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100 Young Entrepreneurs sat in a room


 -- Published: Wednesday, 5 November 2014 | Print  | Disqus 

By It's a Mystery

All 100 were asked to come up with a business plan. They were asked for all inputs on the cost side but to leave revenue projections blank initially. All the costs you would typically see in a business were included; PP&E, utilities, employees, insurance, licenses, taxes, travel etc.

At the end of the exercise all 100 were shown a chart of the $/Yen as shown below.

 

They were then told to show revenue projections for their product using the last twenty years of this chart. In other words, where they would be able to sell their product at any point was 100% dictated by where this currency cross would be one, day, one month, one year, five years and ten years from now. If the cross rate went higher their selling price lower and if lower their selling price would be higher. The range would be 100s of percent lower or higher and there was no discernable way of measuring why the cross rate would move in a certain direction relative to the other. There was also the inherent risk that at some point the cross rate would cease to matter.

How many of those entrepreneurs would enter into that business? I would say exactly ZERO. Yet, that is the business model for gold and silver mining.

Of course the naysayers response is obvious, hedging. That is the easy way out and of course carries massive risk due to record low contango, political risks (regime change, taxes, royalties, permits) and cost overruns.

This elementary exercise that takes place globally every hour of every day in classrooms is not written about in any economics textbook that I am aware of today. Walk into a bank and try and get that business financed. Present that business model to your Strategic Management professor in any MBA program. Good Luck.


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 -- Published: Wednesday, 5 November 2014 | E-Mail  | Print  | Source: GoldSeek.com

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