An open letter to Dr. Kevin Hamlin, Principal, Southern High School

Dear Dr. Hamlin,

When you go to the Home page of the Southern High School website, the first thing you see in bold italicized letters is “Southern Bulldogs…pride unleashed!”  Unfortunately, the actions that you have taken relating to former Girls Head Basketball Coach Linda Kilpatrick are nothing to be proud of (as the Principal, I hold you accountable).  At Team13System, we systematically develop Champions in Business and in Life – and that’s with actions, not words.  When I was a young student who didn’t know anything, I was blessed to have had a role model like Coach Linda Kilpatrick (“Coach Kil” to all those who know her).  Coach Kil taught Physical Education during my time at Southern High School.  This is a class where you learn to play games – and she was able to teach all of us about the most important one – the Game of Life.  Coach Kil made a difference in my life and, along with others at Southern High School, helped mold what was to later become Team13System.  Throughout her storied career, Coach Kil has demonstrated what it takes to be a Champion in Life.

Embracing the attitude of a Champion; always giving maximum Effort; All Heart all the time; Mental toughness; Teamwork; Hard Work; Integrity; Refuse to Lose attitude; the importance of Family; Education; Energy; and always look to Maximize “value.”  These are the core beliefs that we have developed at Team13System – and these are all things embodied and taught by Coach Kil (thank you from the bottom of my heart, Coach Kil!).

For me to have to read about Southern Girls Basketball going “in a new direction” on Facebook is an absolute embarrassment to Southern High School.  It is a complete failure to treat someone who has had such a profound impact on so many individuals in this manner.  I am sad for Coach Kil.  I am sad for all of Coach Kil’s former (and current) students and players.  I am sad for those throughout Anne Arundel County and the State of Maryland who will not be able to say goodbye to Coach Kil on the court.  I am embarrassed for all the hard-working teachers at Southern High School who now become associated with these actions.  I personally am embarrassed for myself to be a BullDawg today.

The Best Organizations and Leaders know how to treat their people.  The Best Organizations and Leaders know not just how to do the right things – but how to do things right.  The Best Organizations and Leaders would never let something like this unfold under their watch.  The way that Coach Kil is being treated is definitely NOT in line with the values that I was taught growing up in Southern Maryland as a young student at Southern High School!

I hope you understand the deep level of disappointment and frustration that is felt throughout the Southern High School community right now.  To think about Southern High School and Coach Kil, and what they mean to me (and so many others), and to see this sort of activity take place – something is being unleashed, but it is not Pride (note: please change the Home page).  Fortunately, Coach Kil knows how much she is loved – but boy does she deserve better than this!  Shame on you.

Sincerely,

Edward C. Harding III
Southern High School, Class of 1988
Managing Director, Team13System

The first day of Summer is quickly approaching – Saturday, June 21, 2014.  @Team13System, we have taken notice of the many “summer reading lists” put out by various individuals and organizations on social media.  Most put out a Top 10 – but why put out a list of 10 when you can create a Checklist of 13?  We are excited to announce our inaugural Team13System Summer Reading Checklist (in no particular order – they are all Must Reads):

