In a nice opinion piece for The Wall Street Journal, by Schramm et al. They essentially say that the age of the business not the size is the more precise characteristic of companies creating jobs.
The more precise factor is not the size of businesses, but rather their
age. According to the Census Bureau, nearly all net job creation in the
U.S. since 1980 occurred in firms less than five years old. A Kauffman
Foundation report released yesterday shows that as recently as 2007,
two-thirds of the jobs created were in such firms. Put more starkly,
without new businesses, job creation in the American economy would have
been negative for many years.
The authors go on to cite economic and regulatory barriers that are in the way of young companies and propose a four pronged solution.
Welcome immigrants seeking scientific training to our universities by granting permanent residency and work status.
Unbridle academic entrepreneurs by opening up licensing to non-university entities.
Provide easier assess to capital.
Fix the cost burden of SOX compliance for small companies.
Seems like a reasonable course of action to me. How about you?
He is writing about the interesting things that happen when
technology innovation and business execution impact each other. How
technologists can get things done in a technology company and what
business managers need to know to be successful. When Worlds Collide is about how organizations can succeed when
business execution and technology innovation seem to be on a collision
course. The "hey, you got your peanut butter on my chocolate" result.
Rich has an impressive background. He was in charge of the rebirth of undergraduate education in computer science at Georgia Tech, Chief Technology Officer
at Hewlett-Packard, VP of Computer Science
Research at Bellcore, and Director of
Computing Research at the National Science Foundation. I had the chance to meet him at a football game a few years back. He is nice guy. And much easier to talk to than his background might suggest.
Remember Nina. That lady I thought was a god send. She's a liar too.
My wireless modem never showed up on Friday.
Gotta give AT&T a little credit though. Mike showed up. I speed tested the AT&T service on Friday morning. Maxed out at 3Mbps. I signed up for 6Mbps. So I had to call technical support (my fifth AT&T call in this ordeal). It was about 7:30 am. They made me run an AT&T speed test. Like the SpeakEasy speed test was wrong.
Told me they were going to send out a tech. Gave me a window of 8 - 12. Gave them my cell. I'm going to work. Mike shows up at around 9:10 am. Abby is still home. Checks the outside equipment. Says he has to get some stuff. Goes away.
I go away. Have a fun weekend.
Come home Sunday night. Speed check. 6.2Mbps down, 435Mbps up. $32.95 a month. Rock on.
Abby checks voice mail. Mike called over the weekend. Upgraded the service. Left his cell phone number in the event we had any issues.
But remember, my wireless modem never showed up on Friday. So I called customer service (call #6) on Monday, cause AT&T's convenient for them customer service hours are 8 to 7 on weekdays. There was no record of an order. Lady places another order for the wireless modem. Tells me it will be here by Tuesday.
Tuesday comes and goes. No wireless modem. I am really not surprised. The rep that promised me that it would be
here was not able to provide me with a tracking number. Was
not able to send me a tracking number when I asked if she would do so
via email when it was available. Automated package tracking notification seems a
bit beyond AT&T's capabilities thus far in the 21st century.
So I called customer service (call #7) on Wednesday morning, cause AT&T's convenient
for them customer service hours are 8 to 7 on weekdays. Guy tells me he needs to transfer me to another queue. Puts me on hold for a bit. Comes back asks me to wait. Puts me on hold for a bit. Comes back and tells me to call back later. They are too busy. Gives me a specific number to call and tells me to call back later. When I tell him the number he gave me is the same number I called. He is dumbfounded. Tells me to call the number and select option #4.
I wait a few hours. I called customer service (call #8). There is no option #4. It is all voice activated. Get Ray. Nice lady. She can actually provide a tracking number. Wireless modem to be delivered today. The anticipation is killing me.
Got home tonight. Package is here. The anticipation is really killing me. Open the box. Wrong modem. It is the same silly single computer modem they sent when they slammed me, I'm sorry, activated my service without request.
I could not make this stuff up if I had to. But I might start a business selling unused AT&T modems on eBay.
Before I do that, I am gonna give Mike a call on his cell phone tomorrow. That will be call number 9. And this whole thing is starting to sound a little bit like that Beatles song.
I called AT&T to inquire about Internet service pricing last week. They slammed me. I figured this out last night when I got home and there was a package on the porch. Took it inside. Opened it. Saw a DSL modem. Livid.
