#1 Leadership Attribute: A Worldview

How can we define a leader? All across the Internet, in specialized and generalist journals and magazines, on TV, on the radio… in sum, everywhere, people are hard at work trying to define the attributes of a leader. As a leadership coach, I do so as well, which has brought me to define a leader as follows:

An individual who is able to see a less uncertain world, communicate it to their community, and inspire everyone to cooperate and collaborate to make it a reality.

This definition works well because it encompasses the three elements most often attributed to leaders as well a fourth, my own contribution, which gets the leadership process rolling. These are:

  • Vision
  • Communication
  • Execution
  • Less uncertainty

I have been very fond of this definition and plaster it all over the place in my writings and talks. That is, until yesterday when someone asked me, “What is the ONE attribute that defines a leader?” As you can imagine I was stumped because I always discuss the four attributes mentioned above. So I gave this question some thought by examining the underlying premises of those attributes before explaining how a personal view of the world is the one attribute that sets a leader apart from everyone else or to be more economical with words than I am known to be: A worldview.

Before a leader can develop their vision and communicate to their community, and inspire everyone to work together to make it a reality, the individual in question must develop an understanding of how their world works as well as their place in it.

Not necessarily a view and understanding of the whole world, but the part that is relevant to them. A worldview can be as small or as large as the person desires as long as it is meaningful for them and their community.

A worldview is the precursor of the vision. Without understanding their “world”, it is not possible to develop a vision that brings less uncertainty to them and to their community.

In fact, one of the most-asked business questions is to explain the difference between a leader and manager. It is exactly this: the first has a worldview while the latter does not. Okay, maybe I’m being a little hyperbolic here. Undoubtedly, it is not so black and white. However, I seek to make a point and ask your indulgence in doing so. Through their worldview, a leader can see how the different facets of an issue interact and influence one another thereby giving them the insights necessary to guide the community past each obstacle and hindrance to a successful execution.

As a leadership coach, I understand that it is the absence of a worldview, which limits many of my clients in their ability to reach full maturity as leaders. Although I try my best to share my own worldview with them it is not theirs. Successful leaders differentiate themselves by having and using their own worldview.

So if you don’t mind I will amend my definition of a leader to include a view of the world as the precursor to everything else.

Leaders are those individuals who are able to develop their own view of their world, see how to make a specific aspect of it less uncertain, communicate that vision, and inspire people to cooperate and collaborate to make that vision a reality.

What is your worldview?

Value & Price

Value & Pricing: The Great Enigma

One of the most challenging issues for any business is to understand the relationship between value and pricing. On the one hand, business leaders understand that to be in business the company must create valuable outcomes for customers and have that outcome recognized, and quantified, through monetary compensation, the price. On the other hand, determining how much value is created and what price to put on it can often be an enigma. Recently, I did some interesting work with a client on this subject, the results of which are relatable for all businesses. I will explain what was done and the results below:

The problem the client wanted to address was how to capture the most value from each business transaction. So I asked them, “Where is the company creating value, and for whom? They replied, “For the client.” But did not know where. So, I asked them to answer two questions:

  • Where do you create value?
  • What does it cost? In time and money.

At our next session my client came back with the following:

  • My business creates value for my customers and my vendors. Customers get value because we address their concerns about…. And, our vendors get value because we bring them business that keeps them working.
  • On an average job, we employ a qualified technician for 3 hours.
  • If the customer wants the financing package we add another 4 hours for the technician plus 2 hours of administrative work.

At first glance, they answered the questions. However, on closer inspection we discovered that the company was not capturing enough of the value for any of these stakeholders. The following key issues came out:

  • Do the vendors compensate you, directly or indirectly, for the business you bring them? Do they share in your costs of client acquisition?
  • Of the 3 hours of work done on an average job, how much is for the project managing the vendors? Do they compensate you for any of this?
  • How much you building into your price for all the labor required to get them the financing? Are you cannibalizing your profit margin from elsewhere?
  • In pricing are you also including benefits, other overhead costs, interest, and a profit component or is it just remuneration?

From this one exercise and the ensuing discussion, the company was able to determine where value is being created and for whom but is not capturing enough of it from either customers or vendors!

