Liverpool Biennial was due to use the Saw Mill site in Wolstenholme Square
Liverpool Biennial
bosses have had to find a last minute site for a new artwork after the
city’s Saw Mill was badly damaged in a suspicious blaze.
Birkenhead-born, Turner Prize
-winning artist Mark Leckey was due to stage his new video installation
at the Wolstenholme Square venue – the entrance to the former Nation
club – as part of this year’s Biennial which opens on July 9.
His work, Dream English Kid, has been inspired by Eric’s, and a Joy Division gig the then 15-year-old attended in 1979.
Gavin Trafford
Turner Prize winning artist Mark Leckey is exhibiting at this year's Liverpool Biennial
However, the derelict building on the corner of Parr Street and
Slater Place was engulfed in a fierce blaze on Friday night in a fire
police have confirmed was started deliberately . Biennial artistic director Sally Tallant said
today: “We’re disappointed not to be able to show Mark Leckey’s work at
the Saw Mill during this year’s Liverpool Biennial due to a fire at the
venue over the weekend.
“However we are very excited to be presenting Mark’s work at the Blade Factory at Camp and Furnace.”
The Liverpool Biennial runs from July 9 to October 16 at venues across the city as well as in public spaces.
And while they’re hardly keen on debt, they think it’s necessary for growth.
Millennials are often maligned, fairly or not, for having an over-large sense of entitlement and self-involvement. But a new study released Wednesday byWells Fargo says that popular conception has it all wrong, at least when it comes to business ownership. Millennial entrepreneurs want to grow
their businesses for the long haul, and they have plans to leave their
businesses to their kids, the study reports. Just as important, they
want to feel like their work really matters. And like their older peers,
they have an aversion to debt and risk that, in healthy doses, is
likely to help their businesses grow. “There was some myth-busting that this study really helped uncover,” said Doug Case, small-business segment manager for Wells Fargo. Wells conducted an online poll of 1,000 business owners in March and April. The sample was split between millennial and older business owners.
Millennials are defined as people born between 1981 and 1997. Older
entrepreneurs, for the purposes of the survey, are defined as those aged
36 and older.
Eighty percent of millennial business
owners said they want to develop their businesses over the course of
many years, and potentially hand them down to their children someday. That’s more than the 66% of older business owners who said they want the same thing. Surprisingly,
only 6% of millennial respondents and 9% of older respondents said they
had either inherited or bought the businesses they now run. Most
started their businesses from scratch. Along those lines, nearly 60%
of millennials said they started a business because they want to feel
passionate about what they are doing. Slightly more than half of older
entrepreneurs noted passion as a key element for starting a business. Each age group reported uneasiness about taking on debt, though more millennials said they were willing to use debt to grow their businesses compared to older entrepreneurs. Indeed,
43% of millennial business owners report having taken on some form of
personal debt to build their business, mostly in the form of carrying a
balance on their credit card. Of course, the younger set also has significant student-loan debt: 44% of millennials in the survey had average student loan debt of $25,000 or more, compared to 36% of older business owners.
And those debt levels will likely have an impact on how much these entrepreneurs are willing to borrow for their businesses.
“That has to shape your attitude toward debt and borrowing responsibly,” Case said. Millennials, however, confessed to
knowing less about financial matters that are key to their businesses.
Less than half said they were very knowledgeable about their business’s finances and dealing with financial matters, compared to nearly 60%
of older business owners. Similarly, 41% described themselves as very
successful dealing with the finances of their enterprises, compared to
47% of older business owners.
Y
Combinator, the startup accelerator and investment firm that helped
produce Airbnb, Dropbox, and Instacart, is embarking on a creation
project arguably more ambitious than any company.
"We want to
build cities," wrote Y Combinator partner Adora Cheung and President Sam
Altman in an announcement slated for release Monday. YC Research, Y
Combinator’s nonprofit arm, plans to solicit proposals for research into
new construction methods, power sources, driverless cars, even notions
of zoning and property rights. Among other things, the project aims to
develop ways to reduce housing expenses by 90 percent and to develop a
city code of laws simple enough to fit on 100 pages of text. Eventually
the plan is to actually produce a prototype city. "We’re not trying to
build a utopia for techies," says Cheung, the project’s director and the
former CEO of failed housecleaning startup Homejoy. "This is a city for
humans."
