Growth5 Blog

Tuesday, March 31, 2009

Fingerprints & Skype for the iPhone?

From engadget.

1. Biometrics for the iPhone: "Recent patent fillings by Apple that AppleInsider has dug up point to the company adding several new methods of insuring the security of its devices for users. The new filings cite biometric authentication methods that would excite Ethan Hunt -- including installation of a hidden sensor behind the screen that would recognize the user's fingerprint when touched, and / or a front-facing camera for retinal recognition. The filing also suggests further possibilities, such as the device being capable of recognizing the user's voice, or collecting DNA samples for recognition via genetic code."

2. Skype for the iPhone: "We're still filing this away in the rumor folder for now, but we'll be honest -- this is totally believable. GigaOM has it on authority that a bona fide Skype for iPhone client will be launched as early as next week, and with CTIA kicking off on April 1st, we'd say the timing is just about ideal. Of course, we've already seen a variety of alternatives for bringing Skype and other VoIP apps to Apple's darling, but by and large, they've been supremely unimpressive. There's no word on pricing (we're crossing our fingers for free) or any other tasty tidbits, but you can bet we'll be keeping an ear to the ground for more."

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Twitter: Still No Revenue; Mark Cuban & Courtney Love Tweet to Make Money For Others

The Los Angeles Times reports that both the NBA and clothing designer Dawn Simorangkir stand to make money off of "tweets" from Dallas Mavericks owner, Mark Cuban, and from musician(?) Courtney Love, respectfully (if such a word can be used in this context).

Cuban was fined $25,000 for tweeting about "bad" officiating in a recent game, during the game.

Cuban later tweeted, "can't say no one makes money from twitter now. the nba does."

Courtney Love allegedly defamed clothing designer Dawn Simorangkir by tweeting something that the LA Times wouldn't even link to, nevermind quote. Simorangkir has sued.

The LA Times makes a great point about celebrities previously taking their conflicts to the media who would then filter comments approaching defamation so their publications wouldn't get sued. Without that filter, celebrities, and others have a direct line to the public - good or bad.

Mark Cuban addresses the issue of tweet copyright in a recent post. He asks, "so when an or any other outlet republishes a tweet, have they violated copyright law?"

Any guesses on where the NBA read about Cuban's tweet blasting the referees?

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What is Crowdsourcing?

Wikipedia's definition: Crowdsourcing is a neologism for the act of taking a task traditionally performed by an employee or contractor, and outsourcing it to an undefined, generally large group of people or community in the form of an open call.

In the March 30, 2009 edition, Forbes featured Dolores Labs, a company that is building technology to collect, organize and filter microtasks for crowdsourcing projects.

Co-founder, Lukas Biewals originally created Dolores Labs to provide quality assessments for the work being done by the 200,000 or so moonlighters that work on Amazon's Mechanical Turk - an online marketplace giving businesses and developers access to an on-demand, scalable workforce. The workers (called "turkers") select from thousands of tasks and work whenever they want.

Dolores Labs makes it easy for companies to tap thousands of these turkers for short stretches--and get good quality work. The San Francisco company has a dozen algorithms that assess the turkers' accuracy and speed. It acts as a middleman between companies with grunt work to be done and workers roaming Mechanical Turk for jobs. It spells out the pay and job specifications on the Turk Web site.

"Thomas Knox, a 28-year-old high school graduate who teaches guitar in Schaumburg, Ill., has seen his lesson schedule shrink. Since January he's spent 15 hours weekly on Turk assignments. For an average of $3 an hour he sifts through Web pages and tags things (for one job he marked photos of men with goatees) while watching sports games on TV. "It's better than nothing right now," he says.

"Document-sharing site Scribd used Dolores Labs to have 10 million documents categorized by type (resume, recipe, sports, news). Scribd cofounder Tikhon Bernstam says it would have cost the company $30,000 to hire staffers to do this. With Dolores Labs as middleman and accuracy cop, the project cost only $2,000."

Our companies plan to try Dolores Labs for some market research and perhaps a couple other projects. I will let you know how it goes.

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Monday, March 30, 2009

Bank of America: Redefining Bonuses

On Thursday we covered the definition of the word "bonus". It can mean different things to the public, the government and certainly financial institutions.

In an effort to prevent a public outrage similar to what AIG went thru, Bank of America has decided to raise the salaries of some of its top dealmakers by 70%. B of A is up to $45 billion in bailout money and appears to be proactively making moves to retain its top people if the govt. imposes sharp bonus restrictions on institutions that have received bailout money.

Bloomberg reports:
  • “The concepts we are considering would not increase total compensation,” Brian Moynihan, Bank of America’s president of investment banking and wealth management, wrote yesterday in a memo to employees obtained by Bloomberg News. “Rather, we believe it is responsible, and consistent with the emerging public consensus, that a greater percentage of overall compensation come from fixed base salary.”
  • Bonuses will become a “smaller” portion of total compensation, Moynihan wrote in the memo. “In view of the public concerns about executive compensation, changes in the market, and the need to create a more sustainable compensation culture, all the major financial institutions are evaluating compensation practices.”
If these are the salaries the banks need to pay to retain their top people (market value), so be it. We want these banks to keep their top people so they can pay the govt. back. However, the only way these dealmakers should receive any "bonuses" on top of their base salaries are under the following circumstances:

1) the company has made a profit for the year;
2) the company retains a % of the profit for next year's cash flow; and
3) the US govt./taxpayers have been paid back in full.

Give them the base salaries to keep them, and make sure they have incentives aligned with the govt/taxpayers to earn more.

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Friday, March 27, 2009

Google Adds Context to Search

Google has added context to search using semantic technology.

In the past, whatever words you entered in the Google search window were literally just looked for across the web. Google's success in search has relied on having the best algorithm to order the display results from the thousands of sites that contained the words you were searching for. Google never thought about the meaning of your keywords, they just found them and organized them for you.

Now, the Google search engine will be thinking about the meaning of the words you are searching for and will be displaying contextual results intermingled with keyword results.

PC World covered the Google announcement:

"The new technology will allow Google's search engine to identify associations and concepts related to a query, improving the list of related search terms Google displays along with its results, the company announced in an official blog.

For example, if you search for 'principles of physics', our algorithms understand that 'angular momentum,' 'special relativity,' 'big bang' and 'quantum mechanic' are related terms that could help you find what you need," wrote Ori Allon, technical lead of Google's Search Quality team, and Ken Wilder, team engineer at the company's Snippets project...

There is an entire field of Google competitors that are busy developing and perfecting semantic search engines, betting that they will be able to deliver on the promise of this technology: to let users type in queries in natural language and have the search engine understand their meaning and intent.

Microsoft last year acquired Powerset, one of these companies, in order to improve its Web search engine with semantic search technology.

Google also rolled out on Tuesday another enhancement to its search engine: longer "snippets," which are the text excerpts Google extracts from Web sites to show in search results where the query keywords appear."

Further coverage:
PC Magazine
Information Week

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Want Money? Create a Competitive Experience

Want to do something smart to enhance sales, donations or customer relationships? Create a "competitive experience."