This started 10 days ago. I made an inquiry to AT&T sales. Wanted to know how much it would cost me to bundle my Internet, phone, and television service. It was getting close to time to switch from EarthLink. Though you will not find it anywhere on their Web site EarthLink charges $49.95 for 3.0 Mpbs. AT&T is $30. I am loyal to EarthLink. But they are charging about 66% over market rate for the same level of service. It was time to switch and it was my intent to do so when Abby and the kids were off on their summer tour. Anyhow, the AT&T rep told me their pricing for various services and that I could immediately save $10 a month by switching phone service to something called Complete Choice Enhanced. I said sure and forgot about it.
On Monday night my Internet service went down. Seemed odd. Used to do that quite a lot back in the day. Not so much anymore. Decided to head off to work and give it a little time. When I got home it was still down. So I called EarthLink tech support. The rep did not speak English well. Made me do all the obvious things. Then something not so obvious. He asked me to switch phone jacks. Which is not the easiest thing to do in the world. I pinged. Googled the word idiot. It seemed to have worked. Odd that the jack would just go bad. But I started moving some network gear around to get all the computers online. Did not work. I checked all the jacks. None of them would give me PPPoE. Called back EarthLink tech support. The rep did not speak English well. I was told there was a widespread outage and my service would be down until midnight on Tuesday. Suggested I use dial up. Was a bit taken aback when I said that my computers did not have dial modems so that was not possible.
On Wednesday morning DSL was still down. So instead of calling EarthLink tech support, because the reps tend to not speak English well, I decided to have a chat session. Was told that the outage would continue to affect me for another 24 hours. And then I got home and opened the DSL modem. No prior notification that I had an account with them of any kind. No mail. Nothing. Just a DSL modem on my doorstep. And it's just a simple plug in one computer type of modem. Would not even work for my setup if I wanted it to.
Livid. So livid I think I scared my kids. Livid because AT&T slammed me and made my Internet service go down. To get semi-technical here, a DSL line can only be provisioned by one telephone company at a central office. If AT&T has a DSL line provisioned on the switch for your phone then EarthLink cannot. EarthLink had my line provisioned. AT&T put in the order to provision my line and essentially took down my DSL service.
Called AT&T. Asked for a sup. No love. Could not even tell me what level of service they signed me up for without my permission. Said I had to speak with customer service. Which of course is closed at night when normal people take care of such things (remember that convenient for us not the customer sin?). Denied that they had anything to do with my EarthLink service going down. Liar.
Called EarthLink tech support. The rep did not speak English well. With a little direction he figured out my line was "inactive". Transferred me to another phone queue. The queue that I was transferred to had a recording. "Not able to handle calls due to system outages." Great.
So I called AT&T customer service this morning. Explained what had happened. Guy was a jerk. Denied that they had anything to do with my EarthLink service going down. Liar. Hung up on him.
Called back, got a nice calm lady. Explained what happened. Found out I was signed up for 6.0Mpbs service. That I was currently being billed for the DSL service, and I was being billed $75 for the DSL modem that I did not order. Made a note in the account that I did not order the service and if I cancelled I would not be billed anything.
I cranked up EarthLink chat tech support. This is the conversation.
Shawn P: Your DSL line is turned off. lance@mindspring.com: why? Shawn P: You can contact our Installation Department and get it turned back. Shawn P: Seems your area is undergoing some changes on the phone line. Hence it happened. Shawn P: You can reach us at 1-888-EARTHLINK (1-888-327-8454), available Mon - Fri 7 a.m. to Midnight, ET Sat & Sun 8 a.m. to 10 p.m. ET. Shawn P: This is what I am going to do for you. Shawn P: I've kept a note on your account. Shawn P: Please phone them after few hours. Shawn P: It helps us to serve you quickly.
Quickly would be nice. It's been three days. I called the EarthLink tech support. The rep did not speak English well. He told me it would take five days to reprovision the account. I said no thanks. Tired to cancel. Guy would not let me. I hung up.
I called EarthLink tech support. The rep did not speak English well. Told the lady I wanted to cancel. Told her pricing was too high. And I swear it was just like the infamous AOL recording.
I very specifically had to say "cancel the account" seven times. Once she got finished with that she started to tell me about the final bill that I was going to be receiving. $49.95 for the period of June 16 - July 16. I tried to politely explain to her that she could not charge me for a service that was not being provided and that if she did so I was not going to pay it. She agreed to only charge me $25 because the phone company got the other half. Told her that was not my problem and that if they charged me anything I would not pay it and would walk down the street to EarthLink HQ and have a chat with the receptionist. I am not going to get billed.
