Consulting Services

Case Library

The following case summaries describe how Managing Director Greg Mulhauser has delivered business value to other clients in each of our focus areas. This experience, together with additional background in private investment, has greatly helped to shape the approach to business strategy developed and implemented by Mulhauser Consulting. A separate page provides an overview of particular technology areas where I can bring varying degrees of familiarity with the technology and its business relevance.

• Business Strategy
  • Technology Company Wireless and Mobility Market Strategy
  • UK Operator's Indirect Sales Strategy Framework
  • UK Operator's Wireless Subsidiary Asian Portfolio Strategy
  • UK Operator's Wireless Subsidiary Strategy Review
• Strategic Partnering
  • Technology Company Strategic Partnering Programmes
• Mergers, De-Mergers, Disposals & Acquisitions
  • UK Operator's European Acquisition Review
  • UK Operator's Wireless Subsidiary Flotation Options
  • UK Operator's Internet Joint Venture Disposal
• Corporate Venturing
  • Corporate Venturing Best Practice
  • Internal Corporate Venturing Framework
• Ad Hoc Tailored Services
  • Defence Contractor Support for UK Air Defence Upgrade
  • UK Operator's Indirect Sales Channel Business Development
  • UK Operator's Indirect Sales Channel Partner Proposition & Margin Challenges
  • UK Operator's Indirect Sales Channel 'Acquisitions'
• 'Professional Skepticism'
  • Research & Technology Sanity Checking
• Small Businesses
  • Veterinary Locum Service
• Private Investment

Business Strategy

Note that many of the subsequent sections, particularly including Strategic Partnering, M&A, and Ad Hoc Tailored Services, also include examples of work involving business strategy as an implicit component.

Technology Company Wireless and Mobility Market Strategy

Task: The technology subsidiary of a major UK telecommunications company had for some time struggled with an approach to the wireless and mobility market which consisted primarily of piecemeal attempts to find customers for the company's historical strengths in research and development. The associated revenues of tens of millions of pounds were insufficient to support the costs associated with delivering those revenues. I was tasked by the incoming Project Director for mobility marketing to formulate a new and coherent mobility strategy which the company could pursue on a more coordinated basis, with a view to expanding revenues and radically altering the return received from its substantial investments in the area.

Actions: Working to a tight timeline of a few weeks, I reviewed information on the company's historical sales in the area, positioned the company with respect to competitors within the overall mobility market, and evaluated a range of market areas where the company could plausibly compete. I provided specific recommendations about how particular market opportunities should be approached and identified significant barriers to success created by the company's current way of doing business.

Results: The work was completed quickly and exceeded expectations. A detailed written report summarised my findings, including reviews of specific opportunities and competitor activity within the following areas:

• Wireless LANs, public as well as enterprise and government
• Fixed-mobile convergence
• Infrastructure sharing
• MMS (multimedia messaging)
• Location-based services
• Instant messaging
• MVNOs
• Entertainment
• OSS and billing in particular
• Enterprise applications
• OFDM (orthogonal frequency division multiplexing) and DAB (digital audio broadcasting)
• Bluetooth
• RSP (return signal processing) and TV spectrum
• DTV (digital TV)
• Smart antenna technology
• Streaming

Recommendations and conclusions included the following:

• The company was poorly positioned to compete with genuinely end-to-end solutions providers and should position itself to provide highly specialised niche expertise.
• Channel relations should be altered to enhance access to the enterprise market.
• Market strategy should focus especially on WLANs, entertainment, MMS, and enterprise solutions; secondary focus areas included infrastructure sharing, fixed-wireless convergence and MVNO technology.
• Generalised platform development should be dropped, while additional enterprise applications investment should be undertaken very cautiously, with a few notable exceptions.
• OFDM should be addressed as a wildcard opportunity.

The report, which also highlighted the activities of approximately 200 relevant market players, was very well received and formed the basis of subsequent presentations by the Project Director and team to the company's CEO and other senior directors.

Epilogue: This report was apparently the first comprehensive review of this area of the market which the company had undertaken, and it brought some sense of coherence to an overall effort which had historically been somewhat fragmented. Additional work was later undertaken by others to expand on particular areas explored in the report, and it provided a solid basis from which the company could move forward to more serious and focused market activity.

UK Operator's Indirect Sales Strategy Framework

Task: The General Manager for a major UK telecommunications operator's retail indirect sales channel unit requested a framework for developing strategy in an area of the business which had hitherto been without any explicit strategy responsibility.

Actions: Appealing to a particular way of understanding strategy development originally formulated while working for another client (see the separate entry on a UK wireless operator's strategy), and drawing on input from each of the General Manager's direct reports, I created an outline framework for strategy development within the sales channel.

Results: It rapidly became apparent that having worked for several years with no explicit responsibility for setting strategy -- apart from generating sales -- few members of the indirect sales channel unit had an interest in investing the necessary resources to enable a meaningful contribution to strategy development. The strategy framework developed took this into account, attempting to allocate responsibility in such a way that contributing required individual teams to make only incremental modifications to their traditional ways of operating and could be achieved without working to attain specific competencies in strategy development per se. The framework focused strongly on cash flow return on investment and recommended benchmarking not just in terms of revenues but also in terms of margins on those revenues. This again proved to be somewhat unfamiliar territory in terms of the traditional operation of the unit, with the exception of a finance department which was keenly interested in managing for cash but which was unfortunately deprived of real data about margins on the sales being generated. Despite these challenges, the framework nonetheless provided a coherent information flow and division of labour between a senior executive strategy forum, the marketing and business development teams, the finance department, operations, market research, human resources and strategy personnel. A presentation explaining the framework was delivered and socialised among several of the General Manager's top team.

Epilogue: Shortly after this work was undertaken, the retail subsidiary of the company was re-organised. The indirect sales channel unit was brought together with other units under a new directorship, and the strategy function for the new structure was consolidated at a level above the General Manager. The unit was once again tasked specifically with delivering revenues. See the separate entries in the Ad Hoc Tailored Services section for examples of other work undertaken in this same area.

