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As Memorial Day 2012 approaches, please take a minute to remember, say “thank you” to our service men and woman and please, never forget, that Freedom is not FREE.

May God Bless and Protect those who serve and are in “harms way”.

Quotations for Memorial Day from http://quotegarden.com

On thy grave the rain shall fall from the eyes of a mighty nation!  ~Thomas William Parsons


Although no sculptured marble should rise to their memory, nor engraved stone bear record of their deeds, yet will their remembrance be as lasting as the land they honored.  ~Daniel Webster

With the tears a Land hath shed
Their graves should ever be green.
~Thomas Bailey Aldrich

Are they dead that yet speak louder than we can speak, and a more universal language?  Are they dead that yet act?  Are they dead that yet move upon society and inspire the people with nobler motives and more heroic patriotism?  ~Henry Ward Beecher

Green sods are all their monuments; and yet it tells
A nobler history than pillared piles,
Or the eternal pyramids.
~James Gates Percival

Is’t death to fall for Freedom’s right?
He’s dead alone who lacks her light!
~Thomas Campbell

For love of country they accepted death…  ~James A. Garfield

They fell, but o’er their glorious grave
Floats free the banner of the cause they died to save.
~Francis Marion Crawford

Death leaves a heartache no one can heal, love leaves a memory no one can steal.  ~From a headstone in Ireland

Blow out, you bugles, over the rich Dead!
There’s none of these so lonely and poor of old,
But, dying, has made us rarer gifts than gold.
~Rupert Brooke

The brave die never, though they sleep in dust:
Their courage nerves a thousand living men.
~Minot J. Savage

The legacy of heroes is the memory of a great name and the inheritance of a great example.  ~Benjamin Disraeli

And I’m proud to be an American,
where at least I know I’m free.
And I won’t forget the men who died,
who gave that right to me.
~Lee Greenwood

They are dead; but they live in each Patriot’s breast,
And their names are engraven on honor’s bright crest.
~Henry Wadsworth Longfellow

Peace to each manly soul that sleepeth;
Rest to each faithful eye that weepeth…
~Thomas Moore

But the freedom that they fought for, and the country grand they wrought for,
Is their monument to-day, and for aye.
~Thomas Dunn English

And they who for their country die shall fill an honored grave, for glory lights the soldier’s tomb, and beauty weeps the brave.  ~Joseph Drake

Perform, then, this one act of remembrance before this Day passes – Remember there is an army of defense and advance that never dies and never surrenders, but is increasingly recruited from the eternal sources of the American spirit and from the generations of American youth.  ~W.J. Cameron

How sleep the brave, who sink to rest,
By all their country’s wishes blest!
When Spring, with dewy fingers cold,
Returns to deck their hallow’d mould,
She there shall dress a sweeter sod
Than Fancy’s feet have ever trod.
By fairy hands their knell is rung,
There Honour comes, a pilgrim gray,
To bless the turf that wraps their clay;
And Freedom shall awhile repair,
To dwell, a weeping hermit, there.
~William Collins

The patriot’s blood is the seed of Freedom’s tree.  ~Thomas Campbell

Decoration Day is the most beautiful of our national holidays…. The grim cannon have turned into palm branches, and the shell and shrapnel into peach blossoms.  ~Thomas Bailey Aldrich

Better than honor and glory, and History’s iron pen,
Was the thought of duty done and the love of his fellow-men.
~Richard Watson Gilder

We who are left how shall we look again
Happily on the sun or feel the rain
Without remembering how they who went
Ungrudgingly and spent
Their lives for us loved, too, the sun and rain?
~Wilfred Wilson Gibson

A hero is someone who has given his or her life to something bigger than oneself.  ~Joseph Campbell

Who kept the faith and fought the fight;
The glory theirs, the duty ours.
~Wallace Bruce

I have never been able to think of the day as one of mourning; I have never quite been able to feel that half-masted flags were appropriate on Decoration Day.  I have rather felt that the flag should be at the peak, because those whose dying we commemorate rejoiced in seeing it where their valor placed it.  We honor them in a joyous, thankful, triumphant commemoration of what they did.  ~Benjamin Harrison

