Business Lessons from the Rainforest Wealth Lessons from Nature BY DR Nzewi Dozie SMASHWORDS EDITION PUBLISHED BY DR Nzewi Dozie on Smashwords Business Lessons from the Rainforest Wealth Lessons from Nature Copyright © 2012 by DR Nzewi Dozie. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of DR Nzewi Chukwudozie, 48 New York Avenue NW, Washington, DC. 20001. (571)-268-3465. Acknowledgement. This is to acknowledge the owners of the photographs used in the cover of this book. 1. For the photograph Daintree Rainforest originally uploaded by Adz at en.wikipedia. Released under GNU Free Documentation License. Introduction The rainforest is the richest ecosystem on the planet, with half of its entire species, and most of its fresh water. There are more species of fish in the Amazon than all the entire Atlantic Ocean, more in one pond than all of the British Isle. One hectare (3.7 acres) may contain 750 species of trees and 1500 species of other higher plants. They collect by far more energy from the sun than humans consume. My entree into the rainforest was in Cameroon which has part of the Congo Forest. Indelible to my memory was the increasing darkness with every step taken, a canopy overhead, the sun not in sight. It was evening. Inevitable was my sense of the need for us to get out before it became too dark. High levels of rainfall are what make the rainforest so rich. The soils are actually leached shallow and very being washed by the heavy rains for millennia. They lie in the tropical convergence zone where winds from the northern and southern hemispheres having picked-up moisture along their journey over half the planet meet and dump the water. The rainforest is a self-sustaining system of production and consumption. It is big and has no cycles of recession. It’s is very diverse with all kinds of relationships among its players: competition, cooperation, and collaboration. If you are a business you have your equivalent in the bush and it has lessons for you. The scale of the rainforest is massive so it is easy to observe and the inferences made with confidence. I have been directly involved in three business ventures, starting-up and owning two of them. The structure of the rainforest like that of the market is layered. There are four layers: the emergents, the canopy, the understory and the forest floor. There are the animals and the microbes which operate in all layers. They are the equivalent of regulatory authorities. Regulatory authorities operate in all layers of the market. The Emergents. These are the tallest trees of about 50m in height, up to 80m. They are the smallest group, and are exclusive. They are the Fortune 500 companies. They are above the canopy and do not compete for sunlight, but have to stand the wind, brave lightning, endure animals and avoid the chainsaw. The Canopy. This is the second highest layer, where the branches touch from tree to tree so close that it’s a green ceiling denying sunlight to those beneath. It is the competition zone characterized by a day to day battle to see the sun. It is a day to day battle to be seen by customers and maintain the brand. In this market any lag in height could be permanent, even fatal. The trees try to keep up with each other to get sufficient sunlight. There is no worry about the weather; they share the risk, and together “weather storms”. Collectively they constitute a storm breaker. However not all risks can be shared, like the risk of being struck by lightning. An uninsurable risk. The Understory. These are a third layer of plants. They do not try to compete for sunlight; instead they develop strategies to catch enough like broad leaves. The coco-yam has two or three leaves each like a telescopic dish capturing as much of the remaining 20 per cent of the sunlight that reaches this level as possible, well ahead of star-gazing telescopes at space observatories. They are protected from the weather, but being small these plants are vulnerable to animals, so some store their carbohydrates underground in their roots(tubers), some don’t form seeds, they will grow from stems and cuttings. This is the niche market. Some plants climb the giants to reach the sun, twisting around him, sometimes very aggressively; sometimes sinking roots into his stem, there are lessons here for the small business. Some plants are not that aggressive but just grow on debris that gathers on the giant. The Forest Floor Littered with dead leaves and decaying branches this is the recycling business. It is very efficient and work dispatched very quickly. Fallen branches go quick, devoured by an army of microbes which include bacteria and fungi, yielding organic material to reconstitute the soil and supply the higher layers. Here you will see big mushroom growing on dead tree trunks. So recycling could be a big operation. However the microbes do most of the work. The Animals These live and feed on forest products. They disperse seeds and pollinate flowers. They prune plants of weak branches. They ensure the big trees seeds as well as that of the up comer get dispersed. They make sure the forest is well mixed. The gene pool of the forest is well mixed for strength as they enhance cross pollination. More importantly they are the reason why there are no “bubbles” and “crashes” in the rainforest but a stable lush forest in perpetuity. The animals of the forest are the stabilizing factor preventing “bubbles”. If the forest is prospering extra-ordinarily in a boom fashion the population of the animals which feed on its products increases and puts a check on the growth preventing a bubble. This way the animals remove excess liquidity to prevent “overheating”. The temperature of the forest is pretty stable. The