Your Brain Doesn’t Buy Your Plan

Monday, July 18th, 2011

Some people ascribe procrastination to fear — of success or of failure — or to perfectionism, but Cal Newport suggests that your brain doesn’t buy your plan:

Assume you’re a student who feels a strong urge to put off studying for an exam. The first question to ask: What is your plan for studying? Most students don’t put much thought into their study habits, so your plan is likely vague and haphazard, rife with distraction, pseudowork, and passive review.

What I’m arguing is that the complex planning component of your brain evaluates this plan — as it has evolved to do — and then rejects it as not sound. (Grinding it out all night at the library is as haphazard a plan as charging the mammoth with a spear: your frontal lobe is having none of it!)

Here’s the second relevant question: What does this rejection feel like? Complex planning is a pre-verbal adaptation, so it’s not going to manifest itself as a voice in your head exclaiming “plan rejected!” Instead, it’s going to be more intuitive: a biochemical cascade designed to steer you away from a bad decision; something, perhaps, that feels like a lack of motivation to get started.
[...]
It also helps explain deep procrastination: a sinister variation of this trait that causes students to lose the will to start any work. As I’ve argued, deep procrastination afflicts students who are suffering though hard course loads without a strong sense of why. In other words, deep procrastination can be seen as a rejection of a plan, but this time the plan is on a larger scale: your grand narrative for why you’re at college and how it will help you live a good life.

This perspective also helps us cope with procrastination beyond graduation. Why do we delay on ambitious projects that could change our life for the better? The common explanation from the blogosphere is because we’re afraid of failure and lack courage.

The evolutionary perspective on procrastination, by contrast, says we delay because our frontal lobe doesn’t see a convincing plan behind our aspiration. The solution, therefore, is not to muster the courage to blindly charge ahead, but to instead accept what our brain is telling us: our plans need more hard work invested before they’re ready.

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Marvel’s involvement with G.I. JOE started in a men’s room.

Friday, July 15th, 2011

Marvel’s involvement with G.I. JOE started in a men’s room, Jim Shooter explains, where Marvel President Jim Galton and Hasbro CEO Stephen Hassenfeld met while at a charity fundraiser, and this led to a more formal meeting:

They showed me what they had. A logo: “G.I. JOE, a Real American Hero.” That was about it. They didn’t want to revive the big doll. Yes, I know it was verboten to use the word “doll,” and I didn’t in front of them. They were thinking about three and three quarters inch figures, like the Star Wars figures, but they hadn’t even settled on that yet. And they wanted a line of figures, not just one. Someone said, “So, besides G.I. JOE, do we have G.I. George, G.I. Fred…?

I said how about if “G.I. JOE” is the code name for the unit? Call in G.I. JOE?” They liked that. I also said it should be an anti-terrorist team. Not a “war” toy. That was obvious to everyone, I guess.

They were sold. They wanted us to proceed and develop a concept. Everybody shook hands and Galton and I took a cab back uptown.

Then they took what editor Larry Hama had come up with for a new version of Nick Fury that they hadn’t launched yet…

There were only two contributions, I believe, that were not Larry’s, one minor and one notable.

The minor one was mine. Larry wrote the outline that was the basis for the series and, essentially, the plot for the first issue. He wrote it like a regular Marvel plot, straightforwardly, just the facts. I knew it had to be a pitch piece as well as a plot, so I rewrote it into a more dramatic presentation. I changed not an iota of substance — I simply amped up the sturm und drang. Hasbro loved it.

The notable contribution was Archie’s. He came up with the first bad guys, the Cobra Command and the Cobra Commander.

We had a meeting or two, I think, with Hasbro people in New York. We definitely flew up to Pawtucket further along in the development to see their prototypes and discuss the launch plan. Possibly Mike Hobson was with us on that trip.

They explained the rollout. They didn’t plan to have any villains in the launch. We protested. “Who are they going to fight? They need bad guys!” Archie pitched his bad guy concept. The Hasbro people resisted on the grounds that villain action figures “don’t sell.” We persisted. Finally, they caved in and included one Cobra figure.

Later, by the way, villains became 40% of their volume.

At some point along the way, we asked for female characters to be included in the line. We had women in the comics, and it seemed odd that there were none (or very few) among the toys. “Female action figures don’t sell,” we were told. I suggested that they include female figures with the vehicles. That worked. I probably wasn’t the first one to suggest that.

I love this legal loophole:

As part of the deal, Hasbro ran TV commercials ostensibly promoting the comic books, but not really. Merely collaterally, in fact.

