Regulation – Brian Roy

Being On Top, Safety and the King Of the Hill Conundrum

Did you play king of the hill when you were a kid? Of course you did. You remember what happened once you got to the top right? Everyone’s mission became to knock you off. Two kids who wouldn’t help each other out of a burning building would suddenly join forces to knock you off that hill. You want to be safe? Get the hell off the hill.

You are all grown up now… you think it is any different?

Ironically we are obsessed with both being on top of the hill and being safe. We want our country, our company, or just us, personally to be at the absolute pinnacle of success – and at the same time be absolutely safe. Seems like we never learned the lesson we should have from all those back yard games of king of the hill.

You want to be on top?

Expect to be attacked.

You think if you are really, really big and strong you can stay on top?

Eventually, someone bigger and stronger always gets in the game.
The biggest and strongest will join forces to take you down.
Cheap shots (knee to the groin, hair pulling, etc) are to be expected.

You want to be safe?

Get the hell off the hill.

I’m not suggesting you (or we) aim for mediocrity – just the opposite. I’m just suggesting you be realistic about what comes with the territory.

Analysis, AZ Tech, Regulation, Tech

SB 1070 – It’s Like I Tell My Kids: Decisions Have Consequences

Screen shot 2010-05-04 at 4.55.11 PM.png — Inscription on the Statue of Liberty

Right off the bat, let’s all agree that something needs to be done to address two distinct issues. First, the violent drug wars in Mexico and their effect on the boarder region. Second, the influx of peaceful, hard working Mexican citizens who have entered this country illegally to find work and support their families.

SB 1070 does nothing to solve either of these two problems.

But I don’t really care about the things it doesn’t do… I care about what it does. Governor Brewer can pass the buck all she wants by leaving a police agency on the hook to define “reasonable suspicion” – but let’s be honest, we all know what an “illegal immigrant” looks like… don’t we. Here, I’ll say it:

Illegal immigrant’s are brown – Muslims, Mexicans, Indians. They don’t speak english well or talk with funny accents. They are “others”.

The problem is, not all brown people with accents are Illegal Immigrants – they are just “reasonably suspicious”. So, you tell me. How is any cop going to tell the difference?

I chose to stay in Phoenix to start my Technology company. One of the reasons I did that was because of the incredible growth in diversity we’ve seen since I first moved to Phoenix. Because, in my opinion, the great technology centers in this country are what they are in large part because of their diversity – San Francisco, Seattle, Boston, Austin all have a thriving multi-cultural base of immigrants and first/second generation Americans. They’ve created environments that attract the very best the world has to offer.

We – on the other hand – have just hung out a huge “you are not welcome” sign.

I know the counter argument – if they are legal they have nothing to worry about. Except they do. They have to worry about NEVER leaving the house without some piece of paper that makes them legal. They have to worry that they’ll be stopped, questioned, harassed and marginalized. They have to worry that when they walk down the street we will look at them with “reasonable suspicion”.

So, you tell me. How do I convince my colleagues Anil, Santosh, Moudy, and Hu to move to Phoenix? How does Arizona convince any Technology company (Green, Software, Bio, Space or other) to put their employees in Arizona? And while you are at it… remind me again. Why am I here?

Regulation, Tech

Why Healthcare for Profit Sucks

After 15 years working large corporations I’m now self employed. I’ve decided to be one of those people Conservatives so love to hold up as the example of all they try to protect – the American Small Business Owner.

During my 20’s and 30’s I paid (and paid) into the private insurance industry and took very little back out. Sure, there was the occasional sinus infection or table saw accident, but all things considered I used a tiny fraction of what I paid in to the “system”. Knowing my entrepreneurial aspirations I saved more than 30% of my (really our – my wife Kelly is in this as deeply as I am) income. We set aside the money we would need to fund a startup and support our family.

Short version – we are the kind of Americans the Conservatives love to point at as the example of everything that is right. The irony is, it is their insanity that is killing everything we are doing that the claim to value so highly.

