Thought provoking YouTube video on a new tractor design. Courtesy of Paul Wheaton at Permies.com.

When we think about solving the problem of world hunger, one solution that might come to mind is sending more food aid to nations unable to feed their populations. This may help to address the immediate problem but does not solve the longer term problem of ensuring that these nations can feed themselves; in fact, it can be detrimental to that goal (e.g., flooding these nations with cheap food aid and wiping out local farmers who can't compete).

Another way to solve the problem of world hunger that is gaining momentum is to develop a forward contracts market for farmers. According to Wikipedia:

A forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed upon today. This is in contrast to a spot contract, which is an agreement to buy or sell an asset today. The party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. The price agreed upon is called the delivery price, which is equal to the forward price at the time the contract is entered into.

In North America we are probably under the impression that the reason we have an abundance of food is because we are able to grow a lot of food. That is true, but another key element in the equation is that farmers have a forward contracts market for the food they produce that helps to take some of the risk out of growing food and inspire enough confidence to buy the inputs and equipment necessary to grow food. The raison d'etre for the Chicago Commodities Exchange is to offer this risk-management service to farmers.

Even at a smaller scale we see forward contracts happening in Community Support Agriculture where a farmer asks that subscribers agree to pay a price ahead of time for the produce that they will produce or jointly-produce over the course of a season. These forward contracts are often flexible in the sense that if a farmer has a rough year, subscribers will generally agree to pay the subscription fee even if the amount of produce received does not live up to expectations - we are in this together through good times and bad. As long as the farmer put in an honest effort, planted the right amount of seed, worked the land, and did her share, then if conditions beyond their control transpired to reduce yield we are generally sympathetic enough to honor our subscription fee pledge. One wonders if the forward contract markets for hungry nations will be similarly forgiving.

The effort to solve the world hunger problem in this way is being spearheaded by the largest food-relief agency in the world, the World Food Program (WFP), which has a 6 billion-a-year budget (see Purchase For Progress). In addition, Bill Gates and Warren Buffet are offering their money and expertise to the cause of developing a forward contracts market for farmers. It is interesting to reflect upon the idea that the most powerful tool we have at our disposal to tackle world hunger may be a financial concept, the concept of a forward contract and setting up commodity exchanges in developing countries to make them work better.

To learn more about the role of finance in solving world hunger, I'd recommend the book I'm currently reading called Bet The Farm: How Food STOPPED being Food, 2012, by Howard Kaufman. Here you will also learn about the dangers of a market-based approach to solving world hunger, the dangers that speculators and derivatives pose to the proper functioning of such markets.

As you eat your Easter meal this weekend, you might reflect upon the role of forward contracts in making this bounty available, whether forward contracts are indeed part of the solution to world hunger and, if so, how they should be structured to work as effectively as possible.

Ruth Stout was an American author best known for her "No-Work" gardening books and techniques. She discovered that she was able to grow a surplus of vegetables without plowing, weeding, or watering by using hay mulch as a growing medium. I can confirm that potatoes grow extremely well in a properly weathered hay mulch (bales of hay left to weather over the winter and then planted into in the spring - see below). I never weeded my potatoes all year, never watered them, and when I harvested them I barely had to clean them because they had no dirt caked onto them. I'm now a believer in Ruth Stout's no-work methods and will be experimenting on a larger scale with growing vegetables in hay mulch and using hay mulch for perennials to suppress weeds and retain soil moisture. Growing vegetables in hay is also "organic" and "sustainable" in the best senses of these words (no synthetic fertilizer, no herbicides, no pesticides, no irrigation, no soil cultivation or erosion, soil building, reduced tractor use) . We'll see if the reality lives up to the ideal this summer.

I also planted grape vines last year and hopefully in two more years I will literally start to see the fruits of that labor. Last night I was reading over my Wine Maker Magazine and came across an excellent no-work concept called "Whole Cluster Fermentation". Basically you don't bother de-stemming or crushing your grapes, just start the fermentation process using the whole grape cluster. Wow, that would be great if I could achieve the same desired outcome, namely, drinkable wine, without all the work and expense associated with traditional wine making. You can bet that I will be experimenting with this technique when my vines start producing.

My philosophy of making wine is not to worry that much about producing the perfect wine at first, but just to produce a drinkable wine with the least amount of work and cost. If I can't, then maybe I will have to work more and pay more to produce the desired outcome; but that will only happen after I have explored the viability of the least work, least cost option.

