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Crisis or Opportunity? My take on the Bear Stearns buyout

Posted on March 17, 2008
Filed Under Business, Investing | 1 Comment

Wow. Who would have thought a year ago that Bear Stearns would simply crumble like it did? The stock was around $140, things were looking good and, bam, the mortgage crisis hits and Bear Stearns stock enters into a tailspin that “ended” today at $4.10 per share (a couple bucks above the proposed buyout price of $2 which could mean shareholders are optimistic that the deal price will edge up in the coming days and weeks).

As a long time student of the financial markets (and not an owner of Bear Stearns stock) today was one of those days that gets me excited. Will there be a massive sell off? Further loss of wealth? Or will people be rational about things and take this situation for what it is, a “trimming of the fat” if you will?

With all the sensational media coverage early this morning I feared the worst. I figured investors would send the market into a downward spiral. Investors have overreacted in the past so why would today be any different? Then, Maria Bartoromo appeared on the TV and, lo and behold, was pretty rational about the situation.

Maria spoke about this situation being a good thing for markets long terms and suggested this was not a huge crisis of epic proportions and in fact a good thing. I almost fell off my couch not because Maria is usually sensationalist (she is usually level headed actually) but because she was the only media person not talking about doomsday. It was then that I had hope that this time things would be different.

As the day unfolded there was, as to be expected, a run to the big blue chip stocks sending the Dow up 21 points for the day (partly due to JP Morgan’s stock rising about 10% due to the deal). Holy smoke! It was up! Of course the S&P and the NASDAQ ended down but not by too much. They were only down 0.90% and 1.60% respectively at the close of trading and some companies in various sectors had OK to good days in both of those indices.

It seems that investors acted fairly reasonably today and recognized this situation for what it was: a consolidation that needed to happen in order to maintain stability and to allow things to push forward.

If anything today was a day to consider buying solid companies (which a lot of folks did) since a lot of them would be selling at a discount due only to the Bear Stearns sale and not to anything they could control. Today was a day for the smart value investors to step up and shine.

What a fascinating day. The mob could have ripped the markets to shreds but they didn’t. Well, I guess there is always tomorrow but for now I am impressed with how things turned out. Are investors getting smarter and more rational? Who knows but if today is any indication I think we’re heading in the right direction in terms of mindset.


Sustainability: Services - not Products - Are the Key to Aligning Interests

Posted on February 14, 2008
Filed Under Business, Environment, Sustainability | 4 Comments

Updated on 2/15/08

As can be seen throughout the posts on this blog I have begun to look deeper into environmental issues, sustainable businesses and business practices over the past year. While I am admittedly new to the topic and still have a lot to learn I have picked up a lot fairly quickly and have had a lot of interesting ideas pop up.

In fact, I picked up another interesting idea while hanging out with a friend of mine last weekend. The topic of sustainability came up during our conversation and we started talking about business models around sustainability.

My friend brought up a great point and that was that current product based companies interests are not aligned with those of the environment.

As seen in the Story of Stuff, product companies want to design products that won’t last forever so consumers will buy more. In fact, product companies try to figure out how short of a life span products can have where the companies brand remains in tact and consumers will go out and purchase another one of their products (disclaimer: not all product companies work this way of course).

So how do we get the interests of product companies and the environment aligned? The answer is simple:

Selling services not products.

Update: Selling services instead of products is called “servicing” in green business circles.

For example Carrier - the A/C manufacturers - could do deals where they charge monthly/yearly for air conditioning services. They install and maintain the equipment and agree to keep your air at x temperature for $x per month/year.

This creates a situation in which Carrier wants to build better products that have a very long usable life and products that are super efficient since Carrier assumes the capital costs and costs to run the machines. Pretty interesting, right?

