I might humbly suggest that those journalists and reporters in both the traditional and financial media are largely missing the grander point on Apple the company and Apple the stock.  Running businesses is a lot more than seeing what ratios look like on financial numbers and saying whether something is undervalued, fairly valued or overvalued.

Fundamentally, and whether it is said this way or not, Apple has a monopoly position in digital music.  It’s easy, it’s fun, it’s cool and nobody I know anywhere has any desire to forklift upgrade their digital music, throw away their investment in purchases and ripping CDs in to iTunes or ever starting over again on another platform.  There may be an exception to every rule, but ever since Apple launched the iPod and “got it right” on MP3 players, nobody has even dreamed of challenging them in this area … not Dell with their media player, not Microsoft with Zune … no one.

As part of iTunes, Apple has made photos, videos, music, movies and now mobile applications simple, easy and bundled under one roof.  The anchor to this roof is most definitely music, and this anchor is something that no other smart phone manufacturer has anywhere.  Google and Android, Palm and Pre and Research in Motion and Blackberry just don’t have this natural anchor and draw to their application stores like Apple … so don’t expect them to be able to make the in-roads that people believe in the smart phone mobile application world.  Unfortunately there is just no other compelling reason to go to their mobile application stores as there is with Apple.  Sorry, but there just isn’t.

Ultimately, a pre-existing and trusted billing relationship exists with Apple’s consumers and the loyalty to the brand now goes way, way, way beyond the religious cult that it used to be.  As a result, Apple isn’t just winning the battle for mobile devices, but it’s also beginning to get people to shift from their Wintel PCs back to the Mac platform in meaningful numbers.  I expect that this trend will not only continue, but that it will also accelerate.  I’m not suggesting that Macs are suddenly going to be back on top in terms of market share, but I am saying that the “halo effect” of Apple’s mobile dominance is paying dividends on their Mac desktop and laptop numbers.  Plus, the next great battle of the larger PC war is going to be when the smart phones fundamentally become the PC of the future.

In parallel, Apple has a massively deep managerial bench of talent and it is my contention that most of the iPhone and iPod product and services designs and offerings were created during the period that Steve Jobs was completely out of the company.  My understanding from some detailed research and discussions with many inside Apple was that Jobs wasn’t even around day to day when the iPhone was created internally as his medical issues were already well underway … just not publicly known.  Steve Jobs might get credit for everything great at Apple, but the reality is a far, far different story and the number of fantastic individuals that are involved and responsible for the success of these mobile platforms at Apple goes way, way beyond any one person.

The fundamental aggregate talent in engineering, management and operational execution is what has driven Apple to greatness … not any one man … and not even Steve Jobs.  Apple didn’t miss a beat when he was out and won’t now that he’s back or if he’s out again.  The rich multiples Apple’s stock gets are a result of this dominance, not a cause of it.  The multiples will also look modest with the penetration of the world’s next large computing platform: the smart phone.  While Apple, Palm, Google and Research in Motion will alll have a market share, Apple owns 75% of all application downloads in the world and has an even larger dominance in music.  These market shares are like GOOG and search, MSFT and Windows, CSCO and routers/switches, EBAY and auctions.  Said another way … nobody can challenge this any time soon.

I will personally admit to having a great respect and admiration for Steve Jobs.  I think that he’s a great visionary and leader and wish him well with his health and most recent recovery.  I believe that he and Larry Ellison of Oracle should get much more credit for what they’ve done in the 2000s than Michael Dell at Dell, John Chambers at Cisco, Bill Gates at Microsoft and others of that decade as they grew their businesses in novel, unique and meaningful new ways after the decade of “a rising tide lifting all boats” was over and the penetration rates of PCs, cell phones and the Internet (broadband connections) rose from virtually nothing to more than 100%.  Said another way, from no market to a mature market … all in a single decade.  That penetration rate is about to be replicated again in the coming decade, but this time with the migration from cell phones to smart phones instead of the migration from circuit switching to packet switching from a decade ago.  Steve Jobs will remain an icon and a brilliant visionary.  However, with or without him Apple is strong, deep and well positioned to dominate as the monopoly that it is … even if most people don’t realize it just yet.  As a result, I like LEAP call options and/or core common stock holdings for Apple as it is clearly already a winner and will continue to be one through 2020 very, very easily.

Remember Lee Iacocca, the man who rescued Chrysler Corporation from its death throes?  He’s now 82 years old and has a new book, ‘Where Have All the Leaders Gone?‘ 

Lee Iacocca says: 

‘Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder! We’ve got a gang of clueless bozos steering our ship of state right over a cliff, we’ve got corporate gangsters stealing us blind, and we can’t even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, ‘Stay the course.’

