…the “Talk”…

Recently, I just about drove my truck off the road after hearing my daughter’s pre-adolescent voice, all the way from the back seat, direct “the question” to me. The question was, you know, the question that many parents dread because you have to talk about. It’s awkward, frustrating and frankly, it’s a coming of age that reminds you that your kids are no longer innocent and are getting older.

Many of you reading this can remember where you were when you had “the talk” with your parents. Some kids figure it out on their own; other more responsible parents (innocent of this charge) take the issue head-on by sitting down and talking with their kids. I’ve heard that some parents use charts and some even go to a class (with their kids!). I haven’t checked, but I’m pretty sure there must now be “an app for that”—parenting made easy, courtesy of Steve Jobs. 

After collecting myself, we pulled into a parking lot and the talk ensued—quick, succinct and to the point. I didn’t have much time and I was going to do a brief overview with the full talk to occur later that evening with her mother who really has some strong feelings about the topic. “Do your friends talk about it?” I quickly asked, and sensing the concern in my voice, she politely said “no.” Thank goodness, I thought to myself, but she went on. “I heard you and mom talking about it last night” (uh-oh) “and mom was talking about it with the neighbor on the phone too.” (WITW!) “I think I heard her talking about it out loud after watching the news, too.” I was slack-jawed. 

As you can imagine, this parent was overcome by youthful awareness and the pressing questions surrounding taxes.

Since that fateful ride in the truck and the parking lot crash course in taxation, I have been strafed with questions about why adults pay taxes, who made taxes, how are they collected, what are they used for, do we ever get them back…and the list goes on and on and on. Curiosity has also spread through the family. We have what is referred to in the world of geese as a gaggle of children. They are inquisitive and the conversation migrates quickly (and at times resembles honking), is painfully direct, and typically not restrained by common sense. Although my wife and I are affectionately referred to as “tax hawks,” I struggle to explain all the nuances of the how’s and why’s of taxes, especially the rates. 

About the time of the initial “talk”, my state was in the throes of a tax bill that would not only raise taxes, but would introduce new taxes on professional services (since that time, the professional services tax has been stricken from the proposal). I was explaining what that meant as a lesson since one of the children is learning percentages in math class. We did the math and it was interesting to hear the banter back and forth between siblings.

The part my children thought was really fun to listen to was my explanation of personal income and tax rates. You can image the stunned look on my daughter’s face when she said, “Uh dad, you mean some people pay half of their income in taxes?” (Take that percentage of a weekly allowance in exchange for basic “services” provided in the house and watch the reaction.) “Yes,” I said, “but it’s different for you because you wouldn’t have to pay tax because you fall below the state and federal limit.” Without flinching, her response was classic. “But when I get older and I get a good job, will I pay half?” I gave my typical (non-classic) response—“Its depends.” 

Recently there have discussions about revenue increases in a proposed California state budget. This is combined with a recent case which challenged the 50% exclusion on QSBS corporations, meaning that they pay only half the regular California tax rate on the gain (about 4.5 percent instead of 9 percent). This would be a crippling retroactive tax for business generators (read “job creators”) that are a vital piece of California’s economy. What’s even more troubling is that many entrepreneurs go for years foregoing market income (and in some cases, any income at all) and will have a massive tax event upon exit (think liquidation event, sale, merger, IPO, etc.) I have no idea what the current status of this situation is as it will likely be subject to litigation for some time as well. Even if you think that you have your tax structure in order, that isn’t necessarily the case. (Anything that has the word “retroactive” in it has to be looked at with some suspicion.)

It’s never too late to have “the talk.” As a matter of fact, if you haven’t had a review on your existing and future tax outlook, there is no better time. Many changes are on the horizon for you and your business regardless whether you are an entrepreneur in a pre-revenue company or an existing company that is facing new government mandates for health insurance. Or you could be thinking about selling your company in the near or distant future. Guess what? Planning now, even if a sale is not in the forefront of your mind, may be the best thing that you ever did for yourself, your company, your employees, your shareholders, your stakeholders—and maybe even that youth in the backseat of your truck who asks, “Dad, I have another question….”

The Rise of the 3D Printer

I grew up in the era of the Jetsons, Star Wars, and Star Trek—in other words, the modern Sci-Fi era. Our vision of what the future might be was shaped largely by what special effects artists could believably put on the large and small screen.

Ironically, many of the Popular Science and Popular Mechanics magazines that I read back then were continually looking back to the Dick Tracy comics to benchmark how far technology had advanced. We, by comparison, had Roger Moore playing James Bond, which by comparison to the “Star-themed” fiction presented plausible technology. (Who couldn’t envision a watch with a homing beacon?)

The chasm between our ability to envision futuristic inventions and our ability to make them reality was largely the result of the unavailability of tools for making the technology. Now, the advent of the 3D printer finally may bridge that gap and lead to a surge ahead in technology.

