Capture Your Upside

ESPN recently reported that Bill Parcells might collect $9 million and walk away from the Miami Dolphins at the end of the season. The Dolphins are 11-5, headed to the playoffs, and have one of the best defenses in the NFL. But let’s rewind to December 20, 2007 when it was announced that Bill Parcels had signed a 4 year contract for $12 million to run the Miami Dolphins football operations. The Dolphins finished 2007 with a league-worse 1-15 record, had Cleo Lemon (who?!) at QB, and an aging defense. Bill Parcels came in not to coach, but to bring order to the situation and run a tight ship.

Now here’s the best part of the contract he signed. His contract stipulates that he can walk away in the event that the majority ownership changes. Stephen Ross is expected to exercise an option which would increase his ownership of the Miami Dolphins from 50% to 95% in early January. Bill Parcels gave himself an out. It was widely known that there was takeover interest in the Dolphins and Bill came into a messy situation. If he fixed that situation and built up a great team, it was expected that new ownership could take control. And that means he can opt-out of the remaining 3 years, grab his $9 million, and head on to whatever he wants to do. Bill Parcels captured the upside value of what he brought to the table.

Chernow Quote of the Day

Rockefeller was a master of taking his competitors, enemies, and adversaries and converting them into strong allies. His first resort was to neutralize people/companies by taking them into his fold. If he couldn’t get them to join him, he would just outright crush them.

Always proud of his persuasive powers, Rockefeller took special pleasure in wooing opponents whom he had learned to appreciate by tracking their ploys against him. When a lawyer named Virgil Kline won two lawsuits against him [Rockfeller] in the 1880s, Rockefeller invited him to his office. “Mr. Kline,” he said, “you have given us a good licking. Now I would like to have you come and work for me.” Kline agreed and became a long-standing member of the Standard Oil legal staff.

Mark Cuban is Making Moves

Looks like Mark Cuban is making moves. Silicon Alley Insider reports that the Dallas Mavs owner has purchased a 9.4% stake in Carmike Cinemas (CKEC), the 4th largest movie theater chain in the US. Cuban also is involved in Landmark Theaters and HDNet. It looks like he’s bullish in re-inventing the uses of the traditional movie theaters and moving beyond just movie screenings which have lagged lately. Here’s the only comment he would give on the CKEC investment:

What i can say is that I think Out of Home entertainment is becoming about far more than movies. HDNet was the first to do a live 3D broadcast to a theater, and we will continuing trying to expand that business, along with 2D out of home. Bits are bits, and just like you can make them smaller, you can make them a lot bigger and more interesting. (from SIA)

It’s cool to think of the possibilities of moving beyond just watching movie showings on the big screen. Imagine going to watch the Superbowl with a group of friends or big boxing matches, etc. This is already being done, but from the surface, it appears that Cuban is trying to make this bigger and more mainstream. It’ll be interesting to see how this develops.

Chernow Quote of the Day

More reading about Rockefeller and it’s starting to get more interesting. I’m really seeing his growth and evolution into an oil mogul. I’m at the part where the early oil boom ends, oil prices crash, there’s large amounts of excess refining capacity, and refineries are facing tough times (interestingly enough, somewhat similar to today’s situation). Rockefeller is executing moves to consolidate the oil industry, create vertical integration with the rail roads, and buy out competing local refineries. Chernow tells us:

As always, the greater the tumult, the cooler Rockefeller became, and a strange calm settled over him when his colleagues were most disconcerted. When pushed, he always stood his ground. The SIC episode showed that Rockefeller was now developing exalted faith in his own judgment. Like all revolutionaries, he saw himself as an instrument of higher purpose, endowed with a visionary faith. He knew that his actions would at first be resisted and misunderstood by the myopic crowd, but he believed that the force and truth of his ideas would triumph in the end.

Marketing Class Analysis of Twitter

For my Consumer Behavior class (MKTG 235) last semester I had the opportunity to write a paper about any topic that I thought had successfully used various marketing principles. I chose to write my paper about Twitter. This company has created a new global communication channel. Anyways, I could go on and on about how/why Twitter is awesome, so here’s my paper:

Introduction to Twitter

Twitter started out as an internal communication tool used by staff at a California startup in 2006 and in about two years has grown to 3.2 million registered users. Twitter is a social network based around micro-blogging where users can post and read text updates/messages of up to 140 characters in length to and from other users. The service creates a publically indexed/searchable (although privacy settings can be used) depository of status updates or ‘tweets’ which can be sent and received through the website, through mobile devices, through external websites, and other access points.

The success of Twitter lends itself to excellent analysis under the Rogers innovation framework. Furthermore, Twitter is highly flexible and adaptive to re-invention from within its own community. Despite having many excellent traits which make it spread and stick, Twitter still faces some issues before it reaches mainstream adoption.

Chernow Quote of the Day

I started reading “Titan: The Life of John D. Rockefeller, Sr.” by Ron Chernow. I’m going to quote parts of the book that I find interesting. Here’s a description of the typically reserved John D. Rockefeller in his early 20s when he was just getting started in the oil business:

As one early associate remarked, “The only time I ever saw John Rockefeller enthusiastic was when a report came in from the creek that his buyer had secured a cargo of oil at a figure much below the market price. He bounded from his chair with a shout of joy, danced up and down, hugged me, threw up his hat, acted so like a madman that I have never forgotten it.” These isolated joyful outbursts only underscored the usual constriction of his personality.