In the ROKC Method we see businesses as owning and/or controlling an asset which is used in their products/services which customers seek to acquire because it gives them a competitive advantage in achieving a specific outcome. In applying this method, it helps to breakdown the process by which this transformation occurs into all the sub-processes and then treat them as individual micro-businesses. At the very least, the transformative process should be broken down into pre-production, production, and post-production. For example:


  • Pre-production
    • Acquiring a client
    • Sales funnel
    • Closing the contract
  • Production
    • Organizing the job
    • Informing Vendors
    • Executing the contract
  • Post-production
    • Client sign-off
    • Collect payment
    • Pay Vendors


Next, determine who creates value where and the price at which it is being valued. To use my client’s business as an illustration, in the pre-production sub-process “Sales funnel” each prospective customer who makes an initial contact is called back. When the company was asked who does this and how long does it take? They replied it is the technician because it didn’t require much of their time: X minutes. Fair enough. However, in this case their salary is being viewed as a sunk cost because it is already being paid so we don’t need to count it again.

However, I know – from prior work with this client – the technicians are run ragged and would like to free up their time to do other things, more “valuable” activities. Consequently, even though this sub-process may only be a marginal part of their workday, by the end of the month it will be a significant amount time, and that time is either being built into the price asked of the client or eating into profits. So, one has to ask, “Can this work be done by a lower cost – internal or external – resource?”

When discussing this question, the client happily brought up a company they had recently encountered who impressed them with their call center service and would – potentially – be an excellent addition for this portion of the process. Perfect! They are already thinking about this.

As I hope you can see, when this sub-process is viewed as a micro-business, the value the company can ask of its customers and the costs associated with it will undoubtedly produce a loss. However, by adapting the value needed to that created it may result in a neutral, or slightly positive, outcome. Lastly, if the company can get both the client and the vendors to recognize the value in this process then the result will surely be positive for all stakeholders and the business will capture the value it needs to have recognized for its making this come positive outcome come about.

In some cases it might not be possible to create a positive outcome. In this case, you may want to seek out a substitute sub-process that allows the business to pass on the right amount of value to the customer. One such new sub-process might be automation; use an online service to walk your customer through the sales funnel. Another might be to sub-contract the work to a low-cost service provider.

It is the leader’s responsibility to adapt the value needed with the value created and to do it for the right price.

A Very Basic View of Economics

I’m not an economist or anyone with a plethora of degrees but I am an observer, and have been for many decades. Consequently, my view of economics and the world is probably very basic in comparison to many readers. I ask your forgiveness for anything foolish I may express. Nonetheless, I’d like to scope out views to better understand the world and how it works.

As far as I have come to understand, economics is the science of productive property. I know, I know, heresy! But bear with me a moment. Doesn’t economic growth and prosperity come from productive property being used in products and services that customers acquire because it takes the uncertainty out of some outcome they are trying to achieve, like: food, shelter, security, knowledge, health, beauty, or even getting rid of a headache. From a very basic point of view, the land we use to cultivate crops addresses our uncertainty about having enough food to survive. No?

Likewise, when our economy experiences an economic expansion it is sometimes – not always – “asset-backed”. The economic growth many countries experienced before the financial crisis was based on primarily on real estate. New assets being built at an amazing pace fueled by cheap money and the illusion of security provided by asset-backed securities and credit default swaps. At its lowest level, the construction boom created wealth and jobs in the construction industry. However, this spate of building also created demand for a whole “ecosystem” comprised of bankers, extractive and manufacturing industries, and – let’s not forget – retailers because many people, in the U.S. at least, were using their property as piggy-banks. Of course, once those asset values – real estate values – exceeded their “real” economic value it all came crashing down.

The occurrences of asset-backed bubbles – seems to me – to be very much a consequence of the liberalization of the financial services industry in the 80s. First, the savings and loans crisis then the Internet bubble and lastly the real estate crisis. Each bubble seems to become bigger and further reaching as time goes by. Or, maybe that is just an impression. Thoughts?

Similarly, there are economic expansions after these bubbles pop. Like drinking too much “bubbly”, you have to get over the hangover you feel the day after. These periods of economic growth bring the economy to a “new normal” which isn’t very different from the be state that existed before (1% – 2% GDP growth rates). Assuming I got this straight and you agree with this view, the growth experienced following the Financial Crisis was the result of this return to stability.

So what is next?

Well, it seems fair to me that the US Fed increase interest rates. Surely someone will disagree with me but that’s okay, I look forward to reading you. There are three major reasons I see for an interest rate. First, economic stability has been restored. Second, the rates practiced by the Fed go to benefit the big financial institutions, in the U.S. and abroad. If memory serves me, the US banks have been borrowing at low rates and lending that money to the Federal Government at 2%-3%; helping them to payback their bailout loans in record time? And third, if memory serves me, those low rates never made it to the real economy because of the need to deleverage and to recapitalize the banks. Not to mention that so many US dollars have been loaned to emerging markets that an interest rate hike would cause them significant damage. Now that emerging market borrowers have had the time to protect themselves and the Volker Rule has reduced US exposure to these markets when the US gets a cold emerging markets won’t sneeze. In sum, increasing US interest rates is a signal to the world that all is normal again in the US market.