We need to ask ourselves more often if we really need to do all the work that conventional wisdom suggests we need to do in order to achieve a desired outcome. Analyze the work you are doing and ask yourself "is there a way to achieve this outcome without doing all this work?". Then, take it a bit further and ask yourself "is there a way to achieve this outcome without these expenses?". These are the types of questions that lead to innovation, cost savings, and a more productive use of your time.

This weekend, I finished watching the last two seasons of the reality tv show Full Throttle Saloon. It was addictive to watch.

The show provides lots of lessons for entrepreneurs. Lessons about marketing, promotion, decision making, managing employees, security, risk taking, and branding.

Mike Ballard is the owner of the Full Throttle Saloon, advertised as the biggest biker bar in the world. Mike was active in pitching the idea for a reality TV show focused on the 10 day season that he opens the Full Throttle Saloon for business. The season coincides with a huge biker rally to Stugis, South Dakota. During this time around 300,000 people pass through the gates (most of them bikers, but also locals). He offers a carnival atmosphere combined with musical events, food venues, branded clothing and drinks, accommodations, and a dizzying number of bars. The brand is about freedom, the outlaw lifestyle, and taking it to the next level.

Mike Ballard is teamed up with Jesse James Dupree (lead singer of Jackyl) and Angie. Each of Mike's partners brings impressive marketing savvy and interpersonal skills to the table. They are different in many ways but there is a chemistry and common vision that makes them work very effectively together.

It is interesting to see how the Full Throttle brand has grown over the last two years. It is poised to expand into other parts of the US and I expect it to grow rapidly over the next year. This is entrepreneurship at its finest and the show provides us all with a glimpse of what it takes to manage a high growth business. There are many lessons in marketing, promotion, and the power of branding for entrepreneurs to learn from watching this show.

Mike Ballard is a strong leader. His leadership comes from his business ethics, his attention to the financials of his business, his appreciation for other viewpoints, his listening ability, his approachability, his rapid and decisive decision making, his calculated risk taking, and his passion to grow his business by reinvesting and taking on new challenges. There is lots of learn about managing a high-growth business from watching how Mike runs his business.

Can't wait for the next season to see where the Full Throttle brand goes next.

The purpose of this article is to clarify the investment concept of hedging by using a real world example and some simple math.

The real world example comes from a book I'm currently reading:

The Signal and the Noise: Why So Many Predictions Fail — but Some Don't (2012) by Nate Silver. Penguin Books.

The example involves sports bettor Haralabos "Bob" Voulgaris who was born in Winnipeg, Manitoba but who moved to Los Angeles after cashing in on a large bet.

The bet involved picking the Los Angeles Lakers to win the 1999-2000 season NBA championship early in the season when the odds makers were skeptical that they would win and offered 6.5 to 1 odds on them winning the championship. He bet $80,000 - the money he had earned by the time he was a college senior at University of Manitoba through work and investments. So, if the Lakers did in fact win the NBA championship, he would get 6.5 * $80,000 = $520,000 or approximately a half a million.

In the Lakers' semi-final match against Portland Trail Blazers, in game 7, Portland was a 3-to-2 underdog to win that game. At that point, if Bob had the money, he could have "hedged" his bet and put $200,000 on Portland to win. If Portland won that match, then he would get 1.5 * $200,000 = $300,000. Subtract the $80,000 he would have lost from his Lakers bet, and he still would be ahead by $220,000 in the event of a Lakers loss.

Conversely, if the Lakers won, he would lose his $200,000 hedge bet, but he would still end up making $320,000 ($520,000 - $200,000). The Lakers were heavily favored to win the finals against the Indiana Pacers, but Bob could have hedged his bet again to mitigate that risk. In the end, the Lakers won against Portland and then went on to win the NBA championship for that year.

So the investment concept of "hedging" involves an initial bet on some outcome and then subsequent bets on other outcomes to mitigate risk and/or ensure a positive outcome.

One of the arguments that Locavore's make for why you should buy locally is that by doing so you will reduce the amount of "food miles", and by implication, the amount of greenhouse gases created to feed yourself. This argument has been persuasive to many consumers as indicated by popularity of the "100-mile diet" concept which basically advocates sourcing your food from within a radius of 100 miles. Doing so will reduce your "food miles" and in this way you can help the environment. If everyone followed suit it would make a huge difference in terms of greenhouse gas emissions (and the vitality of your local economy but I will not address this aspect of locavorism in this blog).