Here is the thing – I can afford the insane price of health insurance (for a while). I can even deal with the fact that it isn’t nearly as good as what I had when I was willing to sell my work to a Fortune 100 software company. What I can’t deal with is that there is virtually no point in having insurance if you have to buy it on the open (free) market.

Last year I had a Kidney Stone. I had no idea what was causing the severe pain – so I did what you are supposed to do, I went to the emergency room. They gave me a CT Scan and diagnosed me with Kidney Stones. Now, I know they are there. My primary care doctor knows they are there. I have a standing order for a days worth of pain medication and if they come back I can fill it and suck it up until it passes.

The problem is, no Insurance Company will cover me for Kidney Stones. Oh, they will sell me Insurance, but they won’t cover ANYTHING having to do with Kidney Stones. I’ll have insurance, but for the only thing at all likely to happen, I‘ve got nothing.

As a businessman, their decision makes perfect sense. Why would they cover me for a potentially recurring affliction? It wouldn’t be profitable. Since, in the free market, businesses make decisions based on profit their decision is not only reasonable but laudable. After all, who would invest in an Insurance Company that repeatedly insured people who were sick?

It isn’t a big leap to imagine what happens next… what happens when you have insurance and get sick? Sure, they’ll pay for the colds, bumps and bruises – but what makes you think they will pay when it gets serious? After all, as good capitalists and free market business people they seek profit – and sick people aren’t profitable. So the game becomes, how do they avoid covering you?

Did you fail to disclose something (not something big, but ANYTHING, like an old knee injury)?
Did you lie (in a vain attempt to get coverage for Kidney Stones)?
Did you make a mistake (make sure you get your kid’s social security numbers right)?

Trust me, when they are facing hundreds of thousands of dollars costs they have to pay they will get very, very thorough. I know, I would. As would any other business person facing a contract that suddenly is going to cost them hundreds of thousands of dollars.

Listen, I’m not suggesting insurance company employees are bad people – any more than I am for trying to make as much money as possible with my business – what I’m suggesting is that there are things which don’t function well in a profit based system. As hard as that might be to accept – it is just plain true.

Sadly, the Republicans (I’m not talking about Conservatives here, but the Republican Political Party) lost their way. Instead of a rational debate about the role of Government – one which focuses on questions like:

Is Healthcare best accomplished within the free-market private sector?
What mechanisms can the Government employ to balance profit and the well being of society?

we get a debate about bogey men and death panels. We get ideology and dogma.

I’m no left wing nut job – I’m a capitalist trying to build my own business, and I freely admit I don’t know everything, but I know this:

My healthcare shouldn’t be about profit. Neither should yours.

I’m no fan of government control, but I’m not desperately afraid of it either. Where profit isn’t a good motive the government is as good an option as any other. Frankly, if you’ve got a better suggestion I’d love to hear it, but if you just want to scare me about how awful my healthcare will be when the government runs it – you can forget it – I’m scared enough right now dealing with private health insurance.

Regulation, Tech

There is a more fundamental point…

I’m a free market guy. I’m a fiscal conservative. I’m a registered independent. Hell, I voted for Ross Perot.

Free markets are really, really good at generating profit… but you’ve got to ask yourself…

Do you really want a healthcare system that is based on spending as little as possible and keeping as much profit as possible?

http://player.ordienetworks.com/flash/fodplayer.swf

Protect Insurance Companies PSA from Will Ferrell

AZ Tech, Regulation, Tech, The Future

Education in Arizona – The Cuts to Come

This is for all of my friends in Arizona.

As you may be aware the Arizona State Legislature has proposed to cut $1.5 billion from education budgets over the next year and a half. That is a 20% cut for K-12 and a 30% cut for higher education. Arizona currently ranks 49th in per student spending for K-12 education and 35th for spending on higher education.

These cuts will sacrifice our future – they will in the words of Michael Crow, ASU President “give Arizona a Third World education and economic infrastructure.”

I encourage all of you to visit speakupnowaz.org and send a letter to your state representatives informing them of the error they are considering and your full displeasure with it.