If we tack onto this interest rate hike the weakness in commodities and many emerging market currencies the world economy seems primed for satisfy increased demand especially from the West. The only challenge to this increased demand is consumers having the funds to acquire goods and services above and beyond what they already have. In the US, there has been increasing pressure to increase the minimum wage and to pay overtime, both of which should put more money in the consumer’s pocket allowing them to buy without increasing their indebtedness.

But we can’t forget the retiring Baby Boomers, either. Since about 70% of US GDP is consumption, we must include them in the mix. Aside from their Social Security checks, these people live off of their retirement funds which are invested in stocks and bonds. If consumption can stimulated then stock prices and dividends will flow. However, with an increase in interest rates so will the interest in bonds. Any government with an aging population must take care of its pensioners! The US already did a lot to help this segment of the population out through the Affordable Healthcare Act which essentially redistributed healthcare costs through the private sector and bolstered the share price of insurers that are owned – probably to a significant degree – by pension systems. But this is another discussion for another time.

Assuming this all makes sense, we should see a slow economic expansion in the coming years. Nothing wild. Why? Because there is no new asset on which to base our irrational exuberance.

In keeping with the historical model, there could be a new asset. We did start with tangible property classes and then – during the industrial Revolution – added intangible property classes. If we go one step further – and we are knocking on this door with collaborative consumption – our legislators could add certain private property to productive property thus increasing the asset base some more. But this is a very challenging subject I don’t want to go into here.

Thanks for reading all this, now I look forward to reading your thoughts.


How Good is Your Word? Integrity, Anyone!

I have to admit I am a big believer in words and their meaning, all sorts of meanings in fact, and this has often been to my detriment. In a world based ever-increasingly on communication I think it is time for a word Renaissance, if I can call it that. To be clear, I think people should take more care in using words with their correct meaning(s) and consequently improve their communication skills and the actions that follow.

Undoubtedly this a challenge that has existed for centuries but although illiteracy has been significantly reduced over the course of the 20th century I still don’t see many people doing a very good job of using language.

What brings me to share this particular subject today? Disappointment in the behavior of someone I thought I could trust.

A former close friend who occasionally hired my consultancy services, implored me for help closing a deal with one of her clients in exchange for compensation for my efforts. My role was to be an advisor and nothing more. No reports to produce, no documentation of any kind. Given our friendship, I had often been available to assist this person. Most of that help had to do with her work, but sometimes it was also of a more personal nature, such as rearranging her furniture.

On this particular occasion, since my assistance involved advisory work (which is, after all, how I make a living), I made sure each time we spoke that she was aware I would be billing her for my time. I made an effort to clearly let her know that I would do the work only if I billed her. After all, this contract she was negotiating with her new client would mean a substantial payday for her and it seemed appropriate for me to be compensated for the time I invested in helping her to close the deal. Each time she asked me to work with her, I informed her I would bill her and each time she said “Yes.” So I advised her on the contract type and negotiation with this client.

The first bit of advice I gave her was the price point. I provided this advice free of charge because she was still uncertain whether she wanted the work. She had been working with this client as a consultant for a few months when the International Marketing & Sales Manager left the company. She decided to offer her services in his place but didn’t know how much to charge nor what kind of contract to establish given her pre-existing relationship. I showed her she could find a very nice breakdown of compensation arrangements on, which resulted in her multiplying by four her income in comparison with what she wanted to ask! She took this back to the client who accepted but because of budgetary constraints they agreed she would only work three days a week. Not a bad gig if you can get it: $120,000 a year for 3 days of work a week. Remember, she was going to ask only a quarter of that.

Then, things started to get more serious in the negotiations. The sticking point being how to go from working as a consultant to being an interim manager representing the company to clients around the world. Each time she asked for advice on this subject I reminded her that I would be asking for payment. The first contract came in and she asked me to review it and advise her on what to do. So we met one afternoon at Argo Tea on Broadway, in Manhattan, and discussed the contract for an hour and half. I sent her the bill and she paid me. Great! Thank you.

After a couple of days, she came back to me with a revised contract and asked for the same service: review the contract and advise her on what to do next. I did on the condition of being paid for my time, which she accepted. Unfortunately, when it came time for her to discuss these points with her client’s lawyer she was unable to and asked me to represent her. At this point of the negotiation I didn’t think it would be very efficient for me to talk with the client’s lawyer because we would end up playing something like the game “Telephone” where the message comes out distorted because so many people are modifying it to their understanding. So, I politely informed my friend/client and the lawyer of this view and declined. The next day, a Saturday, my friend/client contacted me to say she and her client would be in my neighborhood, and would I have the time to meet with them in a coffee shop to discuss the contract. Again, I gave my availability on condition I be paid for my time and advice, and she accepted.