So back to AT&T to see if they want my business. Explained to the rep what happened. Said if they did not do something to make up for this mess I would cancel all my AT&T business and go to Comcast. I got transferred to a specialist. Nina.
Nina from Atlanta. Nina in Atlanta. Nina in the office park where I take the kids to Taco Mac. Nina was nice. The first person I spoke to in this whole ordeal that was nice. Nina understood the semi-technical issue I described. Nina had empathy that I had been without Internet service since Monday. Nina cut me a deal. Nina is overnighting the proper modem. Nina fixed the problem. Nina kept me as a customer.
Nina was service. Service gets and keeps customers.
You may have heard that Jason Calacanis, the CEO of Mahalo, publicly offered $250,000 for two years for one of the top twenty slots of suggested users that Twitter is now offering up as part of its service. Jason's offer was a publicity stunt. A game. He intended to attract media coverage. He is extremely skilled at getting attention. The king of linkbait. It is one of the things that makes him a good entrepreneur. And once again it worked.
Jason outlined his thought process for the $250k offer in his most recent list mailing (He stopped blogging in 2007. Blogs are so last, last year, though he really did not stop.) Jason did some math on his offer and this is what it looked like.
My plan was to post the Top Five most absolutely fascinating questions
from Mahalo Answers to our @questions account every day.
Everyone loves a timely or fascinating question and, in my estimation,
I would get a one percent clickthrough rate on each question. If I was
able to reach three million followers, and kept half of them (1.5m),
that means every tweet would get 15,000 visits. Five a day means
75,000 daily visits, and over two million visits a month--or close to
50m visits of two or three years. Some percentage of those two million
would participate in Mahalo by asking or answering questions, and if
that number is also .5 to 1%, that means I would get about 250,000 new
members for my service.
Each of those 250,000 new members would cost me one dollar, and I'm
certain over their lives we would monetize them for much more than
that.
Jason estimated his customer acquisition cost of doing a deal to buy a Twitter suggested users slot to be a dollar. Customer acquisition cost is simply the cost of securing a new customer, member, or user. And while not every startup is well funded like Mahalo and has $250k
to throw around on a whim, there is an important lesson here.
Customer acquisition cost is a key driver of any Internet business.
Especially so for early stage and growth stage companies. It deserves deep thought and consideration. While I might not buy into Jason's math and question some of the assumptions made to reach the customer acquisition cost in this instance, he walked through the logic. Every entrepreneur running an Internet business needs to be able to do the same. You can start with a very simple model. If you have no history make some reasonable well thought out assumptions. Have data points and facts to back your assumptions. Using services like Facebook, Google, and Twitter as examples and a basis for assumptions is a bad idea. Yes, Web services need to grow virally and via word of mouth (the two are not one and the same) to be successful. But at some point it is going to take more then that. Just assuming 20% quarter over quarter growth rates won't cut it. Nobody is going to buy into that assumption unless you are actually achieving 20% quarter over quarter growth rates. And then they are going to want to know how you are going to sustain it.
Customer acquisition costs is one of the three most important drivers of a SaaS business model (churn and recurring revenue being the other two), if you are going to build a successful Internet business you need to know customer acquisition marketing cold or find somebody who does. It is the only way that you can cost effectively grow your business.
Moving around Atlanta this weekend you would never think that we are "in the midst of our greatest economic crisis since the Great Depression". Traffic jams in the Buckhead shopping district during the day, the mall packed with people carrying shopping bags. A small florist telling me business was good. Traffic jams in Midtown at night. Fine dining establishments packed. $50 a plate main courses being ordered (not by me.)
On Saturday my wife stopped reading the paper. Said it was nothing but bad news. Sunday morning I read a little article in The Wall Street Journal by Bradley R. Schiller. He is an economist. Has written more then a few books on the subject. An Amazon search brings 44 results.
The point of his article? That the current economic climate we are in is more like the 1981-82 recession then what happened in the 1930s. Some of the facts according to Mr. Schiller.
Job losses. Current state 2.2% of work force. 1981 2.2% of work force. 1930 4.8%, 1931 6.5%, and 1932 7.1%. The Great Depression had job losses between 2 and 3 times what we are seeing today.
Unemployment. Currently sits at 7.6% and heading in the wrong direction. 1982 peak was 10.8%, where many predict we are headed. During the Great Depression the peak was 25.2%. Over three times as high.
Gross Domestic Product (GDP). The Congressional Budget Office is predicting a GDP decline of 2% in 2009. In 1982 GDP contracted by 1.9%. Pretty close. In 1930 GDP contracted 9%, 1931 8%, and 1932 another 13%.