Cover them over with beautiful flowers,
Deck them with garlands, those brothers of ours,
Lying so silent by night and by day
Sleeping the years of their manhood away.
Give them the meed they have won in the past;
Give them the honors their future forcast;
Give them the chaplets they won in the strife;
Give them the laurels they lost with their life.
~Will Carleton

Life hangs as nothing in the scale against dear Liberty!  ~Lucy Larcom

All we have of freedom, all we use or know -
This our fathers bought for us long and long ago.
~Rudyard Kipling, The Old Issue, 1899

Our battle-fields, safe in the keeping
Of Nature’s kind, fostering care,
Are blooming, – our heroes are sleeping, -
And peace broods perennial there.
~John H. Jewett

These heroes are dead.  They died for liberty – they died for us.  They are at rest.  They sleep in the land they made free, under the flag they rendered stainless, under the solemn pines, the sad hemlocks, the tearful willows, and the embracing vines.  They sleep beneath the shadows of the clouds, careless alike of sunshine or of storm, each in the windowless Place of Rest.  Earth may run red with other wars – they are at peace.  In the midst of battle, in the roar of conflict, they found the serenity of death.  I have one sentiment for soldiers living and dead:  cheers for the living; tears for the dead.  ~Robert G. Ingersoll

Their silent wounds have speech
More eloquent than men;
Their tones can deeper reach
Than human voice or pen.
~William Woodman

Their own souls rose and cried
Alarum when they heard the sudden wail
Of stricken freedom and along the gale
Saw her eternal banner quivering wide.
~John LeGay Brereton

The dead soldier’s silence sings our national anthem.  ~Aaron Kilbourn

Our cheer goes back to them, the valiant dead!
Laurels and roses on their graves to-day,
Lilies and laurels over them we lay,
And violets o’er each unforgotten head.
~Richard Hovey

But fame is theirs – and future days
On pillar’d brass shall tell their praise;
Shall tell – when cold neglect is dead -
“These for their country fought and bled.”
~Philip Freneau

Let no vandalism of avarice or neglect, no ravages of time, testify to the present or to the coming generations, that we have forgotten, as a people, the cost of a free and undivided Republic.  ~John A. Logan

Your silent tents of green
We deck with fragrant flowers;
Yours has the suffering been,
The memory shall be ours.
~Henry Wadsworth Longfellow

The story of America’s quest for freedom is inscribed on her history in the blood of her patriots.  ~Randy Vader

Spirit, that made those heroes dare
To die, and leave their children free,
Bid Time and Nature gently spare
The shaft we raise to them and thee.
~Ralph Waldo Emerson

Alas, how can we help but mourn
When hero bosoms yield their breath!
A century itself may bear
But once the flower of such a death.
~S. Weir Mitchell

They hover as a cloud of witnesses above this Nation.  ~Henry Ward Beecher

These martyrs of patriotism gave their lives for an idea.  ~Schuyler Colfax

They saw their injured country’s woe;
The flaming town, the wasted field;
Then rushed to meet the insulting foe;
They took the spear, – but left the shield.
~Philip Freneau

For death is no more than a turning of us over from time to eternity.  ~William Penn

Ah! never shall the land forget
How gushed the life-blood of her brave -
~William Cullen Bryant

“Dead upon the field of glory,”
Hero fit for song and story.
~John Randolph Thompason

Knights of the spirit; warriors in the cause
Of justice absolute ‘twixt man and man.
~Richard Watson Gilder

Fold him in his country’s stars.
Roll the drum and fire the volley!
What to him are all our wars,
What but death bemocking folly?
~George Henry Boker

The Flag still floats unblotted with defeat!
But ah the blood that keeps its ripples red,
The starry lives that keep its field alight.
~Rupert Hughes

The hero dead cannot expire:
The dead still play their part.
~Charles Sangster

We come, not to mourn our dead soldiers, but to praise them.  ~Francis A. Walker

How important it is for us to recognize and celebrate our heroes and she-roes!  ~Maya Angelou

San Francisco, May, 2012
The Perfect Storm Revisited 2012
by Robert Tillman, Member of Gerbsman Partners Board of Intellectual Capital

The term Perfect Storm refers to a rare combination of circumstances that aggravate a situation drastically. I believe that a number of situations may well come to a head simultaneously by the beginning of 2013.