For the uninitiated, here’s a crash course on 3D printing. We have all watched the cool commercials where gigantic machining bits zip at fast speeds around a large block of clay or polymer to make, by subtractive process, a model of some sleek new vehicle. The 3D printing process is completely different: the printer recreates images in small layers, building detail to recreate the exact form/image of the design that has been loaded into the printer. (For evidence of the unequivocal truth of my description, see Wikipedia; it’s never wrong…) While I recognize that proper design, engineering and precision is needed to format a 3D printer to make a truly authentic object, the ability to replicate that object quickly and with precision is what is so fascinating. 

The growing captivation with 3D printers reached the global stage last week when President Obama mentioned it in his State of the Union address. Not surprisingly, shares of 3D printing companies spiked (and then fell again on the heels of the POTUS bump.) Companies producing these printers have also elicited some scrutiny because their product can more quickly reverse engineer technology by using more precise 3D and 4D laser measurement tools. Not surprisingly, the prospect of rapid replication has put some manufacturers into a cold sweat and patent litigators into a state of heightened anticipation (Newton’s 2nd law…) These printers have even received some national security attention because of speculation about what else they may be able to do (the creation of certain banned accessories for weapons). 

Alas, the era of putting a 3D printer in the basement or next to your coffee maker isn’t quite here yet. Personal 3D printing is still cost-prohibitive and no company has yet to crack the market with one that you could get with your Best Buy RewardZone™ points. There is, however, at least one start-up company looking to do just that. In the meantime, I found one on eCrater at a bargain price of $34,800. 

…and a UAV in every house…

Unmanned Aerial Vehicles (UAVs) have been around for many years. More recently, UAVs have been getting international attention because of the US military’s use of drones for monitoring and identifying enemy combatants and, at times, of armed drones for deploying deadly payloads on suspected terrorists.

The international debate has been swelling while the use of UAVs has increased, corresponding with the scale-back of the US military presence in Iraq and Afghanistan. The premise has been that using technology that can be operated from a safe distance preserves precious lives and resources while increasing the scope of US surveillance and intelligence-gathering.

Meanwhile, you may have noticed that, on the domestic front, UAVs have quietly become part of a growing national debate, illustrating a new tension between advances in technology and traditional notions of privacy.

Not all UAVs are created equal. At last check, there were nearly 1,000 companies, including several hundred contracting with the US Department of Defense, with some form of UAV technology, ranging from nano-UAVs—aircraft that weigh less than 8 ounces, equipped with a camera and sensor technology, that can remain in the air for over 10 minutes—to the hulking UAVs manufactured by large defense contractors like Northrop Grumman.

For years, agriculture consultants and large ag producers, and more recently farmers, have moved “to the skies” for surveillance of crop conditions. With advancing technology, the ability to scan the surface can provide valuable information about the presence of moisture, the effectiveness of chemical applications, and the presence of certain risks to crops.

On the security front, border patrol agents and customs agents monitoring sea ports and large portions of unfenced and unpatrolled borders with Canada and Mexico have experimented with the use of UAVs to broaden the reach of the gate-keeping function of the Department of Homeland Security.

In each of these cases, the consensus is that if there is a convenient, safe way to use technology to monitor and survey land, assets, and the movement of people (especially to where they shouldn’t be), there is a compelling interest to use technology.

A couple of recent cases, however, illustrate controversial uses of drones.

Example 1: in connection with surveillance of the Brossart family, suspected of being in possession of half a dozen pilfered cows, local law officials enlisted the use of a Predator Drone to determine the whereabouts of suspected armed individuals at the family’s rural residence. The cattle “rustlers” were taken into custody peaceably and law enforcement gave credit to the use of the drone to avoid a “Ruby Ridge-like” episode.

Example 2: hunters shot down an animal rights activist drone (broad sense of the term—it flew and had a camera) that was collecting aerial video of hunters at a private hunting club. The “perpetrators” have likely achieved folk hero status at the club. No further commentary here on whether it was the hunters or the activists that were the “perpetrators,” but you can see the outline of a perfectly good debate.

Privacy advocates are extremely worried about such domestic use of UAVs, and for good reason. The Fourth Amendment ensures that private citizens on private property are protected from unreasonable searches. Case law developed since the passage of the Bill of Rights has provided some stretching and tightening of what qualifies as a warrantless search—whether your right to privacy extends outside of your home and whether or not pictures from airspace are prohibited (GoogleEarth™ anyone?).

Also, the compelling protection and security argument can’t be ignored when considering the interests of the government (safety, security, defense, etc.) versus an individual’s right to privacy. (No privacy argument without a Benjamin Franklin quotation - In 1755, and numerous times prior to and after the birth of the United States, "Those who would give up essential liberty, to purchase a little temporary safety, deserve neither liberty nor safety”).

Congress is now getting into the picture. Rep. Shelley Moore Capito (R-West VA) offered a bill last year (the Farmers Privacy Act, H.R. 5961) that aims to prevent the US Environmental Protection Agency from using drones to hunt for regulatory violations, particularly on farms.