I’ve included the letter I sent this morning:

Dear Arizona Legislator,

As a veteran of Silicon Valley technology companies; and as a entrepreneur in Chandler; and as a father of two elementary school children; and as a dedicated proponent of Arizona and the Valley of the Sun; and as a committed partner of ASU; I’d like to inform you that cutting Arizona’s education budget at this moment in time – is both ill advised and exceptionally short sighted.

I’ve been an Arizona resident for more than 15 years. During that time I’ve worked for Silicon Valley technology companies as both a consultant and an executive. I know first hand that Arizona has lost major offices (specifically data centers) from several of these companies due in large part to the state of our education system. I have refused lucrative job offers in Silicon Valley because I believe that Arizona is capable of producing great technology talent and companies. I’ve committed to Arizona – I continue to wonder why our State officials refuse to do the same.

Phoenix has a single major university. Every major metropolitan area of equal size has many more. Our K-12 per student funding is 49th in the nation. Is it really any wonder that the only way we can sustain growth is via construction? While that may have been a viable approach in the past, it will no longer work. We must begin the process of transitioning from a boom and bust real estate market to building the competencies that can and will – with your support – transform our economy to a vibrant and lasting technology base.

Please understand, low taxes alone are not enough to attract and retain these businesses. They require well educated workers – workers they do not have to import. Workers who want to be in Arizona because they can raise their children here with the confidence that our education system will not fail them. Workers educated right here in Arizona.

While I understand that there are tough decisions to be made, we can not continue to sacrifice our future for the expediency of today. Tough choices will need to be made. But understand this, cutting education funding is not an appropriate choice. Do this – cut education funding – and not only will you lose my vote, but you will lose my business, and my commitment to the state of Arizona.

Sincerely,

Brian T. Roy

Founder and President

cosinity

http://www.cosinity.com

602.635.1013

Update: January 22nd 2009 @ 11:20 AM AZ Time

Linda Lopez – The AZ State Senator for District 29 responded to my email as follows:

Thank you for your email regarding your concerns about proposed cuts in
the Senate and House Republican Appropriations Committees Chairmen’s
budget. I do not support these cuts. I know full well that because of
our current budget crisis there will need to be some strategic reduction
in funding in all areas of state government, including education.
However, the level of reductions that are being proposed will, in my
estimation, not only decimate education at all levels it will undermine
our ability as a state to recover from this economic situation. I
strongly suggest that you let the appropriations chairs, Senator Russell
Pearce and Representative John Kavanaugh, and the legislative
leadership, Senate President Bob Burns and House Speaker Kirk Adams,
know about your concerns. In addition, you must also contact Governor
Brewer and her staff and let them how upset you are with these
proposals.

I have been a long time vocal supporter of education at all levels,
preschool through university. It is the bedrock of our state and our
country. We shortchange education at our own peril.

Sincerely,

State Senator Linda Lopez
District 29

Update: January 22nd 2009 @ 11:49 AM AZ Time

Frank Pratt – The AZ State Representative for District 23 responded as follows:

Thank you for sharing your concerns. We are taking any proposed budget
cuts to education very seriously.

Very truly yours,

Frank Pratt
State Representative
District #23

Frank – that is a very political response. I assure you I take your votes on this matter very seriously.

Business Model Innovation, Regulation, Tech

The Lessons of History & The Financial Crisis

I’ve been re-reading Ron Chernow’s excellent book – Titan: The Life of John D. Rockefeller, Sr.

This is a wonderful book in every respect – but during this time of Financial Crisis it is also very illuminating to see the parallels between the period of 1870 – 1900 and the last 30 years or so.

The Industrial Revolution transformed the US from a largely rural agrarian society to an urban industrial society. In the process it forced us to adapt our culture, politics and laws to cope with this transformation. What most people have forgotten is that prior to the industrial revolution the US operated an almost entirely free market economy. Regulation was unknown, and regarded as an evil force. Sound familiar?

