The economy is in the tank, and even though there are a number of experts talking about a sustained rally, there are also a number of them calling for collapse. While the government tries to prop up the financial system, I am left wondering if we have truly learned that fincial engineering rarely creates value.

Over the last few decades most business schools have increasingly focused on teaching students the art of financial engineering. This dark art includes topics such as speculation (trading), insurance, and complex schemes for high degrees of leverage (debt).

But none of those topics, by themselves, create any value. So when the economy became overly focused on these issues, it was inevitable that the top-heavy structure would topple. This idea seems to be widely accepted today, and yet there don’t seem to be many people discussing the alternative.

The natural alternative is to return to a focus of pure value creation. This is the entrepreneurial path of encouraging people to make new products and invent new services. New services and products create value by being focused on customer needs and solving real problems. A customer-based focus says “I get paid to help you”, which is a far cry from Wallstreet’s recent attitude of “We’re so smart you should pay us”.

At the end of the day, a company should be able to articulate the value it provides for customers in a very clear and simple way. David Weekley Homes has a web site that states simply “Since 1976, one of America’s most-recognized new home builders delivers excellence in Design, Choice and Service to hundreds of communities in more than 15 cities.” On the other end of the spectrum is Barclays Capital, the company that acquired bankrupt Lehman Brothers, which says on it’s web site “A TEAM WITH ONE FOCUS. YOU.” While it is quite possible that this is an over-simplification, I am much more drawn to a company that can clearly state what it does.

This is the whole point of Acton’s Cash & Valuation course, being very clear about what you do so that it can be objectively measure in cash. Clear measurements lead to clear choices, and clear choices is something we are terribly short on in today’s economic environment.

Tags: Advice, Ben Allen, Cash and Valuation, Teachers

Posted in Entrepreneurship, Guest Writers