Friday, February 25, 2011

Brand Spend On-line- A Secular Growth Trend Worth Betting Your Money and Career On

When I graduated from Harvard, I went to see a series of successful people to ask them what do do with my life.

I sat down with corporate executives, investment bankers, entrepreneurs, teachers, hedge fund managers, etc.  While few meetings remain with me years later, my meeting with John Tozzi, a leading hedge fund manager, still rings in my ears.

John asked me, "Will, when I started my fund, do you know where the Dow Jones Index stood?"  I had no idea and told him so. "800," he answered.  He then asked, "do you know where the Dow is today?" My answer, "8,000."  He then noted, "what are the odds that you will experience a sustained, secular bull-market like the one I have enjoyed?" "My advice", he sighed, "is to find a 10x secular growth trend that you can bet your career on."

I have thought about that advice many times in my life. In many ways, I believe that the Internet sector of today is the same as Mr. Tozzi's Dow 800. Over the next 25-30 years, a massive long-term, secular growth trend will occur. Capital, demand, customers, companies....will all ride this shift in asset allocation.

Isn't this old news? Yeah, Will, note to self, this Internet will be big.

The graph below, however, highlights that we are in the first inning (from AdAge).

Brands in US spend $91 bn a year. The % on-line = 6%. 6 freaking percent.

How's this for a no-brainer - what will the # be next year, in five years, in fifteen years?

In a zero-sum world, flat growth, the market will grow from $6bn to $12bn to....yes, $60bn, the same 10x market growth that Mr. Tozzi enjoyed.

In 1982, being long equity turned into a 20+ year bull market run.

In 2011, being long technologies that help brands shift their spend on-line is bet well worth making Bet your money, career, and passions on riding that wave.

10x....find a 10x market and sink your teeth into it.

Thursday, February 24, 2011

America Inc.

If you read my blog, you know how passionate I am about our country's fiscal health and the threats we face from entitlement programs. The welfare state is no longer viable.

Mary Meeker's America Inc presentation below is an important contribution to educating all of us regarding the fiscal state of the union.

USA Inc. - A Basic Summary of America's Financial Statements

Friday, February 18, 2011

Running on Empty

In 2005, I wrote the post below on the dangers of entitlement programs to our financial viability and national security. In the intervening six years, the challenges addressed in Pete Peterson's book are only larger and more frightening.

The battle lines drawn this week in Wisconsin mark only the start of a looming battle between public workers and private tax payers.  California, Illinois, New York, and other states face a "Sophies'" choice - raise corporate and income tax rates, slash workers from government payrolls, or renegotiate union contracts.  The future looks bleak, but I take comfort in one important fact. Our leaders will no longer be able to "kick the can" down the road. Moreover, as legislators seek to avoid cutting union benefits, they will be forced to slash discretionary funding for transportation, K12 education, higher education. Such cuts will inflame the voting public and driven an increase in political activity and voter participation. 

The public will, ultimately, side with investments in the future rather than continuing to stomach public entitlements that are much more generous than private employer benefits. The net result for public employees will be higher retirement ages, the elimination of defined benefit programs, and increased medical premium co-pay rates.  In many ways, a new class war is brewing - not, however, between rich and poor but between private sector employees and public sector employees. 

It is time for our leaders to address the roots of our fiscal ills - military spending, social security, medicare...We deserve an honest accounting and an all programs need to be on the table.

Several years ago, Pete Peterson, the founder of Blackstone and an ex-cabinet secretary, wrote an important and sobering book titled Running on Empty.

The book indicts both Republicans and Democrats for ignoring two troubling twin deficits - the the trade deficit and the budget deficit - which, he believes, may ultimately bankrupt the country. The hard-hitting book highlights the off-balance sheet, unfunded entitlement program liabilities that will fall due in the coming decades. With trillions of dollars in Medicaid, social security, and drug benefits promised to current and future retirees, he warns of some very hard choices that face the nation. For example, he estimates if Congress was forced to fund promised entitlement programs, we would face, "an immediate and permanent 60 percent hike in the federal income tax, or a 50 percent cut in Social Security and Medicare benefits."