Stay the course? You’ve got to be kidding. This is America, not the damned, ‘Titanic’. I’ll give you a sound bite: ‘Throw all the bums out!’ You might think I’m getting senile, that I’ve gone off my rocker, and maybe I have. But someone has to speak up. I hardly recognize this country anymore.

The most famous business leaders are not the innovators but the guys in handcuffs.. While we’re fiddling in Iraq, the Middle East is burning and nobody seems to know what to do. And the press is waving ‘pom-poms’ instead of asking hard questions. That’s not the promise of the ‘ America ‘ my parents and yours traveled across the ocean for. I’ve had enough. How about you? 

I’ll go a step further. You can’t call yourself a patriot if you’re not outraged. This is a fight I’m ready and willing to have. The Biggest ‘C’ is Crisis! (Iacocca elaborates on nine C’s of leadership, with crisis being the first.)

Leaders are made, not born. Leadership is forged in times of crisis. It’s easy to sit there with your feet up on the desk and talk theory. Or send someone else’s kids off to war when you’ve never seen a battlefield yourself. It’s another thing to lead when your world comes tumbling down.

On September 11, 2001, we needed a strong leader more than any other time in our history. We needed a steady hand to guide us out of the ashes. A hell of a mess, so here’s where we stand.

We’re immersed in a bloody war with no plan for winning and no plan for leaving. We’re running the biggest deficit in the history of the country. We’re losing the manufacturing edge to Asia, while our once-great companies are getting slaughtered by health care costs. 

Gas prices are skyrocketing, and nobody in power has a coherent energy policy. Our schools are in trouble. Our borders are like sieves. The middle class is being squeezed every which way. These are times that cry out for leadership.

But when you look around, you’ve got to ask: ‘Where have all the leaders gone?’ Where are the curious, creative communicators? Where are the people of character, courage, conviction, omnipotence, and common sense? I may be a sucker for alliteration, but I think you get the  point.

Name me a leader who has a better idea for homeland security than making us take off our shoes in airports and throw away our shampoo? We’ve spent billions of dollars building a huge new bureaucracy, and all we know how to do is react to things that have already happened.

Name me one leader who emerged from the crisis of Hurricane Katrina. Congress has yet to spend a single day evaluating the response to the hurricane or demanding accountability for the decisions that were made in the crucial hours after the storm. 

Everyone’s hunkering down, fingers crossed, hoping it doesn’t happen again. Now, that’s just crazy. Storms happen. Deal with it. Make a plan. Figure out what you’re going to do the next time.

Name me an industry leader who is thinking creatively about how we can restore our competitive edge in manufacturing. Who would have believed that there could ever be a time when ‘The Big Three’ referred to Japanese car companies? How did this happen, and more important, what are we going to do about it?

Name me a government leader who can articulate a plan for paying down the debt, or solving the energy crisis, or managing the health care problem. The silence is deafening. But these are the crises that are eating away at our country and milking the middle class dry. 

I have news for the gang in Congress. We didn’t elect you to sit on your asses and do nothing and remain silent while our democracy is being hijacked and our greatness is being replaced with mediocrity. What is everybody so afraid of? That some bonehead on NBC news or CNN news will call them a name? Give me a break. Why don’t you guys show some spine for a change?

Had enough? Hey, I’m not trying to be the voice of gloom and doom here.  I’m trying to light a fire. I’m speaking out because I have hope - I believe in America. In my lifetime, I’ve had the privilege of living through some of America’s greatest moments. I’ve also experienced some of our worst crises: The ‘Great Depression,’ ‘World War  II,’ the ‘Korean War,’ the ‘Kennedy Assassination,’ the ‘Vietnam War,’ the 1970’s oil crisis, and the struggles of recent years culminating with 9/11.

If I’ve learned one thing, it’s this: ‘You don’t get anywhere by standing on the sidelines waiting for somebody else to take action. Whether it’s building a better car or building a better future for our children, we all have a role to play. That’s the challenge I’m raising in this book. It’s a “Call to Action” for people who, like me, believe in America’. It’s not too late, but it’s getting pretty close. So let’s shake off the crap and go to work. Let’s tell ‘em all we’ve had ‘enough.’

Make your own contribution by sending this to everyone you know and care about. It’s our country, folks, and it’s our future. Our future is at stake!!

Check out Phunware when you get a chance (www.phunware.com). 

An enterprise branded mobile application production company.  Primary focus on the iPhone/iTouch platform from Apple, but also covering the Pre (Palm), Android (Google) and Blackberry (Research in Motion).

Facebook page at http://www.facebook.com/pages/Phunware-Inc/84131788172.

Twitter feed at http://twitter.com/phunware or @phunware for you Twitter studs.

Really cool company and phantastically phun phor phanatics everywhere!  Phollow it!