Update: The A/C idea was originally brought up in the book Green to Gold:

By offering “a service instead of a product, a company profits by reducing its use of materials and energy, and providing that service at the lowest cost possible. Lovins argues, for instance, that air conditioner manufacturers should offer cooling as a service - not AC units as a product - so they’d have an incentive to make the systems highly energy efficient. In some green business circles, the idea of recasting a product as a service, often called “servicing,” is the holy grail of environmental innovation.”

I have heard of a company employing a similar type of service model for carpet as well. This company has a carpet system that consists of a number of squares that link together. When a high traffic area is worn out, they simply come into the building, pull up the affected squares, replace them and recycle the old squares. In this situation the company does not charge for the carpet itself, they charge for the service (floor covering services) which causes them to want to create very durable and reusable products.

Update: The company is called InterfaceFLOR and more info can be found on their site.

There are many other product businesses that could employ a similar service model rather easily (in the scheme of things) by figuring out the costs and creating a pricing situation that makes sense for them and for the consumer.

What other industries do you think could employ a “service” makeover?

Update: I have a lot to learn and a lot more to read on this subject. If you are interested in reading and learning more as well please check out the comment on this post left by Peter Christensen as he outlines the best reads for the topic of green business.


Patriots Postmortem: Three things this season and Super Bowl XLII can teach us about start-ups

Posted on February 4, 2008
Filed Under Business, Sports | 1 Comment

So, last night was a stunner to say the least. New England is still reeling from the loss and the pundits are all analyzing and re-analyzing the game to death. I am sure they will continue to do so for years (or at least until the Sox take the field in a few months). However, I think it’s interesting to look beyond the surface of the game for a few minutes. Beyond the Patriots offensive line’s massive breakdown. Beyond Ellis Hobbs’ poor defending. Beyond Matt Light’s few false starts.

Once we get passed all that I think there are three things we can pick up from super bowl XLII and from the Patriots season that relate to business and start-ups in specific.

The mighty can, and do, fall:

The Patriots were more or less invincible this season and they have been a force for about seven years now. However, they fell yesterday night to a team that, by all accounts, was not the better team. Clearly anything can happen on any given day and the Giants (specifically the defense) really stepped it up last night and made things happen.

Start-ups know this is true as well which is partly why they take on the challenges they do including competing with large companies that, to any outside observer, they have no business beating.

Underdogs can take more risk:

Last night the Giants took more risks than the Pats and their risks paid off. The Giants were able to take more risks simply because they weren’t expected to win while the Pats played more conservative football. The Giants pressured our offense at the line at the expense of covering our receivers better and while that could have resulted in some big plays for the Pats it didn’t because the defense at the line was so strong Brady never had a shot to throw. Pressuring the offense at the line was a risk that paid off big for the Giants.

Start-ups also have a similar advantage over large companies. Since larger companies are very concerned with keeping their current revenue streams in tact (due to responsibility to shareholders, etc.) and due to the fact that they are larger and slower to move they sometimes don’t take risks they should leaving themselves vulnerable to start-ups who, by all accounts, shouldn’t win.

Heart really makes a difference:

Last night it was obvious that the Giants just wanted it more. They played harder than we did and they deserved to win that game.

You have to have heart (a.k.a. passion) in business as well. It plays a larger role than I think people think it does. Start-ups with heart can win battles that they technically shouldn’t making them a threat to the big guys.

While I am pretty bummed out with regards to the outcome of the super bowl I am glad that some lessons came from the game that I could share here. All I can say now is, go Sox!


Multitasking: Scientists Say It Hurts Our Brains

Posted on January 30, 2008
Filed Under General Thoughts, Business | 5 Comments

Reading Time: 4 minutes 30 seconds

People have always given me a bit of a hard time for not being a great multitasker. In fact, my girlfriend makes fun of me here and there for not being able to carry on a conversation and read a book at the same time or about how I really zone into my work or my writing and don’t realize that she’s talking to me. (To be fair, she is super supportive and the multitasking thing is just one of the very few things she teases me about. I mean, I am honestly not sure how she puts up with me. She’s a saint.)

