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28Jan/10Off

Assessing The Strength of The Leading Person

Of course, the very first point is the leading person itself. Any army must have the General. Any country must have by the General. What will happen if you behead the army, keep it without the General and grant the full power to soldiers? You army will fall apart, break up itself from the inside and I will be able to easily conquer your country, without a single shot.

The country requires the leading person. And it must not be the decoration, but the ruling person provided with the real power. What will happen with your army, if you constrain the power of the General from making decisions and enforcing them? You army will become a sort of the heavy-weighted bureaucratic machine with very weak reaction and I will be able to easily conquer your country, without a single shot.

I can talk much about the personal qualities of the leader such as strong will, intelligence, self-learning capabilities, etc. But the best way to assess a person – it is by its real deeds, actions and results attained in the past. We will always make mistakes, until we stop acting. Only people who do nothing make no mistakes. Do not blame the person for its mistakes, but blame it for not learning on those mistakes and not acting to avoid the same mistakes in the future. No books, no theorists, no professors, no advisers will ever teach you to become an intelligent person, not just an educated person, until you start thinking and acting yourself.

Another two key capabilities of the leading person, which I have to stress before proceeding to the next assessment point, are its ability to find the way out of the tough situation and its ability to stick to the select idea. The real intelligence of the leading person is showed up during extraordinary situations, not during ordinary ones. Everyone can be a hero in the ordinary situation, but when the heat comes only the real intelligent person can have the will to take responsibility, to make decisions and act together with like-minded people – the team. When the heat comes the very first step is to find the way out. And when the heat abated the next step is to pump out the water, to determine the root cause and make sure of the heat will not return and that we will be prepared next time to meet it with the fridge.

The ability to stick to the select idea, or the opposite – changing the steed at the crossing, is also very critical. I think, you read my article about building the successful investment company and should know that once you select the idea you have to stick to it. You have to adapt its development strategy and tactical implementations to the changing environment, but your idea must form the firm ground for you and your followers.

The second point is the team of the leading person. One cannot conquer alone. If the person says that it can do all of the stuff itself, man, you would be better to keep away from such the person. It is either an absolute dictator or an absolute madman or madwoman. What is worth the General without the army? The leading person must have the team. Preferably, they must be from the same party. I prefer monolithic team that follows the leading person. The ruling team must be formed from members of the same party: none of ruling Frankenstein when the ruling team is represented by members of different parties. Each person is driven by own interests, politicians in particular.

The ruling Frankenstein just slows down the decision making process and does not facilitate actions, but creates different obstacles. If the ruling team members are from different parties there are too much if’s and when’s between them. And when some decision promotes interests of one party it must be accommodated in order not to do harm or restrict the interests of other participants. Ultimately, if you want to slow down the development and reformation process, then create the ruling Frankenstein. If you want to facilitate the development and reformation process, then create the monolithic ruling team, whose members will be devoted to one idea – the idea of the leading person.

The third point is the governance system. Basically, everything I said on the second point is true for the governance system. The image of the ruling Frankenstein is effective for the governance system as well. I prefer strong vertical power line, when the leading person has the strong and monolithic party. I do not like different blocks and unions – there are too many if’s and when’s, thus clashes of interests. One of the war tactics states that in order to weaken your enemy or even destroy it completely, you have to disorder its unions. You must also be cautious when forming unions, because in the union each party must always cede some interests and freedoms. Because of these reasons I prefer monolithic party with the strong and monolithic vertical power line.

The fourth point is the business relationships. We have to understand that business feeds people and government: by creating jobs, paying salaries and taxes. If the leading person is not on the same page with the business, it will not be able to create the effective state. Be on the same page means that both the leading person and businesses are willing to cooperate in order to create the fertile environment where small, mid-sized and large businesses can successfully grow. The leading person must reach agreement with both representatives of small and mid-sized businesses and representatives of large corporations. The cooperation between these three parties is required in order to elaborate the mutually beneficial solution.