As Originally Published and Authored - 

By Anthony Digiandomenico (MDB Capital)  •  February 26, 2009 10:00 AM

With what looks like imminent passage of the Mother of All Bailouts (following on the heels of a year’s worth of government-funded rescues of private homeowners, lenders, insurers, and the automakers), Washington has turned Aesop’s famous fable about prudence and hard work on its head.  The time is ripe for a revised 2008 edition of “The Saver and the Spendthrift” …

In a Suburb on a hot summer’s day, a Spendthrift was chirping and carousing his time away.  He watched scornfully as a Saver nearby struggled to save up money and food and build a secure home.  The Saver pulled overtime shifts to pay off his loans and accumulate retirement funds for the future.

“Give it a rest,” the Spendthrift said.  “Why bother saving and slaving and toiling and moiling? Let’s party!”  The Saver demurred: “I am planning ahead for winter and you should do the same.”  The Spendthrift blew off the Saver, squandered his supplies the rest of the season, and abandoned his home while on vacation (paid for by tapping every last cent of his home equity gain) instead of holding down a job.

When winter came, the Spendthrift’s pantry was empty and his shelter ruined from neglect.  The Saver, weary from working, saving, and stocking up for months, was dining comfortably in his nest.

Cold, hungry, jobless, facing foreclosure, and up to his two pairs of eyeballs in debt, the Spendthrift limped to the Association of Community of Lazy and Nearsighted  for Rescue Now (the ACLNRN) and demanded recourse.  The office was swamped with thousands just like him.  ACLNRN immediately put the Spendthrift to work registering dead Savers as new voters.

Funded with tax dollars from the rest of the suburb’s  residents,  ACLNRN organized mass protests at the Bank of Saveramerica, ambushed its top officials at their private homes, harassed their children, and demanded that the meadow’s politicians halt all foreclosures (”We must keep Spendthrifts in their houses!”) and outlaw discriminatory lending practices against starving, homeless Spendthrifts (”Well-stocked shelters are basic rights!”)

The banking industry capitulated; the HUD Lobby secured hundreds of millions of dollars in housing earmarks and grants and counseling subsidies to support the Spendthrifts with the shadiest credit and employment histories.  Saverie Mae, the meadow’s government-backed home lending giant, fueled the push for increased insect homeownership in the name of diversity.  Its executives cooked the books and headed for the hills.  Katie Fraudster and the Mainstream Suburban Media joined the grievance-for-profit circus, profiling Spendthrift sob stories and drumming up ratings as bewildered Savers wondered who was looking out for them.

The banks drowned in toxic debt. More Spendthrifts fell behind on their mortgage payments. Bailout mania and panic gripped the meadow.

Our little Saver, minding his own business, heard a knock on his door one late winter night a year later.  It was his old, sneering Spendthrift neighbor.  With ACLNRN presidential candidate, Barack Obama, now in office, the Spendthrift had been hired by the meadow as a tax collector.

“I’m here to take your provisions,” the Spendthrift cackled.

But it was the Saver who had the last laugh. “I’ve learned my lesson,” he told his shiftless friend.  “Why bother saving and slaving and toiling and moiling?  I’ve spent all my savings. I’m walking away from my mortgage. Thrift is for suckers,” the Saver said as he headed out the door, leaving the Spendthrift empty-handed.

I refuse to get off my soap box until we see concrete steps taken to end the ongoing economic and market malaise infecting all aspects of our society and world.

Step 1 - Courage.  Politicians need to gear down the rhetoric immediately, stop pointing the finger at others, take responsibility for their own actions, stop focusing on re-election, forget about who did what to create this mess over the last 2-3 decades and simply SOLVE THE PROBLEM by doing what needs to be done.  This is no longer a Republican or Democratic issue.  It is an American issue and nobody cares about the politics of any of this any more.  Period.  Have some courage and start doing what needs to be done instead of what needs to be done to get re-elected.  Doing the right thing may not be popular, but it’s always easy to do the right thing if you actually represent who elected you to do what you’re there for Mr. Politician.

Step 2 - Innovation.  Every politician needs to embrace the creators of jobs and wealth - entrepreneurs.  Why is it so hard for elected officials to understand that entrepreneurs create the ideas that create the companies that create the jobs that create the wealth.  I’m not talking about giving this idea “lip service”.  I’m talking about making this a national imperative as important to the fabric of the President and the government as JFK’s idea to put “a man on the moon”.  I want commitment, not talk.  I want an executive and legislative focus on this initiative that becomes the foundation of the United States government, the pillar of economic stability and the fabric of all legislative, policy and monetary initiatives going forward.  I want every politician talking about this every day of the week and the media to push this as a national priority in every broadcast everywhere.