I used to think multitasking was something that I needed to work on but I always had this feeling that focusing on a task, one task, would result in a better end product and in me learning much more about what I was doing and how I could improve.

Well, it turns out that the scientists (Who are these people anyway? I just picture a huge lab full of guys in white lab coats with a bunch of “test subjects” sitting around with a bunch of machines and wires hooked to them. Too much sci-fi for me…) may have proven that my suspicion about multitasking not being very productive is actually a fact.

Thanks to my friend Jason I came across an article in the Atlantic that discusses the topic and has some very good insight into why multitasking is not good for us (and our brains).

Summary: our brain is, in fact, not a computer capable of doing many things at once (actually it can do many things at once but in the cases where the brain is in that mode it actually concentrates a lot on concentrating rather than the tasks it is trying to complete). It is, however, a highly advanced tool capable of solving large problems and focusing on one task at a time with complete clarity. Check out this excerpt from the Altantic article as I think it illustrates the point nicely.

Multitasking messes with the brain in several ways. At the most basic level, the mental balancing acts that it requires—the constant switching and pivoting—energize regions of the brain that specialize in visual processing and physical coordination and simultaneously appear to shortchange some of the higher areas related to memory and learning. We concentrate on the act of concentration at the expense of whatever it is that we’re supposed to be concentrating on.

What does this mean in practice? Consider a recent experiment at UCLA, where researchers asked a group of 20-somethings to sort index cards in two trials, once in silence and once while simultaneously listening for specific tones in a series of randomly presented sounds. The subjects’ brains coped with the additional task by shifting responsibility from the hippocampus—which stores and recalls information—to the striatum, which takes care of rote, repetitive activities. Thanks to this switch, the subjects managed to sort the cards just as well with the musical distraction—but they had a much harder time remembering what, exactly, they’d been sorting once the experiment was over.

Even worse, certain studies find that multitasking boosts the level of stress-related hormones such as cortisol and adrenaline and wears down our systems through biochemical friction, prematurely aging us. In the short term, the confusion, fatigue, and chaos merely hamper our ability to focus and analyze, but in the long term, they may cause it to atrophy.

Ouch! That is not good at all. What’s that you say? Not a fan of science? OK, let’s take a look at the monetary cost of multitasking. Atlantic article, show us the money!

Six hundred and fifty billion dollars [Eric’s note: this is a per year figure.]. That’s what we might call our National Attention Deficit, according to Jonathan B. Spira, who’s the chief analyst at a business- research firm called Basex and has estimated the per annum cost to the economy of multitasking-induced disruptions. (He obtained the figure by surveying office workers across the country, who reported that some 28 percent of their time was wasted dealing with multitasking- related transitions and interruptions.)

Now do I have your attention? Right… you’re reading this while also trying to do yoga and e-mail people on your BlackBerry. My bad. I should have known.

With all that said I would like to note that you can in fact have a variety of activities and interests in your life and even different things to do at work (everyone that knows me well knows I do a lot of different things in and outside of work). The idea is not that you should only do one specific thing in life, the idea is that you should focus on one thing at a time.

Basically you just need to break up your day. While you are answering e-mail that is all you should be doing. While you are working on a big client proposal you shouldn’t be doing anything else (especially answering intermittent e-mails). While you are riding your bike you shouldn’t be listening to your iPod or reading e-mail on your BlackBerry (seems crazy but I have seen them both and in the latter case the guy was coming straight at me - don’t worry though, collision avoided due to my focus on the task at hand). While you are reading, just read. Don’t keep answering the e-mail that come in, don’t answer your phone (unless it may be an emergency), etc. You get the idea. It’s not about having one task or activity in life, it’s simply about focusing on one at a time.

Multitasking is really hurting the experience of life in the sense that the journey is lost in the rush to some end game. That’s truly unfortunate because the journey is what it’s all about. It’s where you learn things, grow as a person and really enjoy your life.