Toy commercials were heavily regulated at the time (probably more so today). Use of animation was severely restricted. Actual children playing with actual toys for a certain percentage of the spot was required. Etc. However, there were no regulations whatsoever governing the advertising of comic books. By making “comic book ads” that were, in fact, thinly disguised ads for the toys, Hasbro circumvented regulation. And those were some exciting ads — the best toy ads on TV.

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Peter Thiel Has Never Quite Fit In

Wednesday, July 13th, 2011

Peter Thiel has never quite fit in with the world around him, Brian Caulfield and Nicole Perlroth say:

He was born in 1967 in Frankfurt am Main, Germany. His father, a chemical engineer, kept the family moving; Peter went in and out of seven schools from Ohio to Namibia before the family settled in Foster City, Calif., 20 miles south of San Francisco. Like lots of boys, he devoured J.R.R. Tolkien’s Lord of the Ring series, absorbing its lessons about the allure of evil and the limits of power. But Thiel’s brain seemed to work faster than most of his peers’. “He knew the name of every country in the world by the time he was five,” says Ken Howery, a partner of Thiel’s at the venture capital firm Founders Fund and a close friend. A chess player, Thiel was ranked seventh in the country as an adolescent. In college the kit that held his pieces had a “born to win” sticker on it.

Obviously, Thiel loves matching wits with friends and enemies, and is fanatical about winning. He is just as obsessive about playing by the rules–his rules. He sometimes raced in his 1978 VW Rabbit (“my Jimmy Carter car”) to chess matches, where he would show up five minutes before having to forfeit the game just to psych out his opponents, recalls high school friend Norman Book, now an executive VP at the conservative website WorldNetDaily. Later on Thiel would write his own playbook when it came to investing — or hiring people. After deciding to bring on Keith Rabois (a law firm chum) to handle lobbying and dealmaking for PayPal, Thiel gave him an ultimatum. “You’ve got to be in my office on Monday. If you can’t start Monday, forget it.” Rabois had to sell his house and move from Washington, D.C. to San Francisco in four days. “That’s classic Peter: If it can’t happen now, it doesn’t count,” says Rabois, now chief operating officer at mobile payments startup Square.

But Thiel bristles under other people’s rules. His buddy Book points to Monopoly games in high school. Thiel, as usual, was winning. “So, I sold all my properties to my brother for a dollar,” Book recalls. “Peter didn’t like that, but he couldn’t find anything in the rules” prohibiting the move. Nor did Thiel like the way Valleywag, an arm of the media and gossip site Gawker.com, played when it wrote the post “Peter Thiel is totally gay, people.” Thiel later called Valleywag the “Silicon Valley equivalent of al Qaeda.”

Some of Thiel’s contentious thinking was forged at Stanford University, where he majored in philosophy and minored in political incorrectness. In 1987 he and Book, disgusted at what they called Stanford’s “culturally liberal ethos,” launched the Stanford Review, a libertarian paper that was, mildly put, unpopular. One student told Thiel he loved the Review — for wiping his butt.

After getting his law degree from Stanford in 1992, Thiel took a job with the white-shoe firm Sullivan & Cromwell. He quit after seven months, six days. He lasted slightly longer as a derivatives trader at Credit Suisse First Boston. Thiel came home in 1996. “I think California was and remains a much better place to do something entrepreneurial than New York,” he says.

He moved to Menlo Park, started Thiel Capital with $1 million from family and friends, and hired fellow Stanford alum Ken Howery. They took the cheapest space they could find in Silicon Valley’s financial epicenter, Sand Hill Road: a windowless storage closet. “The developer hung a picture of an outdoor scene for us,” Thiel deadpans — an affect that comes naturally to him.

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Taking Down Arms Dealer Viktor Bout

Tuesday, July 12th, 2011

A couple years ago notorious arms-dealer Viktor Bout (pronounced “boot”) was taken down in Bangkok, Thailand as part of a DEA sting — because the post-9/11 DEA has a mandate to pursue any suspect connected (at all) with drugs:

Viktor Bout has been so good at concealing his past that American intelligence agents who have tracked him for years joke that his birth was an “immaculate conception.” Bout’s DEA file says he was born in 1967 in Dushanbe, Tajikistan, when it was still a part of the USSR. His mother was a bookkeeper and his father an auto mechanic. He graduated from Moscow’s Military Institute of Foreign Languages, a feeder for the GRU, Russia’s brutally effective military intelligence arm. He joined the Soviet military, attaining, as can best be ascertained, the rank of lieutenant.