canopy blocks out the sun keeping it cool. In some forests debris still accumulates over a long time and it takes a major event to restore balance like a spontaneous forest fire ignited by lightning, or heat on tinder. The rot is burnt down and the forest starts afresh cleansed of its inefficient parts. This is the only way the seeds of some plants get to germinate: after burning! These fires are the recessions and depressions that happen once in as century. We do not allow the full effect of recessions to cleanse the market, so our markets are not optimal but full of dross, riding from crash to the next crash. Humans Humans have lived in equilibrium with forests and still do in many places. However forests in general are under threat from human activity like illegal logging, poaching, and change of land use for agriculture (e.g. to grow crops for “green’’ fuel or Amazonian soybean) or for settlement. This is equivalent to the cataclysm of changing the economic system, like the Bolsheviks did in Russia early last century, a failed project that neither provided enough food nor fuel but left a gullaged dissatisfied populace who went back to “natural use” in a reverse revolution that sank the artificial enterprise, the Soviet Union. The forest is a natural enterprise. Capitalizing it kills it. It should be run as a mixed economy with clear regulations if it cannot be left alone. Part One Shared Risks. In the forest like in the commercial market there are risks common to all players. Human Activity. Human activity is a nonspecific stress on the plants and animals of the forest. The loggers create routes and move heavy equipment to get to the big trees. They kill a giant that has been growing for hundred years dislodging the birds and animals that nest on it. They move the log and heavy equipment killing more plants and animals. They change the topography by making roads and might cause erosion. Who knows what the effects of the sudden gaps in the forest cover are on the equilibrium of the rainforest? Government intervention in the market place could be as disruptive as unregulated logging in forests. Business wants stability and dislikes uncertainty. It enables it to plan into the feature. Changing market policies make it impossible for businesses to project into the future. Frequent government incursions into the market with policy changes kills businesses like illegal logging kills trees Friendly tax schedules brings in investment and has been used to unleash specific industries like IT and green technology in many places, or promote an economic zone like Dubai in the UAE and Cotonou in West Africa. Conversely many businesses have left Cameroon in central Africa because of extreme taxation. Just like human encroachment forces animal life to migrate from the forest, government policy may force business to migrate to other markets. Human activity was going to kill a forest in the Dust Bowl but for tree planting. Disease. Forests are more resistant to sporadic disease and pests than agricultural vegetation. I certainly have never heard of a forest or a species in it failing from a disease outbreak. The intense cross-pollination is certainly protective. The diversity within the forest is also protective for one species may be repelling a pest that afflicts another while benefitting from it adding nitrogen to the soil. Similarly a diversified economy is more resilient, so is a business with multiple streams of income. It is certainly good it cross-pollinate an investment portfolio with as broad set of assets. Fire Fire is a major event in the life cycle of forests. The loss is great but they always recover fully. If they were frequent they could permanently damage the forest. The analogy is with recession in market cycles. Markets have always recovered fully in terms of volume but recessions unlike forest fires are not allowed to run their natural course, so inefficiencies and structural deficiencies remain. After a forest fire the vultures come! Even animals could not run, they were burnt like grass. It is that thorough a purging. An economic depression is like a bad inflammatory process, necessary for healing, but so exaggerated that the patient is threatened to die from it rather than the disease. The Emergents. 1. They operate in a capital intensive industry like oil prospecting and extraction of which Chevron and BP are examples or the aircraft manufacturers. 2. They have been around a long time , for example HSBC( started in 1865) 3. They dominate their market overwhelmingly or had little competition, for example the technology companies Facebook and Google. 4. Or they are state owned. These are often monopolies servicing whole countries with direct government help. State-owned behemoths. These are state-owned companies commonly in the area of utilities or mineral extraction. They are power companies, water supply companies or national oil companies, other mining companies, rail companies, agricultural companies and such like. These were much more common in the days before economic deregulation and privatization. They were staple in communist and socialist systems, and also utilized by nationalistic governments to gain control over sectors of their economies to the exclusion of foreign players. This they accomplished through nationalization. The companies were also attributed a national security function: they were used to exclude foreign persons from “sensitive” sectors with national security significance. And finally they were used to help conserve the balance of payments of the countries that owned them. Imagine a foreign operator providing utilities in a country as a monopoly or at the mildest with great dominance, it amounts to a drain