Archive for January, 2012

Article from Eric Bell, Editor-in-Chief, YoBucko

Saving money can be tough when you’re just starting out in the real world. To help you understand how to save more money in your twenties, here are seven simple savings tips to help you save more money:

1. Budget to Save

Creating a budget is one of the first steps to save money. A budget is like your roadmap to financial success. It shows you where you are today, and helps you track your spending each month. Think of a budget as your monthly spending scorecard. Once you’ve created your budget, look at your spending to see where you can start trimming the fat.

2. Automate your Savings

Paying yourself first is tough if you have to cut a check every time you want to save a few bucks. Fortunately, there is a simple way to save that you can access if you have a bank account: direct deposit. Direct deposit allows you to automate your savings plan by sending money straight to your savings account. Talk to your employer or your bank to find out how you can set up direct deposit. Before you know it, you’ll be building a nest egg and well on your way to financial independence.

3. Save for Emergencies

When you are just starting out, building an emergency fund should be a top priority. Experts recommend saving 3x your monthly expenses if your single, and 6x your monthly expenses if you are married or have kids. Bad things happen, even to good people. By building an emergency fund, you’ll be prepared to make it through the tough times and have a some extra money set aside for a rainy day.

4. Save for Retirement

Most employers today offer benefits packages that include a 401k and may even match your contributions up to certain limits. That’s free money!!! In addition to getting matching funds from your employer, you’ll be pleasantly surprised to find that contributions to a 401k plan lower your tax bill too. Contact your employer or HR department to find out what benefits are available to you.

5. Save for Big Purchases

While buying a new car, getting married or taking a vacation may not be on your radar today, they may be on the horizon. Consider putting a little money aside for some of your goals today so when the time comes you’ll have the cash to do what you want. If you know you won’t need the money in a year or two, consider putting your money into a Certificate of Deposit (“CD”) so you can take advantage of the higher interest rates.

6. Save for your Education

If you are considering going back to school or having kids, you should definitely start saving now. The inflation rate on tuition has been rising for years, and the only way to keep pace is to start saving. One of the best ways to save for college or your child’s education is a 529 Plan. Each state has a 529 plan, and some states even give you tax breaks for contributing. But remember, if you are going to need the money for tuition in the next few years, 529 plans do invest in stocks and bonds so you’ll want to make sure you aren’t putting all your tuition money at risk.

7. Save for a Home

Buying a home is one of the biggest purchases most people make in their lives, but far too often people don’t start saving early enough for the down payment. Ideally, you can save enough to put 20% down on a new home so you can get lower interest rates and other fees. If not, don’t fret. There are programs out there (like “FHA”) that help first-time home buyers buy a new home with as little as 3% down. Either way, it makes sense to start saving for a new home sooner rather than later. Here’s an article to help you figure out how much house you can afford.

The Bottom Line

Saving money isn’t hard if you have a plan, automate the process and start saving now. Learn to live below your means, and always look for ways to save money for the future. For more money-saving tips and advice to help you build wealth in your twenties, get involved in America Saves Week 2012 and check us out at YoBucko.

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Spotflux is hiring! We have some exciting positions open and are looking for some great candidates.

Network and Systems Engineers – Marketing Specialists ( CMOs) – We want you!

Spotflux is a venture-funded early stage internet startup. We’re building an incredibly powerful internet tool that enables users globally to surf, skype, tweet, and enjoy the full power of the internet while preserving privacy, security, anonymity, and open access.

Spotflux is located in Brooklyn, NY and looking for candidates to work out of NYC.  We are a small team of motivated technologists looking to build a core team of highly capable individuals.  We’re not merely looking for employees, but for co-founder types who believe in the product and are interested in the ability to shape the success of a unique early stage product.

What we are offering is a challenging and rewarding opportunity, along with salary+equity+benefits. What you offer is your skill set and desire to integrate with a strong core team to create a great internet product with true global reach.