The main problem with the "food miles" argument for locavorism is that it only looks at greenhouse gas consumption from the retailer (i.e., farmer) to the consumer (i.e., the "distribution" component in table below), and does not address greenhouse gas consumption from a life cyle perspective which would include the greenhouse gases consumed to plant, harvest, package, store, distribute, consume, and dispose of the food items. When this broader perspective is taken into account, the "food miles" argument for locavorism can be contradicted by the facts (i.e., buying local can produce more greenhouse gases than buying from the global supply chain).

Source http://www.globavore.org

If a farmer is producing and selling food that is in season to local consumers, then this is the best case scenario for locavorism. If the food producer needs to consume energy to heat a greenhouse to get a jump start on the growing season or to extend the season, or needs to consume energy to maintain a cold storage to preserve their harvest, then this energy is being consumed where it would not have been had the food been imported from a different food producing region at a different latitude where the product is in season or not subject to heating or cold-storage requirements. Transporting food in bulk via a container ship from one region to another region where it is supplied to consumers via transport to a grocery outlet, has been calculated to consume less greenhouse gases than consumers driving en-masse to a local producer to pick up out-of-season food items (e.g., local apples from the UK versus apples imported from New Zealand). Consumers are likely to pick up more of the food items they need at the local grocery store than they will be able to at a local producer so less trips are required. In some respects, Locavore's have it right that the drive from your residence to the food retailer is a big culprit in green house gas emissions, however, the argument can be turned against a Locavore when it is pointed out that the cost of transporting food from one region at latitude A to another region at latitude B via a container ship is so efficient that it accounts for a very small fraction of the overall greenhouse gas emissions produced relative to the amount of emissions produced when consumers drive en-masse from their residence to a local food producer who may be supplying only a fraction of their food requirements and thus not negating a trip to your local grocery store.

The "food miles" argument is only one of the arguments for buying food locally. For a food producer to extoll the lack of green house gas emissions produced by consumers buying locally, they will need to find innovative ways to make that statement true relative to the efficiency of the global food supply chain coupled to a big box grocery outlet. One simple innovation is delivering the food to consumers individually or at centralized pickup points, rather than having consumers drive to the local food producer to pick up their goods. Other innovations would involve improving the efficiency of other parts of the food life cycle: production innovations, heating innovations, cold-storage innovations, packaging innovations, and disposal innovations. Doing so would give more force to the argument that buying local helps the environment by reducing green-house gas emissions. I don't think these arguments against buy-local are fatal, but they do require locavore's to step up their game if they want to use a reduced food miles argument in an honest manner to promote their food products. There is room for local innovation here, but it is an innovation that looks at greenhouse gas consumption from a life cycle perspective rather than just how much is consumed in the distribution component.

My blogging activities were reduced last week because I was on vacation with my family during my kid's march break. During that vacation, I read a book called The Locavore's Dilemma: In Praise of the 10000-mile Diet (2012) by Pierre Desrochers and Hiroko Shimizu. The book is a critique of the locavore movement from a number of different angles. While the book has not shaken my belief in buying food locally when available, it has helped me to form a more balanced view of our food system insofar as it extolls the benefits of the global supply chain that currently provides us with most of the food we eat.

To get a quick sense of the books contents, here is a ReasonTV interview with one of the book's authors Pierre Desrochers (professor of Geography at U. of Toronto):

You can also get a quick overview of the book by reading an earlier article of their's called YES, WE HAVE NO BANANAS: A Critique of the “Food Miles” Perspective that covers some of the same ground.

I would recommend the book to anyone interested in food policy issues and anyone who grows and sells food. I'll be doing a follow up blog tomorrow on the life cycle analysis of food miles which I found interesting for a few different reasons.

The South by South West (SXSW) festival is now underway in Austin Texas. It features one of the largest music festivals in the world, along with a film festival and presentations on interactive technologies. Many names in music were signed here and many technologies, such as Twitter and FourSquare, were introduced to a wider audience at this festival. The festival has inspired other festivals such as North by Northeast in Toronto, North by Northwest in Portland, and West by Southwest in Tuscon, among others.

To learn more about what is going at the SWSW festival check out the sxsw.com website.