  1. The fall of the Euro. Given the recent elections in France, Germany and Greece, the dissolution of the Euro zone is looking far more likely. European voters are consistently rejecting austerity and turning left, but European governments are running out of money to pay what those voters demand. The result is a mess. Read more here.
  2. A war in the Middle East. The recent formation in Israeli of a strong coalition government under Netanyahu has cleared the way for an attack on Iran. The various Sunni governments, and even Hamas, have signaled their approval of such an attack. It must happen soon or it will be too late. With it will come a major spike in oil prices.
  3. A slow down in growth and a bursting of the economic bubble in China. This past month China showed a decline in imports. The downfall of Bo Xilai shows the rottenness in the Chinese system. Given the corruption in their system and the opaqueness of their accounting, the Chinese do not themselves understand the financial reality of their situation. See more here.
  4. The end of the Bush tax cuts beginning 2013, resulting in a large tax increase in the United States. The result will be substantial downward pressure on stock prices. Who would not consider selling stocks when Federal capital gains rates will increase from 15% to 25% and Federal dividend tax rates will increase from 15% to 39.6%. See more they will hurt greatly in the short term.
  5. The necessary decrease in both the Federal and State budgets. California is in particularly bad shape with a estimated $16 billion shortfall that is almost certainly understated. While such spending reductions are absolutely necessary in the long term, they will hurt greatly in the short term.
  6. After the November election, the largely liberal press will no longer have an incentive to tell us that the economy is getting better, when the opposite is true. If Obama is elected, they will need to start telling the truth so as to preserve the shreds of their credibility. If Romney is elected, they will have a great incentive to portray the economy as even worse than it is.

Each of these events will be hastened by the others and will also cause major unforeseen consequences. We are living in an incredibly interconnected and interdependent world. We are also living in a world in which governments have no reserves and in which they have already used up the tools that that have to influence events. There will be no TARP III or a larger European Bailout Fund. We are about to enter a very bad period and we are tapped out.

Hold on. It will be a rough ride.

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. Since 2001, Gerbsman Partners has been involved in maximizing value for 70 Technology, Life Science and Medical Device companies and their Intellectual Property and has restructured/terminated over $805 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception, Gerbsman Partners has been involved in over $2.3 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in Boston, New York, Washington, DC, Alexandria, VA, San Francisco, Orange County, Europe and Israel. For additional information please visit http://gerbsmanpartners.com or Gerbsman Partners blog.

This has been a challenging day of sorrow.

The niece of our Israeli family fell, while rock climbing and did not survive.  She was 20 years old.

We mourn with them, we share our love and prayers with them and our family will say Kaddish this Friday at Temple.

May the memory of one so young, be in our hearts and minds forever.

with the respect and love of the Gerbsman family

Kaddish (קדיש, Qaddish Aramaic: “holy”; alternate spellings, qaddish, ḳaddish) is a prayer found in the Jewish prayer service. The central theme of the Kaddish is the magnification and sanctification of God‘s name. In the liturgy different versions of the Kaddish are used functionally as separators between sections of the service. The term “Kaddish” is often used to refer specifically to “The Mourners’ Kaddish”, said as part of the mourning rituals in Judaism in all prayer services as well as at funerals and memorials. When mention is made of “saying Kaddish”, this unambiguously denotes the rituals of mourning.

