Business leaders must focus on risks as much as on profit to ensure business success, according to Rice University research

Houston Voices

When it comes to getting a good return on investment, businesses should be equally focused on mitigating risks as they are on earning a profit. Getty Images

Consider for a moment the race to build the next super computer. Google, Alibaba and other U.S. and China companies are racing to build a machine — called quantum computing — far more powerful than anything the world has ever seen. In this race, China reportedly has the lead.

Given that this kind of technology can protect trillions of dollars in corporate and even national secrets, why do American companies lag behind? If such research and development represents an unknown and is a potential business risk, should U.S. companies be interested in assuming such a task? Rice Business professors Vikas Mittal, Yan Anthea Zhang and a Rice Business Ph.D. student Kyuhong Han, may have answers.

They researched the various ways companies create strategic advantages for themselves. What is the relationship between these strategies and the risks involved? Companies create value through innovation-based activities such as research and development or else via branding and advertisement. As there's no set formula for success, each company has its own approach — which could affect the risk associated with the company's stock price (called idiosyncratic risk).

Typically, the two strategic pillars are examined separately, rather than jointly. But when they compared the two approaches, they found that one presented far more risk than the other.

To reach their conclusions, the Rice team looked at a data set of 13,880 firm-year observations that included 2,403 firms operating in 59 industries over 15 years (2000–2014). The data sets were from the firms' annual operational and financial information from Standard & Poor's Compustat, the University of Chicago's Center for Research in Security Prices and from the Kenneth French Data Library. What the data revealed was the stock price of companies that placed a higher strategic emphasis on marketing and branding (called value appropriation) than companies that focused research and development (called value creation).

If it is less risky for a firm to emphasize branding and marketing over research and development it stands to reason that firms would want to exercise caution in big new research and development efforts. What's the payoff for making a quantum computer or even Space X, after all, if the research and development risks associated with the endeavor are extraordinarily high? In some instances, it may be much safer to rebrand and market. Closer to home, many companies in the oil and gas industry bet big on innovative ventures — costly product features, digitization initiatives and so on that may only increase the risk to their stock price than meet customer needs.

The researchers found that firms that plunge big efforts into research and development have more to worry about than whether their innovations will work. They have to weather the fluctuations of industry demand. When industry demand is volatile, the downside of excessive research and development, at the cost of customer-relevant strategies is even worse.

For the Rice Business researchers, the lessons for managers are clear. The return on investment is intimately linked not only with optimizing potential profits but also minimizing potential risks. Research and development heavy endeavors like Space X and quantum computers may be flashy, but in the event of an unexpected drop in demand, they're also more likely to plummet to earth, creating stock-price volatility.

Managers need to think about the elements that create risk — like demand instability. The more companies create a stable and predictable client base, the less risk that they have to face in the stock market. There is still a tendency among many firms to see advertising and research and development as preceding and guiding customer perceptions, preferences and behaviors. But perhaps the relationship is just the opposite.

------

This article originally appeared on Rice Business Wisdom.Vikas Mittal is the J. Hugh Liedtke Professor of Marketing at the Jones Graduate School of Business at Rice University. Yan Anthea Zhang is a Fayez Sarofim Vanguard Professor of Management at the Jesse H. Jones Graduate School of Business at Rice University. Kyuhong Han is a marketing Ph.D. student at the Jones Graduate School of Business at Rice University.

The stock market has been using tech for years — why shouldn't the private sector have the same convenience? Getty Images

Private securities investment company plans to use tech to simplify the process

Digital upgrade

When private companies are trying to raise capital, it's a pretty antiquated process. You take meeting after meeting, exchange dozens of emails, and then, when it's actually time to make an investment, there's a lot of paperwork to do. Seeing this over complicated way of handling things, Rashad Kurbanov thought introducing technology into the process could help simplify the investing for both sides of the equation.