Car Production. Now off 25%. During the 30s off 90%.
Bank Failures. Over 10,000 in 1933. A couple of dozen last year.
Stocks. 37% now. 90% then.
Don't get me wrong. Things are bad. I am thankful every day that I can get up and go to a job that I love. I know people that have lost their jobs. I am concerned for them. My family has cut back on its spending and I see others that are doing the same. It is not fashionable to consume.
However, based on what I saw this weekend I don't think the picture is as bad as it has been painted. Mr. Schiller's statistics seem to back this up. What about you? Do you feel better or worse off then what you see and hear in the broad media landscape?
Problem one. A lot of people that I don't know want to meet with me for various reasons. And with the economy in recession and people looking for new things to do the various reasons are increasing. I want to be helpful. Networking with the startup community is actually part of my job. I am always looking for good companies to join ATDC. I seldom say no to a cold or networking intro. But it takes time. Lots of time. The meeting time aside it takes me a good 20 minutes a day to just coordinate via email whom I am meeting when and where.
Problem two. I need to spend more time working with the companies in ATDC. I am supposed to be spending the same amount of time working with these companies as I am with applicants. That ain't working at the moment. I tend to get assigned a lot of project and program work because according to my leader "you are so good at getting it done." May be true. But it's not really what they hired me to do.
So I am going to try something new this year and see how it works. Officially Georgia Tech classifies me as a "professional with faculty status." Georgia Tech requires that all faculty have office hours. So I am going to set some up. They are:
Tuesday from 3 - 5 pm for ATDC member companies.
Thursday from 2 - 4 pm for ATDC member companies and applicants in suite 202 of the Centergy Building.
Let's see how this works. Hopefully it will foster more efficient and effective dialog. All I ask of you if you show up is to have a very specific purpose, be prepared to discuss it, and be considerate of others who may be waiting to chat.
And if no one shows up I can just work on those pesky programs and projects.
Update: Received a lot of comments online and offline about this being very difficult to manage the people that just show up. You can now schedule a 20 minute appointment via Genbook.
I have written from time to time about the differing taxes plans of Senator McCain and Senator Obama which often leads to comments from the Obama faithful deriding the credibility of The Wall Street Journal and other such things. Well another interesting little table appeared in the Journal yesterday.
Interesting, because using information from an analysis by Deloitte it shows that unless you make over $400,000 your taxes are not going up under either candidates proposals. The only folks that full a lot of pain in the Obama plan are those making over a $1,000,000 annually. If you like you can download a pdf of the full Deloitte report here.
As an entrepreneurial kid of guy of more interest to me is capital gains tax treatment. A year ago I made the statement that I would not vote for anyone that wanted to raise capital gains tax. Perhaps I am not alone as Mr. Obama has changed is position of wanting to raise capital gains tax from 15% to 28%. He currently states that he would raise capital gains and dividend rates to 20% for families earning more than $250,000 ($200,000 for singles), and eliminate all capital gains taxes on start-ups and small businesses to encourage innovation. As an undecided centrist I can live with that.
More broadly, given the current state of economic turmoil I have to halfway agree with Marc Cuban. Talk of tax cuts for anyone is no longer economically viable. But increasing taxes on the uber rich is another story. Taxing the heck out of that dude from Goldman that wants a USG bailout and personally makes about $70,000,000 a year. Now that's interesting. Populist or not, taxing ordinary income above, say $10,000,000 annually, at an 80% tax rate might be a way to reel in excessive corporate executive compensation and provide the fortunate more reason to give back to society voluntarily.
Last week I posted an article highlighting consumer technology startups in Atlanta with a promise to explain why not many of them make it big. Here is that explanation.
It stems from the work of Michael Porter. Porter is the preeminent scholar of our time on the subject of business strategy and competitiveness. If you have any formal business training you know of his work. In 1990 Porter wrote The Competitive Advantage of Nations where he introduced the theoretical framework (not only software development uses frameworks) of business clusters.
A cluster is simply the geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters come in all ages, shapes, and sizes. Film production in Hollywood, technology in Silicon Valley, and thoroughbred horses in Kentucky, all are examples of clusters. Heck even the NYC diamond district which mostly comprises one block on one street is a cluster. Clusters are everywhere and one can easily surmise given the title of the book that clusters create competitive advantage. And they do.
