entrepreneur, you want to reach either of these goals, someone in your organisation must have a good grasp of finance.

It's been about ten years since I completed my MBA. But all the lessons remain fresh in my memory. I majored in Finance, so I was fortunate to have studied with a lot of, primarily US (my business school was in the USA.), finance professionals from organisations like Blackrock, State Street, Fidelity and Bain Capital. I was even more fortunate to have completed an internship at a New York Investment Bank, Bryant Park Capital. 

During my internship and studies, I learnt a lot about - valuing companies, presenting financial data to investors, powerpoint (doh! I'm an MBA, of course!). Most importantly, I started to understand the special language that Finance professionals use; Market Cap, Fifo/Lifo, beta, default risk premium, arbitrage, hedging and so on..

Back at business school, I hit it off with one of my professors, Don Margotta, who is an expert on corporate governance and shareholder activism. I want to share a few of the ideas here, that ignited my passion for Finance.

Here are some of the books, that did the same; Liar's Poker, Barbarians at the Gate, and Black Swan (where Nassim Taleb proceeded to pull apart all the concepts I'd devoted hundreds of hours learning in my Statistics classes).

First off, Time value of Money. This one is crucial. A pound today is worth more than a pound you get tomorrow, which is worth more than a pound you make the next day and so on, like this. The interest rate drives this value.

If I said all Finance calculations stem from this one idea, I wouldn't be far wrong. For example, you could get a good read on the value of a company by using this method to calculate the present value of all it's future cash flows.

Or if you thought the company had legs, you could use the perpetuity equation here:

PV of a Perpetuity = PMT/I

PMT = $1,000,000

Interest rate = 2.5%

Company Value = $40 Million

When they start negotiations, a lot of Investment Bankers will use earnings multiples to value a company; these vary for industries and countries, one may be x 4, some may be x 20. You will use the EBITDA figure for a company - Earnings before interest, tax, depreciation and amortization, which is a standard measure of a company's operating performance. Here's a good example of one such valuation, using two parameters - High & Low:

At Bryant Park Capital, I began using Capital IQ, to find comparable public company data to estimate a Private Company's value. I also used Bloomberg, when I was at MFS Investments, for the same.

I hope I've given you some ideas about valuing your start-up.

I have concentrated on the Financial value in this article. However, it's important to remember that sometimes a large company will buy a startup because it has strategic value rather than financial.

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Enterprise level marketing for your start-up, with Salesforce's Pardot

Tommie O'Brien (pictured below, right) at Salesforce, kicked off the presentation at the Shangri La Hotel on the 34th floor of the Shard (pictured below, left, view from the Shard). I was deeply impressed by the demo, which illustrated a relatively high level of sophistication for Small businesses.

For example, when setting up workflows, they demonstrated a real-time and highly effective way to re-engage prospects that hadn't signed up for an email offer; by sending them targeted ads across Facebook, LinkedIn and AdWords.

Marketing Automation lies at the heart of most Start-up demand-generation programs. During my career, I have run Marketing Campaigns using various tools, from Salesforce, Marketo, Hubspot, Dynamics, and more. Last year I had to learn to use Microsoft Dynamics with Clickdimensions whilst running global campaigns for a company of around 500 employees, Headquartered in Toronto, Canada.

Currently, I'm switching from using Microsoft Dynamics to Salesforce. I've never learned to run campaigns in Pardot, so I thought that this session would be particularly helpful. After just 3 weeks, I can tell the level of support on Pardot is streets ahead of Microsoft Dynamics.

I had to learn to use Dynamics by reading manuals and watching videos online. Particularly challenging was trying to coordinate fixing several severe bugs in the system with our IT team based in Canada.

The Salesforce team initiated some helpful discussions around lead generation forms - often, these forms ask for too much information. I know I have been guilty of this. According to Salesforce, 3-5 questions maximum is the standard and really first name and email are enough. The part of the talk devoted to the automation workflow was fascinating and got me thinking about how I run campaigns.