As the USSR began its slow, ungainly implosion in the Afghan mountains, Bout spotted his chance to cash in on the motherland’s demise. Aging planes were available cheap, arms factories were desperate for customers now that the nation had drastically cut back on its defense budget, and bureaucrats and soldiers in the former Soviet republics could be had for small bribes. He realized that the countries and rebels who were previously supplied by the Kremlin would still need weapons, and that the end of the Cold War would spawn a whole new generation of coup-plotters and malcontents in the most chaotic corners of the globe. With his unparalleled connections in the Russian military establishment, Bout knew he could get them anything they needed.

Bout began by snapping up aging Russian transport planes — rugged models like the Antonov AN-12, capable of landing on badly maintained runways. He used his military contacts to buy new arms directly from factories in Bulgaria or stockpiles in Russia and elsewhere, and then Bout, fluent in six languages, began to sell them worldwide.

Africa became his El Dorado, as he made deals with seemingly all sides in every conflict — insurgents and dictators from Liberia to Rwanda as well as the factions fighting in the long-term civil war that ravaged the Democratic Republic of Congo, killing an estimated 3 million. (Perhaps his best moment in bipartisan dealing came in 2003, when he was paid by the U.S. to fly supplies into Iraq at the same time he was supplying the Taliban in Afghanistan.) Bout provided arms and services for a pantheon of Africa’s villains: Mobutu and Kabila in Zaire-Congo, Savimbi in Angola, and the irrepressible and bloodthirsty Charles Taylor of Liberia, now being tried in the Hague for war crimes. Bout sold them AK-47s, mortars, ammunition, even helicopters. From 1997 through 1998, his planes flew an estimated $14 million worth of weapons to Angola.

Bout’s business plan wasn’t unique or even particularly clever, but few illicit arms dealers had his pull or could offer the range of services he brought to the negotiating table. He found the arms, delivered the weapons to airstrips or in air drops, accepted payment in cash or diamonds, and even laundered money for clients. He ran a vertically integrated weapons superstore. The only thing he didn’t do was pull the AK trigger for you.

“Bout built the largest arms-trafficking organization in the world by far,” says Lee Wolosky, who as a director of the National Security Council pursued Bout during the second Clinton administration and part of Bush’s first term. “He could deliver anything to anyone, anywhere.”

And he made hundreds of millions doing it. He bought a mansion in Belgium, a luxury apartment in Moscow, and a charm bracelet of Mercedes-Benzes and Range Rovers. Through it all he denied selling arms, claiming he ran an air-freight business. Not that there was anything morally repugnant about dealing arms, he’d say.

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Circles and Groups

Monday, July 11th, 2011

Dhanji Prasanna worked at Google on Wave and then, after it was cancelled, on Google+, for a short while, where he developed his own perspective on circles.

A few years ago, before the CEO cared a whit about social networking or identity, a Google User Experience researcher named Paul Adams created a slide deck called the Real Life Social Network. In a very long and well-illustrated talk, he makes the point that there is an impedence mismatch between what you share on facebook and your interactions in real life. So when you share a photo of yourself doing something crazy at a party, you don’t intend for your aunt and uncle, workmates or casual acquaintances to see it. But facebook does not do a good job of making this separation. This, in essence, is what the slide deck says and his point is made with great amounts of detail and insight.

So when Google began its social effort in earnest, the powers-that-be seized upon Paul’s research and came up with the Circles product. This was to be the core differentiator between Google+ (then codenamed Emerald Sea) and facebook.

As part of induction into Emerald Sea, my team got the 30-minute pitch from the Circles team. I listened politely, all the while rolling-my-eyes in secret at their seemingly implausible naivete. By then I was also growing increasingly frustrated at Google’s sluggish engineering culture. I have previously described how the toolchain is not well-suited to fast, iterative development and rapid innovation. I asked the obvious question — “While I agree that Circles is a very compelling feature, this slide deck is public. Surely someone at Facebook has seen it, and it won’t take them long to copy it?”

I was met with a sheepish, if honest look of resignation. They knew the danger of this, but were counting on the fact that facebook wouldn’t be able to change something so core to their product, at least not by the time Emerald Sea got to market.

I laughed, disbelieving. Facebook has a hacker culture, they’re only a handful of engineers, and they develop with quick, adaptable tools like PHP. Especially when compared with the slow moving mammoths we were using at Google. (By that time, 200+ engineers over 3 months had produced little more than ugly, bug-ridden demos, and everyone was fretting about the sure-to-fail aggressive timeline.)

