investment

An Open Letter to Facebook Employees

Dear Facebook Employees:

You don't know me. I'm not an investor and don't even have a Facebook page. But I'm hoping you'll give me a moment to give you some perspective based on my many years of helping organizations under attack.

Because that's what you and Facebook are: Under attack.

It's typical, just so you know, and to be expected. After all, unless the people involved (in this case the investment industry analysts and talking heads) are the ones benefiting from having been "right" (which is always a moving target), they're going to diss the company anyway.

The good news is, that means that you get to ignore them. Seriously. Just ignore them. Quite frankly, they don't know what they're talking about. They can't. They're not inside. They don't know the amazing work you've done, are doing and have in the pipeline.

Even with all the publicly required information, they don't know what your current or future products and services are. They can't. Nor should they. That's proprietary - and needs to stay that way.

The other ones who benefit from you being under attack are your competitors - existing and emerging. They're hoping you get distracted...and maybe even depressed...so that you take your eye off the Facebook ball.

Don't. Don't let them win that way. It's too easy - and underhanded, too. If they're going to win, they should win on product and service. Not because they like watching you being kicked when you're ostensibly down.

Which leads me to the most important point of all. It's that word: "ostensibly."

You're not down. You're Facebook - with your hundreds of millions of users, with millions more to come. All of whom will be participating in creating the social and financial success everyone envisioned.

Are you at a turning point? Sure - but so were Apple and Google and Amazon when the analysts were saying the same things about them and their management teams at their respective turning points. And look where they are now.

Follow the guidance your COO, Sheryl Sandberg, gives: Don't leave before you leave. Lean forward.

You joined Facebook because you wanted to. You believed in it. You saw it for all the opportunities it provided - and still provides. That hasn't changed.

So, do what your CEO, Mark Zuckerberg, says: Stay focused and ship.

You'll win - and then the talking heads will say they knew you would all along.
______
An earlier version of this post was published on Technorati.

Genius or Sucker? The Dilemma of Being a Goldman Sachs Client

So there you are - a bazillionnaire. Or, possibly, someone responsible for overseeing the bazillions of others. Like the investment manager of a pension fund.

You're always being approached by the Big Boys - from investment banks to private equity houses. They want your money. And why wouldn't they? After all, their job is to turn your money into more.

But for whom?

That's the big question - now more than ever - if your bazillions ever touch the corporate shores of Goldman Sachs.

All because of Greg Smith.

If you've missed the excitement, Mr. Smith resigned from Goldman in a big way. Fifteen minutes after emailing his resignation to management, his NY Times Op-Ed piece was published.

That one little piece of personal journalism led to media hordes over-crowding outside Goldman's portals, innumerable articles being written on every conceivable platform and medium and commentators of all kinds (yours truly included) talking about the lessons learned and yet to be learned.

Which brings us back to our bazillionnaire Goldman client - because, let's face it, Goldman only deals with bazillionnaires. Even the low end of the 1% isn't that interesting to them.

The question for this person, based on all the media coverage, is: So? Are you a genius or a sucker for doing business with these guys?

Why that has become just as compelling a question as the hue and cry that Mr. Smith's writing raised is because it makes one wonder.

Here's a company that has been indicted and settled with the Government (to the tune of $550 million) as a result of their 'questionable' practices toward their clients. Like selling an investment instrument to their clients that another client developed specifically to bet against the suckers who were doing the buying.

Nothing like having your cake and eating it, too - especially because Goldman was making money on all sides of the deal.

And that's just one case. There are others still pending.

Because what everyone learned is that rich people are just as big suckers as everyone else when they get just the right pitch from just the right person. Or company.

Which leads us to the clients - anonymous and otherwise, individual and institutional - who are telling anyone who's willing to listen that they know what Goldman is doing. That they've known it all along. That there's no surprise there.

And that means, of course, that even as they were doing business with Goldman, they didn't trust them as far as they could throw them.

Or so one hopes - especially if that client is a fund manager who has just dumped a good portion of what will be your retirement into Goldman's - or, to be fair, most any other investment bank's or broker's - hands.

Where does that leave us?

The answer is: With a system that is gamed by the institutions that pay big bucks to hold the cards by pushing legislation exactly where they want it to be. On their side. With no accountability in sight.

Until that changes, all the Greg Smith's and unhappy bazillionnaire clients will just have to take it as it comes.

As suckers.

[This article was published on Technorati.]

Executive Compensation: How Fear, Scarcity and the Wrong Measures Drive the System

Over a decade ago, I wrote an article entitled, "Worth Every Penny" for a local Silicon Valley business publication. My position was that the entrepreneurs who were building their dreams into companies should be compensated for the work they were doing.

My reasons for making that particular case at the time were that:
  • The entrepreneurs were building a new industry
  • They bootstrapped in for months and years before getting their funding
  • I had no idea that they were burning cash as stupidly as they were once they had it - nor that their investors were allowing them to do so.
This was the beginning of the executive compensation anger that is so rampant now.  Frankly, had I known then exactly how insane the compensation system would become for executives in all industries, I'd never have written the article at all.

If we want we can go into the blah-blah-blah of:
  • The reactive VC/Angel investment model of the day that led everyone to jump on the bandwagon and get their bucks in first (which led, interestingly enough, to the need to legislate to protect stupid investments by dentists - or stupid dentists, you choose)
  • The fear that someone else would take over the market before there was - or would be - a market
  • How eyeballs were considered currency...
You know the rest.