And they had some great insights on Lead scoring; they talked about the usual ones, like Job title and company revenue. But there were some surprises. This slide shows that they can track your prospect's sentiments about your company and products across social media like this:

That can give your sales and marketing team an edge over your competition. Pardot can also allow you to create buyer personas within Salesforce so that you can use these to gauge your ideal prospect for even more accurate lead scoring. But what really blew me away was the analytics on the dashboard and Pardot's ability to measure marketing campaigns' effectiveness in a way that will appeal to CFOs and CEOs.

You can demonstrate return on investment for entire programs and dig in at the granular level to show what specific leads generated what specific revenue. As a metric-driven marketer with an MBA in Finance, I aim to accomplish this.

Tommie told some great anecdotes with his classic Irish wit; I couldn't help thinking Tommie would go down a storm in my old hometown, Boston, which is pretty much run by Irish Americans. And, of course, they love anyone from the old country, particularly if he or she has a lot of drive and a good sense of humour.

One of Tommie's best stories was about him setting up a new internet provider in his new home. The provider was terrible, and he was forced to contact them multiple times whilst suffering from flu and working from home.

He received prospecting advertisements and emails from the company, which only exacerbated his annoyance with their poor service. Imagine how much money this company is throwing out the window!

At the end of the talk, Rory O'Neill, Data and Systems Manager at the Drum came to talk about his experience using Pardot. I know the Drum very well. When I was at Visual IQ (now part of Nielsen), we exhibited at several events.

I learned in the presentation that Rory is responsible for sending 35 Million emails a year. My last email contact list was 30,000 strong (B-2-B) and the largest I've worked with was 400,000 (B-2-C).

I asked him a question at the end, seeking his advice as to what first steps he would take if he was in my shoes, rolling out Pardot at my company. He recommended that the most important was that I consult with the sales team and get them on board with our plan. He also offered to give me some advice on that if I got in touch with him. I will definitely take Rory up on his generous suggestion.

For more information on how to set up Marketing automation for your B-2-B business, sign up for my free guide here

Moonshot thinking to unleash innovation

Before you say, yeah, right, but moonshot thinking is a waste of time, take a look at this slide below.

While moonshot thinking only gets 10% of the Company's budget, it is responsible for generating 70% of the revenue in the long run.

Yes, Moonshot projects are, by their very nature, hard to quantify, but Dr. Pablo Rodriguez demonstrates that these projects are nevertheless crucial to an organization's growth. 

It's worth trying to solve those crucial but seemingly impossible problems, especially ones that may only come to a head 5 or 10 years from now. You could transform your Company or even yourself!

We played a great exercise where we were asked to count the number of red balls on this slide in 10 seconds. Quite a few got the correct answer - 10. However, when Dr. Pablo Rodriguez asked us to tell us how many green balls there were, no one answered right. There were fewer of them and they were larger.  

This demonstrates the danger of over-focus. By being so intent on solving one problem, you may completely miss solving a much greater, more significant, and simple solution. Many scientific discoveries were made 'by accident', so counting the green balls, when the exercise measured the red.

            

A good example is when Sir Alexander Flemming invented Penicillin, the first antibiotic. He made this discovery when testing bacteria. However, if He hadn't been experimenting, he would not have made this 'mistake' that changed the world and the face of medicine.

One of my marketing professors at Northeastern University has demonstrated this issue with a paper looking at how over-reliance on marketing dashboards can hinder creativity and innovation within this function.

The problems Alpha has solved, whether for improving performance at Telefonica, radically changing health habits across the globe, or bringing power to underdeveloped regions, all required phenomenal, high-performing, cross-functional teams. 

I asked Pablo how he selected his teams; his answer surprised me. I thought he would say that He chose the most talented individuals. But He said that He picked those who had the greatest passion for solving problems. 

If you think you might be that person, Alpha is hiring right now. They are owned by Telefonica but, despite having Telefonica's CEO José María Álvarez-Pallete López, on their board, they are fully independent of it.