The opening words of this prayer are inspired by Ezekiel 38:23, a vision of God becoming great in the eyes of all the nations. The central line of the Kaddish in Jewish tradition is the congregation’s response: יְהֵא שְׁמֵהּ רַבָּא מְבָרַךְ לְעָלַם וּלְעָלְמֵי עָלְמַיָּא (Yehei shmëh rabba mevarakh lealam ulalmey almaya, “May His great name be blessed for ever, and to all eternity”), a public declaration of God’s greatness and eternality.[1] This response is an Aramaic translation of the Hebrew “ברוך שם כבוד מלכותו לעולם ועד” (Blessed be His name, whose glorious kingdom is forever), which is to be found in the Jerusalem Targum (יְהֵא שְׁמֵיהּ רַבָּא מְבָרֵךְ לְעָלְמֵי עַלְמִין) (Genesis 49:2 and Deuteronomy 6:4), and is similar to the wording of Daniel 2:20.

The Mourner’s, Rabbis’ and Complete Kaddish end with a supplication for peace (“Oseh Shalom…”), which is in Hebrew, and is somewhat similar to the Bible Job 25:2.

Along with the Shema and Amidah, the Kaddish is one of the most important and central prayers in the Jewish liturgy.

Article from GigaOm.

YouTube has seen its video uploads grow 50 percent over the last year: Users are now uploading 72 hours of video every minute, compared to 48 hours just a year ago. The Google-owned video site announced the milestone Sunday night to celebrate its seventh birthday.

The amount of video uploaded to YouTube has increased steadily over the last few years. In early 2007, users were uploading six hours of video every minute to the site. By January of 2009, that number had grown to 15 hours. By March of 2010, the total reached 24 hours, only to go up to 35 hours by November of that year.

YouTube officially launched in May of 2005, but the first video was actually uploaded on April 23 2005. It shows co-founder Jawed Karim at the San Diego Zoo, and is still available on the site.

Read more here.

The March Hare CEO

By    Member Gerbsman Partners Board of Intellectual Capital

Have you attended a “Mad Tea Party” Board of Directors or management meeting and listened to the CEO’s unrealistic expectations about future performance?  Did you leave the meeting scratching your head about what you heard?

Lewis Carroll introduced us to the strange Mad Hatter and the March Hare in his 1865 book Alice’s Adventures in Wonderland.  The Mad Hatter hosted the Mad Tea Party; during this raucous event there was one revealing exchange with Alice:

‘Have some wine,’ the March Hare said in an encouraging tone.

Alice looked all around the table, but there was nothing on it but tea.

‘I don’t see any wine,’ she remarked.

‘There isn’t any,’ said the March Hare.

How many times has a corporate leader told you there was plenty of wine about, but in fact, there was only tea at best?  Your gut is screaming… “There is no way this company can hit those targets”.  But your hope and the March Hare CEO’s enthusiasm get the better of you.  I have seen this scenario repeated many times at stuck companies; there can be over optimism and not enough effort focused on analyzing the brutal facts and confronting reality.

What’s wrong with being optimistic and aiming high?

Nothing, as long as the predictions are believable and achievable.  In the July 2003 issue of the Harvard Business Review there is an article entitled ‘Delusions of Success: How Optimism Undermines Executives’ Decisions’.   The authors (Lovallo and Kahneman) warn of the negative consequences of ‘flawed decision-making’ based upon over optimism.  They state ‘…when pessimistic opinions are suppressed, while optimistic ones are rewarded, an organization’s ability to think critically is undermined.’  Recognizing that people like to rally behind optimism, they say there ‘…needs to be a balance between realism and optimism.’

Jim Collins, in his acclaimed best-seller Good to Great, devoted an entire chapter (‘Confront the Brutal Facts, Yet Never Lose Faith’) about dealing with reality.  Collins’ research proved that great companies were continually objective about their performance, their competitive position and their customers’ needs.  He said “…breakthrough results come about by a series of good decisions, diligently executed and accumulated one on top of another.”  That is, breakthrough results don’t happen by simply rallying the troops with a lot of hot air.

Collins also discussed the potential negative impact a persuasive leader can have on an organization.  “Indeed, for those of you with a strong, charismatic personality, it is worthwhile to consider the idea that charisma can be as much a liability as an asset.  Your strength of personality can sow the seeds of problems, when people filter the brutal facts from you.  You can overcome the liabilities of charisma, but it does require conscious attention.”