The meeting with her client went well. We covered all the major points and in particular agreed that a part-time employment contract for my friend/client’s work was better for everyone. Her client thanked me for taking the time on a Saturday to come and discuss the sticking points with them, everything was much clearer now. The client then went on to compliment me for being so generous with my time and even paying for everyone’s coffee. To which I instantly replied, no thanks were needed as my friend/client was paying me for my time.

Over the next couple of days, I was asked to address a couple of other points, also for a fee, which I did. Afterwards, my client’s client sent us both a term sheet reflecting everything we had discussed and forwarding it to their lawyer to be drafted into a contract. I then sent my client a breakdown of my time, which was not contested, and then raised the invoice. Like the previous invoice, I expected it to be paid right away but it wasn’t.

Although each time I was asked for my advice we agreed it was billable time, and even though I had taken her best interests to heart and not worked directly with the lawyer, and even sent a breakdown of my time before raising the invoice, the amount was beyond her expectation. All told, it came out to $3,000 ($450 had already been paid) for advice on a deal worth $120,000 plus 10% bonus. Do you think my rate was excessive? I don’t.

Long story short, we had a number of exchanges over a number of weeks during which she came to terms with this amount and I received numerous messages saying she was intent on paying me. In the second to last one, she asked for a payment plan. I sent her one for payment over four months, which she refused.

In the face of this strange situation – someone who says she is going to pay me but then doesn’t – I was obliged to take her to small claims court. For three months I heard nothing from her. Then, on the day of the hearing I got the surprise of my life.

Her argument was that all I had done for her was as a friend and, in any case, worthless; anyone could have provided the advice I gave her, she was a nervous Nellie and I was there to hold her hand. Okay, it’s an argument, but in the face of all the words she had previously communicated, it was a total contradiction. Not even an about face; a total negation of an objective reality as written in her previous messages.

As of this writing, we do not have the court’s ruling so I don’t know what the outcome will be. However, I will admit to a certain concern I have about the arbiter’s approach. Notwithstanding all the written documentation I brought as evidence that my client did not contest the amount of the invoice in either hours or rate, and did clearly state at numerous times her intention to pay me, even asking for a payment plan, he still wanted to verify the veracity of the work done and the rate applied. So even this agent of the state apparently did not accept the meaning behind the words used but wanted to test them for himself.

What is the lesson here? People use words but ultimately these words are devoid of any true meaning. No actions follow to support what was previously stated. Except for me; I am stupid enough to live my life based on the expectation that words have meaning and we prove that everyday through our actions. You know, “walk the talk”, or “talk the walk”, or “walk the walk”(I never know how the expression goes). Or “Say what you do, do what you say.” Basically, a person is only as good as their word. You get my meaning. You do, don’t you?

Over the span of my life, I have to say I have encountered this kind of behavior on numerous occasions. It always left me with a ….well, angry. I am angry with those with whom we created a shared expectation. I am angry with myself for being gullible enough to actually believe the sh-t that comes out of people’s mouths or that they write down or communicate in some other way. I am disappointed in people’s behavior. I am disappointed because I feel taken advantage of. I live up to my end of the deal but they don’t. This kind of behavior brings on a whole bucket full of bad emotions and sometimes even worse thoughts. Nothing good comes of it. A friendship broken. A working relationship broken. A family broken. Relationships thrown onto the rubbish heap.

Now, don’t get me wrong. I’m not perfect. Sure, I falter too. However, I learned a long time ago that relationships are more important than anything else; you shouldn’t burn down the bridges that connect you and your community, rebuilding them is very costly. As anyone who knows me well will attest, I actually tend to go above and beyond to make sure I live up to my word. Words are sacred to me. My word is important to me. It is all I have in this life. I don’t speak much but when I do, I want what I say to be meaningful, to hold true. When I was a chief executive in companies, it used to confuse and amuse me how when I started to open my mouth everyone would shut up and listen. I know I am only as good as my word.

As a mentor, coach, consultant, I teach my clients the importance of their word from day one. If you can’t commit to one hour a week, at the same time every week, for three consecutive weeks, I will not work with you. If you contact me an hour before a session to cancel, I will drop you. Unless force majeur doesn’t allow you to be present you had better live up to your word by following through with the appropriate action. My reasoning for being so demanding on this point is quite simple: if you do not live up to word when it’s for your own benefit then how can you possibly lead a business when your word is for the benefit of others–clients, suppliers, employees, partners, shareholders, bankers, and all the other stakeholders in your community? If your words have no meaning then everyone is in a constant state of uncertainty including you.