The debate is just getting started, but none too soon. You can now purchase a drone for several hundred dollars and control it with your iPhone. Recently, at CES, the Parrot AR Drone was showcased and can be purchased on Amazon here. Soon everyone will have a drone.

Santa Claus… you’re fired.

Not too long ago, Santa Claus was reduced to mortality in our house with some of the “older children.”  Trust me when I admit that preparing for it was much worse than doing the deed itself.  I had a flash of creativity about alternative ways to deal with his demise—eggnog poisoning, Rudolph crashing after being beamed with a red laser (ironic), elf sabotage, inaccessibility to healthcare in the North Pole and St. Nick falling through the Medicare donut hole, Grandpa and cousin Mel ordering a gang-style revenge killing for Grandma getting run over by a reindeer... My daughter, the sensitive one, took the news better than I thought until she tabulated the list of improbable beliefs that she has clung to for years (E. Bunny—gone; tooth fairy—vaporized; leprechauns; the 2013 NHL Season; and so on…) My more pragmatic son kept muttering under his breath, “ I knew it—we don’t even have a chimney….”

In the spirit of keeping it seasonally “light,” I’ll move away from Santa Claus’s demise to something I picked up from catching a few minutes of Fred Claus while trying to be productive doing something else. In Fred Claus, the antagonist, Clyde Northcutt (played by Kevin Spacey), is a corporate efficiency expert who has been deployed by shareholders to the North Pole to investigate concerns that things “up north” aren’t being run properly.  SPOILER ALERT: Spacey’s character reveals that while things in the North Pole are running “just fine,” there are legitimate shareholder concerns about efficiency and profitability that ultimately lead to Santa being fired (with a little help from Santa’s brother Fred.) 

What makes any movie a classic is characters that resonate with an audience and communicate an element of at least one moral truth or lesson.  In Fred Claus, that lesson is that external and internal forces can foul up an otherwise effective organization, even the global operation led successfully by the iconic and immortal S. Claus for hundreds of years. 

This year, perhaps more than any other in recent memory, has highlighted the resiliency of companies of all sizes to adapt, pivot, and change in the face of remarkable external market, political and global forces: changes in healthcare policy, changes in tax rates, changes in tax policy, uncertainty in the markets, global currency stress, flagging of the EU, new medical device taxes, user fees, superstorms, banking regulations, changes in regulation, a mind-numbing election cycle, the fiscal cliff, and—for the love of humanity—the demise of Hostess.  Yet the one thing that stands out is that the business owners, the entrepreneurs, the managers, the staff and the leaders—individuals who really make up the companies that we all depend on—continue to find creative ways to stay in business and remain viable and engaged. 

Yes, unemployment and underemployment are still issues and the aforementioned factors affecting businesses are real problems, but business owners will find a way to persevere just as they always have.  Will layoffs continue as companies seek to find new ways to be efficient? Yes.  This always happens and, despite the human costs, the indomitable American spirit keeps people coming back, finding new jobs, starting new companies and finding ways to succeed.  Consumer confidence may wane, but business owner confidence has remained, even if at a lower level than in prior years.

According to a recent USA Today story, “The NFIB survey of business confidence fell almost six points to 87.5, the lowest score since 2009 and far below stock market expectations for 92.5. The drop is a sign that business owners are losing confidence...” Is this a concern? Certainly, but the day to start worrying is when business owners decide, “it’s not worth it anymore”—in other words, when we approach an “enthusiasm cliff” as opposed to a “fiscal cliff.” Let’s hope that 2013 ushers in greater confidence in all sectors of the economy. Otherwise, maybe 2013 will be the year when Santa is fired (downsized).

Sequestration Looming (Part II)

In a prior post, I wrote about the pending impact of sequestration on the defense industry. Since then, sequestration has drawn increased attention, including some confusing references during the third presidential debate. The potentially devastating effect of sequestration is now becoming apparent.
 
As I mentioned in my earlier post, October 1 was the deadline for the 90-day notice some states require under circumstances covered by the federal Worker Adjustment Retraining Notification Act (“WARN”) Act.  The WARN Act requires companies with more than 100 employees to give 60 days’ advance notice of mass layoffs or plant closures. Many defense contractors, however, have ended up backing off from issuing such notices because of uncertainty as to what the sequestration bill passed earlier this year actually requires. 

Following passage of this bill, the White House issued a memo directing contractors to follow the guidance of the Labor Department, which, in a July letter, said the WARN Act does not require contractors facing sequestration to send layoff notices to their workers. And the Office of Management and Budget stated in September that the government would pay for related legal costs incurred by companies that follow the Labor Department’s advice.

Based on this, many of the largest federal contractors have concluded that they will not send out WARN Act notices “unless they get more details about how sequestration—the dramatic cuts that will take effect in January if lawmakers don’t agree on an alternative long-term budget plan—would affect them.”   

The net result? No one seems to be sure, but one thing is clear. If Congress does not act, sequestration, as currently contemplated, will take effect as soon as 2013 rolls around, and the WARN Act notice requirement will also kick in for many companies based on known and immediate cuts that will result in layoffs. What is also likely is that companies subject to these requirements that have followed Labor Department guidance but nonetheless find themselves to be noncompliant with WARN Act requirements will be looking to the government (read: taxpayers) to cover their costs of noncompliance.