Opening 1 – Marketing  – Chief Marketing Officer

We are seeking a candidate with experience launching global internet products (twitter, facebook, foursquare, pandora, etc), and most importantly a high level of motivation and desire to create a global brand. You should have experience in customer acquisition, digital marketing, social commerce, SEO/SEM, and brand/marketing strategy in a rapid-growth environment.

Send along a quick blurb on your experience, how you envision yourself fitting into the role, and why you are up for the challenge. Send to info@spotflux.com along with your resume.

Opening 2 – Systems and Network Engineer

We are looking for candidates with experience building solid, fault-resistant, high availability, and rapid scaleable infrastructures. You should consider yourself an experienced network or systems engineer, and be comfortable working in a linux CLI environment with a strong understanding of virtualization, routing, SSL, and load balancing. Experience working in a start-up environment, particularly with experience in scalability, with a small dedicated core team is a major plus.

Send your resume to info@spotflux.com . Tell us some of the challenges that you’ve encountered in building and scaling networks, and what you can offer in the role.


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By Dan Shapiro.

“I just got the following email.

Subject: Small taxi company looking to expand


I run a small taxi company outside of Boston Massachusetts. My community has been targeted for casino development and I am looking to expand my business. Could you possibly provide some advice on how to find venture capital?

For someone who lives in the startup world, this looks pretty silly.  But I’m sure I’d say a lot of silly things if I were getting in to the taxi business, too.  So I figured I’d point him to a simple explanation of why taxi companies (actually, services companies in general) aren’t appropriate for VC.  I did the Google thing for a bit to find a good article.  And no luck.

Well, you know what they say: when the internet fails you, make more internet.  Here, then, are a very good set of reasons not to take venture capital (or – why venture capital won’t take you).

1.  You want to build a profitable company

First day of Founder’s Institute I ask how many people want to raise venture capital.  Most of the hands go up.  I then ask who wants to build a profitable company.  Again, most hands go up.

The funny thing about this is – VCs don’t actually like their companies to be profitable.  Someday, sure, but not on their watch.  You see, profitability means that the company wont grow any faster.

This seems odd, but think about this for a minute. At the early stages, a company may be making money, but it’s almost certainly investing every penny it makes back in to the business.  If it has access to outside capital (e.g. a VCs), it’s investing more than it makes.  And that’s exactly what VCs like: companies that can grow at amazing speed, and never slow down their burn rate to amass cash.

They like this for two reasons.  First, VCs want to invest in companies that can grow explosively.  That means huge markets, executives who can scale up a business fast, and a willingness on the part of management to double down on a winning bet – over, and over, and over again.  Second, because it means the company keeps coming back to the VC for more money on positive terms.  That means the VC keeps getting to buy more and more of the growing concern.

Of course, this is something of an over-broad generalization.  I’m required to include one per post or I lose my startup blogging license.  In fact many venture backed companies are profitable, it’s very impressive to bootstrap your company to profitability in a few months before raising outside investment, etc.   But if you are excited about a profitable business that can cut you giant dividend checks (not that most VCs can even accept divided checks  – long story), realize that VCs will not be pleased with that approach to running the business.  They will want you to plow those earnings back in to the business.  And when the day comes that a VC-backed business generates cash faster than it can effectively spend it?  They sell the company, or IPO (which is technically also selling the company), or replace the CEO with someone who can spend faster.

A taxi business should be run for profits.  That’s not VC style.

2. Your business has reasonable margins

As a general rule, VCs don’t like reasonable margins.  They are exclusively interested in outrageous margins.  Ludicrous margins.  We’re talking about sneering at 50%, and hoping for 80%, 90%, crazy astronomy stuff.  Venture capital is all about investing a little bit of money to create a business with massive scale and huge multiples – investing tens of millions to build software that then can be duplicated or served up for virtually nothing extra per-person with a total market size of billions.

In particular, VCs don’t like businesses that are people-powered.  Software businesses are awesome, but their evil twin – software consultancies – are near-pariah to VCs.  If adding revenue means adding bodies, they don’t like it.  In fact, enterprise software companies, which can tread a fine line between software consulting & software development, sometimes get really creative to come down on the right side of the line.

