April 2014 - That's Not Market

Better Than Bitcoin? Fund Manager Discusses Disruptive Tech In Finance

Former co-head of largest bond fund discusses what can really disrupt entrenched businesses.

: Not the most disruptive finance technology.

Kicking Bitcoin while its down, Mohamed El-Erian penned an article for CNBC about how technology is taking on finance. In his words “via a democratization process that could gradually reconfigure a notable part of the institutional landscape, particularly in consumer finance, while challenging regulators to adapt.”

While most people would think “Bitcoin,” El-Erian doesn’t even consider it a good example. He claims its impact, “both actual and potential, is relatively limited when compared to ongoing attempts to enhance and democratize lending, borrowing, investing, and payments and settlements.”

El-Erian notes his take on the sequence for disruptive tech:

A bold innovation suddenly lowers entry barriers for certain activities;
Mechanisms emerge to enable a larger part of the population to participate in what is deemed desirable but, until now, had been hard to access;
As the disruptive forces gain traction, existing business models face difficult adaptation challenges, and regulators begin to fall behind; and
The situation is often amplified by a natural human tendency to overproduce and over-consume hitherto restricted goods and services.

He sees this happening in finance, though the pace is less frantic and less disruptive. According to El-Erian, examples include:

Internet-driven lending and borrwoing clubs
peer-to-peer initiatives in consumer financial services
Digital wallets
Mobile transfers

He suggests that they reduce costs and provide “fairer risk-pooling outcomes and better credit underwriting.” He doesn’t mention that none of these ideas are particularly new. He does mention that the prospects for each vary considerably.

While this was not the most insightful article on the subject, it is hard to dismiss El-Erian’s statements, given his former position as CEO and CIO of PIMCO, home of the largest bond fund.

General Mills Pushes Boundaries With Online Terms and Conditions

General Mills gets a lesson ‘bout messin’ with legal rights in overbearing Terms and Conditions.

"Like" this on Facebook for a coupon and waiver of legal liability.

Almost anyone who has put up a website is guilty: Your “Terms and Conditions,” “Terms of Use,” “Legal Matters” or “Legal Terms” section is over the top.

Sure, you want to be protected. Or, at least, you want to feel protected.

However, you may face a severe backlash from the people you are courting as customers.

Case in point: General Mills.

General Mills slipped some language into their Legal Rights that said customers,

“give up their right to sue the company if they download coupons, “join” it in online communities like Facebook, enter a company-sponsored sweepstakes or contest or interact with it in a variety of other ways.”

Instead, if you derive any sort of benefit, you are stuck with email negotiation or arbitration for any dispute. That $0.50 coupon for Wheaties is looking kinda expensive now, isn’t it?

General Mills backtracked the language, explaining:

“There’s no mention of arbitration, and the arbitration provisions we had posted were never enforced. Nor will they be. We stipulate for all purposes that our recent Legal Terms have been terminated, that the arbitration provisions are void, and that they are not, and never have been, of any legal effect.”

Then they added, “That last bit is from our lawyers.” Always blame the lawyers.

General Mills spokesperson explained that they never imagined this reaction. “Never considered it” is probably more accurate.

She continued to explain:

“Similar terms are common in all sorts of consumer contracts, and arbitration clauses don’t cause anyone to waive a valid legal claim [Ed: Um, sometimes they do.]. They only specify a cost-effective means of resolving such matters [Ed: Um, not always.]. At no time was anyone ever precluded from suing us by purchasing one of our products at a store or liking one of our Facebook pages. That was either a mischaracterization – or just very misunderstood. Not that any of that matters now.”

Translation: You, Customers, didn’t read it correctly, but we are changing it anyway.

Good for General Mills for listening to customer complaints, but you’d think they would have been more diplomatic about it. How about the truth: “We overreached and didn’t think any of our customers would ever notice, at least until they tried to sue us. Since there are plaintiffs lawyers and public interest groups that pay attention to this sort of thing, word got out. Sorry about that. We’re changing back.”

Here is the current page for General Mills’ Legal terms.

Going Solo – BLS Reports More Americans Quitting Their Jobs For The Freelance Economy

More Americans going solo in the Freelance Economy as culture shifts from “get comfy job” to “I’ll make my own job.”

Noting recent Bureau of Labor Statistics reports, Bplans reports that the number of Americans quitting their jobs is at a 5-year high. This is related to a reported rise in entrepreneurial activity.

I am not surprised, as the Freelance Economy offers great opportunity and flexibility to the ambitious and talented.

While the economy was hurting, people were staying in their jobs as fear kept them in place. People now feel more confident about landing well if they quit, whether it is for another job or to create their own job.

“We’re currently in the midst of a major cultural shift—48 percent of Americans want to be entrepreneurs today. While past generations believed that the best and safest path was through a long career at a big, stable company, those in the workforce now don’t see it that way at all. The financial crisis called into question the entire notion of job security, as “stable jobs” were lost and “stable companies” turned out to be anything but.

Nowadays, many people are of the mindset that entrepreneurship is actually the more secure path. Instead of putting yourself at the mercy of layoffs and watching the heads of the company you work for make bad decisions, entrepreneurship means taking your fate into your own hands.”

According to Bplans, this is a trend that spans generations.

“A whopping 63 percent of 20-somethings want to start their own businesses, according to a recent survey…

According to the Kauffman Foundation, the 55+ age group is the fastest growing demographic of entrepreneurs. “Encore careers” are becoming more and more common, as retirees want to stay active and supplement their retirement income at the same time.”