Sure enough, I watched as techcrunch published leak after leak of Facebook going into lockdown for a secret project. Hinted at being an overhaul of their social graph, a new groups system, and many other things. On my side of the fence, engineers were increasingly frustrated. Some leaving Emerald Sea for other projects and some even leaving for Facebook. I had the impression that Paul Adams was not being heard (if you’re not an engineer at Google, you often aren’t). Many were visibly unhappy with his slide deck having been published for all to see (soon to be released as a book). I even heard a rumor that there was an attempt to stop or delay the book’s publication.

I have no idea if this last bit was true or not, but one fine day Paul Adams quit and went to Facebook. I was convinced that this was the final nail in the coffin. Engineers outside Emerald Sea — a cynical bunch at the best of times — were making snide comments and writing off the project as a dismal failure before it even launched.

Then it happened — Facebook finally released the product they’d been working on so secretly, their answer to Paul’s thesis. The team lead at Facebook even publicly tweeted a snarky jab at Google. Their product was called Facebook Groups.

I was dumbstruck. Was I reading this correctly? I quickly logged on and played with it, to see for myself. My former colleagues had started a Google Wave alumni group, and I even looked in there to see if I had misunderstood. But no — it seemed that Facebook had completely missed the point. There was no change to the social graph, there was no real impetus to encourage people to map their real-life social circles on to the virtual graph, and the feature itself was a under a tab sitting somewhere off to the side.

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Who signed off on these Snow White apple snacks?

Monday, July 11th, 2011

Who signed off on these Snow White apple snacks? Can we assume they’re not poisoned?

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Roy Thomas Saved Marvel

Saturday, July 9th, 2011

When Jim Shooter was associate editor of Marvel Comics in 1976 and 1977, the place was a mess, and sales were bad and falling. Then Roy Thomas saved Marvel by breaking with their accepted wisdom and agreeing to adapt a silly-sounding sci-fi movie:

There was a lot of opposition to Star Wars. Even Stan wasn’t keen on the idea.

Even I wasn’t. I had no prejudice against science fiction, but wasting time on an adaptation of a movie with a dumb title described as an “outer space western?”

I was told — don’t know for sure — that George Lucas himself came to Marvel’s offices to meet with Stan and help convince him that we should license Star Wars. I was told that Stan kept him waiting for 45 minutes in the reception room. Apocryphal? Maybe. Roy would know. But if so, it still reflects the mood at the time.

(ASIDE: Lucas, by the way, again, as I am told, but I’m pretty sure this is true, was a partner in Supersnipe Comic Book Emporium, a comics shop on the Upper East Side. A clue to his persistent interest in comics and a comics adaptation.)

I don’t know how Roy got it done. I was just the associate editor, and not privy to much of the wrangling that went on. But, Roy got the deal done and we published Star Wars.

The first two issues of our six (?) issue adaptation came out in advance of the movie. Driven by the advance marketing for the movie, sales were very good. Then about the time the third issue shipped, the movie was released. Sales made the jump to hyperspace.

Star Wars the movie stayed in theaters forever, it seemed. Not since the Beatles had I seen a cultural phenomenon of such power. The comics sold and sold and sold. We reprinted the adaptation in every possible format. They all sold and sold and sold.

In the most conservative terms, it is inarguable that the success of the Star Wars comics was a significant factor in Marvel’s survival through a couple of very difficult years, 1977 and 1978. In my mind, the truth is stated in the title of this piece.

This is the same Roy Thomas who brought Conan to Marvel:

There’s a 3 page article in Marvel Vision #23 titled ‘Roy Thomas: Conan’s Right Hand Man’ where he looks back at nearly thirty years in the business as of 1997. After discussing the circumstances involved in acquiring the rights to Conan the Barbarian, Roy talks a bit about Star Wars. Here’s a transcript of the revelant material:

Roy was also responsible for bringing “Star Wars” to Marvel. One night in 1976, Roy received a visit from his friend, Ed Summer, who brought with him a young filmmaker by the name of George Lucas, along with Lucas’s right-hand man, Charlie Lippincott. Roy knew George’s work: “He had done this wonderful movie I loved called ‘American Graffitti’. Charlie and Ed told me they would like me to see if I could get Marvel to do a comic about ‘Star Wars’, before the movie comes out. Of course, I had never heard of it. Contrary to later rumor, there was not a lot of advance publicity about ‘Star Wars’.”

At first, Roy was not interested, but then he saw a pre-production painting of the cantina scene. As a long-time fan of space opera, Roy was hooked. Roy later learned that Marvel had already rejected “Star Wars” once, in keeping with former Marvel publisher Martin Goodman’s old anti-sci-fi credo: no rockets, rayguns, or robots! Roy convinced the powers that be at Marvel to adapt STAR WARS, though circulation director Ed Shukin kept saying “Why are we doing this? We’re gonna lose money on this!”