The task is to create the environment, where capable people can use their capabilities to create businesses and develop domestic market. But we cannot ignore the presence of large business owners at all. They are the product of the free market. The total absence of the large business owners means that there is only one large business owner in the state – the government, or more precisely it is the leading person and its team. So do not be blind on this matter. The position of the leading person must be to reach the mutually beneficial agreement with large business owners and representatives of small and mid-sized businesses to secure their co-existence. The balance must be maintained in order to secure the permanent and diversified economy development.

The fifth point is the economy development strategy. Basically, it must be the roadmap of how the leading person envisions the economy development. It must be the coherent development strategy which answers the question “what”. Although the question “how” is important, but it is the subject of the operating and tactical implementations plans. The important thing to size up is that the leading person has the coherent economy development strategy. The operating and tactical implementations plans are working materials created on the later stage by the relevant authorities.

To sum up, here is my checklist to assess the leading person:

What has the leading person realized in the past?
What real outcomes of deeds of the leading person can you identify?
How effectively did the leading person handle with tough situations in the past?
Does the leading person have the monolithic ruling team or it is the person-by-himself with the ruling Frankenstein?
How effectively did the leading person work with ruling teams in the past?
How many and what parties are involved in the ruling team of the leading person?
How strong is the vertical power line of the leading person?
How strong is the political party of the leading person? Is it a monolithic party or a block of parties?
What relationships does the leading person have with businesses? Can it handle with them?
What economy development roadmap does the leading person have?

Filed under: Analytics Comments Off

27Jan/10Off

Strategic Weaknesses of European Union

Recently I have been questioned about the development and weaknesses of the European Union. Before talking about the strategic weaknesses of the European Union, we have to comprehend other matter. When we consider any state, union or block of states, we have to always keep in mind those three key factors of the economy evolution that I talked about in my previous discussion. The most important thing to comprehend is that the development line is influenced by the ideological leader, by his idea and personal vision of the development line.

The leading person is placed in the center of any governance system. Each leading person has own interests, personal qualities, own vision of how things must be developed and own understanding of the effectiveness and efficiency of the governance system. Regarding that, there is no matter how we call the governance system – democracy or socialism. The principles of both can be organically used by the leading person to synthesize his personal vision of the effective state and its development.

Someone claims that democracy allows people to prosper and get rich, because it is based on the principles of different freedoms and wills of masses. We have to comprehend that no one will be allowed to get rich, if it does not match to the interests of the leading person. And any governance system must give rise to exactly one leading person, or it will be the anarchy with the relevant consequences.

I leave alone different political decorations such as the parliament: the strong governance system can be build only when there is the strong and monolithic vertical power line. Though some opposition is required and the ruling party must apply the appropriate tactics and strategy to leverage the power of opposition in order to strengthen its position. Otherwise, without the strong ruling party, it will be a swan, a pike and a crawfish with the relevant consequences.

So if the leading person does not want others to get rich, he or she will not allow others to get rich by building the relevant governance system and creating the relevant environment in the state. Simply speaking, people will prosper and live tiptop only if it has to do with the idea and interests of the leading person. And if it is true, then the leading person will create the relevant governance system and will use the relevant economic approaches to build the society, where 90% of individuals will live tiptop and 10% will have abilities to use own capabilities to prosper. But again, everything is up to the leading person and the presence of the strong and monolithic vertical power line.

Now remarks on freedoms. The more freedoms you grant, the more security services you need to feel safe and secure the stability of the system. The absolute freedom gives rise to the total anarchy, because there are clashes of motley interests and human’s natural origins. To make the order from the chaos, people start grouping around a leading person who was able to find the attachment points to the minds of his followers using different approaches. The more leading persons we have, the more clashes of interests we have, with the relevant consequences. Either evolutionary or revolutionary, but the final destination point is always only one leading person who starts implementing his idea of the effective state.