UK Operator's Wireless Subsidiary Asian Portfolio Strategy

Task: Following on from the work described separately reviewing a UK operator's wireless subsidiary's strategy, a smaller-scale and time-constrained piece of work was requested specifically focusing on management of a portfolio of minority interests in Asia. Reporting to the Vice President of Strategy and Planning, I relied on inputs from the team responsible for monitoring the subsidiary's portfolio interests as well as feedback directly from the in-country senior management teams.

Actions: Reviewing portfolio company operating reports and selected market statistics, I identified large opportunities to augment the company's competitive positioning in ways which would stimulate grow in cash flow in the region, as well as a number of impending threats to the company's positioning. The juxtaposition of these factors with the relatively limited management attention devoted to the area by the wireless subsidiary's UK managers was notable. Taking into account the significant financial constraints under which the company was operating, I was nonetheless able to identify a range of strategic options and achievable targets for building or maintaining the subsidiary's position in the region.

Results: The work was completed on time and exceeded requirements. A presentation was delivered to the Vice President of Strategy and Planning and socialised with senior management from the region, outlining options for action which included the following:

• Dispose of a particular interest altogether, while trading another interest and other assets for a 50% stake in a different operator; this would consolidate a position in one area while protecting against a specific competitive threat and building scale in the region.
• Defend and build in a particular country with tremendous growth potential and impending manoeuvres by other shareholders which could result in the company being marginalised.
• Dispose immediately of a particular third-place operator which, despite its popularity within the company, had poor and deteriorating competitive positioning and was unlikely to secure a 3G license.
• Partner with a specific large Asian operator and consider an equity swap or outright investment.
• Link with another specific operator in the hemisphere with significant interests in Asia.
• Create commercial agreements by which different country's operations could be linked and could benefit from synergies of scale.
• Amalgamate all minority interests in an equity vehicle and dispose of a minority stake.
• Dispose of all minority stakes, realising a comparatively small gain or even a loss, while giving up very large future growth in cash flow.
• Do nothing.

My actual recommended actions boiled down to the first four options above and additionally suggested the following strategic work be undertaken:

• Resolve the status of a particular interest, the management of which was thought to be of such high priority that there were significant feuds over it between the subsidiary and its corporate parent.
• Undertake a more serious, in-depth review of the subsidiary's strategic options within the region, rather than continuing the historical practice of focusing attention on third-party market research.
• Identify the real strategic priorities in the region. The subsidiary's corporate parent had long asserted, without substantive argument or supporting evidence, that three specific countries were top priority; yet this list included one country in which the subsidiary's portfolio interest had a terrible competitive position and excluded the two markets with highest potential for growth in cash flow.

Epilogue: As in the case of the general strategic review described separately, organisational momentum could not be overcome, and strategy proceeded much as before -- again despite the efforts of the Vice President of Strategy and Planning, himself separated from the CEO by only one layer of management. In the market which I had identified as 'at risk' but which was felt by the company not only to be of highest priority but also to be one of its strongest positions in the world, the subsidiary was subsequently forced out by precisely the competitor I had identified. In the Asian market where I had recommended immediate entry, the subsidiary's previous strategy had suggested that no other international competitors had any better opportunities and that the subsidiary was safe not to form any specific strategic intent with regard to that market; within a few short months, a large international competitor had undertaken exactly the market action I had suggested, effectively freezing the company out of that market altogether. The subsidiary eventually began exiting the region as a whole. Comparatively under-valued but high growth positions were sold to pay down debt and to permit continued focus on comparatively over-valued and low growth positions.

UK Operator's Wireless Subsidiary Strategy Review

Task: The wireless subsidiary of a major UK telecommunications company with interests in Asian, European, and UK markets required a critical review of international strategy and an evaluation of its standard practice for business strategy formulation. Answering to the newly-appointed Vice President of Strategy and Planning and drawing on input from several other members of his staff, my role was to review the subsidiary's approach to the marketplace and strategy development and to recommend an action plan for improving both.

Actions: Initially I reviewed documentation of the parent company's historical strategy in the wireless space, finding it highly consistent from year to year and demonstrating surprisingly few radical changes in response to developments in the markets where the company operated. The wireless subsidiary's competitive positioning at the time, with a large portfolio of minority stakes in other operators across the globe, was entirely understandable within the context of this historical strategy. Drawing on information reported from the portfolio companies, together with third-party and the subsidiary's own in-house market analyses of trends in the geographies where its portfolio companies operated, I identified numerous pressing strategic threats as well as a number of under-exploited strategic opportunities in relatively high-growth markets. Finally, I discovered a notable pair of assumptions with respect to impending UMTS license auctions. First, it was assumed that it would destroy shareholder value to forego a 3G license in any market where a portfolio company already had 2G operations. Second, the subsidiary's valuation models for 3G licenses attributed a remarkably high value solely to the exclusion of competitors from owning a particular license within a given market (i.e., it was envisioned that owning a license just for the sake of stopping someone else owning it was, in and of itself, remarkably valuable). As a footnote, I also found that internal presentations had for many years routinely omitted several large competitors when showing its ranking on the international scene, providing a misleadingly optimistic view of the operator's own status; this was able to be remedied quickly.