A competitive experience is an event that is compelling enough to compete with the constant barrage of other events that swirls around us every day. Think about how events impact your life: you can lose your job or your car keys; you can have a war in Iraq or with your neighbor; you can face your significant other across a romantic dinner or a bill collector with a dunning notice. Consider the events that shape our times: 9/11, the Obama Inauguration, Katrina, the Super Bowl, Thanksgiving, our birthdays.

Nothing is as powerful as an event when it comes to getting somebody to do something. Not the Internet, not television, not the press, not even Twitter.

Suddenly, though, it has become fashionable to shun events. Every politician from the President on down has spoken out against events. You will notice that they are doing so after the election -- and countless campaign rallies and $1,000-a-plate dinners.

I'm not advocating lavish junkets, high-priced golf outings or big bucks black tie galas. Competitive experiences don't have to be expensive -- but they have to happen. For example, I recently heard of a financial services organization that canceled what had been a successful client event. I suppose they figured that their clients didn't want to hear from them anymore. That may prove a self-fulling assumption.

Even more interesting was a non-profit CEO who announced that he had decided against what had been a successful annual fundraising event. He sent out post cards asking for money instead -- and made just as much money on lower donations -- because he saved the price of the event. But he's also conditioned his donors to give less and next year, having lost this year's "momentum," he may find it harder to sustain the relationships he had nurtured with the event in the past.

By the way, the CEO made his point at an event attended by hundreds of other non-profit officials. Ironically, motivated by this experience, some may have gone home...and cancelled their events ... without realizing the irony of doing so!

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Thursday, March 26, 2009

What does "bonus" mean? "Pig Pile" Media, & the Importance of Knowing Both Sides of the Story

Please read this resignation letter sent by Jake DeSantis, an executive vice president of A.I.G’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G.

In the letter, DeSantis explains to his CEO how he was asked to not leave AIG a year ago, to take an annual salary of $1- the rest would be paid out as a "bonus" when the year was over. Feeling loyal to the company, DeSantis signed the "retention contract" with AIG to work thru March 2009. And go to work he did.

Fast forward to March 2009. AIG received bailout money, lots of it. AIG lost money, but its employees were receiving "bonuses" - OUTRAGE!!! The "we are supposed to be providing news 24/7 and we never have enough real news so let's ride something for as long as we can" Pig Pile Media latched on to this "bonus" scandal. Over 20,000 articles to choose from via Google News.

Congress started writing laws directed at these AIG snakes. Attorneys General sprung into action, we will get these crooks!!! [some people thought focusing on .01% of the bailout money was not a good use of these people's time: $165 million in bonuses vs. the trillions already given out...] But AIG lost billions, how can the word "bonus" even come into play. Examples must be made.

One thing we have learned in this process is that "bonus" doesn't mean the same thing to everyone. To most of us it means some extra money for doing a good job at work. In the financial services world, it often means the majority of some one's compensation. Would you call whatever Jake DeSantis makes on top of his $1 annual salary a bonus? Congress does, and they want 90% of it back. The Attorney General of NY does, and he wants it all back.

As the resignation letter explains, the billions lost at AIG was a result of the actions of a handful of people (derivative traders). Most everyone else at AIG was doing their job. Some had contracts that guaranteed they would be paid their "bonuses". If there was a contract, doesn't that according to the traditional definition imply that it's not actually a bonus... guaranteed compensation isn't a bonus, is it?

To make it even more confusing, sometimes in the financial services world the word "bonus" could often be better described as a "commission". The person's job is to bring investments in, or keep managed money in-house, for doing so, a bonus/commission is paid at the end of the year. They have no control over whether the traders/company operators make a profit with that money, their job is to make sure it comes in or stays in. Should they forfeit their commission for placed money if the traders lose a big chunk of it?

If your spouse sells appliances at Sears and is paid a commission on all the appliances she sells, it is understood she will be paid that commission whether the company makes a profit that month/quarter/year or not. This is a similar scenario to how a lot of hard-working people in the financial services industry are paid.

Should the derivatives traders be paid bonuses? Obviously not. Should management at Sears be paid a bonus in a year they lost money, of course not. I think we can all agree the woman selling appliances on the floor, she should be paid what she is owed, regardless.

Tom Hanks stands to make $50 million on "Angels & Demons", the sequel to "The Da Vinci Code". If the studio can't turn a profit on the movie, it is not Tom's fault, he will still get paid. Much like the AIG folks, he has a contract. What if Congress or one of the attorneys general finds out that a lending institution that received bailout money has helped to finance this film. Will they call an emergency session and come up with the Tom Hanks tax of 99%? Will there be outrage? There will not be.

A few reasons why:

1) people can understand the finances behind a movie as a business. Movies are made for an amount of money, they open, money comes in. If more money comes in than was spent, so be it. If not, so be it. If a studio can handle paying Tom Hanks $50 million for a movie, they must think that is what he is worth to make a movie for them so it's their problem to deal with. Plus, Mr. Hanks is hard to get because he has a high perceived value. Financial institutions find, pay and keep their top people in a similar fashion.

2) Most of us know we wouldn't be able to carry the sequel to "The Da Vinci Code" - we can't act, wouldn't know where to begin, and even if we could, we are pretty sure we couldn't "open" a worldwide film and get people to the theatres. Tom Hanks can, so he gets the money.

But I think there is a feeling out there that if we had just picked a different major on our college apps, we could be doing what the people in financial services do, those bonuses in the millions could be ours. So, forget those jerks, they're no better than us, they don't deserve that money.

3) Most people just want someone to blame for how the economy has affected them - and it isn't going to be Forrest Gump, so substantiated or not, we'll stick with the AIG folks for another news cycle or twenty.

I didn't know some of the AIG employees had agreed to $1 annual salaries. Perhaps all of us, (Congress, Law Enforcement, the media included) should take a cue from our (albeit frustrated at the time) President on this topic. When asked during his Tuesday press conference why it had taken him so long to speak about the AIG bonus situation, President Obama replied, "It took us a couple of days because I like to know what I'm talking about before I speak."

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Wednesday, March 25, 2009

With Traditional Funding On Hold, Some Alternate Funding Resources

I saved an article from the WSJ this past fall as a reminder of alternate funding sources for our startups. With traditional lending almost non-existent, here are the alternate resource suggestions from the article:

1. Microloans are small loans (typically, in the range of $5,000 to $25,000) extended to entrepreneurs who can't secure funding elsewhere. Many microlenders are non-profits; for example, Accion USA , part of Accion International, relies on donations from charitable organizations and individuals to provide business loans and training to entrepreneurs.

Microlenders often focus on a particular interest, such as making small loans to female or minority entrepreneurs. For example, one female entrepreneur received a $5,000 microloan at an 11% rate through Count Me In, the lender helping women entrepreneurs. The loan, secured when her business was still based at home, enabled her to move into her first warehouse.

To find a microlender, contact your local SBA office or check the Association for Enterprise Opportunity's searchable database.