1. Think and Grow Rich by Napoleon Hill.  Inspired by Andrew Carnegie’s magical formula for success, this book is the result of 20 years of research and outlines 13 principles (imagine that!) for obtaining whatever you want in Life.  As Mr. Hill wrote “most of us are good ‘starters’ but poor ‘finishers’ of everything we begin.”  Start reading this book — and FINISH!
2. Warren Buffett Annual Letter to Shareholders .  Go to www.berkshirehathaway.com , on the right side click on the link for Warren Buffett’s Letters to Berkshire Shareholders, click on any year, print it and read it!  The only individual to ever become the wealthiest in the world – by investing.  Mr. Buffett writes from the heart, with honesty and integrity as well as good humor – characteristics we love @Team13System.
3.  The Intelligent Investor by Benjamin Graham.  Mr. Graham, the father of value investing, was perhaps the most influential investor of all time.  All of his books are finance classics – and he taught Warren Buffett at Columbia University.  Before he passed away in ’76 [13], he told a friend that he wanted every day to do “something foolish, something creative and something generous.”  We encourage you to live your life the same – and start today by reading the book!
4. Awaken the Giant Within by Tony Robbins.  Our Managing Director, Ed Harding, first read this book in ’94 [13] and refers to it still today.  Mr. Robbins said that his “life’s quest has been to restore the dream and to make it real, to get each of us to remember and use the unlimited power that lies sleeping within us all.”  Do you have dreams?  Time to wake up and go get them – start reading the book!
5. Buffett, The Making of an American Capitalist by Roger Lowenstein.  There have been many books on Warren Buffett – and we obviously love him, admire him and have been influenced by him from afar.  This biography is the best of them all.  On page 13, it says “Warren’s exploits were always based on numbers, which he trusted above all else.”  We can relate @Team13System.
6. The Winner Within by Pat Riley.  Pat Riley said that in life there are two things:  winning and misery.  @Team13System we guarantee you will NOT be miserable reading this classic from 1993.  In chapter 4, Riles writes about how to overcome adversity in life – or Thunderbolts as he refers to them.  One key is to forget about sympathy – so we give you none – stop making excuses and pick up the book!
7. Barbarians at the Gate by Bryan Burrough and John Helyar.  The definitive account of the 1988 takeover of RJR Nabisco by KKR (at the time the largest takeover in Wall Street History; note also that 1988 was a significant year in the history of Team13System).  This book makes real-life finance both sexy and exciting – a factual report that reads better than most fiction.
8. Toughness by Jay Bilas.  We never imagined we would be promoting anything associated with a Duke Blue Devil basketball player, but this book quickly became required reading @Team13System.  Mental Toughness is a core belief of ours – and this book gets to the heart of it.  Are you rubber or are you glass?  Read it and see.
9. Liar’s Poker by Michael Lewis.  Along with #7 above, this is one of the books that defined Wall Street during the 1980s.  Arguably, we could recommend you read anything by Lewis – but this was his first work and the first thread is an autobiography of sorts following the author through his college years at Princeton and his work at Salomon Brothers.  You will love it and won’t be able to put it down.  I mean, how would you not love learning about “The Human Piranha,” the nickname of a real Salomon employee who used the word “f%^ck” and all its variants in his speech (something we do NOT recommend on the tennis courts during AACTA Tournaments)?
10. The Phantom Tollbooth by Norton Juster.  If you don’t read this book during your lifetime, then you simply have not lived.  It may honestly be the best book ever written.  A book for all ages that is concerned principally with the awakening of the lazy mind – we #BEL13VE in it!  As the Princess of Pure Reason tells Milo: “You must never feel badly about making mistakes, as long as you take the trouble to learn from them.  For you often learn more by being wrong for the right reasons than you do by being right for the wrong reasons.”  All we can say is that it would be a mistake not to read this book.
11. Killing Pablo by Mark Bowden.  The author is best known perhaps for his book Black Hawk Down – and it would be easy to recommend that book.  But like we say, if it were easy, it wouldn’t be fun.  While you can read anything by Bowden (who holds a degree from Loyola University in MD like me) – this book is a “tour de force of investigative journalism,” detailing the rise and fall of Columbian drug lord Pablo Escobar.  We note that Mr. Bowden’s story was originally reported in a 31-part series [13 inside and out!] in the Philadelphia Inquirer before it became a book.  You will love it.
12. Numbered Account by Christopher Reich.  Published in 1998 (a pivotal number in my life as well, seeing the birth of Edward C. Harding IV), this was Mr. Reich’s first book.  You may not know who he is and may be surprised to see this name on the checklist – but the element of surprise is embraced @Team13System!  You may need a bit of sophistication and intelligence to love this book – things that we know you have if you are reading this blog.  We love the intriguing tale of Nick Nuemann (not Nick Newman on Young & The Restless!), the character who first taught me one of the most important formulas I have ever learned in The Game (of life):  H = R÷ E.  You don’t know what that means?  Read the book!
13. Gameplan for Life by Joe Gibbs.  Faith in God is at the heart of Team13System.  Like we say, BEL13VERS NEVER DIE.  I feel so blessed to have grown up as a fan of the Washington Redskins under Joe Gibbs’ leadership.  Upon reflection — what a positive difference it made on my life!  We call him Coach and in this book, which has a sports fan in mind, he teaches us what the Bible has to say about physical, emotional and spiritual health.  He encourages us to live a life of purpose.  Every day we @Team13System pray and work to become a Champion in God’s eyes – if that matters to you, then this is a must-read!