Results: The work was completed on time and exceeded requirements. Feedback, in the form of briefings and written reports, was delivered to the Vice President of Strategy and Planning emphasising observations and recommendations for action which included the following:

• The subsidiary's aspirations to become a global operating company were being frustrated by fixations on European problems.
• The subsidiary had never undertaken a study of the operational or strategic characteristics of 'top tier' competitors and was unable to benchmark itself relative to them using any metric except number of subscribers and number of portfolio companies; I provided an initial top-level characterisation of these top tier competitors.
• When measuring portfolio company performance, a new category of analysis and benchmarking should be introduced to reflect traffic share or revenue share rather than 'market share' as reflected in numbers of customers.
• Minority holdings in some specific operators should be divested either because the subsidiary's position with respect to other shareholders was under threat or because minority investment was inconsistent with longer term generation of shareholder value. Other specific positions in under-valued markets should be strengthened.
• Acquisition of one of two large international peers should be considered as a high priority, while the wireless subsidiary still had the financial clout of its parent.
• Of even higher priority, a particular large Asian market should be entered via equity swap or direct investment with a specific local operator.
• The subsidiary's efforts in terms of delivering value propositions to customers were almost entirely lost in the flurry of activity associated with 3G auctions.
• Efforts to deliver real value propositions were further frustrated by a geographical bias in both operations and strategy.
• The question had not yet been answered as to whether the subsidiary wished to be primarily a network operator, primarily a provider of mobile value propositions to end customers, or a hybrid. My recommendations included focusing on mobile value propositions and taking active, radical steps to distance the business from the future capex required for network operation.
• Obtaining a 3G license is not required for providing 3G services, only for operating 3G networks -- which first require from several millions up to billions of pounds to build.
• Primary differentiation for mobile end customers comes at the application layer which generates a specific value proposition; after an early period of differentiation according to coverage and quality of service, networks become largely irrelevant to the customer.

This work was well-received, and additional work was requested specifically addressing the subsidiary's Asian portfolio strategy (see separate entry), a strategic overview for a European acquisition (see separate entry in Mergers & Acquisitions section) and flotation options for the subsidiary itself (see separate entry in Mergers & Acquisitions section). Further work led to a specific view of strategy development in light of the initial review of the subsidiary's strategy process, and a written report was delivered outlining this approach to developing strategy.

Epilogue: In this case, the organisational momentum of the wireless subsidiary could not be overcome, and despite the full support and active lobbying of the Vice President of Strategy and Planning (who actually left to take up a different role shortly thereafter), the organisation pressed on with its previous strategy. In due course, its international operations were scaled back and it became a European-focused business with a significantly weakened competitive positioning in virtually all markets. The business slipped from a position of possible acquirer to a position of potential takeover target. The 3G auction process continued, and the corporate parent took on billions of pounds of debt as a result.

Strategic Partnering

Technology Company Strategic Partnering Programmes

Task: The technology subsidiary of a major UK telecommunications company had recently been set up as a commercial unit in its own right, with responsibility for managing its own profit and loss. As part of its effort to diversify its revenue base away from the corporate parent, the Director of Sales and Marketing put in place a team tasked with developing strategic relationships with outside companies. Having worked for several months for the Head of Strategic Relationship Development, when the team was re-organised to focus on specific capability areas, I was asked to create partnering programmes specifically in security and in mobility applications (including various tetherless technologies such as mobile phones and wireless LANs).

Actions: Working to a very tight timeline, I created a draft presentation of an appropriate partnering strategy for these areas, focusing on building around the subsidiary's existing commercial propositions, and socialised it across a wide audience including the subsidiary's marketing, engineering, and business development communities. This identified the priority focus areas for acquiring partners and recommended areas to de-emphasise. It also provided an immediate-term action plan, offered outlines for the subsidiary's propositions to potential partners of various types and indicated roughly the division of labour between stakeholders in the process.

Results: A virtual team was rapidly created involving the principal contributors to strategic relationship development, and the team was mobilised to engage with external companies. In many cases, I took the lead in engaging with senior management of external companies (usually a CEO, CTO, MD, Senior VP, or other senior executives), drawing on support from the virtual team and others. In other cases I took a supporting role while other marketing or engineering teams led discussions. Desirable aspects of the companies we engaged with included:

• 'Strengtheners': These companies can provide capabilities which complement and strengthen those of the subsidiary, enabling the two companies together to better address customers' needs than either could alone.
• Channels: These companies can provide access to customers which the subsidiary would otherwise not be able to reach, or would not be able to reach cost-effectively. Potential channel partners might own existing customer relationships, or they might for whatever reason be seen as 'trusted' partners for customers in a particular area. (See the separate entry in the Business Strategy section or several entries in the Ad Hoc Tailored Services section for other work with channels.)
• Suppliers: These companies either already supply products or could supply products to the subsidiary, and they may be able to provide referrals for potential customers who could benefit from the subsidiary's expertise with their products.

In practice, I was primarily interested in the first two, and in most cases I focused on the possibility of jointly delivering propositions to a third party. Often this meant the subsidiary prepared itself to act as a supplier to the partner for a given sales opportunity. When relationships had been developed to the point that significant sales opportunities could be progressed, I gradually passed leadership over to the relevant sales director. External partnering discussions which I led generated potential opportunities to participate in sales with overall contract values in excess of half a billion pounds, with potential values to the subsidiary itself during one financial year approaching one million pounds from the two programmes.

Epilogue: The latest information available indicated the partnering programmes remained on target to deliver revenues forecast for the financial year.

Mergers, De-Mergers, Disposals & Acquisitions

UK Operator's European Acquisition Review

Task: A major UK telecommunications company had acquired a controlling (and subsequently 100%) interest in a European fixed-line and wireless operator, and the UK company's wireless subsidiary required a rapid strategic overview of options for the acquisition, which was to be managed under the umbrella of the wireless subsidiary. Working to very short time requirements, this task was completed for the wireless subsidiary's Vice President of Strategy and Planning.

Actions: Drawing on input from teams in other parts of the parent company working on the same problem, including the office of the parent company's CTO and its fixed-line data subsidiary, I reviewed the state of play, focusing on:

• the separation of fixed and mobile assets,
• the need to link to a pan-European strategy,
• the question of what would actually be done with 3G investment, and
• operational challenges.