2. Peer-to-Peer Networks: Business owners might also try tapping peer-to-peer lending networks, such as Prosper, Lending Club and Zopa. Here's how it works: borrowers list the amount they need, details about their business and why they need the loan. Some borrowers claim they need a cash fix (these loans usually cap out at $25,000) to expand product offerings or move into new locations; others are seeking capital to cover start-up expenses, such as advertising or web site costs. Then, individual lenders decide whether or not to offer them funding. In many cases, these lenders are fellow entrepreneurs looking to make a nice return while assisting other business owners.

3. Merchant cash advances or "factoring" has seen a surge in demand since banks retreated from lending. Under this type of financing, a company doles out a cash advance (usually, a lump sum) to a small merchant or entrepreneur. Then, the merchant repays the sum by routing a portion of their future credit-card sales back to the cash-advance company, generally at a hefty premium.

4. A growing number of business owners are turning to credit unions and private lenders who rely less on credit scores and more on a borrower's business model or track record. Seeing a new opportunity for revenue growth, credit unions have made a big push into the small-business market in recent years.

Private lenders are another option. An example, On Deck Capital, which offers loans based on business performance, rather than a borrower's personal credit history.

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Tuesday, March 24, 2009

When You Are the Product

Our Chief Marketing Officer, Greg Conderacci, wrote a great note to non-profits yesterday, reminding them to know what they're selling when they are raising money.

Raising money for a startup is no different. You have to know what you're selling, it's you.

David Feinleib of VC firm Mohr Davidow Ventures posted a great article over the weekend titled "When You Are the Product" - here are some highlights:

1. "When you’re pitching to customers, your product is a piece of software or hardware, a service, or a web site. When you’re pitching investors, the product is you."

2. "When I say you as a whole product, I mean whether you:
  • Present effectively
  • Can recruit, sell, and communicate a big vision
  • Know more about your domain than anyone else
  • Think strategically
  • Have the appetite to build something really big
  • Are a great fund raiser"
3. "Address Your Audience: It’s easy to forget that potential investors aren’t buying your product. They’re buying a piece of your company - the opportunity, the team to go capitalize on that opportunity, and the customers or users who are going to spend money to use that product."

4. "Three Key Messages:
  • This category will be big, and the time is now: your goal is to tell your investors what part of that $21B you’re going to crack, and why. The $21B is the Total Available Market (TAM). The segment of the market you’re going to own is the Served Available Market (SAM)
  • Show and tell how you win: By knowing more about your industry than anyone else, knowing your numbers inside and out, being clear and articulate, and having the best team possible to build the business, you show that you’re going to win.

    Then, try to address the following questions:What makes you more qualified than just about anyone else to do this? Why is your offering better? Why is your offering a must have? How are you going to win? What is your unique insight?
  • This is valuable and strategic: How will you get to $100M in revenue in five years? Again, it’s not enough just to show a chart with revenue going up and to the right. It’s critical to articulate how you’re going to get that revenue.

    Why are you a must have?

    Most importantly, why are you strategic? What is the larger ecosystem you’re playing in? Why will multiple large companies care about you? Why will they compete to buy you if you don’t IPO?"
5. "Conclusion: Investors spend a lot of time on the potential risks of an investment. Your goal is to get them excited about the opportunity and demonstrate that you will address the risks.

It’s one thing to tell investors you’re going to be successful. But show them you are and you’ll not only give a great pitch, you’ll inspire them to invest."

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Monday, March 23, 2009

Note to Non-Profits: What Are You Selling?

Not long ago, I found myself in front of an audience of seasoned college fundraisers. They seemed like a savvy bunch until I asked what I thought was a pretty obvious question: "What are you selling?"

Initially, there was a dead silence.

Then, the answers trickled out. "A chance to give back." "Guilt." "We're not selling anything; they're investing."

Nice try. Then I asked the next question: "Is anybody else selling the same thing?"

Heads nodded.

"Do you think you're going to sell more of that or less of that in the future?" I asked.

Fact is, non-profits are selling something every time they receive a donation. It may not seem like that at first glance, but nobody I know gives money for nothing.

In these difficult times, when non-profits must work harder for every badly-needed cent, it pays for them to understand why their donors are giving -- or not. The "old" answers, which the fundraisers gave me, are really blunt tools.

I'd argue that the successful fundraisers are the ones that capture the trust and imagination of their donors. Those development professionals are adept at targeting and packaging their cases in new, innovative and powerful ways.

They KNOW what they're selling.

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Fed Agenda: 1) Save the Rich, Now! 2) Taxpayers & Non-Profits to be addressed ONLY in Support of Agenda item #1

I suspect you've heard of the little AIG bonus mess? Come to find out, AIG & other firms took federal bailout money and used it to pay "bonuses" to employees who lost billions for their firms. These are the folks that helped bring the economy to its knees. If none of this rings a bell, here are 20,000 articles to get you up to speed.

You probably have also heard of the Madoff scandal (thousands of articles to enlighten).

Amidst the noise surrounding AIG & Madoff going to jail, our Chief Marketing Officer, Greg Conderacci emailed me this article from Bloomberg. The article explains the plan the IRS has come up with to bail out the wealthy investors who lost money with Madoff via refunds and theft loss deductions on their tax returns. The IRS has designated these as "theft losses" vs. "capital losses" so more can be deducted.

"The IRS guidance says defrauded investors can claim theft losses not only for amounts originally invested, but also for fictitious income. The IRS stands to refund as much as 35 percent of Madoff’s $60 billion fraud, or about $21 billion, although actual refunds will be much smaller because money lost by charities and retirement accounts won’t benefit from deductions.

Are you kidding me? We're really going to bailout more rich people (remember the bonuses paid with bailout money) at the expense of the taxpayers, and the Madoff non-profits get nothing?

This is so absurd it's almost not believable. Deductions based on fictitious income? Now I wish I had invested with Madoff thirteen years ago. My real investments are so far down that whatever fictitious Madoff returns used to calculate my refund & deductions would cover my real losses.

Maybe Mrs. Madoff could go and run some final statements adding $1 billion in further fictitious gains to each investor and then we could rest comfortably that they would all be made whole.

Don't get me wrong, I feel badly for the individual Madoff investors (even worse for the non-profits). It must be difficult dealing with the fact that you no longer have what you thought you would retire on. I feel the same way for investors that have lost their full investments with the institutions that have failed recently. Six months ago their gains were not fictitious, they were real, but unlike Madoff victims, they will get nothing.

You didn't need to be an accredited investor to invest in Bear Stearns, but you did have to be to invest with Madoff, which is what makes the Madoff bailout even more incomprehensible.

If you are an individual, the SEC defines you as an accredited investor if you are:
  • a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase
  • a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year
Accredited investors have to meet these criteria because investments in hedge funds (like Madoff's) are a lot more risky and these investments don't have as much regulation (apparently none) by the SEC. The idea is that these accredited investors have to prove that they can afford to lose the investment entirely in order to have the right to less regulation. The investor needs to perform their own due diligence on the hedge fund, or not.