Step 3 - Investment, *not* Stimulus.  Congressional officials and the President need to invest $5 BILLION in young companies, start-ups and entrepreneurs.  I have written about this before, but I want $100 MILLION put to work in each of 50 cities across the country.  This money will *not* be in the hands of elected officials.  Rather, it will be put in to each city in the form of a local start-up and young company growth capital fund and will be managed and run by a team of selected serial entrepreneurs, VCs, private equity investors and Angel investors so that a base level of scrutinty can go in to the selection of companies for investment.  This group will be investing on behalf of the American taxpayer and will receive a 0.5% management fee and 10% equity upside for success.  Why?  Because you need talent to make good investments and monitor and assess the investments until liquidity is achieved.  You get what you pay for and “free” doesn’t scale.  We want talent and we want investment discipline.  This structure achieves that.  Further, each $100 MILLION per city selected will be invested to the tune of $250K - $1M per company so that we can get stimulus rolling on new ideas and young company building for at least 150-250 companies per market.  This $5 BILLION investment from TARP will *always* result in more economic activity than giving it to Bank of America or Citigroup to backfill holes in their balance sheets.  And, it will result in investment returns to the American taxpayer both in the literal sense and the figurative sense as well.

Step 4 - Presidential Executive Order.  President Obama … immediately issue a Presidential Order to mandate that every *primary* residential mortgage in the United States be immediately and proactively refinanced to no worse than a 4.5% interest rate on a 30 year fixed interest mortgage.  No fees, no appraisals, no applications, no qualifications, no strings attached.  Advise all banks that they have until the end of February to make this happen through their entire portfolio of loans.  Advise any bank that refuses to comply with your Presidential directive, and that has taken even 1 penny of TARP money in the past, that they will be *nationalized* on March 1st unless they have performed under this Presidential directive.  This is not going to fix everything in the world of foreclosures, but this is going to allow *everyone* in the United States to get the same starting point whether they were responsible or irresponsible in their personal finances.  Since 92% of Americans have been responsible to date, they too will actually get a benefit for having been responsible just as those that have not currently are getting a benefit that they probably shouldn’t be getting at all.  Plus, it will put a real floor underneath the housing market and provide a foundation from which to move forward from for all of us.

Right now we need bold, bipartisan action with big thinking and new thinking.  We need leaders unafraid to lead, even if their actions are unpopular and even if that means that they are not re-elected to office.  We need people that can stand up and say “We screwed up.  It is all of our faults.  It is *my* fault and I intend to fix this.  Follow me.”  Note the last statement PLEASE … “Follow me.”

We are all tired of the noise.  We are also tired of the activity.  We want results and we want them now.  Stop confusing activity with results and lead, follow or get the hell out of the way already.  This is the greatest country in the world.  Let’s start proving that again and lead the world out of this once and for all.  If anyone lacks the commitment and conviction to make this happen, then do what needs to be done for the betterment of this great nation … RESIGN.

Young Chuck moved to Texas and bought a donkey from a farmer for $100.00.  The farmer agreed to deliver the donkey the next day.

I’ve lived in Austin, Texas, for about 6 months, and after 5 years in Silicon Valley and 7 years in Southern California (coastal Orange County), many people always ask me about what it’s like to create companies and be a serial entrepreneur.  Many others also like to ask what it’s like to work in Silicon Valley and how they too can create a version of Silicon Valley wherever they happen to live as well.

This post from mid 2006 is easily the best description I can provide for the answers to both questions.  It is a repost of a blog entry from Guy Kawasaki and the original version can be found at his blog at  http://blog.guykawasaki.com/2006/06/how_to_kick_sil.html.

I hope that he doesn’t mind my sharing this with you here, as all I can say to his post is “learn how to THINK BIG” and “AMEN”!

***** 

From the fjords of Norway to the sands of Israel to the ice of Alberta to the waves of Honolulu, many regions of the world have Silicon Valley Envy. They look at the Valley as a place where people start cool companies that generate billions of dollars of wealth (and tax revenue), create thousands of jobs, and yet does not pollute the environment (at least compared with a smokestack). The question I hear over and over is, “How can we create our own Silicon Valley?”

First, a little background. It’s taken more than seventy years to create Silicon Valley. Any politician who thinks she can create another Silicon Valley in one or two terms is overly optimistic —perhaps one has to be very optimistic, if not delusional, to be a politician, but I digress.

Second, to my knowledge, there has never been any “master plan” for the creation of Silicon Valley. What stands before you is an amalgamation of hard work, luck, greed, and serendipity but not planning. Indeed, Silicon Valley has probably worked because there was no plan.

Third, my father was a state senator in Hawaii, so I understand how politics work. I have zero interest in a political career. Just to make sure I‘m never tempted, I penned this posting to burn down any bridge to a political career. (Sometimes it’s a good thing that the Internet archives everything you ever said.)