In fact, as you look at the newest social media IPOs out there, in some ways we're seeing the same thing.  Plus ça change...

But I digress.

Today, as the Governor of the Bank of England is calling for cuts in bankers' compensation, I listened to an interview with Ralph Silva, Director and Banking Analyst with SRN, talking about that subject.  He said:
"The assumption is that the actual shareholders care. The truth is if you tell the shareholders how much these senior executives are getting paid they're probably going to want them to get paid more. Why? Because they want the best of the best and the shareholders simply don't have a problem with these huge salaries."
Yes, in fact, they do have a problem with them.  Fund managers - in the form of shareholders - may not...but even they're getting a clue.  Because, just as eyeballs were considered currency in the lead-up to the DotCom Bust, so, too, are the measures of executive "success" tied to completely wrong measures now.

What, you ask, are those measures?  In too many cases, as long as the guy - or, in far fewer cases, woman - shows up, the money flows into their pockets in the form of cash, stock, options, perks....You name it.

The logic of this argument comes from the thought that there is a scarcity of talent to run these organizations.  That, too, is wrong.  In fact, too many executives currently in those positions make exactly the case for their own demise - because, clearly, the decisions they're making aren't good ones.

How do we know?  Because the measures that underlie what is considered "success" in these organizations are flawed.  Where there is no growth, there is no success.  Where there is only short-term thinking, there is no future.

The problem is, by the time the shareholders Mr. Silva is talking about realize their mistake, the executives in charge will have moved onto greener pastures in their next jobs.

It's time to get a clue.  Executive compensation is out of whack - but it's fixable.  Change the measures and create accountability for those in their positions.  At the same time, forget the fear and scarcity argument and look at the real talent pool that exists.

Very quickly and without too much difficulty, compensation and audit committees will find that there are a lot more good choices - at much more reasonable prices - than they think exist now.

Goldman Sachs, Facebook and the IPO - 2012 It Is


It's official. Sort of.

According to a CNBC Report, Facebook is most likely having its IPO in the first quarter of 2012. And Goldman Sachs will be leading the way.

Not, necessarily, that Facebook particularly wants it to happen then. It's that it's going to have to - because of 'the 500 rule.'

You see, by law - the 1934 Securities and Exchange Act, to be specific - when a company has 500 investors, they can't be considered private any longer. By law, they're considered public. And that means an IPO.

Nice for Facebook, though, its valuation is coming in at over $100 billion.  Especially since, not that long ago, its valuation was only $75 billion.

Which brings us back to Goldman Sachs.  Because the game changed - and the Facebook valuation skyrocketed - when Goldman established a fund, first, of $375 million of its own and its clients' money to invest in Facebook and then an additional Facebook investment fund of $1.5 billion.  But that was for its foreign investment clients only.

Because of that pesky 500 rule...which they tried to get around by saying that with all the investors being foreign, the fund, itself, could be considered one investor!

You gotta love Goldman.   And Facebook.  They're quite the pair.

Too bad "friending" Facebook won't give you the inside track for "friends and family" share access for the IPO.  Now that would be a "Like" that everyone would want!


(Originally published on Technorati.)

How Warren Buffett Makes Goldman Sachs Look Good

When Goldman Sachs' reputation as 'honest brokers' started being shredded by their real and perceived actions leading up to, during and after the 2008 economic crash, they had to do something. Fast.

And they did. To show their commitment as citizens, they introduced 10,000 Small Businesses, a $500 million investment "to help create jobs and economic opportunity in the United States."

To be fair, this is a good thing.  Investment is always good - particularly in small businesses.

But don't mistake Goldman's largesse for pure-play money - either their own or others.  According to their materials, the "investment" includes:
  • Practical business and management curriculum
  • Access to capital
  • Critical support and consulting services.

And while that's good, too, they don't specify how much investment goes into each category.

But, they do bring Big Name guests.  Like Warren Buffett.

Buffett, you may recall, saved Goldman's bacon when the crash occurred by lending the firm $5 billion in 2008 when they needed a cash infusion.  That was one seriously good investment for Buffett's Berkshire Hathaway Corporation as it netted Berkshire a $5.64 billion payback less than three years later.

Buffett took a lot of grief from that decision - not least at his annual shareholder meetings. Because Buffett, whose reputation he keeps sterling, was suddenly seen as complicit in helping the company that had become the poster child for greed.

Now, that's in the process of changing.

The 10,000 Small Businesses initiative has graduated its first class of 30 small business owners - and they come from New Orleans.

It's a PR move that can only bring good reactions.  After all, it's Goldman Sachs helping New Orleans which is still recovering from the Hurricane Katrina aftermath - all being fronted by Warren Buffett giving words of encouragement and advice.

That's no small thing.  Buffett is known for making his corporate purchases based as much on the target company's management - and particularly its senior executive team - as he is on the numbers they produce.  Because Buffett always keeps the management team intact.  After all, they created the success. 

Why would he want to get rid of them?

(Full disclosure: One of my client companies was purchased by Berkshire Hathaway.)

Whether Goldman Sachs will ever completely recover its reputation in the eyes of the wider public is still an open question.  But, for the moment, the feel-good factor is there and they're moving in the right direction.

At least as far as small businesses are concerned.

(Originally published on Technorati.)