"What we do, and where technology helps us, is we can take the entire process of receiving interest from investors, signing the transactions, issuing the subscription agreements, and processing the payments and put that all online," says Kurbanov, CEO and co-founder of Houston-based iownit.us.

Iownit has been in the works for about 18 months now, and has major growth plans, which includes hiring over a dozen new employees focused on tech and support.

The company is still seeking regulatory approval, but once that happens, the technology and platform will be ready to launch. The platform is a digital site that connects investors to companies seeking money. The investors can review the companies and contribute all online while being encrypted and protected by blockchain.

Diversifying the investment ecosystem
Kurbanov says the convoluted process of private securities investment has meant that startup companies are much more likely to focus on receiving funding venture firms, because they want to have a one-stop-shopping experience. When entrepreneurs add in multiple investors, they end up juggling too much of the logistics side of things, rather than running their company. Iownit's platform simplifies this process, which then allows for a diversity of investments in the ecosystem that's in the past been dominated by huge VCs.

Another way to look at it is that when it comes to investments, public investments has operated in a digital way for years — think of the stock market, for instance. But the private market has been limited to a small amount of accredited investors. The Jobs Act put into effect by Congress in 2012 changed the game a little bit, but the tech hasn't played a role yet.

"We realized there's a big section of the overall capital market that has not necessarily been touched by technology, and that's the space of private securities," Kurbanov says.

Reaching out to underserved communities
Kurbanov is based in New York, but he chose to start his company in Houston because, being focused on diversifying investments, he saw a huge opportunity when you move away from either coast. Houston has a strong corporate environment, access to capital, and great universities, says Kurbanov, but when it comes to the startup companies, it's not as proportional as it is on the East and West Coasts.

"Our goal is to put our technology and platform in use to support the capital formation in the entrepreneurial ecosystems that today don't have easy access to capital."

Every penny counts when you're starting a company. Getty Images

4 financial concerns to keep in mind when launching a startup

Must be the money

You have been working on a new creative technology idea for months, an idea that will solve a problem or make a current process even better. Your innovative idea is ready for the next step, and you, in turn, are prepared to begin your tech startup. Building a company can be stressful and exhausting, but also exhilarating and rewarding. As you begin your product launch, keep these financial tips in mind when starting out.

Consider your funding
Determine how much funding you can use from your personal accounts to jumpstart your business. By investing some of your own money into your company, you show good faith in your business plan and product. This method is appealing to investors because it shows you have a long-term commitment to the company. Next, determine how much you will need from other sources and what those other sources should be. Potential options of funding in addition to traditional bank loans are venture capitalists, angel investors, government grants, and support from business incubators.

Determine your budget
An essential step of starting up is concluding how much funding you need to get started. Establishing a realistic budget is crucial. It can make the difference between having a successful business or joining the 50 percent of small businesses that fail in the first four years. The hiring of employees, leasing office space or lab space, purchasing office equipment, paying for insurance (health and liability) and providing yourself a salary are all items that need to be included in your budget.

Unanticipated extra costs occur from time to time, so overestimate your expenses. Underestimating expenses can sink your startup. Ensure your business is solvent by preparing your budget for more. Additionally, keep in mind different types of expenses, and budget accordingly. For example, you may have one-time costs and on-going costs or fixed costs and variable costs.

Cash flow
According to a U.S. Bank Study, 82 percent of businesses that fail do so because of cash flow problems. Managing your cash flow is crucial to success. Without positive cash flow, you are not able to pay your employees, rent, or taxes. Having profits does not necessarily mean you have positive cash flow. Keep ongoing cash flow work sheets to ensure you have the cash you need to continue on a successful path.

Managing for life
As mentioned earlier, make sure you pay yourself something. It does not have to be a big salary in the beginning, but you need to eat. Additionally, you need to save for emergencies. An old rule of thumb states that an emergency fund should consist of three to six months' worth of expenses. As a result, an emergency fund can make the months where business is slow, or between projects, more sustainable.