• Beautiful, but not gorgeous, surroundings. California is beautiful. The weather is good. It’s fun to live here. No matter how great an entrepreneurial environment Cleveland creates, it’s always going to have people wanting to move away. If a place is gorgeous, like Hawaii, then the distractions are sometimes too great. Some place in the middle is what’s ideal. At the very least, it would be good to have a lousy season so that the company can be extremely productive part of the year.
• High housing prices. If houses are cheap, it means that young people can buy housing sooner and have kids. When they have kids, they can’t take as much risk and don’t have as much energy to start companies. (I have four kids—I barely have the time and energy to blog, much less start a company.) Also, if houses are cheap, it’s easier to “make it big,” and you want it to be hard to make it big.
• Cities, crowds, and high- if not over- population. The pressure of these conditions make people jealous of each other; this in turn makes them compete. Cities also bring people together to work. People can’t telecommute to a startup. People need to get together to bounce ideas off one another, argue, and cajole. Also, over-crowding gives people something to shoot for: that is, achieving success so they can get out of there.
• Absence of multi-national companies—especially the finance industry. If your companies have to compete with conglomerates or banks like Goldman, Sachs throwing money at people, it’s going to be hard to get anyone for a startup. Pity the startups in New York, London, and Singapore. Come to think of it, how many tech success stories have come from these cities? There is intense competition for employees in Silicon Valley too, but we’re using the same currency: the upside of equity, not high starting salaries.
• Life-threatening enemies. Israel is a speck of dust that has few natural resources, and it’s surrounded by real enemies. And yet the country has produced some of the world’s best technology companies. There’s nothing like a life-threatening environment to get the entrepreneurial juices flowing, I guess. If a region has to do nothing more than stick a pipe in the ground, throw a net in the ocean, clean beaches, or manage a natural seaport, it’s going to be tough to be the next Silicon Valley.

• Focus on educating engineers. The most important thing you can do is establish a world-class school of engineering. Engineering schools beget engineers. Engineers beget ideas. And ideas beget companies. End of discussion.If I had to point to the single biggest reason for Silicon Valley’s existence, it would be Stanford University—specifically, the School of Engineering. Business schools are not of primary importance because MBAs seldom sit around discussing how to change the world with great products. Mostly they care about how to get interviews at multi-nationals and consulting firms. As my mother used to say, “Best case, engineers give buildings. Best case, MBAs endow chairs.”

  On a tactical level, this means that aspiring regions should raid the best engineering schools. What do associate professors at Stanford, MIT, and Carnegie Mellon make? Whatever it is, offer them double the amount to move. Be clever: how hard could it be to recruit top flight faculty to move to your beautiful (but not gorgeous) region if you conduct interviews at MIT in the winter? This is a trivial expense compared to the various incubator, tax treatment, and venture capital fund formation schemes that are the usual solutions to the challenge.

• Encourage immigration. I am a third-generation Japanese American. My family moved here to drive a taxi and clean white people’s homes. If I had a choice between funding someone from a family who moved here from Vietnam whose father and mother run a 7-Eleven versus a descendant of a Mayflower passenger with “IV” in his name, I’ll give you half a guess as to my preference. You need to encourage smart, hungry, and aggressive people to immigrate from around the world. And to do that, you need good schools. To mix several metaphors, if you want to cover your ass, you need to open your kimono because trust-fund kids don’t make good entrepreneurs.
• Send the best and brightest to Silicon Valley. I can hear the complaints already: “This will lead to a brain drain which is exactly what we are trying to prevent.” This attitude misses the essence of entrepreneurship: it’s not about preventing bad things, but fostering good things. Would it have been better for Hawaii if Steve Case had become a lawyer at his father’s Hawaii law firm instead of moving to the mainland and creating AOL? I don’t think so.The goal is to infect them with the disease called entrepreneurship and show them that there can be more to life than “a job;” that two guys/gals in a garage can change the world; and that a lot of money = millions of dollars. Sure, some people will never return—like me. But those who do return come back with a much broader perspective on what life and a career can be. Maybe they will build another Silicon Valley because they’ve seen it done before. Here’s a dirty little secret: Silicon Valley is more a state of mind than a physical location, and you can’t alter a state of mind by staying a home.
• Celebrate your heroes. Every region needs its heroes. These folks take role modeling to an extreme; they have names like Steve Jobs, Bill Gates, Ted Turner, Steve Case, Anita Roddick, and Oprah Winfrey. Kids need heroes, so that they can say, “When I grow up, I am going to be the next Steve Jobs.” In many places, a successful person is pulled back down because of jealousy. Sure, there’s jealousy in Silicon Valley, but our way of dealing with it is to try to outdo the person, not pull her back down.
• Forgive your failures. There is no better place to fail in the world than in Silicon Valley. (Where else can you get your clock cleaned by Microsoft and become a venture capitalist and top-ranked blogger?) Indeed, some people here have made a career of failing. Some of this is cultural—failing in Europe or Asia casts a cloud over one’s family for generations. Not in Silicon Valley. Here, it doesn’t matter (within reason) how many times you fail as long as you eventually succeed. So many entrepreneurs who failed went on to create massive successes that we’ve learned that failure is a poor predictor of future results.
• Be logical. Make the challenge to create a Silicon Valley as easy as possible. Thus, a region should use it’s natural, God-given advantages. For example, aquaculture in Hawaii, security technology in Israel, alternative fuels in the Midwest, and solar power in the Sun Belt. There’s a reason why the best woolen sweaters come from Norway and the best Aloha shirts come from Hawaii. It’s not because people tried to buck the trend.
• Don’t pat yourself on the back too soon. Many regions declare victory because Microsoft, Sun, or Google opened a branch office. These branch offices don’t hurt but don’t kid yourself into thinking that the existence of a branch office means that you are now a tech center. Truly, a region is a tech center when its companies open branch offices elsewhere, not when tax incentives and kowtowing got a company to open up a branch office in it.
• Be patient. There is nothing short-term in these recommendations. I estimate that creating something that begins to look like Silicon Valley is at least a twenty-year process. This is certainly longer than most politician’s reign–hence the challenge of doing the right things for the long run.