Pablo has worked as an entrepreneur, at various start-ups in Silicon Valley, and in Academia. He showed the curve of an idea, where Academia often can do best in advancing innovation at the very early stages. In a later stage, it could be a start-up. Dr Rodriguez's projects sit in the middle of that, between Academia and start-ups. 

He makes a great point that in the 20th Century, the government primarily initiated innovation; The creation of the internet, the human genome project, and yes, of course, NASA pioneering the first men to the moon were all government-backed missions. 

But now, far more innovation is driven by corporations. This can come in many forms; Alpha, an innovative organization owned by Telefonica; or a Start-up like Cloudlock, founded by one of my classmates in the MBA Programme at Northeastern University Business School, and bought last year by Cisco for $293 Million 

This was a brilliant lecture, as good as the one I attended on Venture Capital. I thoroughly commend Professor Milan Vojnovic and Dr Pablo Rodriguez.

If you are still sceptical about Moonshot thinking after reading this, I want to leave you with a great quote about it from one of the founders and CEO of Google:

Go to my website.

Should Telcos be getting a bigger bite of the digital economy ‘Pie’?

The big issue in the Telecommunications industry right now is declining margins. The past several years have been tough for telcos. Their revenue and cash flows have dropped by an average of 6 percent a year since 2010.

These firms can address this issue, by improving the speed of delivery of new products, reducing order fall out and simplifying and improving their customer experience.
When redesigning their value proposition, go-to-market, and interaction model, operators find it increasingly difficult to differentiate between traditional drivers of customer choice. Instead, they have turned to customer experience as the key influencer. For example, Vodafone Germany has transformed their business to enable their path to digital transformation:
“It is the first time we have raised Vodafone’s organic EBITDA [earnings before interest, tax, depreciation, and amortization] guidance in recent history,” said Vittorio Colao, chief executive. Polo Tang, an analyst at UBS, said the company’s performance in the second quarter was ahead of expectations in almost every geography but notably in Germany and Spain.
Success lies in reimagining the end-to-end customer journey to create signature customer moments. Companies can accelerate the delivery of a new customer experience by implementing a seamless Omni channel experience, digitizing core business processes, deploying artificial-intelligence platforms to simplify customer interaction, and creating a more agile organization.
What can companies do to alleviate the squeeze on margins and create more value?
Major advances in data analytics, artificial intelligence, network equipment, and other technologies have rewritten the industry’s winning formula. With the newest software and hardware, along with digital-age management practices, mobile operators can achieve breakthrough cost savings and capital intensity while maintaining or even increasing their scale.
Many mobile operators have essential processes that are more complex and labor-intensive, and therefore costlier than they have to be. The Management consultants Mckinsey estimate that just 20 to 30 processes generate 45 percent of the average operator’s operating costs.
There are a lot of Telecommunications providers can do to improve businesses margins operationally. This can also be part of an even bigger over-arching strategy for CSPs to boost their bottom line. For example, increasingly, slow but stable growth Telcos (at Business School we called such businesses 'Cash Cows') are acquiring high growth and high margin content companies to increase their profits.

The Adobe Global Marketing Conference

Having fun at the Adobe Marketing Conference, with the AMEX digital Marketing Team

Watching Vampire Weekend play at the Adobe event 

Caesar's Palace, Las Vegas - me at the Money Show

In the last 10 years, I've gained vast amounts of experience attending and setting up a large variety of Conferences in multiple business sectors and diverse locations; I've got good at assessing which are effective and which aren't; using both hard metrics and softer skills - the art and science of conferences. In the past, I've had to justify the budget to my Managers or CEOs so I've had to nail this. However, I'm a bit of a geek and enjoy doing these calculations. Therefore I will do them for my own benefit regardless.

At the Financial Traders Conference at the Money Show at Caesars Palace Las Vegas, I got to stay in the same hotel that 'The Hangover' was filmed in, which was great. I also played Poker, which I learned in the US and Craps. We got plenty of good leads but it was also the kind of crazy testosterone fuelled event that you'd expect from a bunch of financial traders; think 'Wolf of Wall Street'.

