Conservation

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So, there is a lot of talk about how we are leading lives which are unsustainable in the long run. Societies have needs that are unsustainable, population growth is unsustainable, consumption growth is unsustainable and on and on…

But think about it, is the entire capitalist economy not about growth? And if this economy has to thrive and survive and deliver consistent growth, how is that going to come about, and manage to co-exist with the concept of sustainability?

 

TED_Tristram_Stuart_The_global_foo.mp4 Watch on Posterous

 

If you watch the TED talk that is posted above, you would note that in developed nations food production has now peaked to 4 times the average requirement. This means that the ease with which food is now being made available ensures the demand for more. 

Businesses by definition need growth and in order to grow they make product or services that people would want. Most often these are products or services that would make lives easier! This is the root cause of the problem of sustainability.

I had a moment of epiphany today, when I was forced to take bath in cold water due to the lack of electricity and noticed, how much less water I used! The odd temperature of water made it uncomfortable for me hence I used less of it.

Now, in my experience the moment you make things harder for people, the better they become at conserving!

Let us say, you supply only cold water during winters in the pipes. Well, I do not foresee many taking those long showers. Water Conservation!

For that matter, if bread was not supplied in the supermarket and one was forced to bake the bread themselves, I do not suppose that the ending pieces of the loaf that most throw away would ever be thrown away. Food Conservation!

Let us say that the furniture business model involved building the furniture by yourself. A model that is the grandfather of Ikea, which involved some sawing and shaving the wood to put the end product together; the demand for wooden furniture is sure to plummet. Timber Conservation!

The underlying idea being that in order to conserve something, you need to make it harder for people to acquire and use the same. Businesses would never want to do this; it is sure to cause their value to disappear, if such practices are adopted. Over the centuries, man in his constant pursuit to make lives easier has simplified consumption. This consumption now threatens to cause the problems in the future, simply due to its unsustainability.

We need to start thinking about the kind of growth that should be avoided. Unfortunately, currently we are replete with only this kind of growth.

How many businesses would be willing to sacrifice growth to ensure sustainability?

Leave Mark Alone…

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At the time that the Facebook IPO was put up and the company was put up for sale, everybody knew that Mark Zuckerberg was going to lead the company and that he was going to retain the majority voting rights. He had unequivocally announced that nothing was going to change at Facebook. Then why the hue and cry??

Facebook was a company that had little revenue to support its valuation. The company was to be listed at 100X. Or in layman’s terms 100 times the earnings that the company generating. Now, in the investment world for a fairly mature firm 10X to 15X is considered fair valuation given decent prospects in the coming years. For a high growth company, which happens to be the case with smaller firms due to the base effect, a higher multiple of 30X to even 150X in certain cases are considered.

Facebook will be a decade old, in another couple of years. A seventh of the world population is on it and another sixth (china) is banned from logging onto it. Such a firm by no means can be considered a growth firm. The first five years can be considered growth stage, this company was well and truly beyond that.

There were a few investors (Peter Thiel and company) who invested early into the company. Since Facebook was in no hurry to list, all the other VC firms that had not invested into Facebook early enough thought; ah, shucks, we should have invested there… So they did invest at whatever valuation was demanded by the team as facebook, with the last investment round of funding coming from Goldman Sachs at as abominable valuation (50 Billion USD). Now, in order for these latecomers to justify their investment, they needed to further inflate the valuation. Hence at the time of the IPO we landed up with a $100 Billion dollar valuation.

Every soul that invested at that valuation was foolish. There was no way that the company could have ever supported such a valuation. It was designed to fail. 

The stock is taking a drubbing not because of the way Mark is leading the firm, it was designed to take a drubbing.

Stop blaming him, blame the investment bankers who sold the IPO.