I’m already convinced that America’s growing income gap and out of control executive pay are real problems that are getting worse. If you are not convinced, this article on executive pay may change your mind. Don’t miss the visual aids. (Via James Fallows.)
David Heinemeier Hansson takes a look at the numbers behind the Groupon IPO:
At the moment, it’s costing them $1.43 to make $1, and it doesn’t look like it’s getting any cheaper. They’re already projected to make close to three billion dollars in revenues this year. If you can’t figure out how to make money on three billion in revenue, when exactly will the profit magic be found? Ten billion? Fifty billion?
On the other hand, Matthew Yglesias says that Groupon is an example of how to achieve growth through aggressive deficit spending:
Maybe this will work out, or maybe it will be a disaster. But it’s worth noting that absolutely nobody thinks it’s categorically absurd to think that what a firm needs to do to maximize long-term profits is boost spending over revenues.
It’s an interesting way to take a jab at critics of economic stimulus.
Update: Jason Kottke points out that Amazon.com operated at a loss for a long time before becoming the profit-generating machine that they are today.
Horace Dediu on acquiring companies:
Clayton Christensen succinctly defined the value in any company as the sum of three constituent parts: resources, processes or business models. Market value can be nothing more and nothing less than these three things.
An acquisition has to be positioned on one of these targets just like a product is positioned on a specific market. The problem with being deliberate about where the value lies is that once positioned a certain way, the integration team will begin to execute on that plan. This means that the thing you decided was worth most (e.g. resources) gets all the attention and the other potential sources of value (processes or profit models) are discarded.
This argument reduces to there being three separate companies being available. The buyer pays for all but gets to keep only one.
When you look at it this way you realize that the reason most acquisitions fail is because the buyer throws away most of the real value in the company.
He goes on to analyze the acquisition of Skype by Microsoft by these criteria. I’d like to see other acquisitions that occurred further back in the past analyzed in this way. My gut feeling is that nearly all acquisitions focus on resources, since they’re the most obvious repository of value and the easiest (relatively speaking) thing to integrate into the acquiring company. It’s very hard to merge the processes of two different companies together, or for an acquiring company to support new business models that didn’t develop organically.
I have never started a company, but Chris Dixon’s paean to entrepreneurs makes me want to.
Yesterday I linked to Scott Rosenberg’s pessimistic take on the AOL purchase of the Huffington Post. Felix Salmon is, on the other hand, optimistic about the deal. His argument is that the venture capitalists funding the Huffington Post and the CEO that they chose did a lot more to stifle the creativity of Arianna Huffington and the writers at the Huffington Post than AOL will.
Today, he follows in by comparing an originally reported blog post from the New York Times to a Huffington Post item linking to that post and argues that the chaos of the Huffington Post will beat out the New York Times over time. Of course, to me, the Huffington Post page is Hell on the Web, but to each their own.
If Arianna Huffington is a major strategic asset in the realm of Web publishing, his take on the deal is probably correct. I do not see Arianna Huffington as a major strategic asset.
Scott Rosenberg’s simple explanation of the AOL-Huffington Post deal:
The other, more likely possibility is that this whole thing is about the money, the investors needed to cash out, HuffPo’s numbers weren’t looking good enough for an IPO, and Huffington is basically improvising. She’ll spend a couple years at AOL and then move on. This means that, in 2011, Huffington Post will be playing the same role in relation to AOL that AOL played in relation to Time Warner back in 2000: selling itself at the top of a market bubble, pocketing the profit from a sale that couldn’t be earned from customers, and leaving a bigger, older company with all the headaches.
Nailed it.
This weekend I read a restaurant owner’s perspective on OpenTable. In short, he feels like OpenTable charges to much to arrange reservations, but that most restaurants feel like they must use it if they want to be competitive. In other words, that OpenTable has captured such a large portion of the online restaurant reservations market that they are able to extract monopoly profits.
Here’s how he breaks down the numbers:
One independent study estimates that OpenTable’s fees (comprised of startup fees, fixed monthly fees, and per-person reservation fees) translate to a cost of roughly $10.40 for each “incremental” 4-top booked through OpenTable.com. To put that in perspective, consider that the average profit margin, before taxes, for a U.S. restaurant is roughly 5%. This means that a table of 4 spending $200 on dinner would generate a $10 profit. In this example, all of that profit would then go to OpenTable fees for having delivered the reservation, leaving the restaurant with nothing other than the hope that that customer would come back (and hopefully book by telephone the next time).
