Middle East is Going Off. Twitter & Facebook’s Role? Debatable…..

Watching all this stuff (Tunisia, Egypt, rioting, internet being turned off, etc) reminded me of a piece by the ever-popular Malcom Gladwell this summer. Basically, his argument is that Facebook, Twitter, an dother social media are/will be bit players at best in large scale social protest and change.

Enjoy w/your lunch. Excerpt below, full story at the link. http://nyr.kr/9Y92DZ

SMALL CHANGE

Why the revolution will not be tweeted.

by Malcolm GladwellOCTOBER 4, 2010

Social media can’t provide what social change has always required.

At four-thirty in the afternoon on Monday, February 1, 1960, four college students sat down at the lunch counter at the Woolworth’s in downtown Greensboro, North Carolina. They were freshmen at North Carolina A. & T., a black college a mile or so away.

“I’d like a cup of coffee, please,” one of the four, Ezell Blair, said to the waitress.

“We don’t serve Negroes here,” she replied.

The Woolworth’s lunch counter was a long L-shaped bar that could seat sixty-six people, with a standup snack bar at one end. The seats were for whites. The snack bar was for blacks. Another employee, a black woman who worked at the steam table, approached the students and tried to warn them away. “You’re acting stupid, ignorant!” she said. They didn’t move. Around five-thirty, the front doors to the store were locked. The four still didn’t move. Finally, they left by a side door. Outside, a small crowd had gathered, including a photographer from the Greensboro Record. “I’ll be back tomorrow with A. & T. College,” one of the students said.

By next morning, the protest had grown to twenty-seven men and four women, most from the same dormitory as the original four. The men were dressed in suits and ties. The students had brought their schoolwork, and studied as they sat at the counter. On Wednesday, students from Greensboro’s “Negro” secondary school, Dudley High, joined in, and the number of protesters swelled to eighty. By Thursday, the protesters numbered three hundred, including three white women, from the Greensboro campus of the University of North Carolina. By Saturday, the sit-in had reached six hundred. People spilled out onto the street. White teen-agers waved Confederate flags. Someone threw a firecracker. At noon, the A. & T. football team arrived. “Here comes the wrecking crew,” one of the white students shouted.

By the following Monday, sit-ins had spread to Winston-Salem, twenty-five miles away, and Durham, fifty miles away. The day after that, students at Fayetteville State Teachers College and at Johnson C. Smith College, in Charlotte, joined in, followed on Wednesday by students at St. Augustine’s College and Shaw University, in Raleigh. On Thursday and Friday, the protest crossed state lines, surfacing in Hampton and Portsmouth, Virginia, in Rock Hill, South Carolina, and in Chattanooga, Tennessee. By the end of the month, there were sit-ins throughout the South, as far west as Texas. “I asked every student I met what the first day of the sitdowns had been like on his campus,” the political theorist Michael Walzer wrote in Dissent. “The answer was always the same: ‘It was like a fever. Everyone wanted to go.’ ” Some seventy thousand students eventually took part. Thousands were arrested and untold thousands more radicalized. These events in the early sixties became a civil-rights war that engulfed the South for the rest of the decade—and it happened without e-mail, texting, Facebook, or Twitter.

Tech Talk: Groupon and Options.

As you know, we love infographics.

Here’s another one. H/t Business Insider.

Curious about why Goldman Sachs CEO Lloyd Blankfein is flying to Chicago to woo Groupon and win its IPO? This chart should help.

Needham & Company analysts Mark May and Kevin Allen projected the revenues for the local daily deal market for the next five years. As you can see, they’re very bullish.

Even these bullish projections are probably coming up short. We’ve heard late last year Groupon was on a $2 billion annual revenue run rate, and Needham thinks it’s only 60-65% of the market.

(What’s funny about this chart is that it looks exactly like a joke chart Andrew Mason drew on a napkin when Groupon, then called “The Point”, picked up a round of funding.)

Now for the options. We ran into a friend this weekend who works at a very hot startup. He’s basically the $4bn man. We started talking about how he would play his cards with respect to options. It’s actually a lot more complex than it used to be with private/secondary market liquidity and valuations now in the picture. He sent a link to this article. Pretty cool. It’s a rundown on option acceleration by a partner at Union Square Venturer Partners (NY). Excerpt below, click this link for the full story. In case you were wondering, The Scrambler offers a generous all-in compensation package to early stage employees.