So, next time you are about to multitask remember that life’s all about the journey, oh, and that you don’t want to fry your brain early on in life. Frying your brain = bad.


DEMO Conference Update: LiquidTalk and Good2Gether

Posted on January 28, 2008
Filed Under Technology, Business, Web, Social Ventures | 2 Comments

Unfortunately I was unable to make the DEMO conference this week due to scheduling issues which is a bummer but I will be covering some of the companies I find interesting right here anyhow (with the aid of Frank Gruber who is on the scene). Without further adieu here is the first DEMO update:

LiquidTalk

I was very excited when I first heard that LiquidTalk was going to be at DEMO this year. LiquidTalk is a Chicago based company (yeah, I may be a biased because of that) that has come up with some great enterprise technology that brings new media to the corporation.

LiquidTalk’s core technology allows corporations with large distributed sales forces to easily distribute corporate knowledge to these remote individuals via podcasts. This timely and easy to consume media helps sales professionals stay up to date while they wouldn’t normally be able to be productive (i.e. driving between appointments, on a flight, etc.) which ultimately will help them close more sales.

At DEMO tomorrow LiquidTalk will show off their new BlackBerry based technology for the first time. I have no doubt it’ll be a pretty sweet demo as their prior demo of their iPod technology at TECH cocktail a while back was a lot of fun.

From all of us in Chicago - good luck guys. Make us proud!

Good2Gether

As you guys know I am a sucker for a good social venture (aren’t all social ventures good… clearly I should use a thesaurus more often) and this looks like one.

The idea behind Good2Gether is to bring together not-for-profit organizations, volunteers, the media and large corporations with what it calls a “philanthropic social networking service.”

The issues Good2Gether addresses are:

Corporations are always looking for ways to make themselves look good in the eyes of the world via supporting not-for-profits but they often have a hard time finding them (and of course the not-for-profits can use the support).

Media companies have a lot of eyeballs and not-for-profit websites do not. Media companies are also looking for good stories which they could potentially get from the not-for-profits.

Not-for-profits are always looking for volunteers and but, due to in part to poor websites, volunteers who want to help are often left out in the cold (I can say this has happened many times to me. I want to volunteer my time but find it very hard to do so.)

Good2Gether aims to alleviate all of these issues through their product which will bring together all of the groups that play in the not-for-profit space and help them find ways to interact.

Good2Gether has already landed a handful of the top media outlets in the country along with a number of large not-for-profits and corporations so it seems they are off to a great start. I am all for this application and I really hope they are able to keep up the momentum.

Just imagine seeing a news article about a natural disaster with a Good2Gether box listing opportunities for the public to help right next to it. You click an opportunity and you are brought to a page that allows you to easily apply to volunteer. Large corporations will also find it easy to donate and send employees to help and the media can even get a story out of all the people brought together via the web to help out in a disaster. Not bad at all.


Midwest Venture Summit 2008: Business Plan Submission Underway

Posted on January 24, 2008
Filed Under VC, Technology, Chicago, Business | 1 Comment

I received a note from the IVCA today about the Midwest Venture Summit that is coming up and I wanted to make sure I got the info out to all of you.

The Midwest Venture Summit is a great way for entrepreneurs of Midwest based early stage* and series A+** companies looking for funding to get in front of the Midwest’s top VCs. In fact, you can get in front of over 100 of them by presenting at the summit. Not too shabby.

The Midwest, as defined by the IVCA, includes these states: IA, IL, IN, KY, MI, MN, MO, NB, ND, OH, Western PA, SD, WI. These are the areas from which the VCs and various service providers will be coming from and from which your company needs to be from in order to participate in the summit.

I would suggest submitting your business plan if you are looking for funding in the Midwest. Sure, it costs $175 but you will get far more value than that if you are selected to present.

Even if you do not end up raising any money via your presentation at the summit (although companies that presented at the past years summit have raised $222mm to date so chances are pretty good that you may land a deal) you will get great feedback from the top business and technology minds in the Midwest that will help to shape your business going forward.

