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Archive for March, 2013

A standing ovation at Carnegie Hall for playing a simple harmonica !It took the Lone Ranger theme song to bring them to their feet.Turn up the volume!
 
Enjoy!
 
Click Here:    http://www.wimp.com/harmonicacarnegie/htlm

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Seed Finance Survey 2012

March 25, 2013

Seed Financing Survey 2012
Internet/Digital Media and Software Industries
Background

In early 2011 we published our first Seed Financing Survey (for 2010) in recognition of the growing importance of seed financing to entrepreneurs and the venture capital environment, especially in the internet/digital media and software industries.

This is the third such survey. In addition to providing information for 2012, this survey also offers comparative information with 2011 and 2010 to facilitate the identification of trends.

The information contained in this survey is based on 61 transactions in 2012, 56 transactions in 2011 and 52 in 2010. The vast majority of these transactions were for companies based in Silicon Valley, with some from the Seattle, Los Angeles and New York regions. Most of these transactions are those in which our firm was involved, and we believe is representative of transactions handled by large Silicon Valley law firms, but may not be representative of the larger, geographically dispersed, seed financing environment.

Overview of 2012 Seed Financing Survey Results

We saw the following trends in our 2012 survey:

  • Of the companies funded in 2011, 27% had raised a Series A financing by the end of the following year (2012), while 45% of the companies funded in 2010 had raised a Series A financing by the end of the following year (2011).
  • Conversely, 23% of the companies funded in 2011 raised follow-on seed financing by the end of the following year, while 12% of the companies funded in 2010 had raised a follow on seed by the end of the following year.
  • The percentage of companies in our survey receiving seed funding that were software companies increased from 25% in 2011 to 34% in 2012, while the percentage of such companies that were internet/digital media companies declined from 75% to 66%.
  • The percentage of seed financings led by venture capital investors increased from 27% in 2011 to 34% in 2012.
  • The use of a preferred stock structure increased from 59% in 2011 to 67% in 2012.
  • The average investment size increased for preferred stock deals from 2011 to 2012, and declined for convertible note deals over the same period.
  • The median pre-money valuation in preferred stock financings increased from $3.8 million in 2011 to $4.6 million in 2012.
  • The median size of preferred stock deals increased from $1.0 million in 2011 to $1.36 million in 2012, while the median size of convertible note deals decreased from $1.0 million to $0.9 million.
  • The median valuation cap on convertible notes decreased from $7.5 million in 2011 to $6.0 million in 2012.

The more detailed results of our survey are set forth below, after the “Overview of Seed Financing Environment” section.

Overview of Seed Financing Environment

The seed financing environment has become very dynamic, and has undergone significant changes, in the past few years.  Some of the trends that we are seeing are:

    • The Increasing Institutionalization of Seed Financing.

This is evidenced by the increasing participation of venture capitalists in seed financings, the growth of accelerators and “matchmaker” platforms, and the use of venture capital-like structures in seed financings.