Initial applications are due July 30. Cheung says she'll
start hiring researchers this year and is already thinking
about possible locations. If all goes well, the project would be a
showcase for new urban policy ideas—and for the expanding ambitions of Y
Combinator, which was dismissed as unserious by rival venture firms
when it was founded in 2005. Early on, YC, as it’s known in Silicon
Valley, was best known for making investments as low as $6,000, so small
that its portfolio companies were told to aim for "ramen
profitability," or to generate enough profit so that the founders could
afford instant ramen.
YC has
since seeded more than 1,000 startups and today competes in later-stage
deals with the likes of Sequoia Capital and Andreessen Horowitz through a
$700 million venture fund managed by former Twitter Chief Operating
Officer Ali Rowghani. Altman formed YC Research last year with a $10
million personal donation and a contention that "research institutions
can be better than they are today." He now says the lab will eventually
have an annual budget of $100 million. "The central theme is to work on
things that we need for the successful evolution of humanity," says
Altman.
Last
December, Altman and Elon Musk, the Tesla and SpaceX CEO, announced the
formation of OpenAI, a research effort aimed at ensuring that advances
in artificial intelligence don’t lead to killer robots that destroy
human civilization. (Musk has suggested that artificial intelligence
could be "more dangerous than nukes.") The following month, Altman
announced a long-term study into "basic income," the concept of giving
citizens a cash allowance to spend as they wish. (A pilot program is now
in the works in Oakland.) In May, Altman and computer scientist Alan
Kay formed the Human Advancement Research Community, a research lab
focused on education, among other things.The city project
inserts YC into a long-running debate over housing affordability. For
years, activists in San Francisco have blamed tech startups—especially
Airbnb, Y Combinator’s most valuable portfolio company—for
record-setting rents and home prices.
Altman denies that YC’s new
research efforts represent a response to the backlash against tech
investors, characterizing them as an an effort to apply the
firm's innovation model to society’s most intractable problems. "I
believe that we should view it as a basic human right to have enough
money to afford food and shelter," says Altman, referring to the basic
income study. "It’s an idea that’s makes sense to most children."
Before it's here, it's on the Bloomberg Terminal.LEARN MORE
Compensation is, of course, more than money. It includes other
aspects such as: how much you enjoy your career, whether it provides
fulfillment, how much flexibility you get and how much influence you
have over what you do and when you do it.
In our work studying entrepreneurship-through-acquisition (EtA) — in
which individuals purchase an existing small business to own and run
themselves — we’ve found that most graduating MBA students agree that
being the CEO of a small firm dominates traditional post-MBA careers
like consulting, investment banking, private equity, and the like on
these non-pecuniary dimensions. Owners of small businesses can set their
own hours, make their own management decisions, and take pride in the
ownership of their work.
Also, as we explained in an earlier article,
we believe that being an established CEO of a small firm involves much
less angst than being a senior member of a consulting, investment
banking, or private equity firm.
So, the remaining question about being a small firm CEO is the
monetary reward; if the money is nearly the same, then the compensation
as a small business CEO dominates other careers.
To ground our analysis, let’s assume that the alternative to being a
small firm CEO is to follow a traditional post-MBA career and recognize
that, at best, we can only compare expected paths because
everyone’s experience will be different. So, we begin by assuming that
the traditional path offers cash compensation equal to the average
starting salary. (It might be tempting to turn to the highest starting
salary paid, which typically goes to the graduate with the most
experience in the most competitive market, who often earns crazy money
their first year. But these are rare occurrences, and we believe that
using the average yields a more accurate outcome.)