So the rule of thumb is that VCs like product companies: software, drugs, cleantech, and so on.  And they don’t like the manufacturing, service industry, and consulting businesses that often are just a tiny shift of business model away.

Every new taxi requires a… well, a new taxi.  And a new taxi driver.  Not the right business for VC.

3. You are going to double your investors’ money

I’ve covered this before, but VCs really don’t want to double their money.  Strange though it sounds, their economics make that look like a failure.  They need to target a 10x return on their investment, and that means – depending on stage and fund size – that you company has to grow to somewhere in the hundreds-of-millions to billions range to be interesting.

That means taking your taxi business from $20MM in annual revenue to $40MM just doesn’t do it for them.  Particularly because the valuation multiples on the aforementioned lower-margin businesses are smaller.

4. VCs probably don’t want to invest in you

Here are the people VCs really love to invest in:

  • Entrepreneurs who’ve already made them lots of money
  • Their closest buddies
Here are the people who VCs can be convinced to invest in:
  • People who have been wildly successful at high-profile past jobs that are related to their new business  (e.g. a former executive VP at a Fortune 500 company, inventor of thingamajig that everyone knows)
  • New graduates from top-of-the-top tier schools who have built something amazingly cool already
  • Extremely charismatic type-A personalities
Anyone else is possible, but our taxi driver is going to have a devil of a time.

5. You have better things to do with 9 months, and you will probably fail

That’s how long it took me to do my Series A for Ontela.  9 months before the first check came in.  Average is 6-12.  That’s because a busy VC will look at a few companies a day, and will make a few investments a year.  The math says the hit rate is well under 1%.  That matches my experience – I pitched over 100 times during our Series A investment.  Not only that, but most of the companies pitching the same events and people that I saw worked just as hard as I did, and did not get funded.  And fundraising is a near-full time job; you won’t have much time for actually driving your taxi.

6. You will have a new boss

You know the great thing about working for yourself?  Well, if you raise VC, you probably don’t have that thing any more.  Raising VC usually means forming a board that includes your investors, and that board is charged with, among other things, potentially firing and replacing you.  I’ve worked with a number of boards and have been lucky in that they were all awesome and I would recommend those folks to anybody.  But if you like your freedom, then bringing on VC may feel somewhat familiar – in an “I have a boss again” way you probably won’t enjoy.

What are my alternatives?

VC is really only appropriate for a tiny fraction of a fraction of the companies in the US.  But there are numerous alternatives.
  • Angel investors are individual investors who can invest larger amounts, on more flexible terms, and with less onerous restrictions.  Many companies that take VC money actually start with angel investments – but lots of companies never do VC, and just grow off of angel investment.
  • Traditional bank loans are always an option if you have a sufficiently traditional company – while they may not be right for many purposes, they’re definitely the best terms you will find for bringing in capital.
  • A Revenue Loan from a company like Lighter Capital is a way for companies with revenue to bring in capital with a debt structure – without giving up control to outside investors.
  • And, of course, Bootstrapping is arguably the best way of all – re-investing your company’s profits in your own growth, and building a strong company based on the revenues from your business.

…So does this mean I shouldn’t raise VC?

Look.  I’ve raised over $30mm from 7 different firms in the course of my two startups.  I will tell you: if you are the right kind of company, and find the right kind of investor, then VC is awesome.  It’s an instant infusion of cash, connections, experience, credibility, and confidence at the stroke of a pen.  It accelerates everything.  It focuses the mind.  I can’t recommend it highly enough.
But most companies are not the right kind of companies.  And the only thing more frustrating and time consuming than raising a VC round is failing to raise a VC round.
So think hard.  Make sure it’s for you.  And if not – keep on driving!”
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Article from NYTimes.

When Barack Obama joined Silicon Valley’s top luminaries for dinner in Californialast February, each guest was asked to come with a question for the president.

  But as Steven P. Jobs of Apple spoke, President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States?

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

Apple has become one of the best-known, most admired and most imitated companies on earth, in part through an unrelenting mastery of global operations. Last year, it earned over $400,000 in profit per employee, more than Goldman Sachs, Exxon Mobil or Google.

