How to value an industrial venture (imho)

(This is a rant I wrote back in June, right when “return to normal” was the top trending phrase in conversation the second wave of coronavirus was just hitting.)



I don’t agree with Ayn Rand on much but she had this right:

“It is not difficult to judge which industrial ventures will succeed and which won’t.”

I’ve been blessed this week to watch human ingenuity in concrete terms. With the first glimpse of sunlight after the lockdown, auto industry management are furiously rolling back every improvement they’ve been forced to make in response to the Coronavirus.

It’s remarkable. Humans spare no effort in the pursuit of failure.

I mentioned it’s easy to predict what industrial ventures will fail, so now I’ll reveal the magic trick. Industrial ventures succeed when the crazy person on a mission is allowed to address quality problems. This is how long supply chains are made reliable.

  1. Find the crazy person on a mission. If they’ve already been fired, the venture will fail. To approximate how long this will take, plot their savings with the assumption that “things fall apart slowly, then all at once”.
  2. Observe the extent to which the crazy person is prevented from solving quality problems. Those areas which are outside the scope of their drive and cognitive abilities will fail (see step 1). Express the other areas in terms of a percentage.
  3. Assume this percentage is equal to the risk of failure. Multiply this with the assets of the business section under the crazy person’s influence.
  4. Add these up. This number is the real value of the venture. (Please note this is not investing advice, because stock price has no absolute intrinsic connection with true valuations.)
  5. Repeat to plot a time series for a sense of the business’s direction. If possible, check this against the crazy person’s subjective opinion.

Also, remember to have fun and be a good sport.

About Aeoli Pera

Maybe do this later?
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2 Responses to How to value an industrial venture (imho)

  1. Obadiah says:

    Accurate

  2. Aeoli Pera says:

    I should mention this blog post was plagiarizing Peter Drucker: “Whenever you find something getting done, anywhere, you will find a monomaniac with a mission.” More accurately, I was extending his idea quantitatively.

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