The short answer is that the government should not do much except provide more funding to the engineering schools. Unfortunately, that probably won’t seem like enough to most people.

• Don’t focus on “creating jobs.” When a region adds the second bottom line of creating jobs, things get whacky. Such a goal perverts the objective of a startup because the primary, perhaps the sole, goal of a startup is to kick ass. If it also has to create jobs for the sake of creating jobs, then you defocus it. The thinking should be: “If this company kicks ass, then it will survive and grow. If it survives and grows then it will create jobs.” So let startups focus on kicking ass and the jobs will come naturally-or not.
• Don’t pass a special tax exemption. There’s an assumption that tax benefits for investing in startups encourages entrepreneurship. I disagree; I think it mostly creates sloppy decisions by unsophisticated investors and crooked ones by others. Indeed, the unstated (and perhaps unrealized) goal of a sophisticated investor is to create, not avoid, tax liabilities. Nothing would make me happier than having to pay $100 million in income taxes. I would hand deliver that income tax return to the White House.
• Don’t create a venture capital fund. The thinking here is that a government created venture capital fund would kickstart entrepreneurship because of the influx of money. However, if there’s one thing you can depend on in venture capitalists, it’s greed. If you show them good engineers with good ideas for good companies, they will appear by (private) plane, canoe, dogsled, and camel. Such a region doesn’t need to create a fund. A supply of capital does not create demand from entrepreneurs–at least not the kind of entrepreneurs that you want.(There is one notable exception to this: the government of Israel created a seed fund that launched its venture capital industry. However, my interpretation is that the fund was successful because there were already entrepreneurs there; the fund didn’t cause entrepreneurs to suddenly appear out of the desert.)
• Don’t provide cheap office space and infrastructure. The rationale is that if entrepreneurs had office space, photocopying machines, T1 lines, and adult supervision, they would be successful. I can’t think of a case where cheap space, incubation, whatever caused success. This isn’t to say that there haven’t been successful companies from incubators (eBay is arguably one), but the key point is to determine the actual causes of success. Cheap space, etc, can’t hurt, but I’d buy engineering professors, not crappy buildings. Just because there’s a cheap building doesn’t mean you should create an incubator out of it.

There’s one more thing you need to do: Aim higher than merely trying to re-create Silicon Valley. You should try to kick our butt instead. That’s true entrepreneurship.

Acknowledgement: Thanks to Glenn Kelman of Redfin for a huge contribution to this posting.

Read more: “How to Change the World: How to Kick Silicon Valley’s Butt” - http://blog.guykawasaki.com/2006/06/how_to_kick_sil.html#ixzz06fOme5OA

A few recent updates on Angel and VC investing for entrepreneurs, and a note from President Obama.

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1. Venture Capital Fundraising Drops

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Venture capital fundraising activity dropped significantly in Q4, according to a report released Monday by Thomson Reuters and the National Venture Capital Association (NVCA). The report, which tracks the fundraising activity of venture capital firms, found that there was $3.4 billion in forty-three venture capital funds raised in Q4 of 2008, down from $8.4 billion in the prior quarter, and down significantly from the $11.7 billion raised in Q4 of 2007. The NVCA’s Mark Heesen speculated in a statement that fundraising activity dropped because of market uncertainty, and because many venture capital firms have raised money in the last two years and are deploying those funds.