Of course, “Star Wars” went on to become the biggest movie of all time. Roy scripted one more STAR WARS comic book adventure beyond the movie adaptation, but ultimately left the book because he didn’t enjoy the same freedom he had with Conan.

“Lucasfilm told us ‘You can’t use Darth Vader, you can’t do anything with the romance between Luke and Leia (though we know why now!)…it just wasn’t any fun.” Lucasfilm also objected to Roy’s green rabbit character, who was deemed “too humorous.”

Having brought both Conan and “Star Wars” to Marvel “makes me look very prescient,” admits Roy.

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Why a Great Individual Is Better Than a Good Team

Friday, July 8th, 2011

Bill Taylor argues that great people are overrated, in response to Facebook CEO Mark Zuckerberg’s comment that a great engineer is worth 100 average engineers.

Jeff Stibel sides with Zuckerberg:

I have heard plenty of people argue that no one individual is worth the price of many. But interestingly, I have never heard it from a leader.

Zing! He continues:

The truth is, our brains work very well individually but tend to break down in groups. This is why we have individual decision makers in business (and why paradoxically we have group decisions in government). Programmers are exponentially faster when coding as individuals; designers do their best work alone; artists rarely collaborate and when they do, it rarely goes well. There are exceptions to every rule, but in general this holds true.

There is clearly not widespread acknowledgment about the benefits of individual contributors — in many ways, it goes against our inclination towards equality. And thank goodness, because that gives those of us who understand the real value of great people a huge competitive advantage! But for anyone interested in making better decisions about their teams, it is worth spending some time understanding the science behind individual greatness.

In many ways, individual people follow an inverse rule relative to networks of people. Consider the two fundamental laws of networks: both Metcalfe’s Law and Reed’s Law assume that as a network of people grows, the value of the network increases substantially. (In Metcalfe’s Law, the value of the network is proportional to the square of the number of people in the network, whereas Reed’s Law demonstrates that the value for any individual within a network grows exponentially with every new member.) But with individuals, the opposite is true: The value of a contributor decreases disproportionately with each additional person contributing to a single project, idea, or innovation.

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An American Commando in Exile

Wednesday, July 6th, 2011

Erik Prince has become an American commando in exile, but his life didn’t just get interesting:

If Prince seems like a man in a perpetual hurry, it’s because he is. For one thing, the men in the Prince family have a genetic predisposition to early death from heart disease. Prince’s grandfather Peter died of a heart attack at age 36, his uncle at 60, and his own father nearly died of one when Erik was three. “My dad was scared, but focused,” he recalls. “He was a tugboat that pulled a lot of boats behind him.”

Born in 1969 to Edgar and Elsa Prince, Erik was their only son (he has three sisters) and grew up in Holland, Michigan, a conservative Dutch-immigrant enclave that could be the setting for a Norman Rockwell painting. Like many in business and politics, Prince wears his family’s hard climb to success like a badge of honor. Edgar started his own company in 1965, and during Erik’s early childhood, the family of six lived in a heavily mortgaged house about a third the size of his mother’s current estate on Michigan’s Lake Macatawa.

At the time of Edgar’s near-fatal heart attack, he and his business partners had just developed their breakthrough product: a lighted sun visor with a mirror, first introduced in the 1973 Cadillac. More innovations followed, including a built-in garage-door opener, digital compass, and thermometer, which made Edgar Prince rich. What impressed Detroit the most was that Prince Industries invested its own money in R&D and often successfully predicted the little things that made the difference to the car-buying public.

Prince soaked up his dad’s business philosophy around the dinner table. He also absorbed his father’s focus on family. “My dad insisted on being home for all of my sporting events,” he says. “He even kept a fleet of aircraft so his sales guys could be home from meetings in time for dinner.”

From an early age, Erik liked to push his luck. As early as 12, he tested himself by sailing alone on Lake Michigan, and he ran a trap line in the cold Michigan winters. As a teen he was a cold-water diver for the sheriff’s department (to find drowned snowmobilers) and a volunteer firefighter while attending Hillsdale College, a privately funded libertarian school in southern Michigan.

As he built his fortune, Prince’s father became a prime mover in the Christian evangelical movement, his mother overseeing donations to James Dobson’s Focus on the Family and other conservative political action groups. The relationships his father developed through his philanthropy not only informed Erik’s worldview but also became important to his business prospects later. In 1990 Edgar secured Erik a low-level internship in the White House, but Prince soon quit for a much more exciting opportunity to intern for California Congressman Dana Rohrabacher, Reagan’s former speechwriter and an ex–freedom fighter against the Soviets in Afghanistan.