That average is actually hard to nail down, however. Some large sample surveys
report that MBAs nationwide have an average starting salary of about
$100K. Graduates from so-called elite schools make more, with some estimates
of elite school average starting salaries in the $150K range. The
relative compensation of a traditional career and entrepreneurship
through acquisition hinges on salaries in the next 10 years and the
carry from deals with investors who provided money to acquire the
business. These are of course unknown and highly dependent on the job
and the success of the small business itself. But here is a sketch
based on the information we have at hand.
We’ll assume the salary in a traditional post-MBA job grows at a 12%
compound annual growth rate (CAGR) so that it more than triples in the
first 10 years, which is in line with post-MBA salary surveys we’ve done
here at the Harvard Business School. We’ll also assume the cash
compensation for a new CEO of a small business starts off at the average
post-MBA salary, and its growth is generally tied to the performance of
the company — both of which are typical from our experience as board
members of these types of companies. Because we generally argue that
those searching for a small business to buyshould target slow-growing dull businesses,
we’ve put this at 5% per year. The chart below shows that over the
first 10 years of employment, the cash compensation from the traditional
job dominates.
But the annual cash compensation only provides part of the pecuniary
payoffs of the purchase of a small business because the
entrepreneur also has a significant ownership interest in the company.
The size of that ownership interest varies on how they structured their
funding throughout the process, but for now let’s assume the
entrepreneur has a 20% carried interest in the acquired company. (That
means that the CEO keeps 20% of any cash distribution after the
investors’ investment is returned and they are paid a preferred
dividend.) The value of that carried interest, of course, depends on
the performance of the business, its size, amount of debt used to
finance the acquisition and the eventual pricing of a subsequent sale.
To make the analysis tractable, we’ll make some simplifying
conservative assumptions: we’ll assume no growth in the business and,
because there is no growth, we’ll assume that the selling multiple
exactly equals the purchase multiple. We’ll also assume the
entrepreneur acquired a $1.5 million EBITDA company for 4x paying $6
million and using 50% debt financing.
To keep things simple, we’ll take advantage of our assumptions of no
growth and a constant multiple and ignore the actual timing of the cash
flows. That means that, in this example, the purchase price and the
eventual selling price will be the same so that the debt and the equity
investment can be assumed to be repaid at the sale. This leaves us only
with the cash flows that occur between the purchase and the eventual
sale.
In this example, the annual cash flow is $1.5 million; the debt is
half of the purchase price, or $3 million; and the interest on that debt
(assuming a 5% interest rate) is $150,000 annually. This leaves
$1,350,000 to be split 80%/20% between the investors and the CEO. The
CEO’s implicit annual cash flow from the carried interest is therefore
20% of $1,350,000, or $270,000.
Add this to the cash salary and the entrepreneurship through
acquisition path dominates the traditional post-MBA career path, as
shown in the chart below.
What happens if we take into account the timing of the cash flows?
The usual timing of cash flows is that the debt gets repaid first, then
the equity investors get their investment plus preferred return second,
next the entrepreneur gets paid 20% of the preferred return, and lastly,
the remaining cash flows are split 80% for the investor and 20% for the
CEO. The bank and investors get paid off before the CEO gets any cash
for the carried interest. But the advantage to the traditional path in
the early years is very much offset by the impressive EtA cash flows
that occur once the carry starts getting paid and even more so upon exit
(which we’ve assumed in year 10 in this example). Here is the revised
comparison:
Analytical readers may think this is a great opportunity to compute
the present values of the two paths, perhaps using different discount
rates the reflect the perceived risks of the two paths (the present
values are close at 15% for the traditional path and 25% for the EtA
path) in hopes of determining which path offers the highest
compensation. (We recognize that some believe that the EtA path is more
risky and thus would assign a higher discount rate. We are not so sure of that.)
We don’t advise that approach. Instead, we think you should recognize
that there are a lot of differences that we haven’t fully modelled. On
one side of the coin, there are likely tax advantages from the EtA
payouts and increases from growing the acquired business. On the
traditional path side of the coin, there might be pensions or bonuses
that we’ve not captured.