The deadline for submitting plans to the Midwest Venture Summit is January 31, 2008 so make sure to submit your plan sooner rather than later.

Again, this is a great opportunity for Midwest startups and VCs alike. Events like this one will help to put the Midwest on the map as the technology hub that it is.

Disclaimer/clarification: I do not receive any money from promoting this event. I just wanted to help get the word out.

MVS Details:

Dates: March 17th & 18th, 2008

City: Chicago, IL

Venues:

Day 1 will be located at the University of Chicago Gleacher Center, 450 North Cityfront Plaza Drive, Chicago

Day 2 will be located at the Sheraton Hotel & Towers, 301 East North Water Street, Chicago

—————-

IVCA Company Stage Definitions:

* Early stage companies typically have:

**Series A+ companies typically have:


HBO: An Argument for Subscription Based Content

Posted on January 22, 2008
Filed Under Business, Media | 2 Comments

Reading time: 2 minutes 30 seconds

HBO probably has the best shows on TV right now. Sure, you could debate me on that but I have to say that the shows I hear the most about from people (right now The Wire is in that category) and the ones I tend to enjoy on DVD (I don’t have HBO) are mostly HBO productions. Why is that? Is HBO simply better at finding talent and backing good ideas? Does HBO have some kind of oracle hidden in the bowels of their corporate headquarters? I think the answer is actually much simpler.

HBO has the best TV on the air right now because they are a subscription based service.

Yup, that’s right, I said it. The dreaded word in the online universe. Subscription…. OK, are you composed and ready to hear me out? Good.

Here’s the theory: HBO can make better shows since they aren’t worried about the audience coming to view the shows and they aren’t worried about advertisers (since they are a subscription service). Not only that, they know a lot about their audience (they have solid info from the subscription process) so they can simply make shows their audience will like without any distractions (distractions being things like what advertisers will want, etc.).

Let’s look at the audience piece of the equation first. Of course HBO wants to please its audience but it knows its audience well and can therefore make content that the audience will enjoy. What I meant when I said they aren’t worried about the audience coming to watch the content is that HBO has subscribers who pay for their content and who will then show up to watch it. This allows HBO to judge revenues in a more accurate fashion and also to quickly get an idea of which shows make sense and which don’t. The subscription revenues also lower HBO’s production risk allowing HBO to produce higher quality content and to take more risks on new edgy ideas.

Now let’s take a look at the advertising piece of the equation. Since HBO has paying customers and does not rely on advertising they don’t have to create shows that advertisers will feel comfortable with. This allows HBO to create more edgy and “real” shows. HBO also sees another benefit from their advertiser-less status. HBO doesn’t need to have a huge broadcast like audience to make a show work (don’t get me wrong - they have a lot of subscribers but their revenue isn’t as tied to eyeballs as the advertiser driven businesses). All they need is for their audience to like it and like it enough to continue to subscribe.

HBO seems to have a great model for producing content even though they do go against everything the web pundits have been saying for the last handful of years (i.e. content should be free). I do agree that making content free and monetizing it with ads makes sense but there are also inherent drawbacks like:

So perhaps creating niche, edgy, high quality content is a model that should be monetized via subscription rather than via advertising. Of course when you do create niche content you do get the benefit of a highly targeted advertising situation which means higher ad rates but that really only helps you if you’ve got content that brings in big dollar advertisers (i.e. content on tree frogs may not get you the high ad rates you want).

There I go again. Always the contrarian… I’d love to hear some thoughts in the comments section of this post both positive and negative. It could be that I am just missing something but it does appear that delivering high quality content is better done through a subscription model and that people are willing to pay for it (HBO has 40 million paid subscribers by the way).

Side note: HBO is also experimenting with delivering content via the web to their subscribers. Their subscriber based set-up should help them innovate on the web more quickly than studios who are worried about the advertising potential of the web. Interesting.


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