Meanwhile, it is a good idea to separate your personal and business banking accounts. Doing so will allow you to stay more organized and help tracking and managing expenses easier. Additionally, separate accounts may be beneficial when paying taxes. Consult a tax professional for additional guidance on taxes. Finally, do not forget to save for your retirement. While it is important to focus on your new business, do not neglect to take care of your personal financial health.

With proper planning and continued financial monitoring, starting your own tech business can be done well and bring years of career satisfaction.

------

Joseph Radzwill is senior vice president and a financial adviser with the wealth management division of Morgan Stanley in Houston.

Ad Placement 300x100
Ad Placement 300x600

CultureMap Emails are Awesome

Property Showcase

Texas Republicans are pushing to move NASA headquarters to Houston

space city

Two federal lawmakers from Texas are spearheading a campaign to relocate NASA’s headquarters from Washington, D.C., to the Johnson Space Center in Houston’s Clear Lake area. Houston faces competition on this front, though, as lawmakers from two other states are also vying for this NASA prize.

With NASA’s headquarters lease in D.C. set to end in 2028, U.S. Sen. Ted Cruz, a Texas Republican, and U.S. Rep. Brian Babin, a Republican whose congressional district includes the Johnson Space Center, recently wrote a letter to President Trump touting the Houston area as a prime location for NASA’s headquarters.

“A central location among NASA’s centers and the geographical center of the United States, Houston offers the ideal location for NASA to return to its core mission of space exploration and to do so at a substantially lower operating cost than in Washington, D.C.,” the letter states.

Cruz is chairman of the Senate Committee on Commerce, Science, and Transportation; and Babin is chairman of the House Committee on Science, Space, and Technology. Both committees deal with NASA matters. Twenty-five other federal lawmakers from Texas, all Republicans, signed the letter.

In the letter, legislators maintain that shifting NASA’s headquarters to the Houston area makes sense because “a seismic disconnect between NASA’s headquarters and its missions has opened the door to bureaucratic micromanagement and an erosion of [NASA] centers’ interdependence.”

Founded in 1961, the $1.5 billion, 1,620-acre Johnson Space Center hosts NASA’s mission control and astronaut training operations. More than 12,000 employees work at the 100-building complex.

According to the state comptroller, the center generates an annual economic impact of $4.7 billion for Texas, and directly and indirectly supports more than 52,000 public and private jobs.

In pitching the Johnson Space Center for NASA’s HQ, the letter points out that Texas is home to more than 2,000 aerospace, aviation, and defense-related companies. Among them are Elon Musk’s SpaceX, based in the newly established South Texas town of Starbase; Axiom Space and Intuitive Machines, both based in Houston; and Firefly Aerospace, based in the Austin suburb of Cedar Park.

The letter also notes the recent creation of the Texas Space Commission, which promotes innovation in the space and commercial aerospace sectors.

Furthermore, the letter cites Houston-area assets for NASA such as:

  • A strong business environment.
  • A low level of state government regulation.
  • A cost of living that’s half of what it is in the D.C. area.

“Moving the NASA headquarters to Texas will create more jobs, save taxpayer dollars, and reinvigorate America’s space agency,” the letter says.

Last November, NASA said it was hunting for about 375,000 to 525,000 square feet of office space in the D.C. area to house the agency’s headquarters workforce. About 2,500 people work at the agency’s main offices. NASA’s announcement set off a scramble among three states to lure the agency’s headquarters.

Aside from officials in Texas, politicians in Florida and Ohio are pressing NASA to move its headquarters to their states. Florida and Ohio both host major NASA facilities.

NASA might take a different approach, however. “NASA is weighing closing its headquarters and scattering responsibilities among the states, a move that has the potential to dilute its coordination and influence in Washington,” Politico reported in March.

Meanwhile, Congressional Delegate Eleanor Holmes Norton, a Democrat who represents D.C., introduced legislation in March that would prohibit relocating a federal agency’s headquarters (including NASA’s) away from the D.C. area without permission from Congress.