Overall, we think that this financial analysis shouldn’t be used to
show that one path dominates another. To us, it shows that the
compensation is reasonably similar across the two paths; certainly
individual variations in experiences will dominate any systematic
differences. With money out of the calculus, and the general assessment
from MBA graduates that the non-pecuniary aspects of being a small
business CEO dominate those of more traditional careers, we imagine that
more graduating MBA students will choose the EtA path.
Of course, being a small firm CEO doesn’t appeal to everyone so the
decision turns, as we think it should, on whether you appreciate and
will thrive in a small business environment.
Richard S. Ruback
is the Willard Prescott Smith Professor of Corporate Finance at the
Harvard Business School. He has taught a variety of corporate finance
courses throughout his career and has served as an expert witness on
valuation and security issues. Over the last few years, he and his
colleague Royce Yudkoff have been developing and teaching courses on the
entrepreneurial acquisition of smaller firms. They are the authors of
the HBR Guide to Buying a Small Business(HBR Press, 2016).
Royce Yudkoff
is a Professor of Management Practice at the Harvard Business School;
he co-founded and served for over 20 years as Managing Partner of ABRY
Partners, a leading private equity investment firm. Over the last few
years, he and his colleague Richard Ruback have been developing and
teaching courses on the entrepreneurial acquisition of smaller firms.
They are the authors of the HBR Guide to Buying a Small Business(HBR Press, 2016).
Compensation is, of course, more than money. It includes other
aspects such as: how much you enjoy your career, whether it provides
fulfillment, how much flexibility you get and how much influence you
have over what you do and when you do it.
In our work studying entrepreneurship-through-acquisition (EtA) — in
which individuals purchase an existing small business to own and run
themselves — we’ve found that most graduating MBA students agree that
being the CEO of a small firm dominates traditional post-MBA careers
like consulting, investment banking, private equity, and the like on
these non-pecuniary dimensions. Owners of small businesses can set their
own hours, make their own management decisions, and take pride in the
ownership of their work.
Also, as we explained in an earlier article,
we believe that being an established CEO of a small firm involves much
less angst than being a senior member of a consulting, investment
banking, or private equity firm.
So, the remaining question about being a small firm CEO is the
monetary reward; if the money is nearly the same, then the compensation
as a small business CEO dominates other careers.
To ground our analysis, let’s assume that the alternative to being a
small firm CEO is to follow a traditional post-MBA career and recognize
that, at best, we can only compare expected paths because
everyone’s experience will be different. So, we begin by assuming that
the traditional path offers cash compensation equal to the average
starting salary. (It might be tempting to turn to the highest starting
salary paid, which typically goes to the graduate with the most
experience in the most competitive market, who often earns crazy money
their first year. But these are rare occurrences, and we believe that
using the average yields a more accurate outcome.)
That average is actually hard to nail down, however. Some large sample surveys
report that MBAs nationwide have an average starting salary of about
$100K. Graduates from so-called elite schools make more, with some estimates
of elite school average starting salaries in the $150K range. The
relative compensation of a traditional career and entrepreneurship
through acquisition hinges on salaries in the next 10 years and the
carry from deals with investors who provided money to acquire the
business. These are of course unknown and highly dependent on the job
and the success of the small business itself. But here is a sketch
based on the information we have at hand.
We’ll assume the salary in a traditional post-MBA job grows at a 12%
compound annual growth rate (CAGR) so that it more than triples in the
first 10 years, which is in line with post-MBA salary surveys we’ve done
here at the Harvard Business School. We’ll also assume the cash
compensation for a new CEO of a small business starts off at the average
post-MBA salary, and its growth is generally tied to the performance of
the company — both of which are typical from our experience as board
members of these types of companies. Because we generally argue that
those searching for a small business to buyshould target slow-growing dull businesses,
we’ve put this at 5% per year. The chart below shows that over the
first 10 years of employment, the cash compensation from the traditional
job dominates.
But the annual cash compensation only provides part of the pecuniary
payoffs of the purchase of a small business because the
entrepreneur also has a significant ownership interest in the company.