How can you spot The March Hare CEO?

During one consulting engagement, I ran into a classic March Hare CEO who was functioning as a part-time Chairman/CEO for a struggling company with revenues around $120 million (let’s call it “SportsCo”).  SportsCo was in a restructuring phase and had the following issues:

  1. a huge debt burden, a history of covenant violations, and an impatient senior lender
  2. tight cash flow and some seasonality
  3. strong vendors that dictated purchasing practices
  4. a high overhead cost structure
  5. significant product line and business unit complexity
  6. old and bloated inventories
  7. mediocre information systems
  8. insufficient and untimely financial reporting
  9. low morale
  10. a thin management team
  11. an unfocused strategic direction

SportCo’s CEO had a long history of working for and running large corporations (note the word large) with ample resources and staff.  He was accustomed to the perks that accompanied corporate power and prestige.  The CEO was an extrovert… a gregarious and affable guy who had accomplished many good things in his early tenure with SportsCo.

SportsCo’s difficult circumstances meant there was still A LOT of hard work needed to fix the business and radically change its direction.  Despite all the significant challenges ahead, the March Hare CEO told his investors and management team that: 1) expenses had been ‘cut to the bone’; 2) revenue would increase 50%; and 3) EBITDA would triple in three years. Fifty percent revenue growth and EBITDA tripling!?

March Hare CEO made those broad, sweeping pronouncements without any reasonable action plans on how to back up the targetsHe was offering up expensive wine to the investors when there was only lukewarm tea available.  Fifty percent revenue growth was equal to about $60 million dollars additional annual revenue by year three.  Where was this growth going to come from when…

  • The industry was experiencing modest, but not spectacular growth rates
  • SportsCo was closing some of its weaker operating units
  • There would be no additional capital for acquisitions from the investors
  • The bank was not going to expand the credit line to accommodate growth; in fact, they were on a path to reduce the credit line
  • Funding for capital expenditures would have to come from cash generated by operations
  • In some product lines, margins had started to decline from increased competition

Getting to the $180 million level was not going to happen under those circumstances.

Following the company meeting where the grandiose and unachievable plans were presented, I told the investors the CEO had gone from ‘being a leader to a cheerleader’.  After challenging me on why I thought a cheerleader attitude was NOT beneficial to the business at that point in time, they ultimately decreased his influence throughout the change process. SportsCo was restructured based upon the theme of ‘less is more’: the business was downsized to the strongest, core operating units; corporate expenses were dramatically reduced; liquidity and cash flow significantly improved; and a new, clear strategic focus rallied the troops.

What are some ways to deal with a March Hare CEO?

If you think too much ‘wine’ is being offered up on an increasingly regular basis by the management team, go back to some basics:

  1. Trust your own instincts and your gut.
  2. Challenge all the assumptions behind the strategic and annual plans.
  3. Understand the industry forces – think external, not just internal – data, data, data.  Are customers and/or competitors consolidating? Is substitution occurring in your product lines?
  4. Understand in detail your competition across customer segments.  Does the company have strong niche positions or is it just an “also ran” in each segment?
  5. Assess the strength of the R&D and product development efforts – where’s the future growth going to come from?
  6. Talk to some of the key customers – get their unfiltered opinions on the company.
  7. Determine the nature of external relationships with lenders, vendors, and/or customers that are or will be impediments to future success.
  8. Look for specifics on the details of execution – are there monthly and annual operating plans that articulate priorities and assign who is accountable and in what time frame?
  9. Follow up on the company’s performance on a very regular basis using the details of the operating plan as the discussion structure.  Measure management on a regular basis.

‘There is no worse mistake in public leadership than to hold out false hopes soon to be swept away.’ – Winston Churchill

Article from NYTimes.

Facebook shares will be tempting to buy when they start trading on Friday. The company has hefty profit margins, a household name and a shot at becoming the primary gateway to the Internet for much of the planet.

But if history offers any lesson, average investors face steep odds if they hope to make big money in a much-hyped stock like Facebook.