    1. The increased involvement of venture capital funds in seed investing.  Dow Jones VentureSource reported that U.S. seed financings by venture capital firms increased from 173 in 2009 to 388 in 2012, and the amounts invested in such financings increased from $119 million to $287 million during that period.  Similarly, CB Insights reported that venture capital investment in seed deals increased from 143 deals in 2009 to 617 deals in 2012, and that the percentage of all seed deals in which venture capitalists invested increased from 30% in 2009 to 35% in 2012.  This trend is supported by the results of our Survey, which found that the percentage of seed deals that were led by venture capitalists increased from 26% in 2010 to 27% in 2011 to 34% in 2012.
    2. The growth of accelerators.  Accelerators provide structure to the formation of seed companies by providing formalized mentoring, a network of contacts and in some cases small amounts of financing.  This is unlike the prior generations of early stage companies that were more likely to have less formal guidance and structure during their pre-seed and seed period.  Since Y Combinator, the first of the current generation of accelerators, was founded in 2005, the number of accelerators has grown to over 130 in 33 countries, per research by Jed Christiansen, founder of Seed-DB, as reported in AllThingsDigital. And accelerators tracked by Seed-DB that provide funding to their companies have increased the number of companies they have funded from 243 in 2010 to 1137 in 2012.
    3. The growth of platforms that match entrepreneurs and investors.  Matchmaking platforms are becomingly increasingly important in seed financing, and with the passage of the JOBS Act are likely to continue to grow in importance.  These platforms have provided further structure to the seed financing process that did not exist even a few years ago.  For example, accelerators like 500 Startups and Rock Health now require all their applicants to submit their applications through AngelList (which was only founded in 2010).  And AngelList has recently teamed with Second Market to permit (accredited) investors to easily invest small amounts in some of the companies listed on AngelList. 
    4. The use of more traditional deal structures in seed financings.  As venture capitalists and professional seed funds become more involved in seed financings, we are seeing indications of the increased use of traditional venture capital deal structures in seed financings.  This is supported by our Survey, which shows that the use of preferred stock structures (versus convertible note structures) increased from 2011 to 2012, and that of those financings that used a convertible note structure, there was an increase in the use of valuation caps.  However, note that seed round preferred stock valuations increased overall from 2011 to 2012, so the increased use of preferred stock is not necessarily a trend that favors investors at the expense of entrepreneurs, but rather reflects the more traditional preference of venture capitalists to set valuations at the time an investment is made.
  • Increase in Seed Financings and the Series A Crunch.
    1. Rapid growth in seed financings compared to Series A.  The number of seed financings increased from 472 in 2009 to 1749 in 2012, while the number of Series A rounds only increased from 418 to 692 during the same period, as reported by CB Insights.  Additionally, Xconomy reported that the number of seed investments has grown from 15% to 31% of the total number of venture capital deals.  This has caused many to question whether too many seed deals are being funded, and opine that many of the seed funded companies will be unable to raise a Series A financing.  CB Insights estimates that only approximately 40% of seed funded companies will raise follow-on financings, and that as a result it projects that over 1000 companies that received seed funding in the past year will be unable to raise Series A funding.  This is consistent with our Survey data which found that while 45% of companies receiving seed funding in 2010 had received venture financing by the end of 2011, only 27% of companies receiving seed funding in 2011 had received venture financing by the end of 2012.
    2. Follow-on seed financings.  Further evidence of this trend is what appears to be a growth in follow-on seed financings, which provide a company with a longer runway to hopefully demonstrate the traction necessary to obtain Series A financing.  This is supported by our survey results which found that while only 12% of our 2010 class of seed funded companies received a follow-on seed financing by the end of 2011, 23% of our 2011 class have already received such financing.  Anecdotally, the growth of “acqui-hires” also seems to be increasing, supporting the idea that while many seed-funded companies have had difficulty in raising Series A financing, their ability to put together talented teams has led to acquisitions of these companies due to the value of their personnel.
    • The Seed Financing Universe is Expanding Geographically and by Industry.

The current accelerator concept started in Silicon Valley, and was initially focused on mentoring internet-focused companies. This has changed.

    1. Geographically.  Of the approximately 140 accelerators tracked by Seed-DB, 45% are based outside of the United States  and even for those based in the U.S., many attract foreign entrepreneurs.  While it is unlikely to be representative of all incubators, we note that of the 33 companies in the most recent 500 Startups class, 57% are based outside of the United States, as reported in VentureBeat. Additionally, the Wall Street Journal reported that a significant number of accelerators being formed in Silicon Valley focus on nationals of specific countries, e.g. Australia, China, Denmark, Germany, Israel, Japan and Russia.  Their goal is to provide entrepreneurs from those countries access to Silicon Valley investors, and to provide those investors access to the markets of those countries.  And geographic growth is of course occurring in the US as well, with accelerators forming throughout the US, and with some accelerators, like Science in Los Angeles, explicitly focused on connecting their companies with Silicon Valley investors.
    2. Industry Diversification.  While the internet/digital media industry seems especially well suited for seed/accelerator financing, due to being less capital intensive and having a quicker time to market, accelerators are diversifying into other industries.  Examples are Lemnos Labs, Bolt and Haxlr8r (hardware), Rock Health, Blueprint Health and Healthbox (life science), Greenstart and Surge (energy/greentech) and Plug and Play (B2B).