The result of this lack of regulation led to a series of economic disasters – boom/bust cycles, political corruption and mega-companies referred to as trusts (who often, but not always practiced monopolistic practices).

The industrial barons of this time were not evil men – as a matter of fact many of their greatest legacies are their charitable works, Carnegie, Rockefeller, Vanderbilt, and Stanford set new standards for charitable works – as are Gates and Buffet today.

They simply sought out the most efficient means to make money given the environment they operated in.

Those who today advocate for extremely limited regulation (or no regulation at all); or for the lack of intervention by governments in business should read Chernow’s book. Contained within it’s pages you will find the world for which you advocate.

Please don’t misunderstand me – excessive regulation is as problematic as none. What is important to understand is that the market is not perfect – it is a contrivance of human beings, just as is government. Neither is perfect, neither can solve all our problems. The solution is in the balance we create between those forces and regulation is necessary to create that balance.

I give credit to Shel Isreal for prompting me to write this post with the following tweet:

I’m starting to tire of warning that US is killing free market & going socialist. No oversight or governance is as much anarchy as FM.

It seems to me we have forgotten the lessons of our past and are busily repeating them. Those lessons do not come from the great depression – but from the Industrial Revolution. It is not our reaction to the crisis – but our decisions which led to this (and more properly stated – this series of) crisis.

It is time we began working together to re-define the balance needed between a free, agile and prosperous market and the society (government) within which it operates.

Regulation

FCC intends to abolish the Enhanced Service Providers exemption.

From IMHO Conferences & Consulting today:

Back in the days when IBM was a company based on mainframes and we had to teach computers to whistle so that they could talk the government determined that data services were not subject to the same regulatory rules as voice services.

The result was a boom for the computing because it was not necessary for them to pay attention to local regulators and consider themselves a telco when they built wide area networks.

The rule was very simple, if you had an protocol conversion going on or store forwarding the law of the land was you were in a different bracket.

Today, the FCC has indicated that they intend to abolish the Enhanced Service Providers [ESP] exemption.

In effect they will then claim that Internet Access is now subject to telecom regulation. They have also indicated that local governments have the right to tax and regulate.

While my net-head friends think they are exempt because their service is free, the government may not see it that way. In fact they don’t.

Its important that we as industry of application developers and communication services join together to fight these rules. Even if we are not in the jurisdiction of the US. If we expect the service to be used within the US we are subject to local interpretation.

Join me on Thursday for the Squawk Box VoIP Regulatory Call

Needless to say – removing the ESP exemption would create massive new regulatory hurdles – which can be different based on the physical location of the user. If you provide internet based services you should follow up on this and understand how it impacts you.

AZ Tech, Regulation, The Future

The financial crisis – Finaly a levelheaded assessment: Fareed Zakaria GPS – Interview with George Soros

This morning I watched Fareed Zakaria GPS on CNN. He interviewed George Soros who presented the most intelligent and balanced view of the current financial crisis I’ve seen yet. Soros – a free marketeer – points out that free markets are human constructs, just like governments – as such both are imperfect. His stance is the market is more efficient and perhaps better at solving problems – but not perfect – and left to it’s own devices suffers from problems as bad or worse than well designed regulation.

SOROS: Every bubble has two components: something – some real trend, and a misconception about that trend.

Now, the real trend has been credit expansion, ever-increasing use of leverage. And the misconception has been what I call market fundamentalism, the belief that markets correct their own excesses, that you can leave it to the markets, give them free rein.

And, of course, that’s false. The markets don’t tend towards equilibrium. And occasionally, therefore, they create financial crises.

But it really started with President Reagan, who talked about the magic of the marketplace, Margaret Thatcher. You see, when they came to power in 1980, then this belief became the dominant creed. And this, then, led to the globalization of markets, the deregulation of markets and the increased use of leverage and all those financial engineering.

Now, since markets don’t tend towards equilibrium, but are – left to their own devices, go to extremes and create bubbles. And then the bubbles burst.

We have had a number of financial crises since 1980, and quite a few of them. But each time the authorities intervened, and, you know, merged away the failing institution, stimulated the economy if necessary, lowered interest rates, fiscal stimulus, and so on.