Sure, Facebook could be the next Google, whose shares now trade at more than six times their offering price. But it could also suffer the fate of Zynga, Groupon, Pandora and a host of other start-ups that came out of the gate strong, then quickly fell back.

Even after Facebook supersized its offering with plans to dole out more shares to the public, most retail investors will have a hard time getting shares in the social networking company at a reasonable price in its first days of trading.

Facebook’s I.P.O. values the company at more than $104 billion. And the mania surrounding the offering means Facebook shares will almost certainly rise on the first day of trading on Friday, the so-called one-day pop that is common for Internet offerings. At either level, Facebook’s price is likely to assume a growth rate that few companies have managed to sustain.

New investors, in part, are buying their shares from current owners who are taking some of their money off the table, a sign that the easy profits may have been made. Goldman Sachs, the PayPal co-founder Peter Thiel, and the venture capital firms DST Global and Accel Partners are all selling shares in the offering.

“It is a popular company, but it is still a highly speculative stock,” said Paul Brigandi, a senior vice president with the fund manager Direxion. “Outside investors should be cautious. It doesn’t fit into everyone’s risk profile.”

For the farsighted and deep-pocketed investors who got in early, Facebook is turning out to be a blockbuster. But by the time the first shares are publicly traded, new investors will be starting at a significant disadvantage.

Following the traditional Wall Street model, Facebook shares were parceled out to a select group of investors at an offering run by the company’s bankers on Thursday evening, priced at $38 a share. But public trading will begin with an auction on the Nasdaq exchange on Friday morning that is likely to push the stock far above beyond the initial offering price.

That is what happened to Groupon last fall. Shares of the daily deals site started trading at $28, above its offering price of $20. It eventually closed the day at $26.11.

The one-day pop is common phenomenon. Over the last year, newly public technology stocks, on average, have jumped 26 percent in their first day of trading, according to data collected by Jay R. Ritter, a professor of finance and an I.P.O. expert at the University of Florida.

In many of the hottest technology stocks, the rise has been more dramatic. LinkedIn, another social networking site, surged 109 percent on its first day in May 2011, and analysts say it is not hard to imagine a similar outcome with Facebook, given the enormous interest.

Unfortunately for investors, the first-day frenzy is not often sustained. In the technology bubble of the late 1990s, dozens of companies, Pets.com and Webvan among them, soared before crashing down.

At the height of the bubble in 2000, the average technology stock rose 87 percent on its first day. Three years later, those stocks were down 59 percent from their first-day closing prices and 38 percent from their offering prices, according to Professor Ritter’s data.

The more recent crop of technology start-ups has not been much more successful in maintaining the early excitement. A Morningstar analysis of the seven most prominent technology I.P.O.’s of the last year showed that after their stock prices jumped an average of 47 percent on the first day of trading, they were down 11 percent from their offering prices a month later. Groupon is now down about 40 percent from its I.P.O. price.

“It’s usually best to wait a few weeks to let the excitement wear off,” said James Krapfel, an I.P.O. analyst at Morningstar who conducted the analysis. “Buying in the first day is not generally a good strategy for making money.”

There are, of course, a number of major exceptions to this larger trend that would seem to provide hope for Facebook. Google, for instance, started rising on its first day and almost never looked back.

Even among the success stories, though, investors often have had to go through roller coaster rides on their way up. Amazon, for instance, surged when it went public in 1997 at $18 a share. But the stock soon sputtered, and it did not reach its early highs again until over a decade later. The shares now trade near $225.

More recently, LinkedIn has been trading about 140 percent above its offering price of $45, enough to provide positive returns even for investors who bought in the initial euphoria. But those investors had to sweat out months when LinkedIn stock was significantly down.

Apple is perhaps the clearest example of the patience that can be required to cash in on technology stocks. Nearly two decades after its I.P.O. in 1980, it was still occasionally trading below its first-day closing price, and it was only in the middle of the last decade — when the company began revolutionizing the music business — that it began its swift climb toward $600.