Back to freedoms, in the case of the absolute monarchy we have the visible and sensible limitation of freedoms and in the case of the quasi-absolute democracy we have the invisible and insensible control and surveillance. In the former case we have more visible guards and in the latter case we have more secret services and secret police. Thus if you think that you have total freedom, that means nothing but that you are under total control and daily surveillance. It does not mean that there is none of control, if you do not see and sense it. There are always limitations around you, spanned to the certain extent. I will stop at this point, without digging into the roots of necessity to put such constraints.

Now when we have discussed what really drives the state’s development line and comprehended that the leading person’s idea, interests, capabilities, strong will and intelligence are in the center of any governance system; that the prosperous society can be grown in the appropriate environment, no matter how you title it, now we are ready to proceed with the strategic weaknesses of the European Union. Honestly, from the historic point of view, I see nothing but more intelligent, advanced and economically-founded version of the Holy Roman Empire.

But let’s the history to be the history and let’s use it only to advance economically, to develop new practical ideas and not to split the nation by following the interests of foreign political leaders. If we look at the European Union from the economy standpoint, then the European Union was pretty monolithic formation at its inception point, with economically health parties and at the same development stage, with the clearly designated leading economy. If we take a look at the modern European Union, then we can clearly identify its economic inconsistency. The monolithic economic core and the leading economy are still present, but now the Union is overloaded with trailing economies at different development stages and in different economy health states. And it is the pretty heavy tail, which slows down the development of the Union as a whole.

It will be unwise to expand the tail further, until it is pepped up. It is necessary to seamlessly infuse the trailing economies into the monolithic economic core of the Union spinning around the leading economy. Otherwise, the development process will be slowed down significantly and ultimately the Union will break up itself from the inside. Thus now the strategic task of the Union is to ginger up the laggards, if it wants to preserve its strength, to secure further development and prevent it from falling apart. Going too far is too dangerous.

Another strategic weakness lies in what I was talking about above – the interests. Unless the political leader is a dummy-doll, he or she will have own idea and interests and first of all will be interested in standing up for own interests, both political and economic ones. As I stressed in my previous discussion there is no way to match interests of each and every, in the motley interstate environment in particular. The clashes of interests in such the environment are not so rare events. And the only way to resolve them is to find the attachment points. Since there are a lot of states in the Union, thus a lot of motley interests, such task can be as hard to complete, as to find the set of reliable attachment points in the heterogeneous network.

So the two most critical issues and strategic weaknesses of the European Union lay in its current economic dissimilarity – too heavy tail that slows down the core and the Union’s economy as a whole, and the clash of interests – the more nodes there are in the network, the harder it is to find the relevant and mutually beneficial attachment points of interests. Thus the two strategic tasks for the European Union for the following decade or two, if it wants to sustain it strong position, these are (1) to ginger up the laggards and do not expand further and (2) to negotiate and accommodate the coherent economy development strategy which will be based on the mutually beneficial development of each economy in the Union. If the Union wants to preserve the Economic Holy Roman Empire, then it must straighten things out and stop growing for a while; otherwise it will inherit the destiny of its predecessor, but the economic outcomes will be catastrophic.

If the former task is pretty easy to attain, then the latter task is the head-aching one. The best way to approach it is to start from the clarification of external economic interests and foreign policy of each party in the Union. It is important to make a remark, that there is no need to penetrate into the internal affairs. Moreover, such activities can alienate parties from the seamless economic integration process. The task of the Union’s guiding authority is to facilitate the process of seamless economic and political integration of the states by mitigating discordances in the external economic interests and foreign policy of each party in the Union (thankless job anyway!).

For the states, the peace and prosperity is attained as always – by ceding some freedoms and interests. To put in other way, the main task of the guiding authority is (1) to sustain the development of the entire economy by stimulating the development of lagging states and (2) to mitigate economic discordances by applying the relevant regulatory measures and incentives. One who barks must be able to bite; otherwise, it will be a useless decoration.