Where does this leave the second tier of government contractors—vendors and service providers? Even further in the dark and possibly facing sudden project cancellations (and the ripple effect of that is potentially huge). Stay tuned.

A Cautionary Note to Packer Fans—Don’t Protest Too Much (no, really, I mean it…)

“Thou dost protest too much me thinks….”

This often misquoted line from Shakespeare’s Hamlet (Act III, Scene II) invokes thoughts of an over-the-top protest that not only goes too far, but could lead a passive observer to think that the one protesting actually believes the opposite. Today, we use it as a cautionary phrase to warn someone from protesting too much and too passionately lest there be a penalty associated with the protest.

Case in point: the now infamous final play of the Green Bay Packers game against the Seattle Seahawks, which resulted in a controversial Seahawks victory determined by “replacement referees” (shudder…), set off a storm of protest from fans and players not seen since perhaps the Soviets were given extra time on the clock (and extra in-bounds plays) during the men’s gold medal basketball game at the ’72 Olympics. The day following the Packers/Seahawks game, the NFL ruled that the officiating team’s call on the field was correct, as the replay was inconclusive to overturn the determination of the touchdown. This ruling is almost certain to result in a storm of further protests, but about this let me extend a word of caution to my Green Bay-backing friends, especially those who are owners—YES, owners[1].

Green Bay Packers, Inc. has been a publicly owned, nonprofit corporation since August 18, 1923, when the original articles of incorporation were filed with Wisconsin’s secretary of state. Fans have supported the team financially through five stock sales, in 1923, 1935, 1950, 1997 and 2011. The Green Bay Packers’ fifth stock offering, which ended February 29, 2012, added more than 250,000 new shareholders. More than 268,000 shares were sold during the offering that began December 6, 2011, bringing the total number of stockholders to over 360,000. In short, there are a LOT of Green Bay Packer-Backers in Wisconsin and many lurking among us leading apparently ordinary lives. However, many of these fans are not your ordinary run-of-the-mill fans; these fans own the Packers.

According to the Green Bay Packers, Inc. Common Stock Offering Document dated November 29, 2011 (by which 880,000 shares were offered for sale at $850 per share), there are numerous restrictions on the nonprofit stock itself as well as the owners of the stock. Most notably, the Offering Document has a subtle entry prohibiting owners of the stock from violating NFL Rules. For example:

“’NFL Rules’ -The NFL Rules prohibit conduct by shareholders of NFL member clubs that is detrimental to the NFL, including, among other things… publicly criticizing any NFL member club or its management, employees or coaches or any football official employed by the NFL. If the Commissioner of the NFL (the “Commissioner”) decides that a shareholder of an NFL member club has been guilty of conduct detrimental to the welfare of the NFL then, among other things, the Commissioner has the authority to fine such shareholder in an amount not in excess of $500,000 and/or require such shareholder to sell his or her stock." (Emphasis added)

If the Commissioner requires a shareholder to sell his or her stock, then the Corporation may have a right to repurchase the stock at $0.025 per share. These provisions are right out of the National Football League bylaws for shareholders (Section 9.1(c)(4), under “Conflicting Interests and Prohibitions”), which states that shareholders may not “[p]ublicly criticize any member club or its management, personnel, employees, or coaches and/or any football official employed by the League. All complaints or criticism in respect to the foregoing shall be made to the Commissioner only and shall not be publicized directly or indirectly…”

For many Packer shareholders with whom I have spoken, this prohibition and the remedy for its breach come as a complete shock. Does it quell the rage from the “Battle in Seattle?” No. Is there a legally binding contract between the League and its owners? It appears so. Is there a legally binding contract between the Green Bay Packers and its owners? Yes. Will the Commissioner’s office be sending certified letters to Green Bay owners with Twitter accounts, Facebook pages and blogs that are “criticizing” football officials employed by the league? I don’t know. But it does bring one thing to mind. No team in the NFL has a more passionate fan base than the Packers. Maybe it’s because they “own their team.” Also, there is no more emphatic fan base that loves talking about the “Glory Years” more and the cheeseheads will never cease to pour praise and adulation on past seasons, past plays and former players who ascend to a green and yellow pantheon of semi-deities. Perhaps the specific rules mentioned above explain why Packer fans are the most nostalgic fans in the NFL because they have to be.

Packer fans—you’ve been warned.

[1] Author's footnote: I am not from Wisconsin. Nor am I from Minnesota, where—amazingly—a fair number of Green and Yellow fans reside. The Green Bay Packers are not my home team and the prospect of cheering for them is no more appealing than that of cheering for a successful flu shot.

Sequestration Looms

Go ahead and Google “Sequestration.”  As of the completion of this post, the hits for “sequestration” are around 7.2 million hits, a very modest number by Google standards (for a cross reference, Google hot dog eating contest and consider the incomprehensible 35 million hits).  My first thoughts about sequestration take me to a trial setting where a court can order isolation of a jury during a high profile criminal trial (John Grisham’s Runaway Jury anyone?). 