Congress wants to unconstitutionlly tax the AIG bonuses 90% so the govt can get most of that money back. So while our govt is completely out of its mind, perhaps Congress can be convinced to mandate that whatever Madoff investors get back via refunds and deductions has to be donated to the Madoff non-profits until they are made whole, including fictitious gains. Certainly Congress has more rage towards Madoff than AIG employees, or not.

Looks like we need to add the IRS to Greg's list. Congress is already on it.

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Friday, March 20, 2009

Is China Hurting Themselves By Blocking US Investments in Chinese Companies?

"Wait a second, don't you owe us like a trillion dollars?" - not a quote from China's minister of commerce, Chen Deming. But it should be.

From this WSJ article: "Lawyers and investment bankers said China's rejection of Coca-Cola Co.'s $2.4 billion bid for China Huiyuan Juice Group Ltd. could prompt a backlash against Chinese investing abroad as it risks chilling investment within the country."

Question: How Do You Say "Tit for Tat" in Chinese?

Two important factors the Chinese economy is dependent upon:

a) how China performs in the global market; and
b) how the US performs in the global market.

Blocking this deal from Coke could hurt both a & b above... "perceptions that China is hostile to foreign investors could hurt Chinese companies looking to take advantage of low prices to invest abroad, particularly in oil, metals and other natural resources that Beijing sees as critical to sustaining the nation's economic growth."

Like it or not, China needs the US to succeed, they have a trillion dollars riding on it.

Some analysts think this rejection is in response to the US blocking Chinese govt-controlled Cnooc Ltd. from acquiring Unocal Corp. of the U.S. for $18.5 billion in 2005. "While Cnooc's deal-making inexperience contributed to its difficulties, opposition from U.S. lawmakers surprised China and left many in the country believing the U.S. wouldn't stand by its own open-markets rhetoric."

For the sake of both economies, China and the US are going to have to find ways to do business together. Trust is an important factor.

This Forbes article points out that there are conspiracy theorists within China who "suspect that the (US) Federal Reserve essentially prints more money not just to stimulate the economy, but also to devalue China's U.S. dollar portfolio, undermining a rival power...

It devalues the one currency China is most heavily invested in and pegged against. That forces China to continue buying U.S. dollars both to keep the value of its currency down and to protect its portfolio, so China ends up helping finance the U.S. economic recovery plan."

Make no mistake, we are fortunate that China is in the position they are in. We would be much worse off without them. Closer to home, our firm has a portfolio company that has been trying to raise money in the US & Europe during these trying economic times. Recently, two strong candidates emerged from a referral source. They are both capable of doing a deal and are prepared to act quickly. They are both Chinese investors.

What do we care that they are Chinese investors investing in a US business? This business will create jobs in both the US and China, the Chinese market is twice the size of the US market for this business. If the project is successful, there will be plenty of money spread around both countries. The taxes we will pay in the US can help pay back the US debt to China. Wouldn't that be true of the Coke/Huiyuan Juice deal as well? Isn't this the way it should work?

I will close with a quote from the Forbes article - some unsolicited advice on what China's motivation should be to work with the US moving forward:

"It's the old debtor's aphorism, writ on a sovereign scale: If you owe China $1 billion, it's your problem. If you owe China $1 trillion, it's China's problem."

Answer: 针锋相对 ("Tit for Tat" in Chinese according to Google's translation tools)

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iPhone 3.0

I watched the iPhone 3.0 presentation. You can too.

1. General iPhone stats:
  • 17 million iPhones sold: adding the 13 million iPod Touches sold, there are 30 million Apple devices with apps functionality
  • 25,000 apps in the app store, over 800 million downloads
2. iPhone 3.0 general & app functionality that caught my attention
  • cut, copy and paste: the most important of this list to me
  • peer to peer connectivity via Bluetooth for gaming and sharing info
  • push functionality
  • MMS
  • Spotlight on a new home screen page; allows for universal search on the phone
  • auto-login for WiFi hotspots
  • new app called Voice Memo to record notes, reminders, etc...
  • note syncing
3. More complete list of functionality from Engadget

4. Where's the video in iPhone 3.0?

5. Music Apps Don't Get Much Help from iPhone 3.0

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Thursday, March 19, 2009

Where's the Stimulus For Advertising?

Disclaimer: Our businesses tend to get more work when companies increase their advertising budgets.

In this article, Fortune suggests that there should be stimulus money earmarked for advertising.

1. "The government's stimulus plan won't work as planned if we don't get consumers spending again. But in the nearly $800 billion package, there is one thing missing that would surely help accomplish this: advertising. To get people spending again, and the economy moving, the government needs to provide help for businesses in America to advertise their products and services."

2. "There's a reason that America is the largest consumer market in the world: It also happens to be the largest advertising market in the world. Advertising works -- and it has been proven again and again for over a century. Every successful business spends money on advertising, everything from public relations to TV to Internet-search advertising."

3. "Unfortunately, some consumers today simply can't spend, since they've lost their jobs or their nest eggs. This is the group which is rightfully a major focus of the current economic stimulus program.

However, there is a much larger group of consumers that I believe holds the key to our recovery: those who can spend, but aren't. They are sitting on the sidelines and waiting, even though they have the money and security to be spending. How do we stimulate them to spend again? With advertising.

It's a mistake to think of advertising merely as a cost -- it's an investment, and like all investments it can have a wide-reaching impact. Incentives for advertising need to be an important component of any plan to stimulate our economy."


I think we can all agree there have been worse stimulus ideas being tossed around.

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Notes from the Berkshire Hathaway Shareholder Letter

Berkshire Hathaway recently released Warren Buffett's annual letter. The letter opens with annual returns. From 1965-2008 Mr. Buffet and Charlie Munger have produced an annual compounded gain of 20.3% vs. the S&P 500's 8.9%. Which means if you had invested $10,000 in BH and $10,000 in the S&P 500 in 1965, your money would look like this today:

BH: $36,231,900
S&P: $427,600

Are the BH returns correlated to the overall market? Of course, but they have been so much better for so long, they are clearly doing something right. How they value businesses and their investment philosophy is just flat out better than almost everyone else. Important lessons for any entrepreneur or investor.

Ten sections worth sharing:

1. In good years and bad, Charlie and I simply focus on four goals:
  • (1) maintaining Berkshire’s Gibraltar-like financial position, which features huge amounts of excess liquidity, near-term obligations that are modest, and dozens of sources of earnings and cash;
  • (2) widening the “moats” around our operating businesses that give them durable competitive advantages;
  • (3) acquiring and developing new and varied streams of earnings;
  • (4) expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered Berkshire exceptional results.
2. Berkshire’s two most important businesses – our insurance and utility groups – produce earnings that are not correlated to those of the general economy. Both businesses delivered outstanding results in 2008 and have excellent prospects.

3. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.

4. ...the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

5. Berkshire is always a buyer of both businesses and securities, and the disarray in markets gave us a tailwind in our purchases. When investing, pessimism is your friend, euphoria the enemy.

6. Home ownership is a wonderful thing. My family and I have enjoyed my present home for 50 years, with more to come. But enjoyment and utility should be the primary motives for purchase, not profit or refi possibilities. And the home purchased ought to fit the income of the purchaser.
The present housing debacle should teach home buyers, lenders, brokers and government some simple lessons that will ensure stability in the future.