This MBA Mondays M&A case study is about the effect that stock option acceleration provisions have on M&A transactions. I am reblogging a blog post that Feedburner founder/CEO Dick Costolo (now Twitter CEO) wrote in the wake of the acquisition of Feedburner by Google. This post is still live on the web at its original location. While the names are fictional, the situations are not. It’s a really good read and addresses a whole host of issues that you will face as you think about stock option acceleration for your team.

—————————

Question number 1 comes from an invisible Irish gentleman named Bernie in Wichita. Bernie writes, “Can you explain options acceleration? And when would I want to use it? And when wouldn’t I? And what’s single trigger vs. double trigger acceleration and how do you feel about those kinds of things?”

Those are great questions Bernie! Hopefully, I can at least get you to realize there’s a lot to think about here. Let’s dive right in.

Most options plans for your employees have a vesting schedule the defines how the options vest (ie, when the employee can exercise them). Vesting schedules for tech startups all generally look like a four year vesting period, with 25% of the total options grant vesting on a one year cliff (ie, nothing vests for a year and then 25% of the options vest on the 1 year anniversary), and then the rest of the options vest at 1/48th of the total options every month for the next 36 months.

Now let’s say you’ve got this classic vesting schedule and you hire somebody named Bobby Joe after you’ve been in business for one month, and he gets an options grant equal to 1% of the total outstanding shares. He works hard at your company for 11 months, after which your company is acquired for an ungodly sum of money. The acquirer decides that they were buying your company because of it’s cool logo and they don’t need any actual employees so they are all terminated effective immediately.

Bobby Joe’s options are worth how much? If you answered “Bubkas”, “Zero”, “nothing” or laughed at the question, you are correct. Although Bobby Joe has worked at the company for almost the entire life of the company, he gets nothing and the person that started 30 days before him gets 25% of their total options value. Doesn’t seem fair. Or as Bobby Joe would undoubtedly say “I’m upset, and I will exact my revenge on you at some later date in a compelling and thorough fashion”

Enter acceleration. Acceleration in an options plan can cause vesting to accelerate based on some event, such as an acquisition. For example, you might have a clause in your plan that states that 25% of all unvested options accelerate in the event the company is acquired.

…..(use the link above to get to the crux of the story)

Goldman Vs. Apple: Who Generates the Highest Economic Return?

I’ve been wanting to get this up all day.

First, here’s to all of God’s workers. You know who you are. Your just reward awaits.

More importantly, John Cassidy (New Yorker) had a great Rational Irrationality piece today. In full below…..

Contrary to appearances, I’m not obsessed with Goldman Sachs, and this will be my last post on the subject for a while. But the Wall Street firm issued its latest profit report today, and I thought it would be interesting to compare its results to those of Apple, another iconic American business, which yesterday published its own profit figures.

Many people are put off by financial accounts, but they provide an invaluable window into what is really going on in a given corporation, and to how much it is contributing to society. I may be weird, but sometimes I actually like poking around in 10-Qs, 8-Ks, and other disclosure forms that public companies have to file with the Securities and Exchange Commission. One word of warning, though. What follows should be considered a process of me thinking out loud, and pointing out some things that strike me, rather than reaching any definitive conclusions.

As everybody knows, Goldman and Apple are both making tons of money (although Goldman’s latest results disappointed investors somewhat). In the final quarter of 2010, the bank generated net profits of $2.39 billion on revenues of $8.64 billion. Apple, which has a much bigger turnover, made profits of $6 billion on revenues of $26.4 billion.

On Wall Street and in the computer industry, quarterly profits tend to bounce around a bit, so it is perhaps more illuminating to look at the entirety of 2010. With Goldman, whose fiscal year follows the calendar, this is easy. In the past twelve months, Goldman recorded net profits of $8.35 billion on revenues of $39.16 billion. Apple’s financial year ends in September, but by combining the results from its first fiscal quarter of 2011, which has just ended, and the final three quarters of 2010, I came up with the following figures. Apple made $17.63 billion on revenues of $76.28 billion.