Rohrabacher recalls that Prince, a “bright, driven young man,” volunteered to search for a mass grave in Nicaragua to expose Marxist-turned-president Daniel Ortega as a killer. “I went down there with this other guy from Dana’s office,” Prince says. “It was the first time I had to shake a surveillance tail, from the Sandinistas.” He was 21, eight days shy of his first wedding, and thrilling to his first taste of international intrigue. “We found a mass grave: bones sticking out of the ground, hands tied with wire at the wrists.”

More adventure awaited him. Prince’s initial goal was to become a Navy carrier pilot, but in the era of Tailhook, he was turned off by the frat-house antics at the naval academy. Switching to the Navy SEALs, he found his calling. But first he had to pass Basic Underwater Demolition School — one of the toughest selections in the military.

“The cool thing about the SEAL teams is that the only difference between enlisted men and officers is that the officer has a white stripe on his helmet,” Prince says. He found in the SEALs both an outlet for his intensity and a credo for his entrepreneurial drive. “The sea is the most difficult environment to operate in — on land you have a few hours to sort out your problem, but if you have problems in the water, you’re not going to live unless you sort them out in seconds.”

In 1993 Prince joined SEAL Team 8, based out of Norfolk, Virginia. “I figured I would be a SEAL for the next 10 to 12 years. There wasn’t much going on then. The invasion of Haiti was a non-event. It was mostly training, training, and more training. Had I stayed longer, I would have seen action, but things changed at home.”

On March 2, 1995, Edgar Prince collapsed from another heart attack and died. Later that same year, Prince’s wife, pregnant with their second child, received a cancer diagnosis. Prince finished out his fifth year as a SEAL but returned to civilian life sooner than he’d planned. “You roll with the punches,” he says stoically.

For the next eight years, his wife struggled with cancer, until she passed away in 2003. He refuses to elaborate but allows that “the saddest moment of my life was her funeral.” He was 34.

When the Prince Group sold in 1996, one year after Edgar’s death, it garnered $1.35 billion. Though split between several of his dad’s business partners, numerous employee stockholders, his mother, three siblings, and him, the windfall still set Prince up for life. “My SEAL friend suggested that maybe I should invest the money, kick back, and live off the interest,” Prince says, in a rare moment of reflection. “In hindsight that wasn’t such bad advice.” Instead, he created the ultimate boys club in a North Carolina swamp.

Prince’s original plan, created with help from veteran Navy SEAL Al Clark, was to build the dream training facility — a place all his buddies from Norfolk could use. “We needed 3,000 acres to make it safe,” Prince recalls. After searching for a location for six months, he ended up paying $900,000 for 3,100 acres (or about $300 an acre) in Moyock, North Carolina. The swampy, tannin-stained “black water” and the bears on the property inspired both the name and the famous bear-paw logo. By the time the Blackwater Lodge and Training Center officially opened on May 15, 1998, the footprint had doubled in size, to 6,000 acres, and Prince was into it for $6.5 million. Over the next few years, he would invite a number of influential members of the military, FBI, local law enforcement, and even the CIA to visit and play “Blackwater.”

At first, locals didn’t pay the range or Prince much notice. “To the degree that [Prince] was thought of, it was as this patriotic guy who had built this Hail Mary facility to help the SEALs, and who probably hoped to break even,” recalls Jay Price, staff writer for Raleigh’s The News & Observer, who tracked Blackwater’s rise to prominence. “The big contracts weren’t on the horizon, not even a glimmer, and I don’t think anyone in their right mind was thinking of him as a greedy military-industrial profiteer.… Maybe as a kid from money who was looking around to see what his role in life would be.” Prince could have spent the next few decades in eternal adolescence, impressing and entertaining his shooting friends at the “Lodge” and staying out of the limelight, but 9/11 would change that.

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Lifestyle Leverage

Friday, July 1st, 2011

Watch your lifestyle leverage, especially early in your career, Barry Ritholz warns:

Those partnership-track careers? The dirty little secret: Those firms love to get their young employees leveraged up. They will even help you get that way, co-signing mortgages for big houses or even directly lending you the cash on favorable terms.

They encourage up-and-comers to spend extravagantly; they extend lines of credit to their rising stars. You need a big house with a jumbo mortgage; you cannot pull up to a business meeting in anything less than the best luxury car. It is part of their corporate culture.