“Moving federal agencies is not about saving taxpayer money and will degrade the vital services provided to all Americans across the country,” Norton said in a news release. “In the 1990s, the Bureau of Land Management moved its wildfire staff out West, only to move them back when Congress demanded briefings on new wildfires.”

Houston research breakthrough could pave way for next-gen superconductors

Quantum Breakthrough

A study from researchers at Rice University, published in Nature Communications, could lead to future advances in superconductors with the potential to transform energy use.

The study revealed that electrons in strange metals, which exhibit unusual resistance to electricity and behave strangely at low temperatures, become more entangled at a specific tipping point, shedding new light on these materials.

A team led by Rice’s Qimiao Si, the Harry C. and Olga K. Wiess Professor of Physics and Astronomy, used quantum Fisher information (QFI), a concept from quantum metrology, to measure how electron interactions evolve under extreme conditions. The research team also included Rice’s Yuan Fang, Yiming Wang, Mounica Mahankali and Lei Chen along with Haoyu Hu of the Donostia International Physics Center and Silke Paschen of the Vienna University of Technology. Their work showed that the quantum phenomenon of electron entanglement peaks at a quantum critical point, which is the transition between two states of matter.

“Our findings reveal that strange metals exhibit a unique entanglement pattern, which offers a new lens to understand their exotic behavior,” Si said in a news release. “By leveraging quantum information theory, we are uncovering deep quantum correlations that were previously inaccessible.”

The researchers examined a theoretical framework known as the Kondo lattice, which explains how magnetic moments interact with surrounding electrons. At a critical transition point, these interactions intensify to the extent that the quasiparticles—key to understanding electrical behavior—disappear. Using QFI, the team traced this loss of quasiparticles to the growing entanglement of electron spins, which peaks precisely at the quantum critical point.

In terms of future use, the materials share a close connection with high-temperature superconductors, which have the potential to transmit electricity without energy loss, according to the researchers. By unblocking their properties, researchers believe this could revolutionize power grids and make energy transmission more efficient.

The team also found that quantum information tools can be applied to other “exotic materials” and quantum technologies.

“By integrating quantum information science with condensed matter physics, we are pivoting in a new direction in materials research,” Si said in the release.

---

This article originally appeared on our sister site, EnergyCapitalHTX.com.

Houston humanoid robotics startup inks new deal to deploy its rugged robots

big deal

Houston-based Persona AI announced the expansion of its operations at the Ion and a major milestone in deploying its humanoid robots.

The company will establish a state-of-the-art development center in the prominent corner suite on the first floor of the Ion, and is slated to begin expansion in June.

“We chose the Ion because it’s more than just a building — it’s a thriving innovation ecosystem,” CEO Nicolaus Radford said in a news release. “This is where Houston’s tech future is being built. It’s a convergence point for the people, energy, and ideas that power our mission to redefine human-machine collaboration. For an industrial, AI-driven robotics company, there’s no better place to scale than in the heart of Houston.”

Persona AI’s new development center will be located in the suite utilized by the Ion Prototyping Lab, managed by TXRX Labs. The IPL will transition its operations to the expanded TXRX facility in the East End Maker Hub, which will allow the lab to grow its team and meet increased demand.

At the start of the year, Persona AI closed $25 million in pre-seed funding. Earlier this month, the company announced a memorandum of understanding with HD Korea Shipbuilding & Offshore Engineering, HD Hyundai Robotic, and Korean manufacturing firm Vazil Company to create and deploy humanoid robots for complex welding tasks in shipyards.

The project will deliver prototype humanoids by the end of 2026, with field testing and full commercial deployment scheduled to begin in 2027.

"As heavy industry faces growing labor constraints—especially in high-risk trades like welding—the need for rugged, autonomous humanoid robots is more urgent than ever,” Radford added in a separate statement. “This partnership with HD Hyundai and Vazil is more than symbolic—deploying to the shipyard is one of the largest real-world proving grounds for Persona's tough, humanoid robots.”

View All Listings