Home purchases should involve an honest-to-God down payment of at least 10% and monthly payments that can be comfortably handled by the borrower’s income. That income should be carefully verified.

Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective. Keeping them in their homes should be the ambition.

7. Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing formulas.

8. When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.

9. On shutting down General Re's 23,218 derivative contracts over the past five years. "Upon leaving, our feelings about the business mirrored a line in a country song: 'I liked you better before I got to know you so well.'

10. ...the CEO of any large financial organization must be the Chief Risk Officer as well. If we lose money on our derivatives, it will be my fault.

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No Wheelchair for the Opera

About 50 yards ahead on the sidewalk, the empty wheelchair stood like a riderless horse. Next to it, on the ground was a pile of old clothes. People were rushing up and down the sidewalk, stepping around the pile of clothes.

When I got a little closer I could see that there was a person inside those clothes, lying helplessly on the ground. He apologized for being heavy as I helped him back into his machine.

"Are you okay?" I asked.

"No," he said. "Can you buy me a Big Gulp?"

"Sure," I replied. "What flavor?"

"Root beer."

I returned from the corner convenience store, handed him drink and wished my new friend well.

Then I rushed off for dinner with another friend who serves on the board of The Baltimore Opera Company. Over a better beverage than root beer, she announced sadly that the opera had that day decided to close after almost 60 years of performances. A great social asset is gone -- and it's not coming back.

"We had some promises of money, but there just wasn't enough out there," said general manager M. Kevin Wixted in The Baltimore Sun the next day. "To raise money for a season of opera was out of the question. We could have struggled on month to month, but we'd never get ahead. I know people wanted to believe we'd come back. But in this business, you have to depend on raising big money from people."

I guess they decided to stop putting the opera back in the wheelchair.

It's a sad but important lesson of the economic downtown: we are all its victims -- from the homeless man on the street to the opera.

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Wednesday, March 18, 2009

Update on the Auto Industry

1. Automakers are having trouble getting rid of their inventory. Click here to see more car inventory photos like the ones below.

Nissan has announced plans to cut its Sunderland workforce by 1,200. Thousands of unsold cars are stored around the factory’s test track.

Newly imported cars fill the 150-acre site at the Toyota distribution centre in Long Beach , California.

The build-up of imported cars at the port of Newark , New Jersey

Thousands of new cars are stored on the runway at the disused Upper Heyford airbase near Bicester, Oxfordshire (UK).

2. Bloomberg reports February 2009 auto sales fell to a 9.1 million vehicle annual rate, the lowest since December 1981. "Additional government aid to keep the automakers out of bankruptcy is making less sense, because it has become difficult to project an end to the sales declines," said Stephen Spivey, an automotive analyst at Frost & Sullivan in San Antonio.

-Toyota sales fell 40% in February (year over year), their biggest decline ever. Forecasting their first loss in 59 years, Toyota is considering asking the Japanese govt. for 200 billion yen ($2 billion) in loans.

-US employers shed 651,000 jobs last month, the most since 1949. Consumers that qualify for loans are hesitant to buy cars they might not be able to afford if they lose their jobs.

3. The Wall Street Journal Reports that perhaps China can save the auto industry.

4. In the April 2oo9 issue, Fast Company offers 25 ways to fix the auto industry. Three ideas that caught my attention:

  • Robin Chase, founder of ZipCar: "I'd take 10% of my current R&D budget and put it into a venture fund. I'd finance startups, experimenting in areas where I lack core competency: truly alternative vehicles; services that relate to car maintenance and in-car experience; services that conceive of the car as one node in the larger transportation network; and ideas that leverage my cars and my consumers as a means of collecting data or marketing other in-car services. This is a smart use of my money because I would be investing alongside others instead of financing all the R&D in-house. In the process, I'd gain firsthand insight into a whole realm of business models that might be my future."

  • Mike Hughes, president and creative director, The Martin Agency: "As powerful as advertising and marketing are, they're not going to save the American car industry. What the industry needs is a vision. The kind Bill Gates had for software, Steve Jobs has for Apple, and, yes, Henry Ford had for automobiles. Don't just give us what you think we want; give us what we should want.

    Don't keep telling us your cars are every bit as good now as Toyotas or Hondas. That's probably true today, but you've been trying to sell us that line for far too long. Tell us why we should want your cars. If you can't figure out what makes your product special, then it's probably not special. When you do have something to say, market the hell out of it. Boy, would I love to do that campaign."

  • Look to Europe. Robert L. Kanode, President & CEO, Valence Technology

    "The U.S. auto industry will need to follow a model similar to what we see in Europe, with the planned rollout of pure electric vehicles for everyday and commuting needs, and of super fuel efficient turbo-diesels for long distance driving, in order to meet the needs of the average family. In addition, the US government will need to play an active role in encouraging increased battery manufacturing by investing in commercially viable technologies and in providing incentives to consumers to purchase electric cars."

5. Bankruptcy Lawyer Joins Obama Auto Team: This auto team should either declare subsidies to the auto industry as a "jobs program" or they should begin pre-negotiated bankruptcies. Why? This is where it's heading anyway because both the leadership of the automakers and the UAW just don't get it. See #6 & #7 below.

6. Time for GM to Declare Bankruptcy? This article by Victor Cook at SeekingAlpha demonstrates a path to break even for GM. But GM leadership has no interest in shrinking their business to break even. So what GM, the taxpayers should cover you until bankruptcy shrinks you to break even?

7. UAW unwilling to give same deal to GM that was given to Ford.

8. Washington Post: What's Good For General Motors.... Would be a Miracle

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The Pound of Flesh

The pound of flesh, which I demand of him,
Is dearly bought; 'tis mine and I will have it.
If you deny me, fie upon your law!
There is no force in the decrees of Venice.
I stand for judgment: answer; shall I have it?
- Shakespeare, The Merchant of Venice

Thanks to an intensive period of blame-storming, we now know who is responsible for the global economic crisis. And, like Shakespeare’s Shylock, we are hungry for our just revenge.

Who is the guilty party?

Why, the Republicans, of course. And the Democrats, Congress, the Presidents, the regulators, the Federal Reserve Board, Wall Street, speculators, hedge funds, greedy investors, mortgage lenders, big banks, small banks, insurance companies, home buyers and sellers, student loan deadbeats, CEOs of all types, the auto industry, the energy industry, the Pentagon, welfare mothers, voters in Red States, voters in Blue States, the Chinese, the Europeans, the Russians, illegal immigrants, the Japanese, liberals, conservatives, libertarians, the school system, SUV drivers, Mexicans, health care providers, trade negotiators, union members, the press, African Americans, whites, city dwellers, suburbanites, farmers, coal miners, Baby Boomers, the elderly, youth, manufacturers of white flour and high-fructose corn syrup, pornographers, Catholics, fundamentalists, terrorists, bicycle riders, tattoo parlor owners, tree-huggers, ipod wearers, texters, government contractors, tax attorneys, everyone who lives in the Middle East, South Africans, and Google.