Filed under: Analytics, Economy, Global Economy Comments Off

22Jan/10Off

Economic Evolution Path

The economic evolution path is pretty simple, straightforward and comprises of the following consequent stages: resources economy, industrialized economy, technological economy and ruling economy. The economy builds up its layers during its advancement along the evolution path. The bedrock of any economy is formed by its natural resources and potential. Literally, the bedrock is formed by the nature: geographic location and land potential of the country is shaped up by the nature. The whole of the following economic evolution is determined by the geographic location of the country: what is the natural potential of the country?

Some of countries are rich in fertile lands. Some of countries are rich in mineral and carbon resources. The countries rich in fertile lands start forming agroeconomies. The countries rich in mineral and carbon resources start forming raw materials economies and do not forget about supplies. I leave alone countries deprived by the nature, because they generally end up by getting associated with the more powerful state, at or against own will. Thus in its very beginning the country’s economy is shaped as the agroeconomy or raw materials economy.

The next evolution stage is the industrialized economy. It is worth to make a remark that the inception of armaments rests upon this stage. The stage is characterized by formation of heavy machinery and manufacturing enterprises; advancements in agribusiness and raw materials processing; development of infrastructure objects, communications and logistics infrastructure. The energy sector and gradual development of rural areas are also among the key subjects at this stage, because they are important to strengthening of the economic position.

From the fiscal point of view, the stage is characterized by inception of the fiscal system and the banking system in particular. The banking system is a toolset which must not be treated as the business: banks do not create the capital value. They are used to accumulate and transfer the accounting value. They must serve the economy. By giving too much power to banks and financial institutions, by designating them as business units of the economy, rather than serving units of the fiscal system, we promote the money-making machine and put the economy under their control.

Simply speaking, we grant the power over the real economy to the banks. The driving force of any bank as business unit is the profit. Profits rule the game. Since the banks do not create the capital value: what do we try to achieve by creating hundreds and thousands of banks? Do we need all of them as serving units of the fiscal system to accumulate and transfer the value and to manage capital and cash flows, when the amount of money in the system is limited?

By breeding the banks, we get no capital value that advances the economy, but a lot of headache. What follows is a bunch of motley regulators and watchdogs to protect the fiscal system, to rein in bargain hunters and slow down the pace of the money-making machine in order to prevent different bubbles to grow.

We are talking about the competition? What competition we are talking about in the area that does not create the capital value and must be used to accumulate and transfer the value and to manage cash and capital flows? Such competition only increases the instability of the entire fiscal system. When it is easier to secure the safety of the fiscal system: when we have hundreds of mixed banks or when there are four-five serving banks in the state?

We are talking about the opportunity to let a bank fail. Why do we need to let it fail? Because it was not able to compete with other banks and has been hit by the tough environment? But again, it brings us back to the vision of the fiscal system as the money-making machine. The money-making machine is good when its output is used to facilitate the advancement of the economy, to finance the creation of the capital value in order to secure the organic economic growth, not bubbling and market foaming. The number of profitable opportunities in the fiscal system is unlimited. The same is true for the number of risks. By treating the fiscal system as the money-making machine, we let those risks to materialize sooner or later. What we have to understand is that the fiscal system, the banking system in particular, must be subdued to the real economy – to serve well, but not the other way round.

Once the bedrocks of the economy are created, the serving fiscal system is established, it is time to think about the improvement of the economy and discover new opportunities in order to strengthen the state’s economic position. The strengthening is attained by the development of different technologies: telecommunications, biotechnologies, electronics, cybernetics, information technologies, etc. The technological development must be subdued to the goal of development of such the sectors as aerospace and aviation, homeland security and defense, healthcare and medicine, pharmacology, etc. The technological development is also required to secure the economic diversification.