pipe on the foreign exchange of the host country. The solution to this was a nationalized monopoly. The Russian giant Yukos remains a monument of the period of privatization that made the state-owned business model obsolete. The capital intensive sector. Some sectors of the economy are inevitably capital intensive making firms that operate in them large out of necessity. A good example is the oil sector where drilling is very expensive. The terrain for their work can be difficult, with off-shore rigs required in some situations. The volumes of commodity moved are very huge and require expensive infrastructure like pipelines. Further processing requires very expensive plants (refineries). Thus oil companies are huge operations requiring a great deal of capital investment. Airline manufacturers are a second group of companies that are huge by necessity. Their product is highly complex, possessing a great many component parts, with their being stringent regulations to meet. Aircraft are expensive products, so are the plants and processes to make them. Thus aircraft makers like Boeing and Airbus are among the biggest companies in the world. Little competition. A company that develops software has copyright to it for a stipulated period during which it can exploit it for profit exclusively. When there are no comparable substitutes then the company can have very profitable pricing and optimal sales. Thus the company can grow very rapidly, and needs to grow rapidly to satisfy demand. Microsoft and the Windows operating system exemplified this in the 90’s. Secondly the nature of the product and structure of the market means that as massive as the market is there will be only a limited number of companies making products because of the need for compatibility (different products being able to interface and function with one another). Compatibility with the gadgets of family, friends and colleague at work is a very important matter among consumers. People usually consult members of their circle before making the decision about which tech product to buy. So a limited number of companies emerge most popular. If the market is so huge and there will be but a few companies operating it they (each) have to be gigantic. Microsoft grew on shrewd business practices to dominate a new field. No company could take on it blow for blow. For it swung hard and heavy, closed-up distance quickly and the opponent could not swing back. Even using the occasional head butt. Not willing to bite in disgust for reducing the noble sport to a dirty brawl their competitors have avoided pitch battles but gone around flanks to pick up niches. Big business behavior is indeed big predator behavior where competitors avoid conflict by specializing in different game. Actually it’s the looser who avoids the prized meat. Forced to draw on greater creativity Apple “computers” became better known for its mobile phones. Now there is a move to unify titles. Google use to be a browser, now it’s an email service selling books and offering free internet phone calls, also selling software and apps, managing music and running mobile telephony. The actors in the sector seem to seek a model that provides a comprehensive service to their customers so they have no need to look elsewhere. Everything they need in one place. A one stops shop. The competition between the American aerospace company Boeing and the its European counterpart Airbus Industrie illustrates this strategy to accommodate each other rather than mutually annihilate each other seen at the top of the food chain. Competing for the long distance flight market, Airbus was going to make a buzz by making the biggest airliner ever; which was going to convey huge numbers of people to regional hubs from where to continue their journeys. Boeing chose to go farther, providing direct flights to centers for which passengers may have otherwise had to change planes. Airbus offered airlines cheap through scale of capacity. Less cost moving large numbers of ready passenger plus the spectacle, wonder, excitement and attraction of the biggest airliner ever, the A380. Boeing offered airlines cheap through scale of range. Eliminating the need to change planes. Old companies. Some big corporations accumulated their assets over a long time. Some have been big for a century. Modus operandi of the emergent gigantic companies. Like the emergent trees of the rain forest these giant companies are very secure in their finances and business. They deal with competition that is not stifling but mostly about market share. They don’t face a day to day threat to go under. They are relatively sparsely concentrated (yet are in real competition with one another). The threats they face like with the trees come from within. The little foxes that spoil the vine. Historically they have been hit by accounting malpractice-cooking the books, dangerous loss making trading, and bad mergers. Lesson from the rainforest The way the emergent trees carry out business lends lessons to the big conglomerates. 1. The focus of their growth activity is strengthening their stem and root system. Compared to their size their foliage is not impressive as they usually consist of a few branches, sub-branches and unimpressive leaves. Their flowers and fruits are equally bland. They do no invest much in these. This is the strategy: they are by nature tall trees and have their foliage well above the canopy so they get sunlight absolutely without any encumbrance. This is the equator where sunlight is abundant so they do not require too many leaves to catch the sunlight they need. The smaller foliage also minimizes the drag of the wind on the tree. The biggest challenge facing this group is staying- up at that height. So they focus on reinforcing their stems and roots. They are as good as the stem and roots that bear them. The goal of this strategy is to endure, while for other plants that produce beautiful flowers and sweet fruit it is to produce as many progeny as possible before when they fall. The emergent plant is there from century to century, strengthening its stem and roots, increasing in girth by the year… and yes dispersing seed and making progeny. It may not have fruits for the animals but certainly the lumberman appreciates the work done building the great boughs. 