Just think of all situations in which you communicate through words a given intention or you receive the intention of another and you will see how important it is to be a person/company of your word in order to create value for your clients/community. To my way of thinking, every time we communicate we are creating the expectation of a certain action and consequence in our world. Yes, we have to manage that expectation so it isn’t over the top. But most importantly we have to live up to that expectation in order to be a positive force in the world.

I’m going to leave you with this last thought: If you agree with the above, would you keep on an employee who has no word?


Handy screen shot 2015-08-02 at 3.02.33 pm

Independent Contractor vs. Employee : Handy

I just read an excellent article, This home-cleaning service shows everything that startups do horribly wrong by ALISON GRISWOLD of Slate, republished on Business Insider, about Handy, the New York based cleaning service. The articles looks well researched, and primarily covers the hot topic of work classification: Independent Contractors vs. Employee. A fascinating topic increasingly in the media because of the winner take all economics of the Internet and the inequality that results from such a concentration of economic power.

Below is my take on Handy’s business model, its problems, and how to potentially resolve it. Which is a blueprint for many collaborative consumption businesses being launched and growing.

“Based on this article it seems Handy has made a slight mistake in defining its business. It seems they define Handy as an online cleaning service which results in the company wanting to define how the work is done and then running afoul is employment laws. However, if the company understands that as an online marketplace business it is really in the business of facilitating the creation and development of the relationship between someone needing cleaning services and someone offering cleaning services, in other words a communications business, then it would develop online tools in this sense and not create problems of itself with regard to labor laws. Instead of training cleaning crews with a prescribed way of doing the job – which implies too much control and thus an employer/employee relationship – or hiding behind language to hide this relationship – our customers ask – just allow the customer to tell the cleaner what they want done and how using a form.

By creating the tools necessary to facilitate combination between the two parties in the cleaning marketplace and a feedback loop for quality control, Handy can effectively delegate how the job is done to the hiring and executing parties to the transaction. This allows the company to maintain a clear separation between itself and the independent contractors executing the jobs. And, more importantly, gives Handy the tools necessary to acquire a whole host of data about how people want their cleaning done, what products they prefer, what techniques, and so on. Information useful to many interested ecosystem members opening up other avenues of value creation through the sale of data, hyperlocal consumption habits, content creation, advertising, e-commerce, transactions (of course), and so on.”

Business Success

Lead A Successful Business

As just about any expert – in any subject area – will tell you, do the basics well and you will be reasonably successful. The same is true about business.

The ROKC ™ Method is so simple to understand that I can explain it in 3 easy to read propositions. But don’t think it is easy to implement, because it isn’t! Like anything you do well, it requires practice and discipline.

The 3 propositions are the following:

  1. All businesses exist because they own and/or control an asset that they use in their products or services, which customers will seek to acquire if it provides them with a competitive advantage in achieving a specific task for they are uncertain about the outcome.
  1. All businesses will survive if the rate of return on the fore mentioned asset is higher than the cost of capital.
  1. Leaders are those individuals who are able to see and share with their community a less uncertain way of achieving a specific task, which inspires them to cooperate and collaborate to make it a reality.

The asset in the first proposition is so fundamental to everything that comes after we have named it the “Key Component”.

The return generated by all the processes required to make the Key Component usable and available to the customer is therefore referred to as the Return On Key Component, or ROKC. The higher the rate of the ROKC the more readily the business can satisfy the requirements of all stakeholders.

And, leadership is required to create the conditions by which all the stakeholders want to cooperate and collaborate to make the competitive advantage perceived by the customer a reality.

With this methodological framework can “Lead A Successful Business.”

Cooperation and collaboration

What is More Important: Transactions or Relationships?

In its very basic expression, business involves a transaction between a willing seller and a willing buyer. This is, of course, true. You have to sell and collect the money in order to stay in business. And, most of us tend to focus on that part of the equation. However, the precondition for the transaction to occur is the “willing” part, which we tend not to place a lot of attention on. I think this is a mistake, the willingness to engage in the transaction is even more important.

Have you ever been to a really good restaurant but the service is lousy? Have you ever bought a product that didn’t work as you thought it would? Did you ever buy a garment and then changed your mind and sought to return it? Did you ever use a website that promised you certain results but not fulfilled that promise? Have you ever wondered if it is a good idea to work with a colleague, client or supplier? Have you ever asked your lawyer how to add make a contract even stronger than is normal? I could go on and on with example, but I think you get the idea.

Every transaction is based on establishing and maintaining a relationship between between, at least, two parties.