The Economics forum in Washington DC was fascinating; Paul Volcker, the ex-Federal Reserve Chairman spoke. I liked the city a lot, although I do like JFK's quip that 'DC is a city with northern charm and southern efficiency'. We were marketing a new Business intelligence tool called Datazoa, to business Economists at Government agencies, Research organization’s and Universities amongst others; our efforts secured new clients from Universities, Banks, and State Treasuries.

I've been to numerous shows in New York City, including Trading Software and most recently the Digital Analytics Association. I was also in Chicago for the Internet retailers conference. I would have liked to explore the city but on that occasion, I was so busy I pretty much never got out of the area my hotel and the event was in.

My all-time Favorite Conference would have to have been the Adobe Conference in Salt Lake City, Utah: We Set up 11 meetings in 4 days, all with C level decision makers at Fortune 500 Companies; Several of which were turned to new logos by our sales team. I went to see Vampire Weekend play live and had to top it off had my best day's skiing in 8 or 9 years, in Park City with a guy from London who now lives in Toronto.

I also made some great contacts on the ski day that I wasn't expecting; for example, heads of business divisions at Bell Canada, American Express, Verizon Wireless and the Gartner Group. 

Photo was taken by a colleague I was skiing with at Park City, Utah - the final (4th) day of the Adobe Marketing Conference

Creating Sales Growth at your VC backed tech start-up

I have now been part of the Marketing teams of several start-ups that have proliferated and achieved phenomenal success, including:

Visual IQ, a Marketing Attribution Software provider (founded in 2006), was acquired by Nielsen last year for $2 Billion. 

Zscaler (founded in 2008), a cybersecurity software company, just had its IPO. Zscaler is currently valued at $50 Billion on the NASDAQ.

I have learned from being part of these successful teams and from previous experiences in the start-up ecosystem.

Hot Software businesses like Fintech and Cyber Security need marketers with smarts, training, experience and drive who can take a business to 'the next level'; whether that means faster growth, more sustainability or more significant revenue, or higher profits. 

Angel investors, VC funds and private equity investors demand individuals skilled in conducting market research, and strategy and who understand all marketing areas, including lead generation.

Here's my 7-point plan to create a promising start-up Marketing Strategy and then execute it:

1. Ensure that you are on the same page as the person who has created your marketing strategy or, even better, create that Strategy yourself. So many problems occur when CMOs and CEOs or Investors do not agree on this. See 'Why CMOs never last.' 

2. Data; explore this and find out what is going on. Don't just rely on the facts you see. Talk with people and establish whether the data you see on paper matches what you are hearing. 

I have dealt with either no data or data that doesn't match reality. Don't devote hours and resources to creating complex models using lousy information. 

Even a fledgling Start-up will inevitably have had many failures already, and you can use this information to avoid making mistakes and model successful behavior. “The essence of strategy is choosing what not to do.” —Michael Porter (See Porter's 5 Forces)

3. Targets - start thinking about what you are trying to accomplish. 

• Is the problem that you have a weak brand? 
• Is it that no one outside your core user group really understands your products? 

• Do your competitors have an iron-grip in certain Regions or markets? 
• Is it that you have weak growth? 
• Are you sinking resources into the same old Marketing investments getting diminishing returns? 
• Are you accurately measuring your Marketing investments? 

Establish what that core problem is and then drive solutions to that.

4. Create a plan around that. For example:

a. If the problem is that your sales team is not converting your good leads, then bring in added Business Intelligence. A remarkable tool for this is Discoverorg , which has a team of researchers calling companies and finding information that will enable you to identify opportunities quicker and more effectively.

Additionally, if you are not lead scoring already, I suggest you start doing this. This works because your sales team will immediately get alerted automatically when a lead reaches a specific 'threshold' score. 

So let's say that score is 100, then a lead from a company with $1 Billion revenue that has requested we contact them, is 'BANT' qualified and is the right target company and job title, that would automatically become a 'hot lead' at 100 points in your CRM system. 

A lead from a company on our target list would immediately be a 10. A Lead from a company that could be a target would be a 5. When that lead downloaded 3 critical reports in the last week, it became a 30, and so on. 