Recently, news of corporate pension plans failing reminded me of Peterson's important book. For example, Delphi's unfunded pension liabilities present a scary harbinger of what is to come in corporate and government pensions. Delphi, the world's largest auto parts maker, faces an $11bn shortfall in its obligation to retirees. Delphi management, unable to negotiate with the unions, may file for bankruptcy, which would transfer the pension liability to the Pension Benefit Guaranty Corp, a government agency that insures pension plans. Unfortunately, the PBGC is itself underfunded, with assets of $56bn and liabilities of $79.2bn. Total corporate pension plan unfunded liabilities are estimated to be $450bn, well beyond the financial resources of the PBGC. Ultimately, tax payers will be liable for the failings of management to properly fund future obligations.

Roger Lowenstein wrote a wonderful NY Times Magazine articleThe End of Pensions, which provides scary and powerful insight into the failing of the defined benefit program and the massive state and local pension obligations that dwarf the corporate dilemma.

Why am I writing about this?

Economic growth is a function of investment. As entitlement spending drives deficits, we will need to finance them with either massive tax increases or massive borrowing to cover our shortfalls. As we borrow more, we will see a higher percentage of our tax base go to interest payments and the lions share of our local, state, and federal budgets go to entitlement spending that reward historical work rather than into investment programs that drive future growth. Both parties appear incapable of addressing this fundamental problem, and I hope that the writings of Peterson, Lowenstein, and others wake the electorate up to the scary prospects of a failing corporate and government pensions and the mortgaging of our future to fund entitlement programs.

Thursday, February 17, 2011

Made to Stick, with hat tip to George Orwell

Chip and Dan Health's book, Made to Stick, is a fun read. The sub-title is a good one; "Why Some Ideas Survive and Others Die."

Chip and Dan created a mnemonic framework for evaluating ideas and ensuring their stickiness: SUCCES.

  1. Simplicity
  2. Unexpectedness
  3. Concreteness
  4. Credibility
  5. Emotions
  6. Stories
The Heaths contrast "sticky" language with the all too common, obtuse jargon many tech companies suffer from. 

Orwell's great essay, "Politics and the English Language" is highly relevant to "sticky" positioning. His essay skewers political writing and the overly obtuse, self-important, self-referential writing common to academic publications.

His rules follow:
  1. Never use a metaphor, simile, or other figure of speech which you are used to seeing in print
  2. Never use a long word when a short word will do
  3. If it is possible to cut a word out, always cut it out
  4. Never use the passive when you can use the active
  5. Never use a foreign word, scientific phrase, or jargon work if you can think of an everday English equivalent 
As we all work to bring technology ideas to market, it pays to think of how to make the ideas "stick." Far too many sites and PDFs sound like the passage below, selected by Orwell for ridicule and an example of what not to do!

"On the one side we have the free personality; by definition it is not 
neurotic, for it has neither conflict nor dream. Its desires, such as 
they are, are transparent, for they are just what institutional approval 
keeps in the forefront of consciousness; another institutional pattern 
would alter their number and intensity; there is little in them that is 
natural, irreducible, or culturally dangerous. But ON THE OTHER SIDE, the 
social bond itself is nothing but the mutual reflection of these 
self-secure integrities. Recall the definition of love. Is not this the 
very picture of a small academic? Where is there a place in this hall of 
mirrors for either personality or fraternity? 
         Essay on psychology in POLITICS (New York) "

Saturday, February 12, 2011

My Top 10 Reads of the Last Year

I have a few friends who email me regularly for book recommendations.  I write to share my top favorite books of the last year.  All wonderful stories.

  1. The Hangman's Daughter by Oliver Potzsch
  2. The Last Child by John Hart
  3. The King of Lies by John Hart
  4. Conn Ingulden's Genghis Series (4 books)
  5. The Book Thief by Markus Zusak
  6. Shadow of the Wind by Carlos Ruiz Zafon
  7. The Book of Saladin by Tariq Ali
  8. Star Island by Carl Hiaasen
  9. The Hunger Games Trilogy by Suzanne Collins
  10. Getting Even by Woody Allen

Wednesday, February 09, 2011


In August 1956, my maternal grandfather, Herbert Merrett, wrote the following poem.

For any athlete, entrepreneur, and pursuer of excellence, the words ring as true today as they did decades ago...


The luck that I believe in is the
luck which comes with work.

And no-one ever gets it who is
content to wish and shirk.

The men the World call lucky
will you tell you every one

That luck comes not by wishing
but by hard work, bravely done.

Good luck!