• Clusters can be strengthened by increasing awareness of the cluster among local firms and organizations: Not only must firms be aware of the presence of a local cluster, they must also get together and coordinate activities to improve the cluster’s business environment. Acceptance of new companies is important if the cluster is to grow quickly and reach a critical mass. • New firm and cluster opportunities arise at the intersection of existing clusters: Economic development strategies can leverage these opportunities to diversify a regional economy. • Anchor companies play a disproportionate role in seeding cluster development: Anchor companies support cluster development by acting as magnets for other major companies; organizing other companies in the cluster for collective action; supporting projects that improve the local quality of life; and producing numerous spin-out companies, which strengthen key elements of the cluster (emphasis mine). • Institutions for collaboration can significantly increase the success rate of start-up companies: Cluster development depends in large part on generating new companies from within a region. Successful regions almost always have a hospitable environment for start-ups.
Another important finding of this study was the outcome of The Cluster Mapping Project. The Cluster Mapping Project identified 41 types of clusters in the U.S. economy. While any given region will have some employment in the vast majority of these clusters, regional economies are typically very strong in only a handful. So what clusters are present in the broad Atlanta regional economy?
It just so happens that Porter also wrote yet another report entitled "Clusters of Innovation Initiative: Atlanta-Columbus" which answers that question. Running 168 pages it actually answers that question, though aging a bit, in great detail. The report identifies financial services, transportation/logistics, and information technology, as strong Atlanta regional clusters. Yes technology.
The Atlanta technology cluster was the ninth largest in the United States (population appropriate if you will) and the second fastest growing in the country. The report further identifies what it calls communications services (think telco and Internet), and software development as strong within the tech cluster. And believe it or not it even mentions Web development as a well established cluster.
The report lays out the development of Atlanta's technology cluster as such:
Atlanta’s information technology cluster draws its roots from Atlanta’s historical strengths in telecommunications and more recent strength in media companies. In the 1960s and 1970s, telecom companies like AT&T , GTE, and WorldCom expanded operations as the region grew and telecom expanded throughout the country. Turner Broadcasting, CNN, and Cox Communications were established in the 1980s to offer both cable service and new television content. These companies found Atlanta to be fertile ground because of its skilled technical workforce that remained in the area after World War II and the strong flow of new talent provided by Georgia Tech’s industrial and electrical engineering programs.
In the late 1970s and early 1980s two software companies, Management Science America and Peachtree Software, enjoyed strong growth, and when sold to larger companies, made their leadership teams wealthy. The success of these firms and their founders did not result in an immediate boom in software or info tech firms, as was the case in other smaller regions. Instead, the impact of these firms’ success was somewhat “lost” in the economy of a major metro area where big companies, major banks, and real estate developers were the primary job providers and held public “mindshare.”
It was not until 1997-98, with the success of MindSpring, one of the first large national Internet service providers, that a widely recognized anchor firm developed. MindSpring’s success and a growing national market encouraged other Internet-based entrepreneurs to expand businesses based in Atlanta including iXL, a web developer, and Internet Security Services, an Internet security firm. The business community, universities, media, and existing venture capital firms lined up to support the development of Internet firms in the wake of these successes and the growing recognition that the “new” economy was real.
And goes on to conclude:
Atlanta’s information technology cluster has thrived over the last five years. Building from regional strength in software, communications, and financial services, entrepreneurs have established Atlanta as a broad-based IT region. Through state-led investments in research, education and infrastructure, an innovative technology business incubator, and the efforts {of} multiple private sector entrepreneurs, Atlanta has developed a broad-based cluster. Seeing significant growth only over the past three years, Atlanta got a “late” start in the e-commerce and Internet area of this cluster, but is now home to a number of nationally recognized firms like WebMD, ISS, and MindSpring. The entrepreneurs who started these firms have been critical in the development of the cluster, both through the success of their firms and through the personal and corporate investments they have made in other regional firms.
Now there are some obvious factual errors in the report but really only one that bears correcting for my purpose. Unlike the folks at MSA and ISS, the entrepreneurs that started iXL, MindSpring, and WebMD have not made broad investments that produced numerous spin-outs within the Internet cluster (for a variety of reasons that are either obvious or best discussed over a beer). iXL, MindSpring, and WebMD did not act as anchors. And that is the root cause for the lack of a strong consumer Internet cluster producing large and successful companies in Atlanta.
But there is a new hope, which I will discuss next week.
Force of Good is licensed under a Creative Commons License. You are free to share, remix, and share alike with attribution.
DISCLAIMER
The opinions expressed here are mine and mine alone (with the exception of comments by others of course). They do not represent the opinion or position of any other person or entity. All postings adhere to my personal values.