Results: The work was completed on time and met or exceeded requirements. Written feedback was provided to the customer including the following observations:

• It appeared to be a foregone conclusion that separation of fixed and wireless assets was required for the sake of operational performance and management focus; work was already underway on this in the parent company's fixed-line data subsidiary, despite estimates from the office of the CTO that costs for the separation would be notably high both initially and on an ongoing basis.
• Although a pan-European strategy of sorts was in place (see separate entry on the wireless subsidiary's strategy review), in practice it was overshadowed by country-specific operational considerations.
• The two principal marketing challenges were to address the truly international (roaming) segment of the market and to exploit scale across Europe, but the real challenge was doing it.
• There was no current strategy at all for what to do with 3G: all work to date had focused on the job of valuing 3G licenses. Medium-term, success in GPRS was likely to be crucial due to the operator's hitherto non-existent presence in the business market, yet the company had repeatedly failed to produce anything resembling a marketing plan.
• There was a strong need for improved reporting from the operator, an area which had historically been very weak.
• The operator's IT systems were in desperate need of rationalisation, having already caused significant operational hiccups and large lost opportunities.
• Other operational challenges included the need to find and exploit operational synergies and a pressing need to deliver propositions to the high-value business sector.

The results were well-received by the customer and contributed to the ongoing evaluations of how best to manage the acquisition.

Epilogue: Deliberations went on for several months, and core operational difficulties continued to plague the acquired operator, which remained cash flow negative for a further three years.

UK Operator's Wireless Subsidiary Flotation Options

Task: A major UK telecommunications company was considering the flotation of its wireless subsidiary with interests in the UK, Europe and Asia. The Vice President of Strategy and Planning for the subsidiary had enlisted the help of two investment banks to evaluate different options for the flotation, and I was asked to provide an independent evaluation of the strategies and financial recommendations of the two banks.

Actions: Together with another member of the Vice President's team, I reviewed the bankers' draft presentations and provided some assistance with the teammate's job of formulating an internal presentation which incorporated the investment bankers' views. I situated the bankers' recommendations within the context of third-party market research on global as well as European market participants and came to the realisation that the bankers' presentations were puzzlingly Euro-centric.

Results: The work was completed far more rapidly than expected, and additional time became available for other tasks for the same customer, including some of those discussed in the section on Business Strategy. Regular briefings were provided as the investment bankers provided their drafts, and some written feedback was produced. Key observations included:

• Empirical data were dangerously Euro-centric, with figures relative only to Western Europe failing to represent accurately the correct global scale of peers on the international scene.
• The bankers' assessment was probably correct that resolving a quandary over the ownership of the corporate parent's mobile data portal was best achieved by sharing it with the parent company's mass-market internet subsidiary.
• The banker's presupposition that the company should maximise debt and minimise existing shareholder dilution via the sale of equity was not at all as straightforward as they suggested. While generally speaking debt is a cheaper form of financing than equity, the most desirable balance of the two depended on a number of factors, including the total funding required, the impact on credit ratings of both parent and subsidiary, resulting constraints on the subsidiary's operational freedoms due to leverage, spreads relative to government debt (i.e., relative cost of debt), and the current worth of the parent's equity and likely worth of the subsidiary's equity. In particular, if one believed the equity to be over-valued and bond prices to be low (i.e., credit to be expensive), one would completely reject the maximise debt/minimise equity reasoning.
• A specific multi-billion pound expenditure on certain development activities recommended by one investment bank appeared to be a number picked out of thin air.
• A recommendation for a specific European disposal similarly appeared without any supporting argument or justification.

The work was well received and contributed to the ongoing dialogue with the investment bankers and within the company as to the best course of action for the subsidiary.

Epilogue: Ultimately, the planned flotation was cancelled altogether and the subsidiary was de-merged (spun off) without the sale of new equity and without the issuance of new debt. The subsidiary began life with a lean balance sheet, the corporate parent retaining most of its debt, and possessed of significantly higher operational flexibility than if it had been more debt-laden. However, without any influx of new capital from the solution, the wireless business initially weakened in terms of competitive positioning, its equity declining significantly in the months after its demerger. Likewise, the corporate parent found itself still in the position of shouldering an unsustainable mountain of debt and in need of a cash infusion.

UK Operator's Internet Joint Venture Disposal

Task: The board of a major UK telecommunications company had authorised the disposal of a 50% interest in an internet (ISP and portal) joint venture with a major media company. However, the Senior Vice President of Strategy answering to the CEO of the operator's mass-market internet subsidiary suggested that the opposite tack -- buying out the JV partner's interest and taking full control -- should be considered instead. I was asked by the Senior Vice President of Strategy to evaluate this option and to report back within a very short time frame with specific recommendations as to what should be done. A second person from the SVP's own team was asked to work in parallel.

Actions: Reviewing financial and operational data from the JV, the JV partner, and the mass-market internet subsidiary itself, I compared the competitive positioning and the relative values and risks associated with each business. I placed these within an industry context in terms of subscriber valuation ratios, historical growth and anticipated growth, and together with the other team member interviewed individuals with direct knowledge of the JV's operations. In short order it became apparent that I could not with a clear conscience support the idea of buying out the JV partner, and the other team member and I decided to split the work, allowing me to focus on the 'con', or sell case while the other team member focused on the 'pro', or buy case.