Isn’t that nice of them?

Not really. The big banks, investment shops, law firms and accountants have learned how profitable it is to have “golden handcuffs” on their best employees. These highly-leveraged, debt-laden wage slaves will work harder, put in longer hours and stay with the firm longer than those debt-free workers.

Besides, overleveraged employees do not leave to work at a new start-up or a smaller, more family friendly competitor.

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BrewDog’s Equity for Punks

Friday, July 1st, 2011

Scottish school pals James Watt and Martin decided to start a small craft brewery producing beer for punks. They called their company BrewDog:

After their discussion, the pair set up a “sketchy” makeshift brewery in Dickie’s garage and created the first batch of what is now known as Punk IPA. They took the pilot beer to a series of open tastings and were discovered by beer guru Michael Jackson (“The Beer Hunter,” not “The King of Pop”) at an event in Glasgow. Upon tasting the beer, he told them to quit their jobs and go into brewing fulltime. And that’s exactly what they did. Both were only 24-years-old at the time, the pair took the plunge and leased a building. Watt: “We somehow managed to scrape together £10,000 of personal savings between us along with a £30,000 bank loan which we lied to get. We found that turning up at the bank wearing a suit whilst pointing at a series of useless numbers on a spreadsheet is the best way to get a business loan.”

The beginning stages involved a lot of long hours. “The first year involved living, eating and sleeping at the brewery — a drafty warehouse on Fraserburgh’s coastline,” says Watt. “Exposed to the elements and running short on funds, Martin and I often worked 20 hour shifts, both to stay afloat but also to stay warm.”

I must admit, I never would have thought their equity for punks would work so well (for them):

So even though the company was profitable and turning over £1.8m (around $2.8m), it reevaluated its plans. Watt explains, “We needed to completely reinvisage the way we financed our company in order to hire talented staffers and boost the amount of beer we were able to produce whilst ensuring we still sourced the best, rarest, and most obscure ingredients.” In the midst of 2009’s post-recession climate, BrewDog opted for a completely alternative business model called “Equity for Punks.”

“Equity for Punks turned the concept of business ownership on its head,” according to Watt. “Despite having run the business for just two years, we took the unprecedented step to become a PLC. Then we offered the public the opportunity to buy shares (just under 5% of the company) in BrewDog. We managed to raise over £700,000 in extra funds as a means to growing BrewDog even further. Over 1,300 people bought into BrewDog’s vision of a craft beer future that offered people more choice.”

Now the company exports 700,000 bottles per month to over 27 countries worldwide. 2010 revenue was £3.5m with profits of £300k. There are 65 staffers and locations include a brewery, three bars, and a restaurant.

So, those 1,300 shareholders put in £700,000 for 5% of the company that now earns £300,000 per year?

I think they got punk’d.

Posted in Business | 1 Comment »

Old Malls Refuse to Die

Tuesday, June 28th, 2011

Indoor malls have been replaced by open-air lifestyle centers, but the old malls often have good locations — like the Beverly Center, just east of Beverly Hills — and refuse to die:

In general, Taubman Centers’ plan of attack involves going upscale and pressing for stores with high sales per square foot. The mall’s movie theater was recently replaced with the Forever 21 store. In the U.S., theaters get only $95 in sales per square foot, according to the International Council of Shopping Centers. Food courts, at $792 per square foot annually, have higher revenue than restaurants, at $459. Jewelry stores get $887 per square foot, on average, and Mr. Taubman wants more of them at the Beverly Center. He notes that Prada and Tiffany signed leases there in the depths of the recession.

Posted in Business, Urbanism | No Comments »

The Phases of a Bubble

Wednesday, June 22nd, 2011

Steve Blank explains the phases of a bubble and the five types of participants:

Smart Money are prescient angel investors and Venture Capitalists who started investing in social networks, consumer and mobile applications and the cloud 3, 4 or 5 years ago. They helped build these struggling ventures into the Facebooks’, Twitters’, and Zyngas’ before anyone else appreciated these companies could have hundreds of millions of users with off-the-chart revenue and profits.

In a bubble the smart money doubles down on their investment in the awareness phase, but when it starts becoming a mania — the smart money cashes out. (Really smart money recognizes it’s a bubble and bets against it.) They manage this all with knowledge of the game they’re playing, but they don’t hype it, talk about it or fan the flames. They know others will.