Thank you for your interest in our Summer Reading Checklist.  If you bel13ve in our System for Building Champions in Business and Life, then you will consider these 13 books.  If you KNOW our System works — then you will READ them.  As always, if you ever have any questions – if you find yourself wondering “what is this “13” all about?” – if you are having a problem in business, sports or life that you think you need help with – if you are struggling but want to become a Champion.  Don’t procrastinate – just contact us.

Edward C. Harding III                                                                                               http://www.linkedin.com/in/edwardcharding3rd/

Someone was recently asking me about the Rule of 72 – a simple method in Finance for estimating an investment’s doubling time.  Divide 72 by the rate of return, and the answer is an estimate of the number of years it will take you to double your investment (assuming compounding interest, of course).  Anyone who works in the finance field should know the Rule of 72 – yet I have come across many high level finance executives (and CEOs) who did not know the Rule of 72 (it comes in handy in late night meetings where folks don’t have calculators!).  Perhaps they didn’t care about doubling value –but I digress.  The real point that this question got me thinking about is how the Rule of 72 equates to the Power of 13!

@Team13System, in our Coaching and Training segment, we emphasize the “Stretch 13” concept as a way to maximize your personal Net Present Value.  It starts with the basic task of mapping out 100 long-term goals.  Everyone should always have a list of 100 goals to accomplish, which is continually updated on a monthly basis.  This goal-setting process is the foundation for achieving long-term Happiness in life.  And remember, Happiness leads to Success – not vice versa. [Author note: we will talk about the H=R÷E formula in a future Blog].  The “Stretch 13” simply adds 13 extra stretch goals to this base list of 100.  These are goals that some would call outlandish – goals that on paper you would have zero chance of achieving.  Of course, @Team13System we know that anything is possible.  We thrive on accomplishing in reality what everyone says is impossible on paper.  That’s what “Stretch 13” is all about.

And now, the connection of “Stretch 13” to Finance.  Solving for the rule of 72, we now know that we can double our value every 5 to 6 years (72/13 = 5.5) through the compounding power of that extra 13.   That’s not too bad!  Most folks don’t understand this way of thinking – they don’t set goals – they don’t stretch.  Do they get a nice, smooth, slow and steady personal development and growth?  Sure.  But as Warren Buffett might say, we will always take a lumpy 13% over a smooth 5%!  Don’t be afraid to stretch and don’t be afraid of 13 – the effort associated with that extra 13 has a huge long-term payoff!

This blog is dedicated to a student I once taught, who, upon listening to me explain an extra credit assignment requiring the writing of 100 personal goals, raised her hand and said “I will not do this as it has nothing to do with my MBA.”  Remember — mind, body and spirit are always related, just as the Rule of 72 relates to the Power of 13 and to each individual’s Net Present Value!

Edward C. Harding III                                                                   http://www.linkedin.com/in/edwardcharding3rd/

A recent article in the CFO Journal section of the Wall Street Journal highlights the importance of “Economic Profit” as a benchmark for Middle Managers’ bonuses. The article titled “Stock Loses Some Sway on Pay,” from the October 30, 2012 edition (page B4), starts out by stating that “fewer companies are tying their incentive-pay programs directly to their stock price, focusing instead on operating profits and cash-flow measures they say help employees better see their impact on company performance.” The piece goes on to illustrate how companies such as PepsiCo, Clorox, Coca-Cola, Kaiser Aluminum and others all use Economic Profit as an incentive metric. Owners of closely held businesses should take note of this article and topic!

First, the primary goal of business owners is to maximize long-term shareholder wealth. Maximizing wealth is directly tied to maximizing the value of the Firm. The value of the Firm, as Warren Buffet (a fairly successful and well-known business owner!) explains on page 4 of his Owner’s Manual (http://berkshirehathaway.com/ownman.pdf) is “the discounted value of the cash that can be taken out of the business during its remaining life.” Financial theory expresses it mathematically:

Where PV represents the Present Value of the Firm, CF represents free cash flow and r represents the (after-tax) risk adjusted required rate of return.