However, what has vexed Mr. Obama as well as economists and policy makers is that Apple — and many of its high-technology peers — are not nearly as avid in creating American jobs as other famous companies were in their heydays.

Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s. Many more people work for Apple’s contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones and Apple’s other products. But almost none of them work in the United States. Instead, they work for foreign companies in Asia, Europe and elsewhere, at factories that almost all electronics designers rely upon to build their wares.

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Similar stories could be told about almost any electronics company — and outsourcing has also become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals.

But while Apple is far from alone, it offers a window into why the success of some prominent companies has not translated into large numbers of domestic jobs. What’s more, the company’s decisions pose broader questions about what corporate America owes Americans as the global and national economies are increasingly intertwined.

“Companies once felt an obligation to support American workers, even when it wasn’t the best financial choice,” said Betsey Stevenson, the chief economist at the Labor Department until last September. “That’s disappeared. Profits and efficiency have trumped generosity.”

Companies and other economists say that notion is naïve. Though Americans are among the most educated workers in the world, the nation has stopped training enough people in the mid-level skills that factories need, executives say.

To thrive, companies argue they need to move work where it can generate enough profits to keep paying for innovation. Doing otherwise risks losing even more American jobs over time, as evidenced by the legions of once-proud domestic manufacturers — including G.M. and others — that have shrunk as nimble competitors have emerged.

Apple was provided with extensive summaries of The New York Times’s reporting for this article, but the company, which has a reputation for secrecy, declined to comment.

This article is based on interviews with more than three dozen current and former Apple employees and contractors — many of whom requested anonymity to protect their jobs — as well as economists, manufacturing experts, international trade specialists, technology analysts, academic researchers, employees at Apple’s suppliers, competitors and corporate partners, and government officials.

Privately, Apple executives say the world is now such a changed place that it is a mistake to measure a company’s contribution simply by tallying its employees — though they note that Apple employs more workers in the United States than ever before.

They say Apple’s success has benefited the economy by empowering entrepreneurs and creating jobs at companies like cellular providers and businesses shipping Apple products. And, ultimately, they say curing unemployment is not their job.

“We sell iPhones in over a hundred countries,” a current Apple executive said. “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.”

‘I Want a Glass Screen’

In 2007, a little over a month before the iPhone was scheduled to appear in stores, Mr. Jobs beckoned a handful of lieutenants into an office. For weeks, he had been carrying a prototype of the device in his pocket.

Mr. Jobs angrily held up his iPhone, angling it so everyone could see the dozens of tiny scratches marring its plastic screen, according to someone who attended the meeting. He then pulled his keys from his jeans.

People will carry this phone in their pocket, he said. People also carry their keys in their pocket. “I won’t sell a product that gets scratched,” he said tensely. The only solution was using unscratchable glass instead. “I want a glass screen, and I want it perfect in six weeks.”

After one executive left that meeting, he booked a flight to Shenzhen, China. If Mr. Jobs wanted perfect, there was nowhere else to go.

For over two years, the company had been working on a project — code-named Purple 2 — that presented the same questions at every turn: how do you completely reimagine the cellphone? And how do you design it at the highest quality — with an unscratchable screen, for instance — while also ensuring that millions can be manufactured quickly and inexpensively enough to earn a significant profit?

The answers, almost every time, were found outside the United States. Though components differ between versions, all iPhones contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China.

In its early days, Apple usually didn’t look beyond its own backyard for manufacturing solutions. A few years after Apple began building the Macintosh in 1983, for instance, Mr. Jobs bragged that it was “a machine that is made in America.” In 1990, while Mr. Jobs was running NeXT, which was eventually bought by Apple, the executive told a reporter that “I’m as proud of the factory as I am of the computer.” As late as 2002, top Apple executives occasionally drove two hours northeast of their headquarters to visit the company’s iMac plant in Elk Grove, Calif.