The Shills are the middlemen in a bubble. They profit from the boom times. They’re the mortgage brokers and real estate agents in the housing bubble, the investment bankers and technology press in the dot.com bubble. Since it’s in their interest to keep the bubble going, they’ll tell you that housing always goes up, that these bonds are guaranteed by a big bank, and that this tech stock is worth its opening price. All the stories peddled by Shills have at their heart why “it’s a new age” and why “all the old ways of measuring value are obsolete.” And why “you’ll be an idiot if you don’t jump in and reap the rewards and cash out.”

The Marks are your neighbors or parents or grandparents. They’re not domain experts. They know nothing about real estate, financial markets or tech stocks, but they don’t want to miss the ”investment opportunity of a lifetime”. They hear reassurance from the Shills and take their advice at face value, never asking or questioning the Shills financial incentives to sell you this house/mortgage/tech stock. They see others making extraordinary amounts of money at the start of the mania (just buy a condo or two and you can sell them in six months.) What no one tells the Marks is that as they’re buying, the smart money and institutional investors are quietly pulling out and selling their assets.

The True Believers don’t financially participate in the bubble like the Marks (lack of assets, timidity, or time) but they could if they would. They have no rational evidence to believe, but for them it’s a “faith-based” belief. By their numbers they give comfort to the Mark’s around them.

The Promoters are the ones who keep the bubbles inflated even when they know that the asset exceeds its fundamental value by a large margin. While Shills have no credibility, Promoters have “brand-name” credibility that makes the Marks trust them. What makes the role of the Promoter egregious is that they are a small subset of the Smart Money. They loudly tell the Marks and Shills that everything is just fine, enticing them to buy into the bubble, even as the Promoters are liquidating their own positions.

Investment banks who sold CDO’s (synthetic collateralized debt obligations,) in the financial meltdown and the mortgage lenders in the housing bubble are just two examples. Some investment banks actually bet that the very investments they were selling their customers would fail. There’s a special place in hell waiting for these guys (only because our political and financial regulatory system won’t deal with them while they’re on earth.)

Posted in Business | No Comments »

Japanese craft beer

Friday, June 17th, 2011

Before 1994, microbreweries were illegal in Japan, but now the Japanese craft-beer scene is growing:

Big Japanese beers are similar to American macrobrews, with all the flavor and aroma of air, liberally substituting rice or corn for malted barley to keep cost (and flavor) low.

But the Japanese brewers who have taken up the challenge to offer something else are a bit different than their American counterparts. American craft beer has roots in home brewing. Scratch the surface of many successful American craft brewers, and you’ll uncover early horror stories of batches lost to infection and weeks of work and money literally gone down the drain.

But in Japan, most craft beer is made by sake brewers, with full command of sanitation, fermentation, bottling, and aging. They needed only to master malted barley, hops, and different yeasts, so the learning curve wasn’t as steep for them. And the sake breweries’ traditional emphasis on craftsmanship and quality ingredients served them well in the specialty beer world.

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Could a Greek Default Destroy American Money Market Funds?

Tuesday, June 14th, 2011

Could a Greek default destroy American money market funds?, Megan McArdle asks:

During the wave of banking regulation that followed the Great Depression, the government slapped heavy controls on the interest rates that banks could offer. They weren’t very good, which made the banks sounder, and consumers worse off. When inflation and interest rates rose in the late sixties, this became a big problem. Then some clever chap came up with the money market fund. Legally it worked like an investment fund, not a bank account: you invested in shares, with each share priced at a dollar. The fund invested in the commercial paper market and committed to keep each share worth exactly one dollar; whatever investment return they got was paid out as interest on your shares. This gave you something that looked a lot like a bank account, without all the legal tsuris.

In 2008, it turns out that these money market accounts were–as was always pretty obvious–a lot more like bank accounts than mutual fund shares. The Reserve Primary fund held a lot of Lehmann Brothers commercial paper, which plunged close to zero, meaning that there were no longer enough assets in the fund to make all the shares worth at least a dollar. This is known as “breaking the buck”, and it was not the first time it had happened. But it was the first time in more than a decade that it had happened at a fund which didn’t have enough money to top up the assets in the fund to bring them back to a value of $1. Bigger investment houses had been quietly topping up their money market funds for month, but Reserve Primary was a smaller firm, and they didn’t have the spare cash handy.

This triggered a run on the money markets, which the government really only stopped by a) passing TARP and b) guaranteeing money market funds.

Wait, what does it mean to make a run on a mutual fund that holds short-term paper?

As I’ve said before, with no notion of first-come, first-served, a fund’s in no danger of a run; its shares simply drop in value when its assets drop in value. It’s comparatively stable, since no one has an incentive to make matters worse for other investors in order to save their own skin.

Posted in Business, Economics, Policy | 2 Comments »

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