 

Thomas Friedman on Rebooting America

Thomas Friedman has an excellent Op-Ed piece in yesterdays NY Times called “Time to Reboot America.” Here are my favorite parts:

We’ve indulged ourselves for too long with tax cuts that we can’t afford, bailouts of auto companies that have become giant wealth-destruction machines, energy prices that do not encourage investment in 21st-century renewable power systems or efficient cars, public schools with no national standards to prevent illiterates from graduating

When you read this list it all seems so clear and obvious. We’re spending money we don’t have, bailing out companies like GM that are absolute FAILURES, and not teaching America’s children the skills they need to compete.

immigration policies that have our colleges educating the world’s best scientists and engineers and then, when these foreigners graduate, instead of stapling green cards to their diplomas, we order them to go home and start companies to compete against ours.

This is something I see at Penn/Wharton all the time and it really bothers me. Some of the smartest people I know at school are from foreign countries. Yet why is it that after 4 years of UPenn, they are not allowed to easily stay in the United States? It makes absolutely no sense. We are shooting ourselves in the foot and sending some of the best talent in the world back abroad.

To top it off, we’ve fallen into a trend of diverting and rewarding the best of our collective I.Q. to people doing financial engineering rather than real engineering. These rocket scientists and engineers were designing complex financial instruments to make money out of money — rather than designing cars, phones, computers, teaching tools, Internet programs and medical equipment that could improve the lives and productivity of millions.

It’s true. The incentives to go into banking and finance have been very large and really smart people have flocked into this field. Yet these institutions create nothing of real tangible value to society.

Generally, I’d like to see fewer government dollars shoveled out and more creative tax incentives to stimulate the private sector to catalyze new industries and new markets. If we allow this money to be spent on pork, it will be the end of us.

Handouts are not the solution. Incentives to build are.

50 Cent is an Entrepreneur with a TV Show

You probably know that I’m a big fan of inspirational sounding rap songs/quotes, as well as the moguls behind the music like Eminem, Jay-Z, and 50 Cent. In 2008, Forbes reports that Curtis Jackson (aka 50 Cent) pulled in $150 million in cash. It shouldn’t be surprising considering that he invests in everything from Vitamin Water (sold to Coca Cola for $4.1 billion) to African platinum mines to real estate to restaurants to video games. If you want to read more about his business dealings, I’d recommend the piece “The 50 Cent Cash Mashine” by Forbes writer Zach O’Malley. Like any entrepreneur, he is described by those closest to him in the following light “He’s got the work ethic of a robot. I think he works 24 hours a day.” It’s easy to look at the negatives in his life (the drug past, the arrests, the violence, etc.), but I think it’s best to take away the positives. This man has built an empire and he started from nothing. American Dream indeed.

You Need a Blog

A lot of my friends have started talking about internships this summer and I just helped one of my friends setup his very own blog. Why? Because when people Google your name, you want to have control over what’s on that search results page. Having an online presence is absolutely a must in todays world. I don’t care what field you are in or what your goals are, when people look you up online, your blog should be the first thing they come across. A blog not only allows you to show your personality to people, but it allows you to develop yourself around particular interests and connect with other people who share those passions. I must say that I’ve really enjoyed connecting through e-mails, Facebook messages, comments, etc. with my blog readers and it exposes me to a lot of new things.

So if you don’t already have a blog, go get one on WordPress or Blogger. It takes about 30 minutes to setup and it’s a fantastic thing to have. It’s never too early to build a blog and it’s a great thing to build before you really need to use it, because once you do need it (i.e. once someone searches for you), it’s already too late.

Broken Venture Capital

I had a meeting the other day with the Managing Director of a large Private Equity/Venture Capital fund and he pointed out some interesting things about current problems in the Venture Capital model that I hadn’t really thought about before. Despite my lack of any direct involvement in Venture Capital or Private Equity, for some reason I found his insights particularly interesting. A lot of people have talked about how it’s taking less and less money to start a company today, so the VC model has been shrinking more and more into early/seed stage. That’s certainly the true, but what I heard during our meeting was something I haven’t heard too many people talk about. Here are his main thoughts lately (while they may seem obvious, I think they are particularly pertinent in todays market conditions):

1) Follow on capital scarcity in these markets kills early stage investing

This is a scary thought. Basically, angel and early stage investing today is extremely risky. And it’s not because the quality of companies is poor or because the management is bad — it merely has to do with runway. Imagine you invest at an early stage in a promising new startup and they are kicking on all gears and really kicking ass. Now imagine they really need to raise more money or run out of business — if the capital markets are extremely tight (as they are today), the company will have to close it’s doors if it can’t find mid or late stage investors. This becomes a self-fulfilling prophecy because risk-aversion increases and no one wants to be the first money in. Therefore, early stage $$$ dries up because people fear that follow on capital will be impossible or non-existant

2) Expectations of minority ownership in the Venture Capital model are flawed

The big difference between Venture Capital and Private Equity Buyout firms is that VC is supposed to be minority ownership, whereas PE is supposed to be more about owning most of the pie. Yet VC terms often increase the ACTUAL ownership through things like board seats, stock class, founder earnouts, etc. What this does is it sets up false expectations for the entrepreneurs that they are in control — most often they are not, and this really becomes obvious when times get tough (as in right now.) What’s more clear about PE, is that you can very large explicit ownership of a company and really be hands on with it. As a side note, VC circles often do deal flow trading and risk swapping which creates situations where different VCs do dispraportionate shares of the work in managing the portfolio companies. With PE, there is again more explicit ownership and management roles.

 

Always cool to hear the thoughts of an insider.