Facebook’s prospects will ultimately depend on the company’s ability to fulfill its early promise. It has a leg up on the start-ups of the late 1990s, which had no profits and dubious business models. Last year, in the seventh year since its founding, Facebook posted $3.7 billion in revenue and $1 billion in profit.

But investors buying the stock even at the offering price are assuming enormous future growth. While stock investors are generally willing to pay about $14 for every dollar of profit from the average company in the Standard & Poor’s 500 index, people buying Facebook at the estimate I.P.O. price are paying about $100 for each dollar of profit it made in the past year.

When Google went public in 2004, investors paid a bigger premium, about $120 for each dollar of earnings. But the search company at the time was growing both its sales and profits at a faster pace than Facebook is currently.

Facebook may be able to justify those valuations if it can keep expanding its profit at the pace it did last year, a feat some analysts have said is possible. But especially after the company recently revealed that its growth rate had slowed significantly in the first quarter, the number of doubters is growing.

“Facebook, by just about any measure, is a great company,” Professor Ritter said. “That doesn’t mean that Facebook will be a great investment.”

Read more here.

Why Successful Branding Still Happens Offline

Agence France-Presse/Getty Images
Does Facebook offer better branding opportunities than word-of-mouth and human interaction?

The Facebook IPO has both the financial and marketing communities abuzz, and with good reason. Facebook is the king of the social media hill, and its growth and ability to attract a loyal and highly networked audience is to be admired.

For brands, however, online social networks are far from the Holy Grail of marketing.  The research is increasingly clear and compelling that for brands that want to be social and generate conversation, a far bigger and more powerful force is real world, face-to-face conversation.

It has been said that online social media is “word of mouth on steroids.” Key to that argument is a belief that online conversations will spread to hundreds or thousands of people (and maybe more) with the click of a mouse. But while that is theoretically possible, it is not the way online sharing usually works. Most links that are shared reach only 5-10 people. And the huge legions of Facebook fans, it turns out, are not so actively engaged with the brands they once “liked.” Fewer than 1% of brand fans on Facebook have any type of active involvement, bringing those huge numbers back down to earth.

Meanwhile, our research finds that 90% of word-of-mouth conversations about brands take place offline, primarily face-to-face, in people’s homes and offices, in restaurants and stores, really anywhere people congregate. These conversations bring with them greater credibility, a greater desire to share with others, and a great likelihood to purchase the products being discussed than conversations that take place online.

So if not via Facebook and other social networking sites, what can brands do to get conversations started? It is important to fight the urge to start your marketing strategy with a particular tool or approach. Instead, start a story that consumers will want to talk about. What are the messages about your brand and category that make you talkworthy?

Next, it’s important to tap the right talkers. Who are the consumer influencers in your category, and your brand advocates? When and where do they talk, about what, and why? Often the people who have credibility when they talk are not the target customer. And the places to reach these influencers will not flow naturally from your media optimization plan unless you’re clearly focused on word of mouth as a primary goal. Media with the largest concentrations of influencers will surprise you.

Once you have your message and target in mind, only then does it make sense to choose the channels through which to reach people and to encourage sharing. And it turns out, the biggest and most productive channel to spark conversation is not online social media, but paid advertising. Fully one-quarter of conversations about brands include an explicit reference to ads. In fact, television advertising is far and away the single biggest driver of consumer conversation. Far from being a dinosaur, as some pundits say, television and other traditional media play a key role in today’s social marketplace.

Today’s consumer marketplace is highly social, but not because of particular platforms or technologies. The businesses that will be the most successful in the future are the ones that embrace a model that puts people– rather than technology – at the center of products, campaigns and market strategies. Those who achieve the greatest success will recognize that there are many ways to tap the power of today’s social consumer.

The great social wave is an opportunity that no business can afford to ignore or look at myopically. It’s happening all around us – and to the continuing surprise of many, it’s mostly happening face-to-face.

Ed Keller and Brad Fay are co-authors of The Face-to-Face Book: Why Real Relationships Rule in a Digital Marketplace, to be published in May by Free Press. They are also principals of the Keller Fay Group, a market research and consulting firm.

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