Results: The work was completed on time and exceeded requirements. A written report summarised the analysis and included the following observations and recommendations for action:

• The opportunity to buy out the JV partner should not be viewed merely as a 'land grab' but should instead be viewed within a broader context of strategy and the need to maximise return on capital available for investment.
• The JV's historical performance was very poor, repeatedly failing to meet its own forecasts, and it had so far not provided any information at all about how it intended to monetise its customer base to the extraordinary degree indicated in its five-year business plan. Any valuation based on a risk-adjusted notion of discounted cash flow would be drastically lower than the price then bid by the JV partner.
• Few immediate operational synergies could be expected from absorbing and integrating the JV into the internet subsidiary's existing business, because they operated under significantly different business models.
• The price per subscriber which would be required to match the JV partner's offer to buy, while representing a significant discount relative to valuations for premier publicly traded portals, was nonetheless a massive premium (nearly 6x) over the subsidiary's organic customer acquisition costs. It was difficult to see how such a premium could be a reasonable price to pay for whatever other (overwhelmingly intangible) assets would be acquired. (Worse, those customer acquisition costs were highly front-loaded, meaning the cost to acquire new subscribers decreased significantly over time and rendering the premium even more extreme.)
• Despite these negatives, the internet subsidiary could still learn a great deal from the JV's success relative to the subsidiary itself, particularly in the areas of support, site design, advertising, transaction revenues, network costs, and content.
• An array of strategies was available using warrants both as a negotiating tactic for fixing opinion on implied volatility deriving from the JV's future business projections and as a way of improving the company's financial position and flexibility in the transaction. Several of these strategies were outlined to correspond with the various positions the company might ultimately decide to take with respect to the JV.
• I cautioned against a prevailing opinion within the company that it could second-guess the reactions of the investment community to actions like buying or selling its JV stake and widely-repeated arguments built upon assumed 'hidden knowledge' about investor reactions. Instead, I urged the company to focus on the effects of its actions on the future strength of its business.
• Finally, the emphatic recommendation was that the JV interest was being over-valued by the partner and should be disposed.

The work was well-received and exceeded the expectations of the customer, who expressed particular interest in the range of warrant strategies identified.

Epilogue: The decision was finally confirmed that the JV interest should be sold rather than the entire business acquired, in line with my analysis and recommendations. However, negotiations dragged on for some months, and eventually both partners decided to sell to a third party for a very significantly reduced price relative to that which was available from the JV partner at the time of my work.

Corporate Venturing

Corporate Venturing Best Practice

Task: At the conclusion of work on internal venturing (described separately), the incoming Director of Corporate Venturing immediately requested a review of best practice in the field and recommendations for shaping the company's activities in the area.

Actions: In completing this work, I was able to draw on prior experience with the internal venturing proposal and the strategy mobilisation team which initially formulated it, as well as on my experience creating some of the conceptual precursors to what eventually became the company's technology-focused corporate incubator. (A few months before the appointment of the incubator's lead management and its formation, I had circulated amongst the company's management and selected external venture capitalists an outline proposal for setting up a new business creation capability.) I reviewed the learning which had been achieved via this other work and updated it with additional research of the relevant literature.

Results: The review was completed very quickly, and a paper was delivered to the new Director outlining observations and recommendations from current practice and nearly four decades of history, as well as explaining the differences between internal and external venturing and distinguishing direct from indirect investment -- where the latter is understood to be investment in a third-party managed venture capital fund (not corporate venturing at all). Critical success factors (and conversely, easy ways to fail) were explored in the following five areas:

• clarity of purpose
• investment criteria
• organisation and corporate commitment
• remuneration and risk/reward balance
• staffing

The paper further reviewed contemporary examples of both internal and external venturing and highlighted useful learning points from them. In addition to the paper's obvious recommendations (i.e., observing the critical factors for success), other suggested actions included:

• The strategy for the company's technology incubator should be clarified, and rather than attempting to cover the entire spectrum itself from new ideas right through to flotation, it should focus on specific stages. I recommended a focus on the earlier stages, with a separate entity handling later stages.
• The mandate for implementing venturing activities of any kind should be clarified, with many people throughout the company believing they had been personally charged by the CEO to 'just do it'. With the new Director of Corporate Venturing in place, this confusing situation should be rationalised.
• The company's strategic goals as they related to venturing should be clarified, and it should be emphasised that the activity is primarily about generating shareholder value, not primarily about downstreaming technology.
• Financial targets should be reigned in, with existing estimates of internal rate of return (IRR) appearing entirely unrealistic. While the company would likely find that exploiting strategic fit between its own business and new businesses created was indeed a central success factor, it should also realise that a strategically constrained fund should not expect to achieve the same IRR as funds run by professional venture capitalists operating under less significant strategic constraints.
• The company's current culture amongst those attempting to implement corporate venturing programmes contrasted starkly with the outside world of venture capital.

Epilogue: The post of Director of Corporate Venturing was in existence for only a short time, and to my knowledge the role had little influence on the company's technology incubator. No company-wide venturing scheme was implemented. The company's technology incubator remains internally managed, and as of roughly the two and a half year mark, I am not aware of any value realisations (flotations, spin-offs, trade sales, etc.) or re-absorptions of businesses as viable operations (so as to form the basis of new products or services) having occurred via the incubator. One or two trade sale disposals or IPR-for-equity deals which preceded its actual formation have retroactively been associated with the technology incubator's name, however, and very much to its credit the incubator appears to retain the vocal support of management at the most senior levels. It is unclear whether any of the recommendations provided to the former Director of Corporate Venturing made their way from the Director's location in California back to the UK incubator.

Internal Corporate Venturing Framework

Task: The Director responsible for overall strategy at a major UK telecommunications group initiated a 'strategy mobilisation programme' to involve a wide range of people in the formulation of specific pieces of strategy, and I was invited to participate as one of an eight-member team addressing internal corporate venturing. The bulk of an overall internal venturing proposal was created by this group, and I was subsequently asked to stay on for a number of months and help progress the proposal alongside the Vice President of Business Planning for one of the group's organisational units.

Actions: Drawing on the initial framework created by the strategy mobilisation team, I worked with the Vice President of Business Planning and one of his team members to develop the framework further. I organised visits with leading corporate venturing teams based in the UK and abroad, took responsibility for drafting the paper which was to lay out the internal venturing proposal to the company's board, and helped to socialise the proposal amongst the senior executives and directors of the company. I took active steps to share information and experience with the team responsible for a smaller scale corporate incubator associated with the company's technology subsidiary.