The contrast to sequestration as portrayed in a Grisham novel and the reality of sequestration as it will occur on January 2, 2013, couldn’t be more stark and, frankly, alarming.

Many of us have tried desperately to repress the memories of the partisan debate regarding the debt ceiling and the fallout resulting in the passage of the Budget Control Act of 2011 (“BCA”).  The BCA is slated to take effect on January 1, 2013, when through a measure called “sequestration” discretionary spending caps will kick in and be effective for the ensuing 10 years, all in an effort by Congress to reduce the deficit by over $1 trillion (US) dollars.  The net effect of sequestration on the Department of Defense would be immediate budget cuts of nearly $500 billion and much, much more to come in ensuing years—this in addition to the already recommended $500 billion in recommended cuts.  For those of you who may be wondering, the US Defense budget is about 19% of the overall US budget and the Department of Defense will take about 50% of the sequestration hit.

Under sequestration, the amount of funds otherwise appropriated to a branch of government is "sequestered" by the US Treasury and not delivered to the agencies to which Congress originally appropriated the funds.  Up until now, certain categories of government spending were exempt from sequestration, including defense.  Not anymore.  According to the Foundry, if implemented, the impact of sequestration in accordance with the BCA “would be devastating, with a significant disruption of ongoing programs and initiatives, facility closures and substantial additional personnel reductions that would severely impact advanced manufacturing operations, erode engineering expertise, and accelerate the loss of skills and knowledge….”

Even more ominously, in a November 2011 letter, Secretary of Defense Leon Panetta warned lawmakers that sequestration [enacted over the next 10-year period] will be “devastating,” yielding “[t]he smallest ground forces since 1940,” “a fleet of fewer than 230 ships, the smallest level since 1915.”  According to most defense analysts, sequestration in accordance with the BCA will quietly eliminate the long-standing US defense policy of being able to engage in a two-front war.

The “fiscal cliff” (which you will hear a lot about in the months leading up to the election) is a perfect storm which includes (1) sequestration (immediate cuts on January 2, 2013), (2) Bush-era tax rates expiring (December 31, 2012), and (3) the absence of a budget (the reason why we have the BCA is due to the inability of Congress to pass a budget for consecutive years).  The American public sector and private sector will get a preview of the significant effect this fiscal cliff—and, more specifically, sequestration—will have on October 1 of this year.  The reason why can be summed up by taking a quick look at the Worker Adjustment and Retraining Notification Act.

The Worker Adjustment and Retraining Notification Act (“WARN”) was passed to protect workers, their families, and communities by requiring most employers with 100 or more employees to provide notification 60 calendar days in advance of plant closings and mass layoffs.  Employees entitled to notice under WARN include managers and supervisors as well as hourly and salaried workers.  WARN requires that notice also be given to employees' representatives, the local chief elected official, and the state dislocated worker unit.  Advance notice gives workers and their families some transition time to adjust to the prospective loss of employment, to seek and obtain other jobs, and, if necessary, to enter skill training or retraining that will allow these workers to compete successfully in the job market.  Several states require an additional thirty 30 calendar days’ notice in addition to 60-day notice required by WARN.

Because the sequestration contemplated by the BCA takes effect on January 2, 2013, contractors and subcontractors who know that their funding will be at best tied up due to sequestration (and at worst that there may be no funding at all) will have to make a decision to notify employees of the pending layoff.  The 60-day notice deadline will conveniently occur right on November 1, only days before the November 6 federal and state elections. 

Mackenzie Eaglen makes a compelling case that such cuts are devastating to the Department of Defense and provides a comprehensive listing of what the cuts mean to the military.  Projects that are in process will likely be discontinued, the cancellation of contracts that are not deemed to be exempt will lead to personnel layoffs, and there will likely be a massive influx of early retirement of servicemen and servicewomen looking for new careers in an already suffering employment sector.  Even worse, a logical place for veterans to serve is on the civil side of the defense industry, precisely where the greatest concentration of retraction of jobs and other opportunities will be felt.

What’s more, direct cuts to the military will magnify the effect that sequestration will likely have on the thousands of government contractors and subcontractors in the private sector.  According to the Governmental Accounting Office, in 2009 there were approximately 766,000 service contractors, which number (according to my reading) does not include the chain of subcontractors that manufacture components or provide one-off services to government contractors.  Most of the companies affected are not the companies that produce billion dollar planes and things that explode.  On the contrary, many of those companies are small companies started by entrepreneurs that have never set foot on a military base but are integral partners in keeping America safe.

To say that sequestration will have a major impact on the economy is an understatement.  Many changes loom large for the defense-related industry and they are quickly approaching.  Stay tuned.

I need a vacation from my vacation

My inbox has at least two dozen links to the story of Bart Lorang, CEO of Denver-based internet start-up FullContact, sending his employees on vacation while picking up the tab (not to exceed $7500).