The size of that ownership interest varies on how they structured their
funding throughout the process, but for now let’s assume the
entrepreneur has a 20% carried interest in the acquired company. (That
means that the CEO keeps 20% of any cash distribution after the
investors’ investment is returned and they are paid a preferred
dividend.) The value of that carried interest, of course, depends on
the performance of the business, its size, amount of debt used to
finance the acquisition and the eventual pricing of a subsequent sale.
To make the analysis tractable, we’ll make some simplifying
conservative assumptions: we’ll assume no growth in the business and,
because there is no growth, we’ll assume that the selling multiple
exactly equals the purchase multiple. We’ll also assume the
entrepreneur acquired a $1.5 million EBITDA company for 4x paying $6
million and using 50% debt financing.
To keep things simple, we’ll take advantage of our assumptions of no
growth and a constant multiple and ignore the actual timing of the cash
flows. That means that, in this example, the purchase price and the
eventual selling price will be the same so that the debt and the equity
investment can be assumed to be repaid at the sale. This leaves us only
with the cash flows that occur between the purchase and the eventual
sale.
In this example, the annual cash flow is $1.5 million; the debt is
half of the purchase price, or $3 million; and the interest on that debt
(assuming a 5% interest rate) is $150,000 annually. This leaves
$1,350,000 to be split 80%/20% between the investors and the CEO. The
CEO’s implicit annual cash flow from the carried interest is therefore
20% of $1,350,000, or $270,000.
Add this to the cash salary and the entrepreneurship through
acquisition path dominates the traditional post-MBA career path, as
shown in the chart below.
What happens if we take into account the timing of the cash flows?
The usual timing of cash flows is that the debt gets repaid first, then
the equity investors get their investment plus preferred return second,
next the entrepreneur gets paid 20% of the preferred return, and lastly,
the remaining cash flows are split 80% for the investor and 20% for the
CEO. The bank and investors get paid off before the CEO gets any cash
for the carried interest. But the advantage to the traditional path in
the early years is very much offset by the impressive EtA cash flows
that occur once the carry starts getting paid and even more so upon exit
(which we’ve assumed in year 10 in this example). Here is the revised
comparison:
Analytical readers may think this is a great opportunity to compute
the present values of the two paths, perhaps using different discount
rates the reflect the perceived risks of the two paths (the present
values are close at 15% for the traditional path and 25% for the EtA
path) in hopes of determining which path offers the highest
compensation. (We recognize that some believe that the EtA path is more
risky and thus would assign a higher discount rate. We are not so sure of that.)
We don’t advise that approach. Instead, we think you should recognize
that there are a lot of differences that we haven’t fully modelled. On
one side of the coin, there are likely tax advantages from the EtA
payouts and increases from growing the acquired business. On the
traditional path side of the coin, there might be pensions or bonuses
that we’ve not captured.
Overall, we think that this financial analysis shouldn’t be used to
show that one path dominates another. To us, it shows that the
compensation is reasonably similar across the two paths; certainly
individual variations in experiences will dominate any systematic
differences. With money out of the calculus, and the general assessment
from MBA graduates that the non-pecuniary aspects of being a small
business CEO dominate those of more traditional careers, we imagine that
more graduating MBA students will choose the EtA path.
Of course, being a small firm CEO doesn’t appeal to everyone so the
decision turns, as we think it should, on whether you appreciate and
will thrive in a small business environment.
Richard S. Ruback
is the Willard Prescott Smith Professor of Corporate Finance at the
Harvard Business School. He has taught a variety of corporate finance
courses throughout his career and has served as an expert witness on
valuation and security issues. Over the last few years, he and his
colleague Royce Yudkoff have been developing and teaching courses on the
entrepreneurial acquisition of smaller firms. They are the authors of
the HBR Guide to Buying a Small Business(HBR Press, 2016).
Royce Yudkoff
is a Professor of Management Practice at the Harvard Business School;
he co-founded and served for over 20 years as Managing Partner of ABRY
Partners, a leading private equity investment firm. Over the last few
years, he and his colleague Richard Ruback have been developing and
teaching courses on the entrepreneurial acquisition of smaller firms.
They are the authors of the HBR Guide to Buying a Small Business(HBR Press, 2016).