The final stage of the economic evolution is defined as the ruling economy. The ruling economy can be characterized as the economy that guides and influences other world economies. The economy must pass through the entire evolution path in order to reach the ruling stage economically. Of course, there are approaches based on the force and compulsion, but such approaches are better to review separately, because they do not allow laying down the firm economic ground.

We have approached the point, when it is time to talk about the three key factors that drive the economy evolution. As the path itself, the factors are pretty simply. These are in the order of importance: (1) ideological leader, (2) governance system and (3) economy development approaches.

First of all, there must be the ideological leader who will have the idea of state development in his head, preferably his own idea and not implanted by someone else, though such an approach can also be used to span the power of one state which has more strong-willed leader. Exactly the strong will of the ideological leader allows him to promote his idea, to drive its implementation and overcome inevitable obstacles and clashes of interests.

It is important to say about the clash of interests. The leader will always meet the resistance, because he will look at the world through the prism of his own interests and it is impossible to meet interests of each and every. The interests of the leader and ones of his team must have attachment points in order for him to promote his idea and drive the development process seamlessly. Some leaders prefer to have like-minded persons and people of action in their teams. Others prefer to have “functionals” or dummy executors of their wills and commands. Others try to mix both approaches. Everything depends on the intelligence of the leader and his abilities to span his will. But exactly the strong will determines his success or failure.

I want to make a remark on the beloved approach of different politicians, when they promise to satisfy interests of each and every. It tells me about such a politician that he or she has no idea at all and that he or she will be perfect dummy-doll in the skilful hands. There is no way to satisfy the interests of each and every, if you really have the idea. All you can and must do is to find the attachment points between your interests and interests of other parties. And it is where your intelligence and strong will take the stage. That is why I want to get from the political leaders the coherent development strategy, not marketing bulletins.

I will not talk much about the governance system and economy development approaches. You can find a lot of this stuff in the relevant literature. With regard to this, I think, it will be better if I call two great economies: one is close to the ruling stage and another is still stalled at the industrialized stage, but have all chances to win as well, providing its ruling leadership will be able to promote the economy to the next stages by leveraging its resources base and implementing the sustainable economy development strategy.

The first is the economy of China and the second is the economy of Russia. China has all of the three key factors required to drive its economy to ruling one: strong-willed ideological leadership, effective and sustainable governance system and reasonable economic approaches. Providing they implement sustainable regions development strategy, effectively use the world money-making machine and lessen its effect on the own economy to prevent bubbles, we will get the true ruling economy soon.

With regard to Russia, they have strong-willed political and ideological leadership, but lack the effective governance system and efficient economic approaches to advance the economy to the next stages. Providing they re-create the effective governance system and develop the sustainable economy transition strategy, they have all chances to advance to the next stage. With regard to the political leadership, I have no doubts about abilities of existing ruling Russia’s leadership to sustain its position in the future.

To conclude this article with the practical example, here you can find the excerpt from the revised general business development strategy developed specifically for the Ukraine’s market from the investments standpoint. Unfortunately, current state of the Ukraine’s economy enforces me to conclude that it lacks all of three key factors required to evolve: no ideological leadership, no effective governance system and none of efficient economic development strategy so far.

Filed under: Business Development, Economy, Private Equity Comments Off

19Jan/10Off

Building Successful Investment Company

My first article in the new year will be dedicated to the key points which drive development of the successful investment company. If you think that it is about modern scientific approaches, financial formulas and brand-new management methodologies, then I have to gladden you: it is not. All foregoing stuff is about the successful implementation of the development strategy. The key points that drive development of the investment company are different.

In the beginning there was an idea. Everything that follows stems from the idea, your own idea. To give you an abstract example, I will appeal to the theory of chaos. The order stems from the chaos. Sounds weird: how can the order stem from the disorder? Very simple: all you need is just to generate the idea of order using your vision and understanding of what the order is personally for you (maybe current disorder is actually the perfect order for you?). To put in other words, you generate the idea of order that meets your own interests. Then you create the relevant development strategy which puts together the general development line of your idea and thereafter you apply different scientific approaches, formulas and management methodologies to implement the strategy by means of tactical implementations. Thus you realize your idea of order.