Unfortunately, many of the business leaders who seek out my counsel focus on increasing the number of transactions instead of first focusing on the relationship which will lead to the first transaction and hopefully many more.

I’d like to go even further into this reasoning by arguing that our ability to evolve as a society – even a species – is entirely dependent on our ability to cooperate and collaborate with each other. Consequently, a business can be better understood as cooperating and collaborating at a large scale, with many people near and far.

After all, a business exists because it owns and/or controls a asset that it uses in its products/services which customers will acquire if it provides them with a competitive advantage in achieving a specific task. By definition, the company needs to establish a relationship with the client in order to supports them in what they are trying to achieve.

The real value is in the relationship.

Interestingly, the superior value of relationships can also be found in company valuations. Relationship-based companies like Facebook and Twitter trade for much higher multiples than a transaction-based company like eBay.

  • Facebook: P/B 7.1; P/S 19.2; P/CF 42.2
  • Twitter: P/B 6.4; P/S 14.2; P/CF 172.4
  • Ebay: P/B 1.7; P/S 1.6; P/CF 6.6

(Where P/B = Price/Book; P/S= Price/Sales; P/CF= Price/Cash Flow)

In fact, the most successful Internet companies are successful because they help the user establish and maintain a relationship, for example: WhatsApp, Instagram, AirBnB, Uber,…etc. In the future, with the “Internet Of Things”, I am sure we will see many new companies establish themselves as relationship leaders with things and places, too. Do you have a relationship with your thermostat today? What a bout your front and back door? Your HVAC unit? Doesn’t Telsa manage energy by managing the relationship between the road, the car and the driver? Soon, the car will manage its relationship with other cars, people, the road, …etc.

I’m sure most of you don’t look at the Internet as a relationship platform but, in my view, it is for the very simple reason that at the base of it the Internet is a communication device. And, relationships are all about communicating efficiently and effectively.

But a focus on the relationships does not require us to only look at the Internet. If we recall the list at the start of this article, most of the questions involved traditional brick and mortar businesses. So, I recently asked a couple of my clients to approach their business as relationship building and the results have phenomenal. Client 1 has so much work he cancelled our coaching sessions so he could catch up. And client 2, whom I career coach, for the first time in year, has no problems to discuss with me. So what is the takeaway here?

Focus on building relationships that allow you to cooperate and collaborate and the transactions will follow.

DBV Technologies Viaskin Transdermal Patch

Case study: DBV Technologies

A few days ago, a friend of mine from another biotech company pointed out DBV Technologies (ticker: DBVT). It was a week before its secondary offering and my friend suggested it as a possible investment opportunity for a client I advise on portfolio management. To date, I have helped them achieve over 40% total returns, capital gains and income, so they listen attentively to my advice. Anyway, my friend’s enthusiasm for this company was contagious so I took a look at it from a ROKC ™ point of view.

Since the secondary offering, $34, the stock has risen to $42. In hide sight, an $8 per share capital gain in just a few days would have been excellent investment but truth be known, I did not make the recommendation. So I’ll tell you why.

After reviewing the publicly available information on DBV, I came away with reservations over the valuation.

DBV is a biotech startup operating in the allergy market. It provides a way of developing the antibodies necessary to combat certain allergies, like: peanut, milk and egg. In a country like the U.S., a vast and lucrative market especially for children. The antigens used to help develop this autoimmune response are bought in by the company so these cannot be important to the company’s valuation. Instead, DBV’s value lays in their development of a transdermal patch which regulates the flow of antigens into the body. This delivery system is proprietary and protected by several patents.

From a ROKC point of view, DBV has an asset (the patents) which it owns and controls, and is used in their products ( the peanut, milk and egg patches) providing the customer with a competitive advantage (antibodies to protect against potentially fatal allergies). Perfect! This is exactly what we look for in companies.

Company leadership also declared a strategy to maximize the return on this asset by targeting the U.S. market for children with an insufficient immune response to peanut, milk and egg allergies. An A+ for this strategy too.

So why is there a problem with valuation?!

The challenges I see for the company are two fold:

1. The machinery used to manufacture the proprietary transdermal patch is highly specialized and present machines do not have the capacity to fulfill potential market demand.

1st generation machine: 750k/annum
2nd generation machine: 2,250k/annum
3rd generation machine : 20,000-30,000k/annum (forecast for 2016)

According to their website, the recommended dose is one patch/day. Assuming the third regeneration machine gets up and running, between 54,794.5 and 82,191.78 patients can be treated on a full year basis.