2. The giant conglomerates do not face mortal competition. Their market share is pretty secure. In a way they have already beaten the opposition. The issue for them is staying big not staying up. They do so by strengthening their base through mergers and acquisitions and new product offerings. They also strengthen their base by lending out their franchise. Mergers and acquisitions bring economies of scale: the same processes are done at lower unit cost, and [...]... Like the leaves of rainforest plants they must be: 1 Fully suitable for the environment in which they are operated to reduce down time 2 Fully suitable to the uses to which they are put and be streamlined to the production process to give optimal efficiency 3 Like the leaves that follow the sun, follow the business everywhere it goes How to use lessons from the rainforest to start a business The rainforest. .. of fame the plant must be able to use sunlight to capture carbon from the atmosphere very effectively and efficiently The grasses of the savannah, the prairie, the steppes and such open spaces do so But the title goes to the tubers that do the same from under a shade So the small mama and daddy company have a place in the market and can survive if they copy the little plants of the rainforest THE GRASSES... (because of their size) The advantage they have is being completely shielded from storms, and from lightning They solve the problem of low access to sunlight by a variety of measures Some are climbers, for example the yam plant They climb the stems of plants in the higher levels: the canopy and the emergent, by winding around them or through hooks, till they emerge in sunlight The cocoyam plant solves the. .. year The hazard of being mortally damaged by animals is so great that these plants elect to race and finish their lifecycle then die voluntarily Also some would store their reserves underground (the cassava, the cocoyam and the yam are all tubers-underground stores) to prevent them being damaged or bringing damage to the plant by attracting animals Lessons from the rainforest The lesson from the third... stems or much root They pack carbon from the atmosphere as fast as they can and are done in less than a year They are very easy to grow The tubers: yams, coco -yams and cassava make a good impact feeding the world They are the carbon packers of the rain forest Having to compete for sunlight yams are climbers , that way they reach the top of the canopy, the coco-yams don’t go for height, they have two or... plants C4 plant captures carbon dioxide from the atmosphere faster than C3 plants No wonder the grasses feed the world (the animals included) They grow fast and yield a crop in months Unlike other plants their leaves grow from the base up, so if grazing animals chop off the leaf tip the leaf continues to grow Other leaves grow at the very tip If bitten off growth stops The grasses are energycapture machine... signature of the planet Like warring cavalry galloping in a past age of conquest This rushing never stops As it settling in Tokyo so it’s picking up in Seoul, as it’s settling in Seoul it’s picking up in Shanghai, then Hong Kong, then Singapore and Kuala Lumpur, then Mumbai, the Dubai, then Mombasa, then Cairo, then Paris, then London, then Reykjavik, then New York, then Dallas, then Albuquerque, then... third tier of plants in the forest is to provide what the bigger businesses cannot offer Competing with them is out of question It is clear that plants in the understory layer of the rainforest try to make the most of their prevailing situation and still achieve success The grasses feed the world These include: wheat, barley, rice, sorghum, millet, corn, and such The tubers feed the tropics: yams, cassava... than the market, and therefore its overwhelming success confirms that the free market is the optimal system Its model promises balance and abundance without bubbles and bursting These examples illustrate the application of the principles discussed so far ENTREPRENEURSHIP You want to start a business; the first thing is to determine what part the forest the business you visualize falls The emergents, the. .. the team? How far up would he like to grow the company? There are big, medium and small actors in the electrical fittings business The realities are that Joe is using his savings for the venture and does not know the business very well Advice: He has to find a river bank Here the vegetation is not dense and trees are sparse So there is no significant competition However there is no shielding from the . Business Lessons from the Rainforest Wealth Lessons from Nature BY DR Nzewi Dozie SMASHWORDS EDITION PUBLISHED BY DR Nzewi Dozie on Smashwords Business Lessons from the Rainforest Wealth Lessons. mergers. Lesson from the rainforest The way the emergent trees carry out business lends lessons to the big conglomerates. 1. The focus of their growth activity is strengthening their stem and. follow the sun, follow the business everywhere it goes. How to use lessons from the rainforest to start a business. The rainforest is a free system, it is indeed freer than the market, and therefore