Detailed Results of 2012 Financing Survey

  • Update on Companies Included in our Prior Seed Financing Surveys:

On average 30 months has passed since the companies funded in 2010 and included in our 2011 survey raised their seed round of financing, and on average 18 months has passed since the companies funded in 2011 and included in our 2012 survey raised their seed round of financing. Set forth below is information on what has happened to those companies during that time period.

Status of companies that raised their seed round of financing in 2010:

As of 12/31/2011

As of 12/31/2012

Raised venture capital financing:

45%

45%

Raised additional seed financing:

12%

14%

Still operating and have not raised additional financing:

21%

12%

Acquired:

12%

19%

Shut down:

4%

6%

No data available:

    6%

   4%

Total

100%

100%

Status of companies that raised their seed round of financing in 2010 versus those that raised their seed round in 2011, 18 months (average) after the seed round:

Status of 2010 companies as of 12/31/2011

Status of 2011 companies as of 12/31/2012

Raised venture capital financing:

45%

27%

Raised additional seed financing:

12%

23%

Still operating and have not raised additional financing:

21%

32%

Acquired:

12%

7%

Shut down:

4%

5.5%

No data available:

    6%

5.5%

Total

100%

100%

  • Other Survey Results
Industry breakdown:

2010

2011

2012

Internet/Digital Media:

71%

75%

66%

Software:

29%

25%

34%

Lead investor background:

Seed funds:

43%

46%

46%

Professional angels:

31%

28%

20%

Venture capital funds:

26%

27%

34%

Financing Structure:

Preferred Stock:

69%

59%

67%

Convertible Debt:

31%

41%

33%


Average Size of Investment

Below is the average size of investment for investors who invested at least $100,000, broken down by type of investor and between Preferred Stock financing and Convertible Note financing.

Preferred Stock

2010

2011

2012

Professional angels:

$310,000

$163,000

$185,000

Seed funds:

$392,000

$423,000

$458,000

Venture capital funds:

$591,000

$516,000

$624,000

Convertible Notes

Professional angels:

$182,000

$244,000

$165,000

Seed funds:

$140,000

$424,000

$277,000

Venture capital funds:

$290,000

$501,000

$391,000

Analysis of Preferred Stock Seed Financings.

2010

2011

2012

  • Median pre-money valuation.

Internet/Digital media:

$3,400,000

$4,000,000

$4,400,000

Software:

$2,700,000

$3,500,000

$5,000,000

  • Median amount raised:

$1,056,000

$1,000,000

$1,360,000

  • Percentage using non-participating preferred liquidation preference:

90%

91%

85%

  • Percentage using participating preferred liquidation preference:

10%

9%

15%

  • Percentage in which investors received a board seat:

72.5%

70%

73%

Analysis of Convertible Note Seed Financings

2010

2011

2012

  • Median amount raised

$662,500

$1,000,000

$918,000

  • Median size of future financing in which note converts:

$1,000,000

$2,000,000

$1,750,000

  • Percentage of deals in which valuation on conversion is capped:

83%

82%

90%

  • Median valuation cap:

$4,000,000

$7,500,000

$6,000,000

  • Percentage of deals that convert at a discount to the next equity round valuation:

67%

83%

90%

  • Median initial discount:

20%

20%

20%

  • Percentage of deals with discount in which discount increases over time:

25%

5%

0%

  • Percentage of deals without discount that have a valuation cap:

100%

75%

100%

  • Percentage of deals having warrants:

0%

0%

0%

  • Treatment of note if company is acquired prior to an equity financing:

Receive return of investment plus a premium:

50%

61%

50%

Median premium:

0.75x original principal amount

1.0x original principal amount

1.0x original principal amount

Right to convert at an agreed upon valuation:

33%

65%

65%

Percentage that have neither conversion right nor premium:

17%

9%

5%

Percentage that have both conversion right and premium:

0%

35%

20%

  • Median interest rate:

6.0%

5.5%

5.5%

  • Median term:

18 months

18 months

18 months

  • Percentage in which notes are secured:

0%

4%

0%

  • Percentage in which investors received a
    board seat:

8.3%

4%

0%

Methodology and Definitions

For purposes of this survey we define a “seed” financing as the first round of financing by a company in which the company raises between $250,000 and $2,500,000, and in which professional investors play a lead role. Please note that this definition excludes financings led by “friends and family”, which terms may not be negotiated on an arms-length basis, and smaller financings where parties may not substantially negotiate terms. Due to the foregoing definition of a seed financing, and the fact that our firm had a connection with the transactions included in the survey, the survey may not be representative of all companies receiving early stage financing, as we are likely over-weighted to more promising companies funded by more established seed investors.

Please note the use of the following additional definitions:

i. a “Professional Angel” is an individual or group of individuals who regularly invest their own funds in early stage companies.

ii. a “Seed Fund” is a fund that primarily invests in the first round of professional financing of an early stage company.

iii. a “Venture Capital Fund” is a fund that invests in various stages of the growth of a private company.

Disclaimer

The preparation of the information contained herein involves assumptions, compilations and analysis, and there can be no assurance that the information provided herein is error-free. Neither Fenwick & West LLP nor any of its partners, associates, staff or agents shall have any liability for any information contained herein, including any errors or incompleteness. The contents of this report are not intended, and should not be considered, as legal advice or opinion.

Contact Information

For additional information about this report please contact Barry Kramer at 650-335-7278 | bkramer@fenwick.com or Steven Levine at 650-335-7847 | slevine@fenwick.com at Fenwick & West.

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Jeopardy Question No One Could answer, Do You Know?
ARLINGTON CEMETERY

Jeopardy
Question:

On
Jeopardy the other night, the final question was
“How many steps does the guard take during his
walk across the tomb of the Unknowns” —-
All three contestants missed it! —

This
Is really an awesome sight to watch if you’ve
never had the chance.
Very fascinating.

Tomb
of the Unknown Soldier

1.
How many steps does the guard take during his
walk across the tomb of the Unknowns
and why?

21
steps:
It
alludes to the twenty-one gun salute which
is the
highest honor given any military or foreign
dignitary.

2.
How long does he hesitate after his about face
to begin his return
walk and why?

21
seconds for the same reason as answer number
1

3.
Why are his gloves wet?

His
gloves are moistened to prevent his losing his
grip on the rifle.

4.
Does he carry his rifle on the same shoulder all
the time
and,if
not, why not?

He
carries the rifle on the shoulder away from the
tomb. After his march across the
path, he
executes an about face and moves the rifle to
the outside shoulder.

5.
How often are the guards changed?

Guards
are changed every thirty minutes,
twenty-four hours a day, 365 days a
year.

6.
What are the physical traits of the guard
limited to?

For
a person to apply for guard duty at the tomb, he
must be
between 5′ 10′ and 6′ 2′ tall and
his waist size cannot exceed 30.

They
must commit 2 years of life to guard the tomb,
live in a barracks under the tomb, and cannot
drink any alcohol on or off duty for the rest of
their lives. They cannot swear in public for the
rest of their lives and cannot disgrace the
uniform or the tomb in any way.

After
two years, the guard is given a wreath pin that
is worn on
their lapel signifying they
served as guard of the tomb. There are only
400 presently worn. The guard must obey
these rules for the rest of their
lives or
give up the wreath pin.