The National Venture Capital Association (NVCA) is trying to reduce the legal costs of fundraising by offerring model legal documents that could be used to expedite the process of finalizing a venture capital deal. According to NVCA:

A conservative estimate is that our industry spends some $200 million in direct legal fees annually to close private financing rounds. In an all-too-typical situation, the attorneys start with documents from a recent financing, iterate back and forth to get the documents to conform to their joint perspective on appropriate language (reflecting the specifics of the deal and general industry best practices), and all parties review numerous black-lined revisions, hoping to avoid missing important issues as the documents slowly progress to their final form. In other words, our industry on a daily basis goes through an expensive and inefficient process of "re-inventing the flat tire." By providing an industry-embraced set of model documents which can be used as a starting point in venture capital financings, it is our hope that the time and cost of financings will be greatly reduced and that all principals will be freed from the time consuming process of reviewing hundreds of pages of unfamiliar documents and instead will be able to focus on the high level issues and trade-offs of the deal at hand.

Keep in mind that these documents are primarily aimed at venture capital groups and not at angel investment groups. In general, the legal complexity of venture capital fund raising is higher than angel investor fund raising which can be as simple as a joint venture agreement. Nevertheless, it is worth reviewing some of these documents to educate yourself about the types of issues that arise in more complex fund raising deals. If you don't understand some of the terms or concepts being used, perhaps it is time to consult the internet or a library to find the relevant resources to help you understand.

Here is a list of the model legal documents the NVRA offers along with direct links to the relevant Microsoft Word document downloads:

• Term Sheet
• Stock Purchase Agreement
• Certificate Of Incorporation
• Investor Rights Agreement
• Voting Agreement
• Right of First Refusal and Co-Sale Agreement
• Management Rights Letter
• Indemnification Agreement
• Model Legal Opinion

Being an entrepreneur is not just about coming up with a good idea. If you are planning to raise funds from investors to fund your good idea then there are many terms, concepts, and processes related to raising capital that you should educate yourself about so that you can better navigate your way through the funding process. An excellent resource to use to educate yourself about entrepreneurship, and specifically, matters related to raising funds from investors is Frank Demmler's articles on entrepreneurship.

As you review and read Frank's list of articles you may want to reflect upon the idea of whether entrepreneurs are simply born that way or whether they have made the effort to learn how to be a better entrepreneur from resources like Frank Demmler's articles. I can tell you this, entrepreneurs are not born knowing what a convertible note is. Do you know what a convertible note is? That requires putting aside some time to learn about convertible notes and reflecting upon whether it might be a good tool to use to raise funds for your own project (i.e., relating the investment concept to your own situation and experience).

When an investor does due diligence on your company it is important that you have a good idea, that there is a market for your product or service, that there are no undisclosed financial or personal liabilities that could derail your company, and that you appear to be a person of high integrity with a good knowledge of the industry. The due diligence process does not happen overnight because it takes awhile to assess these factors which involves considerable communication, exchange of documents, and attempts to hammer out a term sheet that defines the basis for a agreement to provide capital.

The due diligence process not only deals with the idea, the market, the financials, disclosure of potential liabilities, and personal assessments; it also deals with the people, processes, and controls you have in place, or will put in place, to ensure that growth will occur as planned. If you receive an influx of capital in order to expand there is a good chance that the money will not achieve the desired objectives if you do not have the proper people, processes, and controls in place so it is important that you be able to demonstrate to an investor your capabilities in this regard.

Source: Isocert Solutions

The people aspect has to do with who is working in the company, their role, their educational background, their experience in the industry, and their ability to handle issues that will arise as you scale you business.

The processes are the recipes or checklists that people use on how to do the key things in your business. If you are an existing business and your processes are still not running smoothly, there is a good chance that the influx of capital will not help the situation. So make sure you have processes that are running relatively smoothly and you know how they will be affected when scaled up before you seek capital to expand.

Finally, there is the issue of controls which comes down to what tools you have to monitor how your business is doing and to deal with issues that arise in light of the feedback your monitoring tools provide. Your ability to monitor your financial status, your sales levels, the quality of your product or service are some of the controls you should be able to address as part of the due diligence process.

There is no escaping the fact that businesses operate in a chaotic environment with many elements that are hard to predict. That does not lessen the need for people, processes, and controls to help tame that chaos. Adding more capital to a chaotic system with inadequate people, processes, and controls is not likely help matters; in fact, it may make things worse. A critical part of determining whether you are ready for growth capital is determining whether you have the proper people, processes, and controls in place to handle existing growth and the growth that is expected to occur when more capital is injected into your business.

FLORIDA INVESTMENT NETWORK

Home

Contact

Entrepreneurs | Investors | About | Our Privacy Policy

© 2004-2024, Dealflow Solutions Ltd. All rights reserved.

Connecting Florida Entrepreneurs and Investors.