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2. Insights and Opinions: 2009 Angel Predictions, Frank Peters

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Frank Peters runs his podcasts at the Frank Peters Show, and is past chairman of the Tech Coast Angels. He recently spoke to angels Bill Payne, Dave Berkus, and John Filla about their predictions for 2009:

Since it’s a new year it’s time to brush up on terms. For example, pay-to-play rounds, never popular, some say angels will see lots of these terms brought to the table by VCs. What are pay-to-play terms and why do they become popular when times get tight, like now? What’s worse than P2P?

We cheerily describe the dreaded down-round and onerous liquidation preferences. And are we doing ourselves a disservice when we do flat rounds? Oh, what a year this could be!

http://www.socaltech.com/articles/2009_angel_predictions/a-00056.html

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3. Publisher’s Blog: President Barack Obama’s Call To Entrepreneurs:

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In President Barack Obama’s inauguration speech, one passage jumped out at me as speaking particularly to entrepreneurs (italics mine) (More) http://blog.socaltech.com/2009/01/21/president-barack-obamas-call-to-entrepreneurs/

“In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of shortcuts or settling for less. It has not been the path for the faint-hearted — for those who prefer leisure over work, or seek only the pleasures of riches and fame. Rather, it has been the risk-takers, the doers, the makers of things — some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom.”

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As I always like to say, invest in the entrepreneurs with the innovative ideas that create the companies that create the jobs that create the wealth that creates what America is all about.

Happy New Year everyone!  Glad that 2008 is *over* and hope to see 2009 to bring a lot more enjoyment and happiness than we experienced in the last 3 months of last year.  Other than the holiday break, it was all pretty much YUK out there!  At least I think that’s the official word for it.

In any event, with the new year comes some brand new challenges.  The macroeconomic and market backdrops remain ugly, and the underlying data and earnings continue to look bleak, but the changing of the guard in Washington D.C. is now less than 2 weeks away.  While the Santa Claus rally failed to materialize and the largely anticipated Obama pre-inaguration rally is looking “iffy”, it has been good to see that 30 year fixed interest rates have continued to drop towards 5% and may ultimately end up getting “forced” down by the new administration to 4.5% with or without points. 

As a result, we are beginning to see massive amounts of applications being submitted for residential refinancings.  At first blush, this would seem to be great for putting a floor under domestic housing and stabilizing the amount of late and delinquent mortgages out there that ultimately end up leading to more foreclosures.  Unfortunately, however, someone appears to have missed the e-mail and it’s not so obvious right now that the new low rates and huge surge of refinancing applications are going to have the desired effect that most people were expecting. 

Why?  Well, for some strange (and stupid) reason, many people attempting to refinance their option ARMs or higher fixed interest rate mortgage loans are getting turned away because they are somehow “not qualified” to pull off the refinancings.  Huh?  So let me get this straight.  Someone who has never missed a mortgage payment and is sitting in a 30 year mortgage at a fixed 6.5% interest rate cannot refinance to a new 30 year mortgage at a much lower fixed interest rate … say 5%?  Huh?  What? 

Well it appears that all of those same banks that took the TARP money over the past few months to the tune of $350 billion and also previously created the “ninja” liar loans in the first place to create this mess are now trying to deny many homeowners their right to refinance by saying that they “no longer qualify”.  Apparently they’ve finally decided to “enforce the integrity of the full doc loan process”.  For giggles, let’s take an example of someone currently paying (and successfully continuing to pay) $2,000 per month on their existing 30 year home mortgage.  Let’s say that with the new lower 5% interest rate on their 30 year fixed mortgage that they now would be paying just $1,800 per month to keep the math simple.

Well, in this “brave new world” we find that the same person currently qualified and successfully paying $2,000 per month on their exisitng mortgage is now *not* qualified to pay $1,800 per month on their new mortgage … even though that would cost them $200 per month *less* than they are already paying without incident.  Can you believe that?  CRAZY stupid is what that is!  It’s about as rational and logical as the good old Internet bubble days when Wall Street told retail investors that they could not participate in the next great technology IPO because they were neither accredited nor sophisticated and that they had to reserve their most “risky investments” for the institutional investors that could afford to stomach the losses should they occur.  But, we all know how that game worked now don’t we?

In the good old days, that was Wall Street code for “we’re going to enrich ourselves, those we want favors from and our institutional friends that will feed us more business and fees to pad our wallets and bonus checks from the post opening IPO *pop* that we all know is about to happen”.  What it also meant to the individual retail investor (the “bag holder” as we like to call them) was that they could not invest in that $20 per share technology IPO because of the “risk” … but that they were *welcome* to invest in the after market after the stock opened at $100 per share because clearly there must have been a *lot* less risk for the individual investor at 5 times the IPO price at $100 per share than an 80% discount at the $20 per share pricing.  Yeah, OK, right.  I get it.