“Encore careers.” I like it.

Spanning the divide of the millenials and the AARP set are the baby boomers under retirement age, and the 25% of them who want to go entreprenurial.

Is it just economic conditions that are pushing folks into the Freelance Economy? Nope.

Technology is making entrepreneurship accessible, from reducing cost to promoting ease of use.

“It costs almost nothing to build a basic web page, and you can set up a whole business infrastructure for under $100 a month. Virtual help desks, for example, allow small companies to offer world-class customer service without adding a whole customer service team to the payroll.”

In this regard, Bplans believes that “we are entering into a new golden age of entrepreneurship in America.”

From this solo practitioner, it is hard to argue.

Why Startups Fail – Mint vs. Wesabe

In an old blog entry (that I just found), one of the founders of Wesabe thinks back to why his company lost to Mint.com and shut down. For those who don’t remember, Mint was high-flying personal finance site that was sold to Intuit in 2009 for about $170 million.

Wesabe and Mint went head-to-head. Mint won. Here's why.

Marc Hedlund writes an honest article about his take on why Wesabe eventually shut down. First, he knocks out four myths, including that Mint launched first, had a better name and design and went viral.

Then, Hedlund discusses what he saw were the drivers behind the success of one and the failure of another. At the end of the day, it comes down to familiar themes recognized by those of us who work with businesses, particularly startups.

“I think in this case, Mint totally won at the first (making users happy quickly), and we both totally failed at the second (actually helping people).”

Mint gave people what they wanted and made it easy. Wesabe wanted to help people change their financial behavior, which is a value judgment with which the consumer himself/herself may disagree.

Hedlund notes that some of the things founders obsess over are really not important:

“You’ll hear a lot about why company A won and company B lost in any market, and in my experience, a lot of the theories thrown about – even or especially by the participants – are utter crap. A domain name doesn’t win you a market; launching second or fifth or tenth doesn’t lose you a market. You can’t blame your competitors or your board or the lack of or excess of investment.”

He does get to the crux of the issue about how to succeed:

“Focus on what really matters: making users happy with your product as quickly as you can, and helping them as much as you can after that. If you do those better than anyone else out there you’ll win.”

That’s it. Give people what they want to meet their needs and solve their problems.

Hedlund still believes that there are problems to be solved. However, imposing your judgment on people’s behavior will not have the same success as meeting people’s needs and desires.

“So, yeah. Changing people’s behavior is really hard. No one in this market succeeded at doing so – there is no Google nor Amazon of personal finance. Can you succeed where we failed? Please do – the problems are absolutely huge and the help consumers have is absolutely abysmal. Learn from the above and go help people (after making them immediately happy, first).”

Nasdaq Launches Market for Private Companies

Nasdaq debutes market for private companies, taking aim at SecondMarket and others.

Nasdaq launches marketplace for private companies.

Most people are familiar with Nasdaq as a stock exchange for many well known public companies. Most people would like to forget Nasdaq for its handling of the Facebook IPO, but that’s another story.

For private companies, even those with shares held by many people, it is difficult for their shareholders to find a buyer for their shares. Buyers often have a difficult time finding a way to invest in those companies if the Company is not offering directly to them on a private basis.

Nasdaq has launched a new capital marketplace for private companies that it claims will provide “qualifying” companies the tools and resources “to efficiently raise capital, control secondary transactions, and manage their equity-related functions.” Nasdaq refers to it as a “platform for controlled liquidity.”

To qualify, a company must have one of the following:

funding of $30 million within the last 2 years and an enterprise value of $50 million, based on the most recent financing round
Total assets of $50 million and annual revenue of $50 million in the latest fiscal year or 2 of the last 3 fiscal years
shareholders’ equity of $5 million and a two-year operating history
backing by a recognized financial investor with a track record of successful venture investments

The qualifying company will be subject to governance and reporting requirements.

Nasdaq is taking aim at SecondMarket and the burgeoning market for secondary transactions and the coming deluge of crowdfunding and other platforms for private company finance that people have been predicting since the passage of the JOBS Act. For their sake, I hope it goes better than the PORTAL market did way back when.

Local Taxes – This Is What It Has Come To

Selfies are now tax records as generations collide.

Local tax compliance is tricky, particularly for small firm and solo professionals.

When I was at Big Firm, I lived and worked in Dallas. I paid income tax in Georgia, New York, North Carolina and Virginia (and probably a couple of other states) as well as a few foreign countries that I have never visited. Over the course of the last several years, I spent one day in New York City and never so much as set foot in the other jurisdictions. It doesn’t matter because I was a partner at a firm that did business in those states, and therefore, I did business in those states.

This brings us to Andrew Jarvis, an architect who works out of Philadelphia and New York. Taxes are even higher for New York residents than for out of state people so he adjusted his schedule to make sure he was on in New York City less than 182 days per year.

Do you think New York is lenient with these rules? How do you prove it?

Jarvis would take time-stamped pictures of himself in Philly by the train station or with a newspaper in hand. This is in addition to the time honored practice of collected receipts.

In the grand tradition of older and younger generations teaching each other, Jarvis taught his daughter the value of recordkeeping and (probably) the reality of living under an oppressive tax regime, while Jarvis’ daughter taught him to post his pictures on Instagram.