There are strings attached, but not the ones you may think. The fully-paid vacation requires that you actually go on vacation—and connectivity back to the office is verboten (“no calls, emails, tweets, or work of any kind”). Full disclosure, I’m posting this while on vacation with my family. Better yet, we’re at a camp with the motto “A Vacation with a Purpose,” which, among other things, also implies that I shouldn’t be in contact with the office.

After reading the article and getting over the “that would be really cool” aspect (it took about 5 seconds), I could sense my blood pressure rising as I thought about how impossible it would be to do that. As I was thinking about clients, co-workers, and friends, I could not think of one person who could completely “unplug” from their business (owners in particular) or job. Could it be because “work” (as it’s broadly defined) is more than just work?

I found it particularly interesting because Bart Lorang, by his own admission, stated “I suck at it” regarding following his own rules. I was reminded of an often-cited New York Times article that collected scientific and informal data indicating that taking time away from work actually has positive health aspects. The data “… looked at 12,000 men over nine years who were at high risk for coronary heart disease. Those who failed to take annual vacations had a 21 percent higher risk of death from all causes and were 32 percent more likely to die of a heart attack.” Yuck. But I suppose a heart attack is a good reason to take time off.

So, if a vacation is supposed to be a good time to unplug, take time off, enjoy time with family and friends, and it’s also good for your health, why are we not taking time off, and  forfeiting unused vacation time, all the while tethered to our phones and laptops? I think I can sum it up in one word: Duty.

When I was growing up, I remember my father taking about 1 week off (usually the middle of summer between different corn and wheat harvests). His generation never took much time off because they were “married to their jobs” and in the case of farmers “married to their crops.” It was our livelihood. Being in an increasingly post-agrarian economy, that same mentality and sense of duty is still woven into our DNA. We are determined to do our part (whether business owner or entry level employee) to ensure the success of the companies we work for.

In some ways, I hope we never shake that sense of duty. In others, we need to get better at it because (as my brother often reminds me) when we’re old, we’ll likely never reflect and say ‘I wish I spent more time at the office’… As for me, I’m getting a C- on my vacation and my wife thinks I’m back in the family automobile looking for something (I think I found it)…

NANOTECHNOLOGY: Major market breakthroughs ahead?

I am writing this entry from COMS2012 in Tønsberg Norway, one of the leading nanotechnology conferences in the world being held in one of the oldest cities in Northern Europe.

COMS2012 is the 17th annual conference on commercializing micro- and nanotechnology. The conference brings “leaders from all over the world and every sector of industry, from high tech companies, national labs, regional development and government agencies, investment and consulting groups, market researchers, educators and students, all sharing, learning and creating partnerships in an open interactive setting.” A conference focusing on accelerating commercialization activity among established and emerging micro and nano-based businesses is an effort worth applauding and repeating—often.

Nanotechnology (the study, application and manipulation of atomic, molecular and macromolecular matter) is not new, but only since we’ve gained the ability to understand and apply knowledge about the molecular make-up of matter has anyone been able to appreciate the commercial value of nanotechnology. Primary industry sectors that utilize nanotechnology include food, medicine, pharma, cosmetics, energy, aquaculture, defense and metallurgy.

Nanotechnology hit the U.S. stage in a major way in July of 2000 when Congress authorized over $400 million into the National Nanotechnology Initiative to encourage R&D. The underlying premise was to advance billions of dollars of federally-funded research into commercially viable products and companies, initiating another “semi-conductor” like wave of innovation and advancements utilizing nano-particles and nano-engineering. What followed was a gradual increase in private sector participation in the development and production of nanotechnology products. This happened at the same time that market for public companies, including nanotechnology companies, was shrinking to its own “nano-like” stature.

At its height, the nanotechnology field saw an estimated $1.8 billion of private sector investment (the entire value of nanotechnology investment cannot be fully known as large corporations and even the U.S. government do not necessarily track or report spending and investment on projects where nanotechnology may be only a part, even if a significant one, of expenditures). However, the number has been falling since, in part due to a dearth of funding for most sectors. Because of this, the ratio of government (federal and state) investment into nanotechnology compared to private investment is problematic. Public markets for nanotechnology companies, although commendable, remain small. Moreover, the dearth of any “traditionally understood” exit has the venture community concerned.

Also, the ability to utilize nanotechnology, particularly in the health and food sectors is not without controversy and regulatory uncertainty. In April 2012, the U.S. Food and Drug Administration issued draft guidance on nanotechnology. The draft guidance describes the factors that manufacturers should consider when determining whether changes in manufacturing processes, including those involving nanotechnology, create a significant change that may:

•   affect the identity of the food substance;

•   affect the safety of the use of the food substance;

•   affect the regulatory status of the use of the food substance; or

•   warrant a regulatory submission to FDA.

The cosmetic product draft guidance discusses the FDA’s current thinking on the safety assessment of nano-materials when used in cosmetic products. Key points include:

•   Legal requirements for cosmetics manufactured using nano-materials are the same as those for any other cosmetics. While cosmetics are not subject to premarket approval, companies and individuals who market cosmetics are legally responsible for the safety of their products and they must be properly labeled.