In fact, it’s pretty much everybody but you and me. And we deserve our pound of flesh. Yes, we do. What are you going to do with yours?


Tuesday, March 17, 2009

Netflix On Pace to Stream More Movies Than Send Out DVDs

VentureBeat posted an article recently on Netflix video streams outpacing mailed DVDs so far in 2009.

Here are some highlights:

1. "So far this year, movie streams from Netflix are outpacing DVD shipments for the first time, according to sample data put together by the Netflix account analysis site FeedFlix. If this pace keeps up, 2009 could be the first year that movie streams outpace the service’s rentals."

2. "When Netflix’s streaming service, Watch Instantly, launched in 2007, streaming numbers were just a tiny blip compared to DVD shipments. In 2008, they drew closer, as streaming became roughly half as popular as DVDs. But in the past several months, Netflix has aggressively expanded to get the Watch Instantly service off of the web browser and onto living room devices. This started with the Roku box (Wired review here) and continued with Blu-ray players, TiVo and the Xbox 360 gaming console last year."

[2009 data below is year-to-date]

3. "When you start using Watch Instantly, and see all of the content available at your fingertips, it’s hard to stop — which the data also seems to suggest. I definitely stream more movies than I get through the mail now, and I would hardly consider myself a heavy user of the service. The trend is pretty clear that as Netflix continues to expand the service onto more devices in the living room, streaming will quickly outpace DVD rentals for anyone who has access to it.

And if Netflix is ever able to get new releases (it currently offers mostly back catalog films) onto Watch Instantly, the growth of streaming ought to be exponential."

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Victim of the Negative Thoughts Fog

A thoughtful friend occasionally emails a note entitled "Just a Thought. " A recent missive contained this thought: "Negative thoughts fog your thinking and your perception. With each doubt, with each frustration, with each fear the fog grows heavier."

Good thoughts, I thought. Packing my brief case for the day, I thought of other thoughtful friends. I emailed the thought about negative thoughts to them. And, running a little late, I left for a client.

I arrived at the client and, without thinking, I reached into my brief case.

No computer.

In the fog of thoughts about negative thinking I never thought to pack the one item I absolutely needed for my presentation to the client. Frustrated, and thinking negative thoughts about my thinking, I feared I might not have enough time to make it home and back. Despite my doubts, I made it through the fog and returned to the client in time to deliver my presentation about the energy that comes from ... positive thinking.

Monday, March 16, 2009

Tech Picks, Intros & Raises

1. Apple recently chose TeeShot as an iPhone app pick of the week:
  • Track your strokes, putts, fairways, clubs, distances, sand saves and more
  • Keep score for up to four players each round
  • See the distance from your last shot and to the green on courses tagged with GPS locations
  • Email scorecards after a round
  • Upload your rounds to or and get an official USGA handicap index
2. VentureBeat covered some interesting products from the DEMO conference. VentureBeat's founder, Matt Marshall, co-executive produced the event.

a) The Touch Book by Always Innovating. "Laptop computer, handheld game device, e-book reader and video the perfect all-in-one second notebook."

Claims 10 to 15 hours of battery life, weighs under 2 pounds, starts at $299. Its screen can rotate, and can be twisted to face opposite its keyboard for a full laptop experience.

b) Cc:Betty provides a product that claims to make it easier to follow email conversations.

Email threads can be annoying to follow. Cc:Betty provides a single view of an entire conversation, and an overview of any files, places, images or videos included in the exchange.

"Its beauty is simplicity. The only thing you have to do is cc your emails to Betty, and they’re collected automatically by its eponymous virtual assistant and presented to you on a centralized web page. Betty offers you a link to this site whenever you correspond with her, so that you can go there seamlessly during your work flow.

There’s no download, and it only requires your email address and password for registration. The person you’re emailing with doesn’t even have to be registered for the product to work.

It also collects all of your files under tabs, so that you can find maps of locations contained in your correspondence and related attachments in an orderly way."

3. The NY Times DealBook recently announced that Vidyo, an online video conferencing start-up, has landed $15 million in a third round of funding, led by Menlo Ventures.

The previous backers Rho Ventures, Sevin Rosen Funds and Star Ventures also ponied up for the round. Vidyo, has raised a total of $38 million in funding to-date.

From the Vidyo site: "VidyoConferencing solutions just work. Easily. Reliably. Inexpensively. Pleasingly. From anywhere. And that’s because Vidyo provides for high-quality, low-latency, highly resilient, broad-based deployments over general-purpose networks with the introduction of the first multi-point video conferencing solution designed to work like the Internet itself.

That’s right — out is the old MCU-centric model and in is the first solution for video conferencing designed specifically for the world of distributed computing — all thanks to Vidyo’s unique intellectual property and the advent of the VidyoRouter™."

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Programmed Frustration

This is a story that illustrates a simple lesson: NEVER assume that the people who design your CRM systems know anything about customers, relationships or management.

I recently logged into a reservation system of a major hotel empire. I punched in the hotel I wanted, the dates, my preference for bed type, my personal information, my credit card number, AARP number, and hotel "membership" number. Of course, none of this was on a single "page." The system carefully digested each "bit" of information, then whirred and buzzed and re-displayed all the information, asking me to confirm each step. Finally, it displayed everything and then allowed me to hit the "purchase" button.


Instantly, a message appeared informing me that there was a problem and I should call an 800 number. So I did. Of course, I had to work my way through a phone tree before I talked with what could euphemistically be described as a customer service representative.

"I'm sorry," he said. "Our system is down. We're hoping it will be back up in an hour."

"What about all the information I entered?"

"I'm sorry, you'll have to re-enter it," he said.

Now, boys and girls, let's think about this for a minute. Why wouldn't the CRM experts design a system smart enough to tell you it was down before you enter the data? Indeed, what CRM genius would design a system so stupid that it makes you call a person -- just to tell you it was down? And why would you -- or anybody in his right mind -- enter the data AGAIN, since you'd never know until you were finished if the system got any of it?

Well, that's CRM -- but it's certainly not customer relations management.

I picked up the phone, called the hotel, and talked with a human at the front desk.


Sunday, March 15, 2009

Wal-Mart vs. Target in the Recession

During the current recession as shoppers are looking for "good buys" you would think that a company like Target would be flourishing. Apparently they aren't "discount" enough.

Time compares the two stores in this article.

Some highlights:

1. Wal-Mart has always dwarfed Target's revenue ($406B to $65B) but until recently Target had been growing faster: 4.6% to 2.9% from 2003 to 2007. Over the same period Target's annual profit growth averaged 16% while Wal-Mart was at 10.3%. Since the recession, Target sales have fallen 2.6% while Wal-Mart's have grown 3.3%.

2. Wal-Mart is seen as a store that sells consumables (45% of its shelf space), while Target is seen as an apparel store (only 20% of its shelf space is for consumables). By taking the consumables approach, Wal-Mart has positioned themselves as "selling you what you need to have," vs. Target where things are so bad that even cheap clothes are a luxury now.