If the problem is that you need more leads to start with, then lots of high-quality gated content will generate more contacts for your database. 

Google Display and search ads are effective for inbound leads. LinkedIn lead generation campaigns are good value as you can get more highly targeted. Ensure you target your prospect audience (maybe with the 'matching' tool).

Inmail campaigns work very differently from sponsored content on LinkedIn. So, figure out what combinations work best for your business.

I would also work with the Marketing team to create compelling content, from videos to infographics, from case studies to white papers.

Below: Forrester 'Wave report' on Marketing attribution with my company 'Visual IQ' in the top right-hand quadrant.

In the past, we've created great content with Gartner or Forrester or, failing that, some other well-known research firm, like IDC. These are high-value pieces of content that your prospects will 'trade' their contact details with you to gain.

One idea that we have done very successfully in the past is an 'Industry report' based on surveys we send out. Usually, I use SurveyMonkey, which I was familiar with at Business School in 2006. 

CMO survey-backed report we ran every year at Visual IQ

Check out this Survey-based report on the State of in-video game advertising in 2022, that I created with Content strategist Damien Seaman. It's the first report of its kind created (check Gartner, Forrester, or IDC). It's based on survey responses from hundreds of thought leaders in Advertising, Ad Agencies, and Video Game companies.

Everyone is interested in what their colleagues are thinking about and sending these surveys out can also be an excellent way to reconnect with customers and prospects.

 'The Money Show', Caesar's Palace, Las Vegas, where I ran an event for our Financial trading software tool.

Another highly effective area of Marketing I've managed over the last eleven years has been events. 

I have had some great successes in this regard, from the Money Show at Caesar's Palace, Las Vegas, to the Adobe Marketing Conference in Salt Lake City, to the biggest Cyber Security event in Europe, Infosec, in London, UK. 

Not all companies employ rigorous financial analysis of the results here, so I have created an edge in this way. I write more on this subject here. 

We've had events that have generated thousands of leads, and business meetings that have created millions of pounds/dollars in sales.

Content from blogs can be effective. Ensure you optimize the content with important keywords to draw search traffic to your blog. Post on social media and wait for your blog's referral and search traffic to come to your site.

You need plenty of exciting content for this 'awareness' part of your content; think more about great ideas than flawless execution.

Also, your prospects value authenticity and originality. Keep blogs authentic and exciting. People know when they're simply being manipulated to buy something.

I have put together Ebooks, webcasts, industry reports, case studies, and infographics, all of which can be good sources of leads.

5. Ensure that everyone is on board with it. If the management team is not, then discuss it, and get to the bottom of the problem. 

Once you have agreed on the plan, then execute it relentlessly.

6. Analyze your results regularly, at least once every month, and pivot if they are insufficient. If it's not working, be honest and try something new.

The beauty of digital marketing is that you can A/B test continually to optimize all your metrics.

A typical A/B test 

Look at Key financial metrics, like ROMI - Return on Marketing Investment (NPV, IRR, Payback period, Customer Lifetime Value, Cost per Click, and Transaction conversion rate).

Monte Carlo simulation for a new product launch*

*Mark Jeffery Data-driven marketing Using Oracle's Crystal Ball' predictive analytics software with a random number generator, showing many possible variations of profit/loss for a marketing investment.

7. Finally, and most importantly, encourage criticism and make your entire company a safe place to share information and mistakes.  You must make mistakes to take critical, calculated risks. But without listening to, and acknowledging criticism, you can't learn from your mistakes either. Go to my website. or learn more about B2B SaaS sales & marketing here

House of Lords Cocktail Party

My friend and Law School classmate, Joanna Mcdwyer, formerly Head of government affairs at HSBC Bank, who is now Development Director at Newnham College, Cambridge.

Lord Maurice Saatchi, the founder of Saatchi & Saatchi and MC Saatchi, told us He only applied to one University. His message on the evening and now the world's shortest poem was 'LSE made me'.

In my case, I did apply to other colleges since I didn't assume I'd get into the LSE, particularly to study Law, which was highly competitive.

