Andrew Choi's Blog

Because the most recent class topic is “Innovation and Entrepreneurship”, I felt it fitting to introduce Mark Suster’s blog: Both Sides of the Table. A two-time entrepreneur and venture capitalist (VC) based in Los Angeles, Suster gave me an understandable, witty, and concise introduction to the world of entrepreneurship and venture capitalism, using his personal experiences to bring the reader to the perspectives of both investor and innovator – hence, “both sides of the table”.

Mark Suster: entrepreneur, angel investor, writer. Image by GRP Partners via CrunchBase

In one post, Suster criticizes journalists who condemn companies as unprofitable and discusses why startups must care more for growth than revenue. Suster uses accounting, financial, and strategic arguments to explain how VCs disregard companies who, though graced with giant gross profit margins, lack very little vision for long-term growth and therefore hold little lifelong value.

The concept is interesting for me because it shows me how so many problems in business are caused by thinking too much in the short-term. Public firms commit financial fraud because they feel trapped by the need to appear strong in the short-term for shareholders. Transient advantage is lost by companies who do not plan ahead and opportunity costs rise when businessmen don’t prepare a framework to take advantage of shifting markets. For me, this is a reminder that businesses must remain fixed to their goals and values for the long-term. Andrew Mason from Groupon seemed aware of this fact as he argues that “going public” confines an entrepreneur to pleasing shareholders and slugging through the short-term.

It really helps to look at professional blogs when seeking inspiration. Suster’s casual yet engaging tone speaks to my heart as a model to consider. What’s also interesting is that my understanding of articles found in business blogs has improved tremendously thanks to the toolkit I’ve been building in this course (i.e. Suster says “a dollar next year is worth less than a dollar today”, which I wouldn’t have understood if I didn’t learn the time value of money).

I’ve recently been following a topic on my classmates’ blog posts about the effect of music streaming on the music industry. The initial post believed that music sales in the form of physical media (i.e. CDs, vinyls, etc.) is crumbling as digital downloads and streaming apps like Spotify and Songza meet consumer demand today. My classmate Will then heatedly responds, arguing that while physical media sales are declining, this doesn’t necessarily hurt artists as it is merely a shift in revenue streams from CDs to royalties paid by streaming companies. In my opinion, music streaming is hindering physical music media sales, and despite music streaming’s attempt to compensate artists, our music developers are not getting very much help.

Spotify director Sean Parker and anti-piracy campaigner and ex-Metallica drummer Lars Ulrich joining forces against piracy. Photo by Kevin Mazur from WireImage.

After taking a closer look at relevant articles, I discovered that music streaming companies’ “huge royalty payments” to artists are only “huge” in proportion to the profit margin of these companies. For the hard cash going to every artist in need of funds, these royalties are hardly sufficient to keep the bands moving. Damon Krukowski, an alt-guitarist for Galaxie 500, revealed that 6000 streams on Spotify netted his band a measly $1.05 to split. Of course, only the most popular artists will benefit, where millions of streams bring real cash to their pockets. To me, this means the music industry will lose most of its non-mainstream artists, alienating the large segment of customers who aren’t really keen for auto-tuned pop. Ultimately, a significant portion of income for music is cast off, and less money is entering the industry overall. The low profitability of music-streaming also puts into question if music-streaming can last long enough to adequately fight piracy. Within a few years, Spotify might file for bankruptcy and the Pirate Bay will continue to reign.

In short, music streaming will never provide income to artists the way records and radio sales did, even as a complete replacement. For that reason, I think Will should know that one can’t blame HMV for complaining.

The BC First Nations’ adamant stand against dam building by BC Hydro can be infuriating for some at first. As some of my classmates have said, it seems unfair that First Nations are abusing their privileges won at court by seizing territory beyond their lands, even while they complain about unfair treatment and the tyranny of corporations in destroying their lands.

However, the obstinance of the First Nations is altogether admirable and justifiable. In fact, it is harsh to condemn them when Canadian industrial expansion has already inflicted much pain upon the Aboriginals – “the Cheslatta flooded from their lands; the Haisla, trying to save the Kitlope  from logging; the Ingenika and Fort Ware people, flooded from their lands; the Nuu-chah-nulth, fighting for their place in the battle over Clayoquot Sound, and many more.” With this media coverage exposing the suffering of First Nations at the hands of Canadian business, it becomes more and more apparent that industrial pushes are transforming into something akin to genocide.

Senior members of the First Nations authorities responsible for fighting Canadian industrial expansion into BC native lands. Photo by David P. Ball.

While BC Hydro can insist that Site C’s dam is important to the BC economy, media coverage illustrating the losses of First Nations people will cast the project in a very negative light, souring the dam’s value proposition. Worried about accusations from abroad that it doesn’t protect human rights, the Canadian government will then likely step in, regulating BC Hydro to the point where the massive project investment is no longer profitable.

With the government and media ravaging the company’s cost structure and value proposition, one must consider whether the “gold” BC Hydro is seeking in Site C is worth the genocide. While business logic can clam that energy capacity will be needed for the future, that logic will just have to wait.

Becton Dickinson’s merger with CareFusion sheds a new light on the relationships of companies in similar industries. Both specializing in medical equipment for hospitals, these companies might seem to be destined rivals to a COMM 101 student. However, this merger shows how it’s not always smart for companies to waste resources in a wrestling match. Businesses don’t always have to view markets as a free-for-all.

Image from ZUMApress.com. Taken from The Wall Street Journal.

The first thing that can be praised about this merger is that it shows how companies can quickly adapt their value propositions to meet customer needs. Sometimes a firm cannot afford the “transfiguration costs” associated with transient advantage to exploit the changing market on time. Short of the necessary operations and resources, it needs to look externally. With hospitals desiring more cost-effective and useful equipment, BD and Carefusion knew that one fast way to exploit the changing needs of hospitals is to join forces so that resources and infrastructure are quickly established to begin cashing in.

The concept of a merger also shows how firms don’t have to be limited with one single business model like differentiation focus strategy. Instead, firms with differing models can merge to form hybrid models,  offering cheaper AND specialized products on a broader market. This is very potent when merging firms occupying different market segments of the industry. With BD specializing in catheters and CareFusion focusing on catheter-loading machines and software, the newly merged company will be able to grab a larger market segment with a more diverse pool of customers.