•   To conduct safety assessments for cosmetic products containing nano-materials, standard safety tests may need to be modified or new methods developed.

Both sets of guidance encourage manufacturers to consult with the agency before taking their products to market. Such consultation can help FDA experts address questions related to the safety or other attributes of nanotechnology products, or answer questions about whether their regulatory status warrants a regulatory submission to FDA. What this means is that the FDA is likely understaffed and underqualified to assess all of the potential uses of nanotechnology in optimizing the use of nano-particles to modify and enhance, food, drugs, devices and cosmetics. Ironically, the technology to do this exists now, but companies are reluctant to use the available tools because of concerns about potential legal liability, regardless of the utility, safety, and efficacy that may exist. This uncertainty puts a chill on investors and large companies that might otherwise fund potentially life-changing technologies.

Look for public sector centers with more market-friendly approaches to developing and commercializing innovation. If this occurs, we may see a floodgate of new investment into the nanotechnology sector. Also, public and private forces need to collaborate to promotion the adoption by regulatory bodies of more streamlined and predictable regulation. Conferences like COMS2012 are a welcome example showcasing how the private and public sector can work together to bring valuable science to the marketplace.

Remembering No. 24

On May 10, 2012, Gunnar Sønsteby, one of the most decorated heroes of all time, passed from this life. His legacy warrants a mention, albeit insufficient for the heroism, service, and sacrifice that he provided to his country, to the Allies, and perhaps to civilization as we know it during World War II. 

If you profile the people that you have met in your life, few of them, if any, will have earned or deserved the description of “great.” When asked to speak about his activities during Norway’s struggle for freedom during World War II, Gunnar Sønsteby humbly preferred to discuss the valor of others and their sacrifice rather than his own. 

In 2010, I had the opportunity of a lifetime not only to hear Sønsteby speak several times, but also to have a conversation with both Gunnar and his wife, Anne-Karin, after the showing of the film “Max Manus.” (Watch this film: it recounts the war-time life of Max Manus, a fellow resistance fighter. In true form, Sønsteby, as a consultant to the film, continually downplayed his own role in the story and instead insisted that the film focus on Max Manus and his league of resistance fighters.) When given the opportunity to discuss his role in the resistance, he deflected attention from himself toward King Haakon VII of Norway. Sønsteby also took great pains to speak about the importance of human rights and the plight of those oppressed all over the world. 

No. 24, as he became to be known by his Nazi pursuers, was the principal mastermind and operations chief of the Norwegian resistance. For almost five years, Gunnar and his band of resistance fighters thwarted Nazi invaders, preventing advances that could have easily changed the outcome of World War II. The Germans called him “No. 24” because they couldn’t even determine who he was, yet he was the most wanted man in Norway due to his mastery of planning and precise acts of sabotage, which repeatedly crippled the Reich’s plans against the most harrowing odds. 

Gunnar Sønsteby’s efforts started modestly, as the Germans overran Norway and stationed significant military operations within Norway’s borders. Gunnar Sønsteby has been quoted to the effect that “when your country is taken over by 100,000 Germans, you get angry.” Sønsteby and some of his acquaintances, who would later become the core of the Norwegian Resistance Movement, initially created an underground newspaper to countermand the finely tuned Nazi propaganda machine.

Admittedly, Sønsteby and his band did not have instant success and many of their fellow freedom fighters were killed, as well as scores of innocent Norwegians. In time, under nearly unbelievable circumstances, Sønsteby and his crew would enter and exit Norway to Scotland and Sweden for training, supplies, and interaction with the Norwegian government, operating via proxy from hundreds of miles away. Their growing success turned to strategic raids that would ultimately help turn the tide of the entire war.

  

Among the reasons for Germany’s invasion of Norway was its strategic location for naval channels, a northern border with Russia, and access to heavy water, a rare element necessary for the creation of a hydrogen bomb. The “race for the bomb” was repeatedly set back by Norwegian resistance fighters through their destruction of ships, trains, and other German military operations, often at the expense of Norway’s own roads, bridges, and people.

Another “commodity” available to the Germans was the existence of tens of thousands of young Norwegian men, whose identities were all catalogued in the Norwegian Labor Office. The Germans intended on drafting all Norwegian men of fighting age, to be shipped to the Eastern Front to fight the Russians. (The Norwegians had proven extremely effective in fighting the Russians for years alongside Finnish infantry on the Northern front of Finland in the 1930s). Upon learning that the fate of an entire generation of Norwegians was at stake, Sønsteby organized the raid and bombing of the Norwegian Labor Office, putting an end to the Nazi’s ability to forcibly draft Norwegians. This blow resulted in a huge distraction to the Reich that ultimately kept the Germans in a true two-front war, forcing them to allocate resources to the failed Eastern Front, thereby turning the tide of the war towards the Allies.