The
shoes are specially made with very thick soles
to keep the heat and cold from their feet.
There are metal heel plates that extend to
the top
of the shoe in order to make the loud click as
they come to a halt.

There are no
wrinkles, folds or lint on the uniform. Guards
dress for duty
in front of a full-length
mirror.

The first six months of duty a
guard cannot talk to anyone nor
watch TV.
All off duty time is spent studying the 175
notable people laid
to rest in
Arlington National Cemetery .
A guard must memorize who they are and where
they are interred. Among the notables are:

President Taft,
Joe Lewis {the boxer}
Medal of Honor winner Audie L. Murphy, the most
decorated soldier of WWII and of Hollywood fame.
Every guard spends five hours a
day getting his uniforms ready for
guard duty..

ETERNAL
REST GRANT THEM O LORD AND LET PERPETUAL LIGHT
SHINE UPON THEM.

In
2003 as Hurricane Isabelle was
approaching Washington ,
DC , our
US Senate/House took 2 days
off with anticipation of the storm. On the ABC
evening news, it was reported that because of
the dangers from the
hurricane, the military
members assigned the duty of guarding the Tomb
of
the Unknown Soldier were given permission
to suspend the assignment. They

respectfully declined the offer, “No way,
Sir!” Soaked to the skin,
marching in the
pelting rain of a tropical storm, they said that
guarding
the Tomb was not just an assignment,
it was the highest honor that can be
afforded
to a service person. The tomb has been patrolled
continuously,
24/7, since 1930.

God
Bless and keep them.

I’d be
very proud if this email
reached as many as possible. We can be very
proud of our young men
and
women
in the service no matter where they serve.
God Bless America

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Spotflux: Finally, A Free VPN

Spotflux: Finally, A Free VPN

on March 22nd 2013

Cloak is a fantastic little VPN that protects your privacy and allows you to browse the Internet safely on your Mac. Unfortunately, you must pay a price for quality.

Or must you? The team at Spotflux doesn’t think you should pay for privacy, so they have developed a great little VPN that works on Mac, Windows, iOS, and soon Android. As with anything that’s free, there must be a downside, right? Let’s find out.

Bare Bones VPN

Spotflux is enabled upon launch.

Spotflux is enabled upon launch.

Spotflux has two main features: security and privacy. In other words, if you’re on a WiFi network that has no encryption, it’s the perfect way to ensure your sensitive information isn’t easy to access wirelessly. Any ill-doer could intercept your information if it’s being transferred over a public network. For the sake of your security, it’s worth using a VPN at the local coffee shop or library.

As with most companies these days, Spotflux says it’s using “the cloud” to protect your data. Since that’s now the generalized term for all computing on a remote server, this is indeed so, but it’s mainly a marketing technique. You can also run things through a proxy and then through Spotflux if you like using that additional server. However, the actual service is quite good on it’s own. You can choose between using it as just a VPN or with added functionality using filters.

Filters Block Ads, Malware, and Tracking Code

Spotflux has one very unique feature: filters. Instead of using an ad blocker like I do, you can just switch on the VPN and it will remove them from the pages for you. I didn’t find it as effective as some of the browser plugins out there, but it’s definitely useful when browsing the Net.

Use filters or keep them disabled.

Use filters or keep them disabled.

There are other filters, too. The service tries its best to stop malware from downloading to your computer. With a Mac, this isn’t as much of a problem, but it is nice to have that extra layer between the virus’ server and your computer. Lastly, the app blocks tracking code, or “cookies” as they’re more commonly known. I personally don’t need any of these “filters” — most people don’t, and they might even break some web apps — but they do act as an extra layer of security and not a whole lot of resources are used to have them running.

Regarding Reliability

For a free service, you can’t expect perpetual uptime. It’s good to want consistency, but never complete reliability. Spotflux, thankfully, is one of those services that maintains consistency. I did experience some random disconnects, but overall daily usage has been very smooth. My only complaint is that when I’m downloading a file, it stops and I’m unable to start it at that point. Since it takes a good 45 seconds for Spotflux to switch back on after a disconnect, things can sometimes become inconvenient.