LSE now require significantly better A level grades, than when I applied, at least three A's now. But I'm not sure if that's because the students are higher calibre or because of the grade inflation everyone's been talking about.

Maurice Saatchi got a first at LSE, back when getting a first was very rare. He is also one of the greatest minds in advertising, author of the Iconic 'Labour isn't working' Campaign that ushered Margaret Thatcher and the Conservative Party into power in 1979.

As Maurice said himself, 'I left LSE with my first-class honours degree in economics. They did say to me that I possessed what they called "effortless superiority", and that has always worked very well for me'.

Here's a good piece about how he started in Marketing, working for Michael Heseltine, at Haymarket.

                                                       Lord Maurice Saatchi, below

                    

There were prominent MPs, Peers, Academics and Executives from organizations like JP Morgan, HSBC, Fidelity Investments, Barclays Bank, Goldman Sachs, Bank of America Merrill Lynch, AXA, Zurich, Wells Fargo, BP,  Mckinsey, PWC, and Accenture, at the event, to name some...

On the river outside the reception, from the House of Lords 

Me, outside the House of Lords

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Head of Linkedin UK about 'Coming out' at work

Joshua Graff, Linkedin’s UK Country Manager

I often attend events at my college, LSE, and sometimes bring colleagues or friends along.  I attended one such event at the LSE called 'An Audience with Linkedin’ with Joshua Graff, UK Country Manager & VP EMEA & LATAM.

I thought that Josh’s talk was particularly appropriate for June, which is gay pride month since Josh is a vocal and active supporter of LGBT rights as well as being an openly gay man in the workforce.

Initially, Joshua Graff talked about his vision for LinkedIn. Linkedin’s mission statement is to create economic opportunity for the entire Global Workforce. Of the 780 million Professionals worldwide, already 610 million have LinkedIn accounts, and that number is increasing rapidly.

Joshua then elucidated some of the more specific aims of the company which revolved around creating value through their talent solutions business (60% of Linkedin’s revenue), Marketing Solutions, including sponsored content (20%) and of course Premium Subscriptions (20%). 

All this is going to drive the company forward, particularly now that LinkedIn is part of Microsoft ($26 Billion acquisition by Microsoft of LinkedIn in December 2016).

Joshua moved on to a discussion of values. 50% of employees would not consider taking a job at a company unless they had visibility into its culture and what it stands for, so obviously this is important. LinkedIn espouses compassionate management, which is not necessarily empathy, but rather being able to imagine what it's like to do your colleague's job.

Josh said that empathy might debilitate you if you feel too much. However, understanding what, for example, your team members are going through will enable you to manage them much more effectively. As he put it, it's the valuable insight of 'walking a mile in someone else's shoes'.

Equally, he talked about Linked in’s culture of transparency. His discussion of this value was the most potent part of the talk for me since He shared his own deeply personal story of coming out as a gay man in the workforce.

When He first came out to his parents, he immediately went back 'into the closet'. 60% of Millennials and Generation X's in the workforce do precisely the same. On LinkedIn, He finally published a piece talking about his homosexuality and embraces that in the workforce today.

This value inspired me. According to research, workers who are more transparent about who they are, end up as more productive, more engaged and happier. I know that I'm more comfortable and more productive at work when I can be myself.

You can find his most recent article, 'Are you out on LinkedIn?’

 here: https://www.linkedin.com/pulse/you-outonlinkedin-joshua-graff/

As well as the first article he wrote on this subject 'Coming out accelerated my career trajectory.'

 

https://www.linkedin.com/pulse/coming-out-accelerated-my-career-trajectory-joshua-graff/  

The Euro: How a Common Currency Threatens the Future of Europe

The Euro: How a Common Currency Threatens the Future of Europe by Joseph E. Stiglitz
My rating: 4 of 5 stars

I went to see Professor Stiglitz talk at the LSE a few months ago and that's when I purchased this book, which I also got Joseph to sign for me. I've enjoyed quite a few of his books before including 'The Roaring 90's' about the boom in the Economy in that decade.