Results: The work was completed on time and exceeded expectations. Slide presentations and the paper mentioned above were produced and socialised, and the work was instrumental in securing the creation of a new post of Director of Corporate Venturing when the company was re-organised while the work was still underway. The principal features of the internal venturing proposal distinguished it sharply from the company's existing technology incubator as well as its passive venturing activities via minority stakes in venture capital funds managed by others. Features included:

• The programme was directly and explicitly aligned with the company's three stated strategic goals.
• It was structured to cater for the entire employee base of the company rather than only to the few percent employed by the company's technology subsidiary, and it was intended to permit the exploitation of new business ideas and creative business models whether or not defended by patents. (The company's technology incubator strongly emphasised patents as the foundation for new businesses.)
• The programme provided explicit exploitation routes back into the company.
• Recognising that few external business accelerators, incubators or 'full service' venture capital funds cater for the full spectrum of business building from initial idea right through to flotation, the proposal provided an explicit architectural separation and division of labour between units focusing on the creation of 'proto-businesses' and the later building up of more established businesses. The proposal explicitly flagged the need for external management support and identified the stages of the process where external such expertise was required.
• The proposal made open and explicit recommendations as to the strategy for allocating equity within created businesses to the parent company, the management team, and any other investors.
• The proposal made every effort to warn against 'get rich quick' approaches to new business development and stressed the importance of realistic target setting.
• Benchmark figures illustrating the successes and shortcomings of other corporate venturers were included, and historical facts were highlighted in an attempt to avoid repeating others' mistakes.

Completion of this stage of the work coincided with the appearance of the newly appointed Director of Corporate Venturing, charged with putting a clear corporate venturing plan into action. The Vice President of Business Planning and I handed over the framework to him, ready to be taken forward and implemented.

Epilogue: The new Director of Corporate Venturing immediately requested a new piece of work (described separately) outlining for him the current best practices in corporate venturing. He was, however, interested in what he believed to be promising venturing opportunities in Silicon Valley, and shortly thereafter he left the country to form a small team in California. Plans for a company-wide venturing scheme were not taken forward (although the company has a small corporate incubator associated with the technology subsidiary still in operation). The post of Director of Corporate Venturing was dissolved less than a year later.

Ad Hoc Tailored Services

Please also see the UK Operator's Wireless Subsidiary Strategy Review in the Business Strategy section for an example of business strategy work which included a strong element of the kind of process troubleshooting which is often a hallmark of Mulhauser Consulting Ad Hoc Tailored Services.

Defence Contractor Support for UK Air Defence Upgrade

Task: A leading international defence contractor was supporting the UK government's procurement process for a significant upgrade of an air defence system. (That is, the contractor was supporting the procurement process itself, rather than providing the air defence system.) At a crucial stage of the work, the contractor was unable to field key personnel which had been promised to the Ministry of Defence, and continuation of the contractor's work for the MoD was in jeopardy. Mulhauser Consulting was asked to take over the central role in the short term, leading the requirements capture for the air defence upgrade and acting as a bridge from the customer to the contractor's other resources who would subsequently take the work forward in the medium term.

Actions: In the days prior to beginning the assignment, I rapidly acquired domain-specific knowledge of relevant areas of air defence, reviewing documents both from the client (the defence contractor) and the client's customer (the MoD). Working alongside the client's primary consultant to the MoD, I met first with relevant UK government officials and applied this knowledge to initiate the requirements capture phase. Meeting subsequently with other parties involved either from commercial or research perspectives, I gathered feedback and additional insights on the somewhat novel procurement process for the air defence upgrade. Detailed information was passed on to other key personnel at the defence contractor, and the work proceeded with the contractor's own personnel as originally planned. After a period of some weeks, I was invited back to meet with the team leader of the effort to offer feedback on late drafts of the work and to ensure that all relevant knowledge had been successfully passed on.

Results: The task was completed rapidly and met or exceeded expectations. All relevant parties -- including the MoD as well as other commercial and research interests -- were kept 'on board', and MoD confidence in the contractor was retained. The short-term deficit in the contractor's ability to field key personnel was remedied, and I successfully acted as a 'bridge' with other relevant parts of the contractor's organisation.

Epilogue: Final delivery to the MoD took place on schedule and exceeded expectations, successfully fulfilling an important role in the defence contractor's overall strategy for engagement with the UK government.

UK Operator's Indirect Sales Channel Business Development

Task: The General Manager of the indirect sales channel unit in a major UK telecommunications company's retail subsidiary felt that the unit's business development team habitually under-performed relative to his other teams. The General Manager requested an analysis of the business development process and identification of the problem areas responsible for the perceived under-performance.

Actions: In light of inputs from finance, operations, and the business development team itself, it was a straightforward matter to identify the primary reasons why the team's performance was perceived as inadequate.

Results: The work was completed very quickly and met or exceeded expectations. Written feedback was provided, highlighting observations and recommendations for action which included:

• The business development process itself is an inherently creative and uncertain activity partly concerned with intangibles such as relationship forming and not entirely amenable to measurement via one-dimensional metrics such as revenues; even in the case of revenue generation, forecasting revenues from business development activities is singularly unlike forecasting those from well-established sales activities with stable pull through.
• The business development process in place was actually relatively well designed and implemented at the team level, with appropriate mechanisms in place for generating and evaluating business cases and launching pilot programmes. Problems arose not because of a poor business development process per se, but because of poor integration of that process into the rest of the indirect sales channel unit.
• The first integration problem was a nearly complete disconnect between sales teams' incentivisation programmes and business development pilots; a related difficulty was a lack of operational support representation at the pilot planning stage, resulting in a negative impact on productivity in operational support when they were asked to support a programme with little advanced warning and with little attention paid to their requirements and constraints.
• The second problem concerned the unit's relentless focus on revenues and its many side effects:
  • Quarterly planning activities regularly demanded premature financial projections from poorly-established business development activities; in some cases, this resulted in numbers literally being made up with no empirical data. This resulted in frequent shortfalls which generated further pressure in the subsequent quarter to forecast the generation of even more revenues to make up for the shortfall. I recommended that the business development process involve the setting of specific targets for dates when sufficient data would be available that revenue projections would be meaningfully generated. (Prior to that date, my recommendation was: if you don't know, don't commit.)
  • The process for generating and evaluating business cases was sensible and addressed many other factors beyond revenues (such as costs, the scaling between revenues and costs as the former grew, impact on internal systems, regulatory obligations, contribution to other specific business objectives, etc.). Yet when business development activities were subsequently monitored, success was judged only by revenues generated. Objectives set in the original business plans were virtually never tracked -- unless they were revenue projections. I recommended that every stated objective or business benefit cited in a business case should appear with an appropriate metric by which progress relative to that objective or benefit would subsequently be quantified.
• The unit's lack of attention to margin considerations in the monitoring process had resulted in one of the largest and most 'successful' (in revenue terms) business development activities operating at less than 2% gross margins and a questionable accounting practice of booking gross revenues on sales of a product which was never handled and for which the company acted only as a broker for third parties (rather than booking revenues on the basis of the resale margin itself, a difference in this case of a factor of 50). Ironically, network services margins associated with the same activity were actually very high, and had the unit chosen to highlight these network services revenues instead (which were lower and allocated to a different part of the business), the activity would actually have been revealed as a success for the overall business. (This was because the gross profit delivered from lower revenues to another part of the business was much higher than the gross profit delivered on higher revenues to the channel unit itself.)
• Echoing other work reported separately, I recommended a new focus on profitability and the generation of shareholder value, as distinct from revenues.

Epilogue: Because I left the area very shortly after this work was completed, I did not have an opportunity to trace its subsequent evolution or impact. However, I am told by colleagues who left their jobs more recently that the unit has since come to view its business much more in terms of cash flow rather than merely in terms of revenues. As for the business development process, a large part of the business development team left their jobs, and the post of Head of Business Development remained unfilled for many months. I am hopeful that the work described here may have had some positive impact on integration and on monitoring of progress when the team was rebuilt.

UK Operator's Indirect Sales Channel Partner Proposition & Margin Challenges

Task: As a very brief task following on from work on 'acquisitions' in the indirect sales channel unit of a major UK telecommunications firm's retail subsidiary (see separate entry), I spent a little time exploring an unsustainable element of the unit's channel proposition as well as broader related issues concerning the way the unit managed margins and its revenue mix.

Actions: Drawing on information from operations, finance and the marketing team responsible for formulating the channel partner proposition, I rapidly discovered that the channel proposition included continuing commissions which were a flat percentage of revenues. Yet both gross and operating margins on those same revenues were decreasing over time. The upshot was that in order to secure short term revenues, the unit was sacrificing its longer-term profitability. The principal response to this discovery was that the channel proposition was 'market driven' and that this justified whatever channel proposition was ultimately put in place -- yet no data (or educated guesses) were available to quantify the impact on the company's market position of even gross hypothetical changes in the channel proposition.

Results: On this occasion, my findings were so notable that I felt it would be counterproductive to disseminate them to a wide audience or to set them out formally. Instead, I attempted to effect change via informal discussions with a number of individuals in finance, business development and marketing. Principal results included:

• The channel proposition was unsustainable, as described above.
• Defending the proposition as 'market driven' was unacceptable. While data were abundant on channel partners' present perceptions of the company and the channel proposition, there was nothing to indicate how those perceptions might differ in response to any changes in the proposition. Therefore, it was difficult to understand how management decisions on this topic could have been 'driven' by real, quantitative information about the market.
• Related problems were in fact much more widespread: the unit actually had no access at all to information about the underlying gross margins of the products and services it was selling. It was unknown whether there even was any positive margin left after the deduction of partner commissions.
• I strongly urged a straightforward exercise of quantifying the pre- and post-commission margins associated with the entire revenue mix. This would allow future management decisions on allocation of effort as well as the channel proposition to take into account their impact on the financial health of the company.

There was a mixed response to this work. While some people, particularly in finance, agreed that it was important to understand whether the unit's activities were creating or destroying shareholder value, others felt that because remuneration was linked directly to revenues and nothing else (certainly not cash flow), no problem actually existed.

Epilogue: Because I left the area very shortly after this work was completed, I did not have an opportunity to trace its subsequent evolution or impact. However, I am told by colleagues who left their jobs more recently that the unit has since come to view its business much more in terms of cash flow rather than merely in terms of revenues and that the original question of whether the unit was creating or destroying shareholder value was eventually taken very seriously. I am unaware of what changes, if any, may have been made in the channel partner commission structure.

UK Operator's Indirect Sales Channel 'Acquisitions'

Task: The indirect sales channel unit of a major UK telecommunications firm's retail subsidiary received a very large proportion of its overall annual revenues from 'acquisitions', or 'winback' of customers from other operators. After some important early work by a member of the business development team raised concerns about risks associated with the concentration of this revenue in the hands of a small number of channel partners, the Head of Business Development and later the General Manager of the indirect sales channel unit requested a strategic review and recommendations for improving the situation.

Actions: Drawing on the important earlier work by a colleague and gathering data from finance, marketing, operations, sales and business development, I explored the historical arrangements whereby channel partners received longer term commissions on line revenues in exchange for up-front field work reprogramming equipment on the customers' premises so as to allow the change of network provider. I investigated the relatively well-known commission 'double bubble' which occurred when both channel partners and account managers in another part of the retail subsidiary were both paid for the same piece of business, evaluated some less well-known problems with reporting on such revenues and the IT infrastructure as a whole, and discovered a notable and apparently hitherto unrealised fact about the partner proposition and operating margins (described separately).