Because their prices are so good, Wal-Mart looks at groceries as getting customers in the store for the first time where they will then buy other items. Target sees groceries as an add-on sale.

3. Target is one of the last major retailers to own a part of its credit card portfolio. In tough times, retail card obligations get paid after the mortgage and other credit card debt. Rising defaults and delinquencies have hurt earnings ($135M pre-tax loss on credit in the 4th quarter alone). In May, Target sold 47% of its receivables to JPMorgan Chase for $3.6 billion.


Might this be a good time to take a look at Wal-Mart stock? In a research note entitled "It's Wal-Mart's Time & Investors' Opportunity," Deutsche Bank analyst Bill Dreher Jr. wrote: "Bottom line, Wal-Mart is executing flawlessly."

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Saturday, March 14, 2009

Microsoft's Vision of 2019

<a href="" target="_new" title="Future Vision Montage">Video: Future Vision Montage</a>

This video is a clip from a presentation given recently by Microsoft’s Business Division president Stephen Elop at the Wharton Business Technology Conference. It shows what Microsoft thinks the world may look like vis-a-vis available technology a decade from now, in 2019.

Check out a five-minute version of the video on the blog

As many of the articles/blogs surrounding the presentation suggest, it's nice to see Microsoft thinking about technological advances as opposed to fighting with someone about current ones.

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Friday, March 13, 2009

Thoughts from Warren Buffet

Dang Le is an MBA student at Emory University's Goizueta Business School. Recently, Emory and five other schools visited Warren Buffet for a Q&A session. Dang's notes from the Q&A are posted here at Seeking Alpha.

Some highlights from Mr. Buffet's answers.

1. Assessing value:

"If I were running a business school I would only have 2 courses. The first would obviously be an investing class about how to value a business. The second would be how to think about the stock market and how to deal with the volatility. The stock market is funny. You have no compulsion to act and a bunch of silly people setting prices all the time, it is great odds. I want the market to be like a manic depressive drunk. Graham’s Ch. 8, in the book Intelligent Investor, on Mr. Market is the most important thing I have ever read. Now think about the NYSE. You have thousands of companies to choose from. For me, that universe has shrunk because I need to put large dollar amounts to work. Attitude is much more important than IQ. You can really get into trouble with a high IQ, i.e. Long-Term Capital. You need to have the right philosophical temperament."

2. Living frugally

"You can’t buy health and you can’t buy love. I’m a member of every golf club that I want to be a member of. I’m the highest handicap member of Augusta National. I’d rather play golf here with people I like than at the fanciest golf course in the world. I can do anything that I want, and I do. I buy everything I want to have. I’m not interested in cars and my goal is not to make people envious. Don’t confuse the cost of living with the standard of living. Bella Eidenberg was a Polish Jew who was at Auschwitz and some of her family didn’t make it. Twenty years ago she said she was slow to make friends, and that the real question in her mind was always, “Would they hide me?” If you have a lot of people that would hide you, you’ve had a very successful life. That can’t be bought. I know people that have billions of dollars and their children would say, “he’s in the attic.”

3. Traits of successful managers:

"Passion is the number one thing that I look for in a manager. IQ is not really that important. They need to be able to work well with others and the ability to get people to do what you want them to do. I’d say intelligence, energy, integrity. If you don’t have the last one, the first two will kill you. All you have is a crook who works hard. If a person doesn’t have integrity, you want them dumb and lazy.

If you could put 10% of your future earnings on one of your classmates, you would pick the one that’s most effective at working with people. These are qualities that are elective. If you could pick one to sell short, it would be the person that no one wants to work with. You can elect to be the kind of person you want to be. Look at those qualities of the two people you’ve selected (one long and one short). They’re all qualities that you possess. It’s like marriage. If you want a marriage that’s going to last, look for someone with low expectations. Don’t keep score. Keeping score doesn’t build organizations, homes, etc. I have never had one fight with Charlie. When I took over Solomon I had to pick the best person to run it. I interviewed 12 people for 15 minutes each and I asked myself, “Who would I go into a foxhole with?” I never look at grades or where you went to school. When I picked Deryck Maughan, he never asked me about pay or options or indemnity. He went to work.

Chains of habit are too light to be felt until they’re too heavy to be broken. In terms of picking people how do you lead your life in a way that I’d pick you?"


10,000 Malignant Cancer Cells

Breakfast with my favorite doctor always yields a juicy insight or two. His fun fact for today: the average healthy person carries about 25 million cancer cells in his or her body -- and about 10,000 of them are malignant.

Our miraculous bodies handle this threat with absolutely no problem. The trick our immune systems performs is keeping all those nasty cells apart. But let them clump together, forming little colonies of evil, and we're in big trouble.

One of the key leadership issues, whether for the country or your sales team, is dealing with the little malignant cells of doubt and fear that will sap the energy you need to get the job done. Take a tip from Mother Nature: don't let them reach critical mass.

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Thursday, March 12, 2009

Google Takes on Voice

From the Google Blog:

"We've just started to release a preview of Google Voice, an application that helps you better manage your voice communications. Google Voice will be available initially to existing users of GrandCentral, a service we acquired in July of 2007.

The new application improves the way you use your phone. You can get transcripts of your voicemail and archive and search all of the SMS text messages you send and receive. You can also use the service to make low-priced international calls and easily access Goog-411 directory assistance.

As you may know, GrandCentral offers many great features, including a single number to ring your home, work, and mobile phones, a central voicemail inbox that you could access on the web, and the ability to screen calls by listening in live as callers leave a voicemail."

From this Information Week article: According to Google Senior Product Manager, Craig Walker, Google doesn't have a current plan to monetize the service. His mission, he said, was to make Google users happy. Google Voice may also make some telecom companies happy by increasing the use of billable SMS messages. However, just as ads have found their way into other Google properties where they hadn't existed previously, ads may find a home in Google Voice in a year or two.

Go to the Google Voice Features Page to click thru to short videos on each of the features below:

Google number - One number for all your calls and SMS

  • Call screening - Announce and screen callers
  • Listen in - Listen before taking a call
  • Block calls - Keep unwanted callers at bay
  • SMS - Send, receive, and store SMS
  • Place calls - Call US numbers for free
  • Taking calls - Answer on any of your phones
  • Phone routing - Phones ring based on who calls
  • Forwarding phones - Add phones and decide which ring
Google voicemail - Voicemail as easy as email, with transcripts

  • Voicemail transcripts - Read what your voicemail says
  • Listen to voicemail - Check online or from your phone
  • Notifications - Receive voicemails via email or SMS
  • Personalize greeting - Vary greetings by caller
  • Share voicemail - Forward or download voicemails
Voice features - More cool things you can do with Google Voice

  • Conference calling - Join people into a single call
  • Call record - Record calls and store them online
  • Call switch - Switch phones during a call
  • Mobile site - View your inbox from your mobile
  • GOOG-411 - Check directory assistance
  • Manage groups - Set preferences by group

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How Many Customers Do You Need?

Somebody once asked a country doctor how he decided what to charge for delivering a baby.