So here we sit.  The country has a grand opportunity to let the little guy and girl out there … the common person … the American homeowner … get a do-over on their option ARM sins of the past, or simply a better fixed rate deal on the 30 year mortgage that they already have, and are SUCCESSFULLY paying every month WITHOUT INCIDENT … *but* we refuse to do it because they now “don’t qualify” for the refinancing.  Great, just great (and please insert sarcasm here).

I sure hope that someone wakes up to this, and wakes up soon, so the next $350 billion of TARP money doesn’t just get handed out again to all of those fine banks out there that are happily taking the money … and then doing nothing at all with it to lend out to businesses or consumers alike.  Oh yeah, the other bank party line right now is that loan applications are down right now in other traditional loan areas outside of mortgages because they “just aren’t getting enough applications submitted”.  Yeah, sure.  And what have we been smoking today Mr. “Too Big Too Fail” Bank CEO Man (insert Bud Light Real Men of Genius music here for effect)?

Hell, at least a few bank CEOs opted out of their bonuses “after careful thought and much deliberation”.  Nice way to kick off the year now isn’t it!?!?  More to come and be on the look out for my 2009 predictions … coming soon … or at least before this time next year.  Seriously! 

Today S&P downgraded Goldman Sachs and 11 other banks.  We can call them the “TARP 12″ for short and it’s very interesting that this particular ratings agency has finally gotten around to doing what it’s been completely delinquent on doing for far too long.  Too little too late at this point from my perspective, not to mention what appears to be an awful lot of unnecessary piling on after the fact.  After all, it was S&P, Moody’s and Fitch that pretty much created the “big lie” on the front-end of this problem with investment grade AAA golden plated ratings on virtually every toxic security and derivative out there (SIVs, CDOs, MBSs, etc.) and have ultimately been way, way behind the proverbial eight ball on the back-end now. 

I’ll save the ratings agencies venting for another time, but you should know that I think that they should be completely eliminated or completely restructured as they have limited to no value add to both institutional and retail investors alike.  Same goes for the SEC, but again, that’s for another day and it appears that there’s likely to be a new sheriff in town at the commission very, very soon based on yesterday’s announcement from President Elect Obama on Mary Schapiro. 

The only thing that is becoming more obvious now, especially in light of yesterday’s announcement that none other than GE was being put on credit watch by S&P and given a negative outlook, is that there appears to be a new attitude prevalent from the ilks of S&P that they must get out whatever bad information and ratings adjustments that they are considering as quickly as possible so that everything is out there, somewhere, and that they can no longer be accused of not having released their negative ratings and opinions.  Again, too little too late, not better late than never, and as stated previously, piling on now to drive the cycle down even worse when it wasn’t originally done when it was supposed to be done just makes a challenging (bad) situation worse.  I don’t think that it’s needed right now for anyone’s sake at all from my perspective and it’s probably about as productive as the FAS 157 mark to market accounting rules are in addressing these problems and being able to move forward more appropriately to recovery.  Ahh, yet another topic for yet another day.

Now back to Goldman Sachs.  One announcement that has likely been lost in the noise, and is a great follow up to a recent entry I wrote on US corporations up-rooting or relocating to foreign countries from the US, is the announcement that none other than Goldman Sachs has moved its corporate profits offshore.  That’s right.  Through some corporate restructuing, aggressive accounting and creative financial engineering, Goldman Sachs has managed to cut its corporate taxes in the US to a paltry 1%.  First companies were voting with their feet, but now they are also voting with their wallets.

Goldman Sachs effectively took down more than $10 billion in loans from Warren Buffett via Berkshire Hathaway and the US government via TARP this year, raked in another $2.3 billion in operating profits and then paid out almost $11 billion to its employees in compensation and bonuses … and still managed to reduce its taxes from $6 billion last year to $14 *million* this year.  You heard that right, only $14 million in total tax exposure to the US Treasury and fully 99% less than what they paid only 1 year ago. 

Goldman Sachs attributed its lower tax rate to “more tax credits as a percentage of earnings” and “changes in geographic earnings mix” while tax accounting advisor Robert Willens told Bloomberg News that the rate drop seemed “a little extreme”.  Excuse me, but ya’ think?

This is yet another striking example of what happens when you treat great American corporations as villains and also what happens when you maintain ridiculous tax codes here in the US that incent those with the time, capability and resources to invest in corporate structures, geographic structures and creative financial engineering to ensure that they become as “tax efficient” as possible.  It is why tax cuts for individuals and corporations in the US ultimately result in higher revenues for the US Treasury rather than when taxes are actually raised.  It may be counterintuitive, but history proves this out to be true.  Namely, the lower the effective tax rate, then the less likely that smart individuals and companies will try to “avoid” paying them by outsmarting “the system” and thus the US Treasury gets more revenues because more taxes are paid rather than creatively avoided through loopholes, financial engineering and offshoring.  When will we ever learn?