mign's management policy (for the next generation of management)

I would like to write briefly here because I am sometimes asked about the company's policies, both internally and externally.

In addition, although we are still only in training, we are considering generalizing our policies as much as possible in today's environment, and we hope that this will be of some help to future entrepreneurs.

In the beginning, we can simply say that we "aim to create the cities and societies of the future, and to develop world-first and industry-first software and hardware using cutting-edge technology," but we will describe this in more detail below.

The most fundamental goal is to maximize corporate value

Management's mission is to maximize corporate value.

At its most basic, the goal of a corporation is to maximize corporate value (equity value + interest-bearing debt).

This is because, in general, living organisms have an innate disposition to seek their own environment (safe living environment, good food, attractive spouses and offspring, etc.) that is superior to other individuals, and financial assets (cash, stocks, receivables, etc.) held by them are one of them.

For the shareholders of a stock company and the financial institutions that finance it, the most fundamental goal is to maximize their own assets, so the most important goal of the stock company is to maximize its corporate value, which is the sum of the assets of its shareholders and financial institutions.

max sum of assets of shareholders and financial institutions = max (equity value + interest-bearing debt) = max corporate value

As management, the most important mission is to maximize corporate value in order to meet the expectations of shareholders and financial institutions.

Organizing the components of corporate value for consideration of measures

Corporate value is calculated as follows

Corporate value = k=1k free cash flow k(1+discount rate)k

Here, the DCF method (Discounted cash flow model), a common method of corporate value calculation, is used. k denotes the fiscal year k.

Therefore, in order to maximize corporate value,

• Maximize free cash flow
• Minimize the discount rate

The two main measures are to maximize free cash flow and to minimize the discount rate.

In simplified terms,

• Maintain as large a profit (large free cash flow) as possible indefinitely (discount rate close to 0).
• To keep profits growing (large free cash flows keep increasing) with almost no risk of bankruptcy (discount rate is close to zero).

This is called the

Measures to maximize corporate value

Measures to maximize corporate value can be divided into two categories: measures to maximize free cash flow and measures to minimize the discount rate.

Measures to maximize free cash flow

Free cash flow is expressed as follows

Free cash flow

Free cash flow = Operating cash flow (sales, purchases, etc.) + Investment cash flow (capital expenditures, etc.)

Sales - Costs

Therefore, although there is a difference in whether accounts receivable are included or not, the simple way to maximize free cash flow is as follows

• Maximize sales
• Minimize costs

The two measures are then broken down into smaller pieces.

It is possible to break down these two measures in more detail, but since this would be a lengthy discussion, we will simply list the main points.

Measures to maximize sales

• Entering a large market: Markets are generally independent of each other in terms of language, so it is preferable to enter the English-speaking world, which has the largest population and economy, and it is important to locate yourself in the U.S. MIGN has established a U.S. subsidiary and I try to stay in the U.S. as much as possible.

• Start with an industry where the founder can be the best in the world and where the market is large: I believe that few people in the building, civil engineering, construction, and real estate industries love and know as much about this industry and technology as I do, so I will start with this industry.

• Start with solutions for large companies and gradually create solutions for small and medium-sized companies: The size of the impact of implementing a solution developed at the same cost depends on the company's sales, and companies with larger profits can afford to experiment with new solutions, so it is easier to generate sales for large companies with large sales and profits.

• Provide solutions that leverage new technologies: New technologies are rare and scarce, and clients are willing to pay more for them; as of July 2023, we are in the early stages of generative AI, and the business will focus on providing world-first solutions that leverage this technology.

Measures to minimize costs

• Start with services that have low fixed and variable costs: The lower the fixed and variable costs, the lower the risk of bankruptcy; therefore, start with software business where such services are easy to advance.

• Create an organization with clear workflows and roles: If a business requires a unique workflow or unique knowledge to operate, it will be too dependent on a specific person, making it difficult to recruit people for similar roles; as the business grows, operating costs (marginal cost) will grow exponentially; clarify workflows and roles, minimize initial learning costs for new hires, and create a work environment that allows full remote operations from anywhere in the world.

• Design for economies of scale and barriers to entry: As the scale of the business grows, promote services that have lower costs, higher probability of people choosing your services, and a larger scale of business that reaches zero marginal profit (additional sales minus additional costs as you expand your services).

• Create an environment where people can enjoy and take pride in their work: The most important thing is the people who are involved in the development of the service. the first users of the service must be people who enjoy and are a little enthusiastic about the development. mign is a company that was created by me, the founder, to do what I wanted to do, but I believe that there are many people in the world who feel the same way (although they are considered a little eccentric). recently, by actively expressing the mign culture and brand, we are gradually getting people who are like that. if people can share and enjoy the company culture, they will feel value outside of salary and compensation, which will be very good for the company.

Measures to Minimize the Discount Rate

The discount rate used is the Weighted Average Cost of Capital (WACC), which is defined as follows

WACC=EE+Dre+DE+Drd(1-t)

where E is shareholders' equity, D is debt, re is cost of equity, rd is cost of debt, and t is the effective tax rate

The formula is a bit complicated, but in other words, the two main measures are as follows

• Minimize cost of equity
• Minimize cost of debt

The cost of equity can be viewed as the compensation paid by the corporation to its shareholders and the cost of debt as the compensation paid by the corporation to its lenders, and although the two differ in terms of whether they are investments or loans, they share the same expectation of future increases in the value of the corporation's assets, so the measures are similar.