According to the American Academy of Allergy, Asthma & Immunology, in 2012, 4.1 million children reported food allergies in the last 12 months. Although treating 54k – 82k children is certainly important, that is only 1.3% – 2% of the children’s market. If we add to that the adult market then the number of patients treated is even smaller. And, if we add other geographic markets it is minuscule. Much, much more productive capacity will be necessary.

2. This brings me to my second point, as far as I can see, no other company is seeking to license the patents or the transdermal patch manufacturing technology. Although some suitors may come out of the woodwork once the product is fully approved for sale, this also suggests that its applications are possibly limited.

Based on these two points, it is a challenge for me to see how a company with 5 million euro in annual sales, or $4.5 million, can have a post secondary offering market capitalization of $1.6 billion!

The market cap is over 260X annual sales when most young biotech companies are trading between 20-50.

Not knowing the patches sale price, it is challenging to estimate how many years of future growth the share price might represent taking into consideration the ramp up in sales. However, if we compare with a nicotine patch that has a public price of $2/patch and allow for 50% margin for distribution we arrive at a selling price of $1/patch. However, knowing DBV’s patches are special, we can augment this price by say 40%, for argument’s sake, leading to an average price of $1.40/patch. With 100% of production going to sales, no samples, the company would max out at $28 – $42M a year in sales, or 38-57X sales.

Although these multiples are much closer to the market they assume all the assumptions are realized without a hitch. Thus, this valuation brings with it a very high level of risk.

Mind you, the risks mentioned in this article relate to production capacity and product pricing. And, our pricing assumption just happened to produce this result because we have no idea of their pricing. In addition to these two risks there are many others, for example: final FDA approval, a marketing and sales organization that needs to be built, foreign exchange fluctuations, and a resulting profitability which is totally unknown.

The risk level is just way too high for $42/share; it is irrational. My recommendation to my client was to wait until the share price came down to half that price before buying.

Leading a Customer-Centric Business

Leadership has changed over the decades in substance but not in form. To be clear, leaders still have to identify and communicate a less uncertain view of the world, which the community will perceive as well, and together they can make into a reality. However, in business, the key to realizing that vision was a tangible assets everyone could see, touch and/or feel. More recently, those assets became intangible and while one part of the community could still relate to them the other perceived only the benefits. These businesses are noteworthy for their productive capacity; that is, the making of products and services used by clients. Exercising leadership in production-side businesses requires clearly identifying the asset underpinning the business and maximizing the return on it. Today, many economies are consumption-based – also known as customer-centric – making leadership a bit more challenging.

Consumption based businesses are no longer established on the basis of assets owned and/or controlled by an organization but by their ability to capture a specific market segment of like minded clients.

the evolution of e-commerce might be a good way to illustrate this point. The first e-commerce companies provided clients with a stand alone software product they ran on their own servers. This gave existing and new companies the opportunity to develop sales through a new distribution channel, online, as opposed to the tradition “brick and mortar” store on the high street. The second generation came in the form of software as a service, allowing anyone to start an e-commerce business without any of the costs associated with maintaining and developing a stand alone site. Here, once again, the e-commerce platform targets an intermediary by providing them with an efficient tool. These businesses are all on the productive side of the fence.

However, the benefits of the e-commerce solution were short lived. The process of driving traffic to the site and converting visitors into paying customers is significantly more expensive than the store. Many of you have surely heard the term “cost of acquiring a client” when pitching your online business to investors; well, this is what investors are referring to.

Consequently, on the consumption side of the fence any number of new economic actors entered the marketplace to help manage the processes and costs associated with capturing prospective clients and turning them into repeat buyers. But these tools too are only tools and should not be confused with actual leadership. They are simply bought in resources available to all competitors.

So how does the leader of an e-commerce site contribute to the success of the business?  The most successful e-commerce leaders are those who approach their business not on the basis of the old product-driven mindset but of a consumption-driven one targeting a distinct segment of the market on the basis of shared identifiers and values. A shared culture, if you like.

Let’s take the example of Zappos, a very successful online shop company. The company doesn’t make shoes, it only distributes them. The technology underlying the business can be acquired by anyone. Similarly, the tools for attracting customers will be bought by many competitors. There is no real ability to differentiate in market without any proprietary assets. So how to resolve this challenge and stand out in the marketplace as a place where consumers want to shop? Initially, the company put the emphasis on customer service. This worked well for a time but like with any market competition rolled in making the distinction between Zappos and the competitors difficult to distinguish.