What this looks like to me is a great opportunity for someone to build and launch an OpenTable competitor. I think the key would be to charge less than OpenTable, and make sure that restaurants could stay on OpenTable and book reservations through the competing site as well. Restaurants aren’t going to dump OpenTable since it is omnipresent, but I think most would gladly link from their own sites to a competitor if it would save them money and they still booked the reservation.
The catch is that OpenTable is good at what they do. They have a fully integrated solution where they provide a computer to use to book reservations. They offer a solution that enables restaurants to book reservations through OpenTable their own Web site. And, most importantly, people can find restaurants through the OpenTable Web site and mobile apps. That said, if OpenTable is really overpriced, the opportunity exists to take them on. After reading the article, I’d love to see someone give it a shot.
For what it’s worth, I could see Yelp going into the reservations business. Is there any reason the detail pages at Yelp don’t have a “make a reservation” link for restaurants that accept them? The opportunity is there.
Last week I read this essay by Anthony Bourdain for aspiring chefs. In it, he lists all the reasons why going to cooking school is a bad idea. Being a chef may have a more extreme list of downsides than some other careers, but you could make such a list for any profession.
But what I found more interesting was his advice to people who do go to cooking school and want to be great chefs. And that advice is that it’s far more important to work in great kitchens than it is to get paid a living wage. Jobs in the great kitchens of the world are in high demand, and the best way to get them, above and beyond being brilliant, is to be willing to work for nothing or next to nothing. He lists as his great regret that he got a decent paying job right out of cooking school, and that once he’d adjusted his lifestyle to that wage, it was impossible to even consider sacrificing that wage for the opportunity to learn from great chefs.
This advice holds true for people in other professions as well. If you want to reach the top of the legal profession, it’s best to start out with a judicial clerkship. They don’t pay nearly as well as jobs at law firms, but they offer a huge leg up in the legal profession. There are plenty of other examples as well. I’ve heard of the unpaid internships at National Geographic referred to as the world’s finest finishing school.
The bottom line is that just as the prices for food and lodging are highest in the world’s most popular tourist destinations, so too are the wages lowest for positions that matter the most in the pursuit of ambitious career goals.
Bourdain’s article was already on my mind when I read Paul Graham’s article, What Happens At Y Combinator. In it, he explains how the Y Combinator startup incubation process works. Y Combinator’s program is the equivalent of working for a Michelin-starred restaurant in Europe for a newly trained chef. You have to take a few months to live in the Bay Area focusing solely on your startup, and in the end you have hopefully launched a new company. It’s an opportunity best suited to the young and hungry, not the old and complacent.
That’s true for working at startups in general. I’m not talking about small businesses that have enough revenue to hire experienced people and pay them a competitive salary, but startups that demand insane sacrifices from their employees and can’t really afford to pay very much. The only people who can take that on are those who have already been successful enough to live off their savings, or more frequently, young people who don’t have a mortgage, a car payment, or familial responsibilities.
People who get out of college and wind up with a job developing software at a big company rarely wind up working at startups later on. Once you get used to the lifestyle afforded by stable employment at a company that pays well and is run in some sort of sane, structured fashion, it gets harder and harder to make the leap into the craziness that is a startup.
Bourdain’s advice applies for any field. The seemingly risky choices you make early in your career aren’t really risky. The stakes are lower than you think and the potential rewards are as great as they can ever possibly be.
Tyler Cowen takes a stab at answering a reader question about why corporate communications is laden with so much BS:
People disagree in corporations, often virulently, or they would disagree if enough real debates were allowed to reach the surface. The use of broad generalities, in rhetoric, masks such potential disagreements and helps maintain corporate order and authority. Since it is hard to oppose fluffy generalities in any very specific way, a common strategy is to stack everyone’s opinion or points into an incoherent whole. Disagreement is then less likely to become a focal point within the corporation and warring coalitions are less likely to form.
I definitely agree with his theory that financial incentives can cut through the BS:
When direct financial incentives can work well, such as in sales (bonuses) or in some parts of finance, there is much more straight talk. Disagreement and candor can flourish, because the $$ keep the workers on a common track.
Intel founder Andy Grove on startups:
Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.
The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.
© rc3.org. Powered by WordPress using the DePo Skinny Theme.