But by 2004, Apple had largely turned to foreign manufacturing. Guiding that decision was Apple’s operations expert, Timothy D. Cook, who replaced Mr. Jobs as chief executive last August, six weeks before Mr. Jobs’s death. Most other American electronics companies had already gone abroad, and Apple, which at the time was struggling, felt it had to grasp every advantage.

In part, Asia was attractive because the semiskilled workers there were cheaper. But that wasn’t driving Apple. For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.

For Mr. Cook, the focus on Asia “came down to two things,” said one former high-ranking Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S.” The result is that “we can’t compete at this point,” the executive said.

The impact of such advantages became obvious as soon as Mr. Jobs demanded glass screens in 2007.

For years, cellphone makers had avoided using glass because it required precision in cutting and grinding that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc., to manufacture large panes of strengthened glass. But figuring out how to cut those panes into millions of iPhone screens required finding an empty cutting plant, hundreds of pieces of glass to use in experiments and an army of midlevel engineers. It would cost a fortune simply to prepare.”

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Article from NYTimes.

“On a recent Thursday night I stood motionless and perplexed on the dance floor of a San Francisco club. As I looked around, 300 or so people danced and darted back and forth to a free open bar while laser lights shot overhead. Cellphones glowed, like a video of luminescent jellyfish, as people snapped pictures and slung moments of the evening onto dozens of social networks.

What made the evening so perplexing was that the party I was attending celebrated Path, a mobile social network that just two months earlier was essentially written off in Silicon Valley. If the company held a party back then, people would have assumed it was a going-out-of-business sale. Now, after rebooting to positive reviews from the blogosphere, Path is again the talk of Silicon Valley. Some are even proclaiming that the company could be “the next Facebook.”

Watching the Valley’s perception of Path go from positive to negative and back has been like watching a hyperactive child with a yo-yo. The valuation has oscillated in near synchronicity.

This, I have learned, is the mentality of much of Silicon Valley, where decisions are not always made based on revenue or potential business models, but instead seem to be driven by a herd mentality and a yearning to be a part of a potential next big thing.

This is most evident in the valuations that are given to companies here. Two start-ups, each with 10 million users and no revenue, can be valued anywhere from $50 million to $1 billion.

Facebook is a prime example of this. The company does generate considerable revenue and is currently valued at $84 billion and is expected to reach $100 billion by the time of its initial public offering later this year. That’s a higher market valuation than Disney or Amazon.

Paul Kedrosky, an investor and entrepreneur, explained in an interview that one reason valuations are so wildly inflated is that venture capitalists want to be associated with a potentially successful start-up just so it looks good in their portfolio. This, he said, has driven absurd buying on the secondary private market, where stocks are bought and sold before a company goes public.

“There is massive buying on the secondary market by venture guys just for the showmanship of it,” he said. “These buyers are much less price sensitive and just want a company in their portfolio so they can stick the logo on their Web site.”

A report released last week by SecondMarket.com, such an online marketplace, said it had $558 million in transactions in 2011, up 55 percent from the year earlier. Almost two-thirds of those transactions were for consumer Web sites and social media start-ups.

Other investors give money to several companies hoping to strike it rich with at least one. I call that the Peter Thiel Effect. Mr. Thiel, a co-founder of PayPal, gave $100,000 to Mark Zuckerberg, a founder of Facebook, when the company was starting out. That investment is expected to be worth $1 billion when Facebook goes public.

In other instances, you have spite investing. This is when venture capitalists will give millions of dollars to a start-up simply because they were not given the opportunity to invest in the competitor with the original idea.

Some investors no longer even need to hear about a company to hand out money. Jakob Lodwick, an entrepreneur and co-founder of Vimeo, recently raised $2 million simply on the promise that he might have a good idea for a company in the near future.

It’s as if someone found out where Hasbro prints Monopoly money and gave every venture capitalist a key to the company’s storage facility.

“I have never seen such a generation of people shorting tech stocks,” Mr. Kedrosky said, noting that he too has chosen to bet that Groupon, Zynga and LinkedIn will fall significantly in value. “Usually the short community is more nervous about it, but there is a monolithic view that this generation of technology I.P.O.’s is completely broken.”

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