Economic Profit at a high level is equal to Free Cash Flow (i.e., CF in the formula above) minus the Firm’s Cost of Capital, where the Cost of Capital is equal to the after-tax cost of capital (i.e., r in the formula above) times the total invested capital of the Firm. Notice that Economic Profit uses the exact same financial metrics that are the drivers of the Present Value of the Firm! Notice a few other key points:

1. Net Income and EBITDA are not the same thing as Cash Flow.
2. If a business owner looks at his/her Income Statement, they will not find the true cost of debt and equity capital reflected as an expense. Economic Profit does incorporate the true cost of debt and equity capital.
3. Economic Profit is a superior measure because it is aligned with the goal of shareholder wealth maximization – it uses cash flows and a true risk-adjusted cost of capital in its measurement.
4. Economic Profit is not easy to calculate, so it is sometimes not used as a metric. Keep in mind it doesn’t always pay to take the easy road – in life or in finance!

You may be wondering why this is important to you. I know it is a lot to take in, and I have barely scratched the surface of a very complicated subject. With that said, it is too important to ignore — so I will leave you with this thought: I often hear business owners talk about “Profit” and the importance of “being profitable.” But what does “being profitable” really mean? Is your idea of “profitable” in line with your goal of maximizing wealth? If you have positive Net Income or EBITDA, does that always mean you are “profitable?” The answer is no. If your goal is to maximize shareholder wealth, then a better measure of whether you are “profitable” is whether you are generating positive Economic Profit. Thank you to the Wall Street Journal for highlighting this critical yet sometimes ignored concept!

Note that this is one of the many areas where a small Firm can benefit from having a strong Chief Financial Officer, and is an example of the type of value-added approach and critical analysis we provide to our clients at Team13System. If you would like to increase your Firm’s “Profitability,” and/or if you would simply like to learn more about Wealth Maximization and Economic Profit — please call us.

Re•li•a•ble (adjective). \ri-ˈlī-ə-bəl\

1. Capable of being relied on; dependable
2. Yielding the same or compatible results in different clinical experiments or statistical trials

Every small business owner I have worked with believes that they are reliable. They throw around amazing statistics of repeat customers, on-time service and high net promoter scores (if you don’t know what that is, call me). You can count on their product or service and that’s what differentiates them from their competition!

No surprises here — I would expect nothing less. Yet this is why it is absolutely amazing that the majority of these same small business owners do not have reliability where it really matters – in their financial statements. To be a truly great enterprise, you have to be reliable in every function of your business. Sales, Operations, Marketing, Information Technology, Human Resources, Strategy, Facilities Management – and Accounting & Finance!

Remember, the goal of a business is to Maximize Long-Term Shareholder Wealth. The only way this can be done is by implementing a world class Financial Management System, as summarized below:

1. Goal: Maximize Long-Term Shareholder Wealth (i.e., Firm Value)
2. 3 key functions:
   1. Analysis
      1. Relevant and Reliable Financial Statements
      2. Detailed Analysis (common size, actual vs. prior yr/plan/forecast, ratio analysis)
   2. Planning
      1. Which projects do we invest in?
      2. How do we finance the chosen projects?
      3. What is the optimal liquidity policy?
      4. What is the optimal dividend policy?
   3. Internal Controls
      1. Administrative controls
      2. Accounting controls
3. Based on these 3, Investors develop a risk-return profile for the Company
   1. Perception of Firm performance
   2. Overall financial environment factors
   3. Industry-specific risk factors
   4. Company-specific risk factors
4. Resulting Firm Valuation

Pay close attention to the first bullet point under the Analysis function. There’s that word: reliable. If you are a business owner and you are publishing financial statements that are incorrect, then you will never achieve your goal (in the long-term, which is what the focus should be on!). It’s that simple. Perhaps you will make a bad decision based on flawed numbers, leading to a destruction of value. Or, maybe you will provide flawed numbers to investors or creditors and they will detect the flaws and increase their perception of risk (which makes your cost of borrowing higher and decreases the value of your business!). Regardless of how it happens – it will happen. The good news is that we @Team13System have experience working in world class financial management systems. We have also helped build world class financial management systems in small companies. Finally, we have fixed broken systems. It’s not easy – but if it was easy, it wouldn’t be fun…and it all starts with being reliable. Are you?