Among Sønsteby’s other credits are the theft of 75,000 ration books, which pressured authorities to stop a threatened cut in rations; the destruction of sulphuric acid manufacturing facilities in Lysaker; and the destruction or damaging of more than 40 aircraft under repair at a tram company depot in Korsvoll. He was also credited with the destruction of a railway locomotive under repair at Skabo, a number of Bofors guns, and a field gun and vital machine tools at the Kongsberg arms factory, and with starting a large fire in a storage depot at Oslo harbor, which destroyed large quantities of critical German supplies for its navy. Each raid ultimately meant the loss of Norwegian lives, either in the raids themselves or in retaliation killings, a tactic the Germans used (unsuccessfully) to threaten Norwegians into compliance with their regime.

After the war, Sønsteby transitioned from a military to a civilian life, attending Harvard and ultimately returning to Norway to a successful career in the oil and gas business. Sønsteby never stopped speaking about the Norwegian resistance, King Haakon VII, or human rights. Being the worthy recipient of many accolades, both civilian and military, Sønsteby is the only Norwegian to receive the War Cross with three swords. Also, Sønsteby was the first non-United States citizen to receive the United States Special Operations Command Medal in 2008.

Having numerous brushes with capture and even death, Sønsteby, even at the age of 94, would be cautious walking into a room, even inspecting behind the doors of unfamiliar places. I remember Sønsteby commenting that “old habits die hard.” Perhaps the most fitting description of Sønsteby came from a close friend of his who stated that “Gunnar is a man with no conflict.” Sønsteby, intimately aware of the immense cost of freedom, was at peace with that cost and lived the rest of his life demonstrating by example why the cost of liberty was necessary and just. 

A Look at the Startup Genome

I have been following the “Startup Genome,” a developing benchmarking tool for (and blog relating to) start-ups. The tool allows a start-up to measure its progress—or lack thereof—compared to other similar companies against a database developed and standardized by Startup Genome.

The initial results are fascinating. Over 16,000 companies signed up for Startup Compass and have been feeding valuable data to Startup Genome. Startup Genome has used this data to identify not only key ecosystems for successful entrepreneurial activity, but factors which make entrepreneurial efforts either more successful or more likely to fail.  

The initial report, the “Startup Genome Report,” takes data from over 650 web startups, and provides initial findings that, if developed as anticipated, will be an extremely valuable tool for entrepreneurs. 

What may be ultimately less valuable than the underlying tool is the analysis of certain geographic areas where start-ups develop and how they succeed and fail in those environments. In the references to “ecosystems,” a key input for companies submitting data is “where are they,” and clearly some ecosystems come out on top compared to others in the world. Among the top are Silicon Valley (no surprise), London, and New York City (which is experiencing a “Renaissance-like” resurgence as an “entrepreneurial ecosystem.”)

Ecosystems that support entrepreneurial activity are extremely important, but the companies are important to the Ecosystems as well. Case in point: as pointed out here, according to the White House, “companies less than five years old created 44 million jobs over the last three decades and accounted for all net new jobs created in the U.S. over that period.”  

One can only imagine how economic development departments from cities in the heart of these ecosystems will latch on to where their cities rank among the other ecosystems to promote what they are doing right. And, if you live in one of the lucky “top three” or find comparative analysis among the three interesting, there are some great comparisons here. 

The fact that there are geographic areas that have developed into entrepreneur-friendly environments is not the news. On the contrary, the study gives credence to the argument that you can seek out or even make your own ecosystem just about anywhere, a point made in Bryan Keplesy’s article entitled, “Your Community as a Start-up Ecosystem.” Because so much of communication and collaboration is done virtually, having access to a particular ecosystem is far more valuable than being in the ecosystem itself. Is residing in Silicon Valley an advantage if you’re a start-up? Sure. Is it necessary? Maybe. Is access to Silicon Valley and its ecosystem critical? Absolutely.  

The Genome Report takes basic steps to categorize start-ups for better identification and study. This is not an easy task. Companies are divided into type and stage of success. What is valuable about even the more intuitive observations (for example, a start-up in one industry will behave and need to take different steps than its counterpart in a different industry) is that the Genome Report provides data that shows tangible reasons why basic observations have clear distinctions that can provide start-ups with useful benchmarks. Firms can now more properly align their actions according to their type, and not act on general advice that does not pertain to them.  

The Genome Report also goes to great lengths to categorize the stages of a Start-up listed as follows:

1. Discovery
2. Validation
3. Efficiency
4. Scale
5. Profit maximization
6. Renewal

The Genome Report does not report on #5 and #6. The overview of the results showed very consistent data from successful and unsuccessful companies by industry. To view the complete report, which requires a sign-in process, click here.

The goal of the project is to develop a tool where start-ups can measure whether they are making progress, and how they should allocate their time and energy to increase their chances of success. The report suggests that successful VCs identify firms that have well-developed processes for identifying market fits that are scalable and are not fixated on traditional criteria of the team, the market, traction, etc. 

Keep an eye on the Startup Genome. Using it could be the next big part of your business strategy.