In a brave move, company leadership, Tony Hsieh, saw that what brought together  employees, customers, vendors, partners,…, all stakeholders, was a shared set of values. A quick view of the company’s “about us” website page illustrates this point quite well:

As we grow as a company, it has become more and more important to explicitly define the core values from which we develop our culture, our brand, and our business strategies. These are the ten core values that we live by:

  1. Deliver WOW Through Service
  2. Embrace and Drive Change
  3. Create Fun and A Little Weirdness
  4. Be Adventurous, Creative, and Open-Minded
  5. Pursue Growth and Learning
  6. Build Open and Honest Relationships With Communication
  7. Build a Positive Team and Family Spirit
  8. Do More With Less
  9. Be Passionate and Determined
  10. Be Humble


The stakeholders attracted by and who contribute to Zappos’s “culture” of openness were welcome and work together to make their community a comfortable place for like minded people. From a leadership perspective, the uncertainty of living in a non-like-minded community is reduced.

The company went one step further with its mantra of openness by implementing an organizational structure based on ideas of holacracy; an organization without hierarchy. After 2 years of implementation, in 2015, the company pushed out anyone who didn’t subscribe to this new organization. Although such a move might be perceived as intolerant – thus contrary to the company’s values – it is not because culture is the foundation on which this business is built. Not adhering to the company culture in a consumption-based company is like impairing or stealing the property on which a production-based company is built. The important thing to note here is the significance – if not, importance – of maintaining a like-minded community through whatever means possible.

The consistency of values communicated to the community and echoed by the same allows company leadership to be effective and drive results in a purely consumption-based business. In effect, any other economic actor seeking an entrance into this market will have a much easier time of it if they go through the  gate keeper known as Zappos making the company very valuable.

  • Are you the leader of a company on the production side or consumption side of the economic fence? Or, is it in between?
  • If you are on the consumption side, are you really able to access a specific market segment? Which one?
  • How authentic are you, as a leader? Are you perceived as such by your community of stakeholders?
  • If your business’s key component is culture, how good a leadership job are you doing at keeping the connection with your community going?

If you wish to explore these questions and issues like these, please contact me directly.

Business Solutions Take Uncertainty Out of Specific Tasks

Once again, the truth comes out of the mouths of babes. Well, maybe not exactly babes but fourth graders; my truly bright twin nieces. Below you will find an article they wrote after seeing how popular a previous post based on their play was with my community. You can read the previous post here: Productive Teams is Child’s Play.

From my point of view, what is important to see in their writing below is that even at a very young age we are taught to use whatever resources are available to us to make certain tasks easier. Or, as I like to say, less uncertain. This is a fundamental approach to business that every business leader should always keep in mind when running their enterprise: the products and/or service they provide to customers must make doing a specific task less uncertain in order for customers to value it.

Please take the time to read how my nieces quite simply explain:

Why Horses Are Important to Humans

                    Horses have been very important to humans for a very long time.  Humans use and have used horses in many ways.  People also love horses for many reasons, like their beauty, and strength.  There are many more reasons for this, for example:

                    Horses were like tractors for farmers for centuries!  On farms, horses pulled plows.  They also helped pull wagons of goods, animals, and supplies.  In return, the farmers fed, cleaned, cared, etc. for the horses.

                    Horses also helped cowboys.  They herded cattle with the cowboys.  Horses also provided transportation for bringing cowboys and cattle to towns.  When a calf, bull, or cow got loose, the cowboys and their horses would chase and try to catch it.  When there was a stream, the horses would pull the cowboys across it because many people couldn’t swim.  Cowboys like to use Quarter Horses (a breed of horse) best because they are fast, can stop short, and can make sharp turns.

                   In the Middle Ages, large and strong Friesians (breed of horse) were used as battle horses.  They could carry knights in shining armor and their own shining armor.  People in the Middle Ages also used horses to pull heavy loads of things.  They also used horses because they could work in large noisy crowds.

                  Horses in Egypt were used as pack animals.  The Bedouins used these horses.  The breeds were Arabians and Barbs.  The Bedouins gave their horses camel’s milk to drink and dates to eat in the dry desert.

                  The Chinese also used horses.  They were the first people in the world to put an actual saddle on a horse.  The Chinese decorated the saddles with bells and ribbons.  People played drums on the horses.  In wars, the Chinese used horses as transportation and war animals.

                Horses pull carriages everywhere!  Big ones, small ones, short ones, tall ones.  You name it they pull it. It’s their job.  People also ride horses.  For pleasure and for work. 

                Horses worked and still work for humans around the globe.  They worked for farmers.  They also worked for cowboys in the Wild West.  They worked for people in the Middle Ages too.  The Bedouins had horses in Egypt.  The Chinese were the first to put a saddle on a horse.  Every country, except Antartica, uses horses now!  Horses made a BIG difference in life.

                -Lara & Pia      (Two, 4th graders)

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