Results: The investigation was completed rapidly and met expectations; feedback was provided in written form and included the following observations and recommendations for action:

• Efforts should continue to expand the relevant partner base so as to mitigate the risks associated with this large chunk of revenue.
• Revenues from this area of the indirect channel should be reported and presented separately from the rest, to enhance management focus and to enable the indirect channel effort to be better marketed as a 'leading edge' operation rather than 'trailing edge' (acquisitions revenues are the epitome of 'trailing edge', ancient technology, and this fact was found to be partly responsible for widespread denigration of that part of the retail business).
• Reporting should be radically reshaped, and costs should be investigated for the job of revamping the IT infrastructure so as to overcome the complete lack of quantitative data necessary for analysing the cash flow impact of various acquisitions models and options for modifying them. (Notably, no information was available on the lifetime of acquired lines, the average revenue per acquired line, or even the proportion of acquired lines vs. new lines for a given partner.)
• I suggested a novel business model for acquisitions under which the operator itself would bear the costs of reprogramming customers' equipment and would sell the customer a 'pre-paid discount' scheme providing lower service costs in exchange for an up-front payment. This was an entirely new solution to the regulatory prohibition on cross-subsidies which was the reason for the partner acquisition model in the first place.
• Finally, I recommended further attention to a notable fact uncovered in the course of my explorations: namely, the fact that the unit's partner proposition resulted in commissions payments coming to represent an increasing percentage of the cash flow generated by sales.

Epilogue: While I immediately undertook further investigations of the partner proposition problem, I left the area shortly after this work was completed and as a result did not have an opportunity to trace the subsequent evolution or impact of the work I initiated.

'Professional Skepticism'

Research & Technology Sanity Checking

Task: During my time as a research scientist, I was frequently asked to analyse approaches the company had received from outside companies or individuals (or occasionally internal employees) attempting to interest them in a wide array of novel technologies, creative business opportunities, or revolutionary hardware or software systems. Often these 'great ideas' had received favourable press coverage, and cautious senior managers were rightfully wary of accidentally turning away something which really was great without conducting proper due diligence.

Actions: Very often, I was able to identify fraudulent or misleading claims almost immediately, drawing on experience in a range of scientific and/or technological areas. Sometimes, it was necessary to conduct literature searches or even consult with other sources inside or outside the company to confirm a judgement.

Results: Typically verbal briefings coupled with short written summaries were quickly provided back to senior management. Examples of approaches which were rejected included:

• A new computer system based on the classical architecture of Turing Machines (see the tutorial information included on the mulhauser.net Scientific Research pages) was alleged to outperform existing desktop systems based on the von Neumann architecture. The proposal demonstrated a fundamental misunderstanding of computer science and complexity theory.
• Numerous approaches were based on novel compression algorithms claimed to achieve amazing levels of compression on virtually unconstrained input sets; these were proven fraudulent via straightforward arguments from the field of information theory. (Details on information theory are also provided in the tutorial section of the mulhauser.net Scientific Research pages.)
• A 'novel' system for creating software via manipulations based on genetics was a creative mixture of real computer science and the field of genetic algorithms (a perfectly legitimate and commercially useful field), on the one hand, with wild flights of fancy on the other hand -- flights of fancy again proven to be fraudulent via elementary information theory.
• A few approaches offered entirely unsubstantiated claims about quantum computing, including one which claimed to have implemented the world's first fully functioning quantum computer available as a plug-in card for a PC.

Not all 'great ideas' were fraudulent, however, and in at least one case the material -- a draft paper, noticed by another employee, which described a method for rapidly factoring large numbers using a novel optical computing device -- was truly ingenious. I was one of only several individuals tasked with analysing this particular paper. Unfortunately, in that particular case, there was no clear route to practical commercial exploitation of the idea.

Epilogue: To my knowledge, my analyses provided no examples of either false negatives (incorrectly rejecting a great idea) or false positives (incorrectly judging a fraudulent claim to be a great idea).

Small Businesses

Veterinary Locum Service

Task: A veterinary surgeon was interested in forming a business shell for providing veterinary locum services to a range of different veterinary practices.

Actions: Working collaboratively with the veterinary surgeon, we explored the advantages in terms of tax and liability of limited companies, selected an appropriate capital structure and formed the new company. We evaluated business banking options open to the business, selected an accounting service, and formed an initial plan for going to market.

Results: The business is now operational and providing veterinary locum services.

Epilogue: The capital structure selected for the business provides several mechanisms for maximising income and lowering the surgeon's tax burden, relative to other options which were available.

Private Investment

Please note: Mulhauser Consulting does not offer investment advice.

Clients of Mulhauser Consulting will find an appreciation of commercial realities and capital risk informed by nearly two decades of private investment experience, ranging from precious metals to listed equities and derivatives and including companies based in 11 different countries and over a dozen sectors. I use both net short and net long positions in options (puts and calls) to exploit leverage and to hedge risk in an underlying portfolio with its primary asset allocation in equities. Examples of common option strategies I employ include covered calls, long calls, and overlaid spreads -- vertical, calendar and diagonal. Individual equities experience includes ETFs, REITs and ADRs. At the other end of the scale, I am also familiar with the UK's EIS and have some exposure to the UK VC environment.

In terms of investment philosophy, I believe that over the long term, financial markets are highly efficient but that over shorter time periods, significant deviations from ideally rational behaviour can and do occur. While it is an empirical fact that most active fund managers under-perform their benchmark indexes, nonetheless I believe it is possible to bias longer term performance in the direction of exceeding market averages, and to do so via something other than luck. (Obviously one can outperform market averages by making investment decisions based on random coin tosses.) Specifically, I believe the odds of generating longer term outperformance are improved by investing with longer term time horizons while exploiting shorter term volatility within the market.

At the end of the day, financial market dynamics are characterised by a high degree of randomness and a low degree of correlation between historical and future movements. There will always be relative 'winners' and relative 'losers' -- just as there would be in coin-tossing competitions. But most of those who try to convince us they have a high probability of being winners in the future are probably trying to sell us something. (Consider that a single-elimination tournament of coin tossing starting with 1024 contestants is guaranteed to yield a winner at the end who successfully called 10 consecutive tosses. But would you bet on that person in the next round? Would someone who bet on that person before the tournament began be a great judge of coin tossing?)

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