Now, let's get back to our subject and put the abstract into the practical sphere. To prove your investment idea, answer this question: what is the idea behind your investments? If you answer is something like "to earn money", or "to secure 15% ROI", or "to promote advanced technologies", then you simply do not have the idea and your business operates in the chaos, the disorder. The money cannot be the idea, because it is an effect, a fiscal instrument to measure, transfer and account the value. It is important element that must be managed appropriately. But in order to earn the money, you have to know how to earn it or more strictly - what value you want to create in order to earn the money.

I leave alone different speculative approaches rising from the money-making machine. You do not need to have any idea if all you need is just to make money from money: use different formulas, try to win milliseconds and apply speculative techniques. But it is much better to use the money-making machine to secure financing for implementation of your valuable idea. It can be as simple as making your life better and realizing your childhood dreams, or it can be as bold as creation of the "open society". What is important to understand, if you live for money - you live for nothing, in vain. That is why the idea "to earn money" is good for nothing, but marketing bulletins.

Now about the idea: "to secure 15% ROI". Is it an idea? No, absolutely not. It is good to define milestones, tactical goals and selection criteria and measure the success of implementation of your idea. The measure cannot serve as the investment idea. In this case your idea must spin around the question - how to secure the 15% ROI? The same is true for the last quasi-idea "to promote advanced technologies" - "how" and "what exactly".

Now it is important question: where does the idea stem from? In most cases it stems from your personal interests. In some cases it stems from ideas of great people of the history. In some cases it is the result of deep and thorough thinking and analysis of the environment. What does it mean for the investment company? It means that in its core must be the relevant idea and in most cases it is the result of deep and thorough thinking and analysis of the environment, but in some great cases personal interests of the founder are in the core. In the later case the investment company is created to realize more general idea of its founder. And as there cannot be two captains on a ship, as two lions cannot share one territory, there cannot be two leaders in such an investment company, because it inevitably will lead to the clash of interests and ideas. Less determined partner will be depressed by his more strong-willed partner and be forced to sacrifice his idea and interests. That's a nature law.

Can the idea be wrong? Of course, and the history has a lot of such examples. But in this case the key role is played exactly by the strong will and personal abilities of the ideologist to overcome the problems and turn bad into good for him and his idea. Different leaders use different approaches to do the latter. It is mostly determined by your personal qualities, intelligence and current environment. The important thing is to make sure that your investment idea is covered by the coherent business development strategy that allows you to secure the organic growth of your company. And thereafter: stay focused.

Now when we know, where the idea stems from, who is its ideological driver and inspirer, I have to talk about the second important point that defines the success of the investment company. The investment idea is the core, its development strategy is the shell and the ability to identify and create relevant opportunities is the driving force that makes the shell to spin around the core. The environment is constantly changing, but it does not mean that your core idea must be changed as well. The development strategy, the shell, can and must be adapted to leverage the new environment, but the core must be firm.

The best way to find opportunities is to create them. Some opportunities can be found by thorough analysis of the environment, some opportunities are created by others participants consciously or unconsciously, but it is much better to create the relevant opportunities by leveraging current conditions and state of the environment. Simply speaking, create them yourself. That is why I stressed that the idea must be firm: in this case you will be able to look at events in the environment through the prism of your own idea and interests. Should you change it - you will lose the road and will drift with the stream. Should you keep it firm - you will be able to create the stream of opportunities.

To sum up, I put it all together as the following rules:

Generate your own idea;
Create its development strategy;
Apply your strong will to drive implementation of your idea - be the ideological leader;
Learn to create opportunities by looking at the environment through the prism of your idea and interests;
Never, never, never ever change your idea - adapt its development strategy, but keep your idea firm.

Filed under: Business Development Comments Off

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