On the face of it, the two firms’ profit margins seem pretty similar. For every dollar of revenue it generates, Goldman makes a profit of about twenty-one cents; Apple makes about twenty-three cents. But that is where the comparisons end. From an economic perspective, the real measure of a business is the return it generates on the capital it employs, which could be used in alternative projects. By this metric, Apple leaves Goldman far behind.

One popular measure of capital is “shareholders’ equity,” which consists largely of money invested in the firm and retained earnings. Wall Street analysts tend to fixate on return on equity (ROE), but it can be a misleading, especially when applied blindly to financial institutions. In good times, banks can increase their ROE simply by taking on more leverage (borrowing). Until the fall of 2008, this was precisely the strategy that Goldman and its rivals pursued: in the boom years, Goldman often generated a return on ROE of more than twenty per cent, but this wasn’t sustainable. When the credit bubble burst, high levels of leverage destroyed some banks and forced others into the arms of the government. In effect if not intention, the banks had been creating fictitious profits, much of which ultimately ended up as losses.

During the past couple of years, the banks, Goldman included, have cut their leverage ratios sharply, partly by issuing more equity to shareholders, partly by selling assets and paying down debts. As a result, we now have a more realistic estimate of their earnings power. Despite its return to profitability in 2009 and 2010, Goldman’s ROE last year was just 11.5 per cent. Apple, by contrast, generated a ROE of about thirty-two per cent in 2010, almost three times the Goldman figure.

Another way to gauge a firm’s performance is to take everything it possesses—its buildings, its machinery and other equipment, its product designs, and its financial holdings—and look at how much profit it generates for each dollar of assets on its books. In my opinion, this measure, which is known as return on assets (ROA), is the best way to judge a business, because it excludes the amplifying effect of leverage. Now let’s apply it to Goldman and Apple.

According to its latest filing with the S.E.C., Goldman ended 2010 with assets of $911 billion, which means its ROA for the year was roughly .91 per cent. (Yes, that is less than one per cent.) Apple ended 2010 with total assets of $86.7 billion, which means it generated an ROA of about 20.3 per cent.

To summarize: Apple isn’t merely generating a higher return on the capital it employs than Goldman; it is more than twenty times as profitable! How can this be?

Part of the answer is an accounting foible. Unlike some corporations, Apple doesn’t record on its balance sheet much of the value of its patents and other intellectual property—the look and feel of the iPad, for example. If it did this, the figure for total assets recorded on its books would be considerably higher, and its ROA would be lower. But accounting is only a small part of the story. (As far as I know, Goldman doesn’t capitalize its intellectual capital, such as it is, either.)

The main reason why Apple is so much more profitable than Goldman is a reassuring one. It makes tangible things—iMacs, iPhones, iPads—that millions of people want to buy, and for which they are willing to pay a premium price. (I am writing this post on an iMac.) Despite operating in a highly competitive industry, Steve Jobs’s firm has successfully differentiated its product line to such an extent that it now has considerable monopoly power: it can charge considerably more for its gizmos that they cost to manufacture.

Goldman, for all its reputation and smarts, has no such franchise. It does some things that its clients value and are willing to pay for—making markets, raising capital, providing investment advice, hedging risky positions—but rival banks, such as JPMorgan Chase and Morgan Stanley, provide practically the same suite of services, and pricing power is limited. (Not limited enough in some areas, such as I.P.O.s.) The only way Goldman (or any other investment bank) can increase its profit margins in a big way is to leverage up its balance sheet and live by its wits in the financial markets. But when banks all try this together, the consequences are usually disastrous.

Another thing that differentiates Goldman from Apple is how much it pays its employees. In 2010, Goldman’s 35,700 employees took home an average of $430,700. Apple doesn’t publish much information about its labor costs. According to the jobs Web site Simply Hired, the average salary at Apple is $46,000. Another Web site, Salary List, quotes a substantially higher figure—$107,719—but that doesn’t appear to include people working at Apple’s more than three hundred retail stores. Whichever number is more accurate, the basic message is the same. Apple employees earn a lot less than their counterparts at Goldman despite the fact they generate a much higher return—private and social—on the capital they use.

Go figure.