"Well," he said, "when I go into the waiting room after the birth, if the father asks 'Is it a boy or a girl?', I charge him $2,000. But if he asks 'How's my wife?', I only charge him $500."

Similarly, when I ask my clients "How many customers do you need?", I know I am in for an expensive engagement if they answer "As many as possible."

After many years of working with professional and financial services firms, one Golden Truth stands out: too many customers is just as bad as too few. The reason is that it's very hard to provide great service to too many customers.

So one of the grim ironies of these troubled times is that too many of us focus on getting more clients rather than paying more attention to the ones we have. Brokers are notorious for hiding from clients in bad times, because they fear the complaints. One knee-jerk reaction from many houses is to cancel client-focused events -- to save money. Another is to cut client service staff, thereby guaranteeing poorer service.

Now is the best time to build great client relationships. Focus on quality, not quantity.


Wednesday, March 11, 2009

Eggs and Chickens

"A chicken," author Samuel Butler wrote, "is an egg's way of making another egg."

I thought of that unconventional thought recently in connection with a young non-profit, The Downtown Baltimore Family Alliance. The Alliance is a group of young families committed to staying in Baltimore City rather than running to the suburbs to raise their children.

Calling themselves "The Movement to Stay," they are approaching the problems of the city from a unique perspective.

Conventional wisdom says that the city will be better when the schools are better, or when it's safer, or when more businesses come to town, or when housing prices change. Or. Or. Or. The problem is that decades of conventional wisdom has not worked.

DBFA, on the other hand, counters that the city will be better when more young middle class families choose to settle and stay. So they are working to attract and retain more of them. From an historical point of view, the logic is interesting. After all, the city's future dimmed when middle class families fled. Couldn't the process work in reverse?

Perhaps we've been working on the chicken when we should have been focusing on the eggs.

Learn more about DBFA.

Tuesday, March 10, 2009

CrossLoop: Everyone Helps

Do you have someone in your life that asks you for computer "help" every now and then? I have a few. What you wouldn't give to just be sitting there at their computer during this process. It would take you two seconds to figure it out and fix it... but instead, you listen over the phone to the cryptic symptoms, guess what's wrong and then painstakingly walk them through possible fixes for five hours (maybe it just seems like it).

A vc friend of mine introduced me to CrossLoop today. CrossLoop has been around for awhile, and recently has upgraded for Mac compatibility. From their web site:

"CrossLoop is a consumer Internet company that empowers everyone to help someone anywhere in the world with its free and easy-to-use software application for desktop sharing. CrossLoop connects computer users with trusted, qualified service providers and friends who can provide the support they need quickly and conveniently."

Here's what I like about CrossLoop:

1. I can now have access to the computers of the folks I provide amateur tech support for;

2. I can "drive" during this process; and

3. If I am not available to help, they can find an expert to help them via CrossLoop's database. Experts are rated like buyers and sellers are on eBay and you can work out pricing with them.

Walt Mossberg took a look at CrossLoop in the WSJ this fall.

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No Safe Place on the Battlefield

Safety and security, sociologists tell us, are some of the most basic of all needs. Yet one of the great lessons of massive economic downturns is that there is no safe place on the battlefield.

We are descended from hearty stock. Our ancestors were subject to disease, hunger, cold, marauding tribes, predatory animals, capricious royalty, and a medical establishment that believed in leeches. While our forebears hunted the bears, the bears hunted them.

So when the 401K statement arrives in the mail, the most primitive parts of our brains cannot tell the difference between the decreasing balance and a saber tooth tiger attack. At some level, we feel mind-numbing terror. Poverty is staring us in the face. We will never be able to retire. We will be reduced to eating dog food and begging on street corners.

Instinct -- and the fear that comes with it -- does not serve us well. That's because there is no absolute safety, no, not even Treasury Bills.

Our ancestors knew what to do. Did they sit cowering in their caves waiting for woolly mammoth tusk futures to turn? Did they stand idly by waiting for the king to guarantee the grain harvest? Did they stand on the docks waiting for clearer weather before boarding the next ship to the New World?

Nope. We are where we are today because a lot of folks higher up our family trees decided to do something positive to make their lives better. What did they know that we've forgotten?


Monday, March 9, 2009

What Year Is It?

Can you guess what year the following events happened?

A) African American politician becomes first to hold top US government position.

B) Over 125,000 U.S. soldiers in foreign country fighting controversial war.

C) Dow Jones hits 6,500.

Answer: We'll accept either 2009 or 1966. Answer key below.

With the Dow falling below 6,500 (the same level as inflation-adjusted 1966), we have now lost half of the gains the market achieved over the 25 year period of 1982 - 2007.

Answer Key:

1966: Robert C. Weaver / Cabinet member
2009: Barack Obama / President

1966: Vietnam / 190,000
2009: Iraq / 140,000

1966: inflation-adjusted 6,500
2009: Dow Jones dips below 6,500


The Coolest Head

Millions of words have been written about Captain Sully who courageously ditched his Airbus in the Hudson. But this animation of the flight, with the voice recorder in the background, really brought it all home to me.

For all of us who used to yell at the kids in the back seat to be quiet so we could concentrate on driving, Sully is an inspiration. In a hysterical world, here is a man who can face a watery grave and maintain a tone of voice that would work for two truckers looking for a roadside diner.

Click on this. See what I mean?

Friday, March 6, 2009

Malcolm Gladwell's Outliers

I just finished reading Malcolm Gladwell's Outliers: The Story of Success.

Gladwell offers that "self made men" don't exist. People aren't successful based on genius and talent alone, "they are invariably the beneficiaries of hidden advantages and extraordinary opportunities and cultural legacies that allow them to learn and work hard and make sense of the world in ways others cannot."

Some interesting tidbits:

1. If you aspire to play in the NHL, you need to have been born in January, February or March. These three months have the highest percentage of players as most youth leagues have a January 1st cut off for age classification. A player with a January birth date is 11 months older than someone in their division that was born in December. In their youth, the Jan/Feb/Mar -born players are often bigger/stronger than the later-month born players and thus end up making the travel teams year after year; get better coaching, more ice time, etc...

2. Genius and talent can only take you so far. It takes 10,000 hours to be an expert at something. Which is why I'm surprised I am not much better at sleeping. As to this blog, please be patient with me as I struggle through my next 9,975 practice posts.

3. If you were born in the 1830's you are really old, furthermore, you have a much better chance of being one of the wealthiest historical figures adjusted to current dollars.

A good portion of the leaders in technology were born in the mid 1950's. Timing is important.

4. Bill Gates was believed to be the only 13-year old with unlimited access to a time-sharing computer terminal in 1968 and therefore his talent flourished... what if a million other young people had the same opportunity.

5. Circumstances/opportunity are very important, maybe more important than we thought, but you still have to put in the time. Entrepreneurs have always known this.

Summary: I think Gladwell was a bit one-sided with the opportunity/circumstance argument. There are plenty of successful people who have overcome their circumstances and in doing so created opportunities for themselves.

I do agree that regardless of one's circumstances - after 10,000 hours of hard work - a "talented genius" is more likely to emerge.

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