Here is a simplified list, similar to the free cash flow measures.

Measures to minimize cost of equity capital and cost of debt

• Reduce the risk of bankruptcy to near zero: While relying on a single business allows for quick business updates, the probability of not fitting the market is high, and the risk of company bankruptcy is high. mign is creating a business portfolio that is not dependent on a specific business, with initial investment as low as possible, while pursuing various solutions in parallel so that each has synergy (common clients, accumulated technology and human resources, etc.) In addition, we are developing a system where AI can manage and make accurate and fast decisions and assess a huge variety of businesses, and automatically assemble the best business portfolio for that era.

• Receiving investments and loans in larger amounts: The larger the amount of funding raised, the more leverage the investment or loan provides, and thus the greater the return on investment or loan, even if the yield is small; however, in order to receive a large amount of investment or loan with a small yield, the company must have sufficient credit, and thus it aims to accumulate a track record of business and raise as much money as possible in the largest possible amount.

Key Points of Startup Management

As mentioned earlier, we have described the main measures to maximize corporate value, but we would like to add some additional points that are unique to startups.

Focusing on only one business is not the best approach for entrepreneurs

This is not the best approach for entrepreneurs.

VCs and other investors diversify risk by investing in multiple startups so that the startups can focus on one service, which means that the startups cannot avoid the risk of failure if the service is not successful (not valuable, not sold), especially before PMF (product-market fit), because the risk of new business failure is quite high and the startups should diversify risk by pursuing multiple businesses simultaneously.

The following is a simple expression of the formula.

If the startup focuses on one business, the expected revenue is rA and the success rate is pA. If the startup advances multiple businesses simultaneously, the expected revenue is rB and the success rate (dependent on the number of businesses m) is rB(m). rA and rB have the following relationship.

rA

= business value pA

rB

=i=1m business value ipB(m) Synergy coefficient with existing business

i is business i and m is the total number of businesses.

Let pA>pB.

Here, in order for rA>rB,

• Even if the number of businesses m increases, the success rate pB(m) will not decrease.
• Synergy with existing businesses (coefficient β is large)
• Increase the number of businesses m

As a startup creator, I believe that if the clients share a common solution, there are synergies because the cost of acquiring customers can be lowered, and if the solution is software, the solution can be created without much cost or time.

Do what the founders and employees are passionate about

I have tried many different businesses, but I think it is very important to do something that the founders and employees can be passionate about, which can be money, technology, domain, social, etc. Different people are passionate about different things, but for me, I wanted to inspire many people by bringing new ideas to life in the field of architecture and civil engineering, which I have been familiar with since I was a child.

In the past, I have pursued projects that seemed like they could generate large profits or be easy to do, but I did not have the passion to endure difficult situations and could not make them bigger.

For me, my starting point was to do something that could make many people happy with my performance as an athlete and architectural designer, so I thought I should do a business that could fulfill such values.

By doing so, I feel that I have been able to enjoy the workload, even if it is a lot of work, and have been able to improve the atmosphere with the people I work with because I enjoy what I do, which has made it easier to attract talented people who share similar values.

Choose the right people to ask for advice on business policy.

Advice on starting and running a business (especially before PMF) by someone who has never started a successful business (most major founders have never built a publicly traded company) is rarely helpful; you should only seek advice from those who have experienced it.

Most authors have no experience in building a publicly traded company, and founders of publicly traded companies who really understand the business have little motivation to publish books.

As you can see when you start a business, you will experience hundreds or thousands of very many failures and embarrassments, and those who have not experienced such things and are just looking at it from the outside are unlikely to fully understand entrepreneurship and, in my experience, will be of little help.

After PMF, all you have to do is simulate the investment and earnings in Excel, so if you have even a little knowledge of finance, it is not difficult and the advice of a VC or consultant who has experienced a lot of such work would be useful.

We believe it is important to carefully consider what kind of experience the person has had and decide whether or not to listen to their advice.

Take advantage of modern technology and social changes.

Looking back at historical social developments, many of the major turning points were the emergence of new technologies and changes in society. nowadays, the emergence of generative AI and changes in work styles, such as remote working with COVID19, are considered major points, and we at mign try to introduce them as fully as possible.

Wisdom of predecessors

Finally, as a reminder for myself, I would like to mention some advice I have received from founding executives of publicly listed companies in the U.S. and Japan, as well as from founders who have created businesses of similar scale, that has stayed with me.

• Don't think about going public from the beginning; I hate startups that raise large amounts of capital from the start; think about making money; as you make money, you will naturally start talking about going public (in the healthcare area).

→The answer to the question about when to start preparing for fundraising and going public reaffirmed that the essential thing for a stock company is to make a profit.

• Essentially, it is about how to increase EBITDA, so we should plan for that in numbers at the beginning.

→I learned the importance of explaining thoroughly not in words but in numbers.

• It is good to be an organizer of various events, because management is the same.

→I learned that organizing an event and managing a company are the same in that you have to enjoy yourself, entertain your colleagues, and procure necessary items and human resources, and I learned what kind of attitude I should have in running a business.

• Why do you think only wine is expensive among various alcoholic beverages?

→I could not answer at all when I was asked at the beginning, but I learned the importance of considering various factors as real world phenomena as deeply as possible in a scientific manner.