Leverage: oft misunderstood, intensely mistrusted, publicly reviled, privately coveted.
Leverage: creator of wealth, cancer of markets, destroyer of nations.
Or is it?
Saying that leverage is bad is akin to saying that speed is bad. It is true in both cases that too much of either is dangerous. What is misunderstood is that too little of either is dangerous as well.
The business performance of car rental agencies was historically volatile. Part of this was simply due to the inability of car rental agencies to predict client behaviour. However, this did not explain all of the variance in their business performance. It was only as the rental companies began to realise that their business was not just to provide a service, i.e. renting cars, but that they also were producing second-hand cars. It was the understandable misunderstanding by the rental companies of this facet of their business that was causing them so many problems. We can learn from this. Continue reading
In the first of an occasional series titled Executive Insight I will write together with a regional business leader who shares the benefits of their experience.
Anthony Mallis, the chief executive of Securities & Investment Company (SICO) of Bahrain between 2001 to 2014, grew a boutique brokerage company into a regional asset management powerhouse. (Tony is humble in his accomplishments and all promotion of his accomplishments is attributable solely to his co-author.)
Mr Mallis was hired to a challenging assignment; turn around or close a money-losing entity that was caught short by the GCC market malaise of the late ‘90s. In 2001 the GCC and Mena capital markets were still nascent, with the Gulf still affected by low oil prices and mid-’90s collapsed share prices. Locally, commercial banks had little interest in the domestic capital markets, focusing on deposit-gathering, the local retail markets and pushing third-party foreign investment products to their clients. The small number of local investment banks had a largely real estate focus, or were parochial when it came to regional investments – focusing on their domestic markets for both clients and proprietary activities. Continue reading
This post is part of the My Zawya Story series.
Negative cash flows are a standard feature of any start up and most SMEs when they go through a negative economic cycle. Anyone who has been through that knows well the sheer terror of wondering what he will tell his team on pay day when he does not have the funds to pay their salaries, or what he will tell suppliers, or how he can explain to his shareholders that he needs more funding. It is a sobering experience. Continue reading
This post is part of the My Zawya Story series.
As an investor I have seen many entrepreneurial mistakes and one of the greatest misunderstandings has to be the difference between a market opportunity and a business model. A market opportunity is a gap in demand and supply, in particular a demand for products or services which is not met by current supply. This creates the potential for profit but does not guarantee it. To get from the what, potential profit, to the how, actual profit, requires a business model. I have seen many promising entrepreneurs fail even after identifying lucrative market segments simply because they jumped in without planning how they were going to convert the opportunity into revenue let alone profit.
In terms of Zawya the opportunity was clear: there was a high demand for Middle East data and information with little comprehensive supply. Ihsan and I were on opposite sides of the two main issues: how to source the data and information and how to generate revenue.