This is compelling reading. He shows that even the Success story of the European Union, Germany, has only had fairly anaemic growth since the European monetary union was formed. You can see this demonstrated here, with this chart of German GDP growth over the last ten years: 

source: tradingeconomics.com


At the other end of the spectrum, you have crumbling economies like Spain, Portugal and particularly Greece that according to Stiglitz are being decimated by the austerity measures imposed on them by the EEC and heavily enforced by member states like Germany.


It also went some way to explaining some of the Economic struggles the EEC has gone through since the Euro was introduced 17 years ago; That the EURO has shackled a lot of Economies that may need the financial independence of their own currencies to perform to their highest potential.

He also questions the fact that an unelected body is imposing budgets on countries that their own people have rejected, for example in the case of Greece, which actually voted against these measures but had them imposed upon them by the EEC nevertheless.

This may be the reason why tax revenues have fallen significantly in some of these countries. 'No taxation without representation' was the rallying cry of another well-known revolution.

In addition, the Economics Nobel Laureate, Joseph Stiglitz raises the question of Currency manipulation and who really benefits from the Euro. Much is made in the News about China artificially reducing the value of the Yuan in order to make their exports cheaper so that they operate with a trade deficit.

However, Professor Stiglitz shows that actually, German has a larger trade surplus than China. It's entire Economy relies extremely heavily on exports. This is the deeper issue at play here. Even the UK has operated in the EU with a trade deficit of about one hundred billion dollars (the EU sells $100 billion more products in the UK than the other way around). With countries like Spain, Italy and Greece, this will be far higher.

In February Germany's trade surplus--or the balance of exports and imports of goods--increased to 252.9 billion euros ($270 billion), which marks the highest surplus since records began after WWII. 

Because all the weaker Economies in Europe bring the value of the Euro down, Germany ends up with a currency that is 15% undervalued; thus creating their imbalance.

Conversely, countries like Greece, Spain, and even France, operate with a currency that is too high for their exports to be competitively priced; Hence their poor economies, high unemployment, lower exports and trade deficits (as opposed to Germany's surplus).

It seems counter-intuitive, but Professor Stiglitz believes that the only hope of saving the Euro in the long term is for Germany to leave the European Economic Union. 


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The Economics of Persistent Slumps

This week I went with a friend to the Philips lecture  at The London School of Economics and Political Science (LSE) with Professor Robert Hall of Stanford University, originator & author of ‘The Flat Tax’   & one of the founders of Macroeconomics (author of one of the first books on the subject and now the standard University textbook on Macroeconomics )

The gist of the lecture was how productivity has declined in the USA. Areas of concern included the rapid fall in the Labour participation rate, which has now started to affect women (who previously were increasing in the labor force quite rapidly) too.

The biggest surprise here is that almost all of the decline in the Labour force is in the top levels of income and education.

Professor Hall speculated about a number of reasons for this. One rather novel one, was that fifty or sixty years ago, there was very little in the way of entertainment. If you chose not to work, even with a high income, life could be quite dull. These days there are a variety of interesting pursuits, that can occupy people all their life, without them having to work.

It would be interesting to pull a chart of video game use in the last thirty years and match it with the fall in work participation rates for high-income youth.

Another interesting chart to look at would be the increase in benefits and the fall in the work participation rates. My suspicion is that a lot of people claiming benefits are not truly unable to work.

I myself had a medical condition, that was classed as a disability for seven years. I could have claimed disability benefits for it. Fortunately, I worked through it and now I'm healthy again.

The toll on one's self-esteem of claiming money for doing nothing is rarely considered when debating the government benefits system.

Almost all the Labour participation shrinkage in the US Economy is from the richest and most highly educated sectors

 Professor Hall calculated that US GDP would be approximately 15 percentage points higher if this and a few more minor issues were addressed. He was only covering the US in his lecture. However, I'd imagine these issues with productivity will only be worse for some of the other developed countries if you look at this chart below. 

Current GDP per hour worked, G7 countries 2013 and 2014

We rounded off the night with dinner at The Delaunay.

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