What About This Whole “Free” Concept?

Lately, a lot of services have started out by being unconditionally free. From the perspective of a user, this is a great trait to see in an app or company. And it’s evident that, when the consuming party gets what it wants, all is well in the eyes of everyone else. Sadly, when you take time to look at the core, things are falling apart.

Apple's banner on an App Store promotion.

Apple’s banner on an App Store promotion.

As Michael Jurewitz explained in an editorial related to the matter, the free mindset that developers have can be harmful to the company, and even sometimes end user. The problem is that, while beginning well, the process of a free business model goes downhill due to one flaw: most companies don’t want to be non-profit. That’s why Twitter took the sponsorship approach, Facebook went crazy with advertisements, and App.net was born. It is possible to offer a service for free, but the price is one that users must pay.

Spotflux has it's money on mobile.

Spotflux has it’s money on mobile.

With Spotflux, I found it very hard to understand what the company would do for revenue. To help things along, I spoke with Chris Naegelin, co-founder of the service. Naegelin said that Spotflux is currently only free on the desktop; if you’re using a mobile device, the service is paid. “We also monetize during the install process if a user opts-in to one of our bundle partners such as Dashlane,” he noted.

Thankfully, the co-founder said that the company “[plans] to always have an unlimited free tier”. There will be a “premium” version available on the desktop later this year, but currently the free option is all that’s offered as a sort of starting point.

I asked Naegelin what the company’s plans for the future are and, while he said that most of them are confidential, he made it a point for users to know that there will be much more focus on safe and private browsing.

Simple and Functional

Spotflux is a great app. You won’t easily find another truly free VPN out there that’s the quality of this one. There’s not a lot in the app to go on about because it’s really quite simple. It’s not like the average user needs more in a VPN than what this one offers. The privacy features and malware protection are really nice and the servers have always been speedy enough for my needs. As for the moments of downtime, they’re not that bad — it just takes longer to enable the service.

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jpeg-1

655 Fifteenth Street, NW
Suite 810
Washington, DC  20005
(202) 756-8211

http://www.lannyjdavis.com
Purple Nation

March 22, 2013

A Wrong Purple Moment for Obama and Boehner

By Lanny J. Davis

http://thehill.com/opinion/columnists/lanny-davis/289453-a-wrong-purple-moment-for-obama-boehner

http://www.newsmax.com/LannyDavis/Purple-Obama-Boehner-budget/2013/03/21/id/495669

http://dailycaller.com/2013/03/20/a-wrong-purple-moment-for-obama-and-boehner/

I have been writing this “Purple Nation” column for a long time, waiting for the “purple moment” when President Obama and Speaker John Boehner (R-Ohio) would agree on an important position on the budget and deficits. Little did I know that when it finally happened, I would be disappointed, to say the least.

“We don’t have an immediate crisis in terms of debt,” President Obama told ABC “Good Morning America” host George Stephanopoulos, in an interview that aired March 13. “In fact, in the next 10 years it’s gonna be in a sustainable place.”

Then a day or so later, Boehner said he agreed with the president!

Instead of cheering this as a magic purple moment, I could only think of this metaphor, which I believe is apt: There’s a ticking time bomb in your living room, you know the bomb will certainly explode in 10-15 years, and you choose only to reassure your family, “There is no ‘immediate’ danger.”

That is pretty much the situation we face today. Here are a few scary facts:

According to a CNN report, the nonpartisan and highly respected Congressional Budget Office projects the national debt will continue to rise over the next 10 years by a total of $7 trillion. Recently, Alan Simpson and Erskine Bowles pointed out that even if we were to accept the president’s budget proposals, and experienced an optimistic rate of growth over the next 10 years, the national debt would still be above 73 percent of gross domestic product by 2023 — a danger zone for most economists. And, they add, this scenario “leaves no margin of error if the economy grows slower, no wiggle room in case politicians are fiscally irresponsible in the future [shocking thought!], and no flexibility in case of a war, recession or natural disaster.”

According to Simpson-Bowles, at the current rate of spending and revenues, there will be sufficient tax revenues to be able to finance only interest payments on the debt, Medicare, Medicaid and Social Security. Every other federal activity — from national defense to homeland security to transportation and energy — will have to be paid for with more borrowed money. Interest on the national debt could rise to nearly $1 trillion by 2020.

Talk about ticking time bombs: given that the baby boomer generation is already coming of age at 65 and older, if we do nothing to restructure the Social Security, there will be no money at all left in the trust fund 25 years from now. That means an immediate cut in benefits of more than 20 percent, affecting everyone today who is 40 years old, and for those who are younger, the cutbacks grow more and more severe.

Add to that the increasing cost of Medicare substantially above the rate of growth in projected revenues for the next 10 years, causing further combustion power to the ticking time bomb. Simpson reminds us that ten thousand Americans each day are turning 65 and that life expectancy is 78.1 years today, and in five years will be 80. “This is madness,” he says. “Who is kidding who? This will eat a hole through America.”

I have written in this space often that the run-up of the national debt in proposals made by the president and leaders of both political parties is the moral equivalent of the following: If you travel around the world, use credit cards to pay for all your airfares, hotels and fancy restaurants, return home after the trip and dump all the credit card receipts on your children’s laps and tell them to pay, that is downright wrong. And I say that the word immoral is the right word.

Why don’t the president and Boehner also agree that assuring today’s generation that there’s no “immediate” deficit crisis, while dumping our credit card bills on our children’s and grandchildren’s laps in the next 10-15 years, is wrong — plain immoral?

And why don’t they both announce support for passage of all the Simpson-Bowles Commission recommendations, supported by a bipartisan vote of more than 60 percent, including liberal Democratic Sens. Dick Durbin (Ill.) and Kent Conrad (N.D.) and conservative Republican Sens. Tom Coburn (Okla.) and Mike Crapo (Idaho)?

That would be the right thing to do, the moral thing to do, the purple thing to do.

#  #  #  #  #

Davis, a Washington attorney and principal in the firm of Lanny J. Davis & Associates, specializing in legal crisis management and dispute resolution, served as President Clinton’s special counsel from 1996-98 and as a member of President Bush’s Privacy and Civil Liberties Oversight Board from 2006-07. He currently serves as special counsel to Dilworth Paxson and is the author of the book, Crisis Tales: Five Rules for Coping With Crises in Business, Politics, and Life, that was published by Simon & Schuster on March 5, 2013.

www.lannyjdavis.com

jpeg

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martinzwilling_136Martin Zwilling Contributor

A startup begins with a great idea, but all too often, that’s where it ends. Ideas have to be implemented well to get the desired results. Good implementation requires a plan, and a good plan and good operational decisions come from good people. That’s why investors invest in entrepreneurs, rather than ideas.

People and operational excellence have to converge in every business, large or small. Microsoft found this out last year when their market capitalization, once at $560 billion in the year 2000, had fallen to $219 billion, allowing them to be passed by Apple at $222 billion, who grew from $15.6 billion during the same period. Both had access to the same technology, people, and market.

So what could have happened here? I found a good summary of the relevant keys to business operational excellence in a new book by Faisal Hoque, called “The Power of Convergence.” His focus is on repeatable practices to maximize business opportunities in large companies, but I’m convinced that these apply equally well to startups:

1.  Clearly define your value chain. Your value chain consists of customers, partners, vendors, internal systems, and your own team. Make sure you understand this chain, as well as market dynamics, to drive operational innovations and every decision. Apple has been able to innovate at an amazing pace to define and meet new market opportunities.
2.  Visualize abnormal or suboptimal performance. Recognizing and understanding deviations enables a startup or any business to take corrective action quickly. This requires executives and a team that understands the parameters, and is focused on customers, quality, and continuous improvement.
3.  Facilitate the power of your team. Startups need to empower their people to take action in the absence of orders. That doesn’t mean abdication in setting corporate policies, which provide parameters to ensure that individuals have to ability to act collectively in the company’s best interest. Steve Jobs has a committed team.
4.  Communicate effectively with the team and customers. Communication is a challenge in any organization, but it’s a particular challenge when you’re working in a startup, where customers, products, processes, and the team are new. Most founders forget that communication becomes exponentially more difficult as the business grows.
5.  Measure value flow and performance. Measuring performance may seem self-evident, but many entrepreneurs mistake this task as a point-in-time or a one-time event. In operationally excellent startups, performance measurement is an ongoing effort throughout the process chain, not just at the outcome.
6.  Define response mechanisms. Anticipating and planning for worst-case scenarios, and having a Plan-B, will enable the quick-response and pivots required to put a startup back on track. Metrics are required for ensuring the return to a known good baseline.
7.  Maximize technology architecture and standards. Continuous innovation to maintain your competitive advantage does not mean that you can ignore current architectures and standards. These must always be leveraged produce optimal intended product outcomes.
What every business needs is a convergence of business and technology elements to optimize return and competitive positioning. All too often, entrepreneurs posit a new technology or idea, without understanding that a successful business is a never-ending process of adapting and improving all the elements in a business – especially business model, processes, and people, as well as technology.

Apple, with Steve Jobs, has demonstrated a rare convergence of technology, market understanding, business process, and people. Are you focused on all the right execution principles in your startup to do the same?

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Crisis Brings Out the Crowds – Lanny J. Davis and friends
March 5-14, 2013

Three-City Book Tour & Media Visits Focus on Crisis Tales
Below are some photos, video and links that highlight the past week in which multifaceted attorney, crisis manager, consultant, media commentator and author Lanny J. Davis, former White House special counsel, debuted his latest book, Crisis Tales: Five Rules for Handling Scandal in Business, Politics and Life.

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In New York , special guests included former Secretary of State Hillary Clinton. President Bill Clinton couldn’t attend the party in person, but he sent along a special note that was read for guests:

Many people specialize in dealing with the media, understanding politics, or navigating the legal system. Lanny is unique in his mastery of all three.

He’s one of America ‘s most skilled and experienced advisors, and the fact that he has so many friends on both sides of the aisle is a testament to his fair-minded approach to problem solving and his remarkable record of success.

Congratulations to Lanny on the publication of Crisis Tales, and best wishes to all for an enjoyable evening.

Click HERE to read the full note from President Clinton.

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6 Life Lessons from the Man Paid
to Do Damage Control for the Stars
by Courtney Shea, The Globe and Mail

This Week in Print…for Lanny J. Davis
Yahoo! News
NBC’s Weekend Today
The Washington Examiner
Bisnow
Business Week
The Washingtonian
Bloomberg.com
Philly.com
Roll Call
The O’Reilly Factor
The Washingtonian
The Hill
Pittsburgh Tribune-Review
This Week in TV…
CNBC Kudlow Report
FOX Your World with Neil Cavuto
NBC Weekend Today
Fox News The O’Reilly Factor
CNN Piers Morgan Live
MSNBC Morning Joe
FOX Fox and Friends
In New York, special guests also included former RNC Chairman Michael Steele , cohost of America’s Newsroom on Fox News Bill Hemmer and Inside Edition’s Special Correspondent Rita Cosby; in Philadelphia former PA Governor Ed Rendell; and in DC Congressman Elijah Cummings, Congressman Darrell Issa, former United States Solicitor General Ted Olson , founder and president of Americans for Tax Reform Grover Norquist (pictured), Congressman Chaka Fattah, Congressman Rob Andrews and C-SPAN, which covered the event from start to finish.

Click HERE for more photos from the parties.

Congratulations to Lanny Davis – a true Professional

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