And so, the crises, the previous crises actually reinforced the mistaken belief that markets correct their own excesses.

What Soros is telling us is that we’ve swung too far to free market thinking. And I’m with him. It isn’t that I want socialism or government control of the economy – it is that I want balance. Our error was swinging the pendulum too far to one side – and it has to come back.

Will we swing it too far toward government involvement and regulation – probably. But that isn’t what we should be afraid of – we should be afraid that dogma will outweigh outcomes. If that happens we will insist on free markets and vilify regulation because we believe it to be so. That is what will cause the current situation to spiral out of control.

To be clear – I’m a fee marketeer – but the market exists within the bounds of society. And governments are social contracts designed to form well ordered societies. They define the guardrails within which we operate freely. It is time to put the regulatory guardrails back in place.

You can read the transcript of the interview here.

Regulation, The Future

Turns out Angel Investors do not make much on investments…

From AZCentral’s Innovator’s Circle blog by Andrew Johnson:

Fledgling companies often turn to “angel” investors when they’re trying to fund start-up costs.

The term refers to individuals who invest small amounts of money – typically under $2 million – in early-stage firms. They hope to get a return on their investments once the firms start generating a profit.

Although such investors are more willing to funnel money to companies that are dealing with unproven technology or have a significant customer base, many still require companies to have a management team and potential for commercial success before they provide funding.

Thus, many early-stage entrepreneurs complain that they can’t get these early-stage investors to provide capital.

A study released Thursday by the U.S. Small Business Administration’s Office of Advocacy may provide a reason why some angels are apprehensive to take a risk on these firms.

The study, “The Importance of Angel Investing in Financing the Growth of Entrepreneurial Ventures,” says the majority of such investors do not experience positive returns after placing their money in the firms.

The reason, according to researchers, is that the most profitable investments typically come from companies that go public. However, “only a small portion of angel-backed companies go public,” the study says.

The study noted the difficulty in pinpointing exact returns for angels because of challenges in defining a truly representative sample of such investors.

However, the study cited other research conducted in 2007 in which 539 angel investors from 86 associations were surveyed.

Combined, the 86 groups had made 3,097 investments, from which they experienced 1,137 “exits.” An exit refers to when a company is bought by or merged with another firm or goes public. Typically such an events are when investors see the biggest return.

The average investment made by the sample in that study turned a profit of $295,000 on an investment of $191,000 in 3.52 years.

However, the median investment for this group was $50,000, and “that returned $40,000 or 80 cents on the dollar,” the study said.

The study included other information that differs from common perceptions researchers and start-up companies have about angel investing.

The market for such investments is considerably “smaller than is generally believed,” the study said. “Few companies are appropriate for angel financing, a fact that limits demand for this source of financing.”

Also, a big portion of angel investors fund their investments with debt or equity, contrary to the belief that they not as interested in taking an ownership stake in the firms they provide funding to.

[From Few ‘angel’ investors get positive returns, study says]

Given the state of the economy and markets – this is not good press for those of us trying to raise seed funding.

As it turns out the recovery from every financial downturn has been led by small businesses. With micro businesses currently representing 95% of all U.S. firms we need to be aware that cutting off capital to “high risk” startups will deepen the current crisis… not improve it. The economy can only recover when we start developing high pay, high value jobs in the U.S. – more jobs at WalMart will not do it.

Why is this so important. Home prices are an issue because the cost of housing has increased while wages have not. Only when those numbers are brought back into balance can any real recovery take place. There are two ways to do that:

Reduce the cost of housing
Increase wages

The problem with the first option is that is requires tens of thousands of (more) foreclosures to bring things back into balance. Investing in small businesses is the best path to creating high wage/high value jobs which will support home prices at (something reasonably near) current values.

If all the capital evaporates from the SMB sector – specifically if individual investors (i.e., Angels) close their wallets the SMB sector will crash.

Net/net – watch the small business sector – if we start to see that sector crash we know this will be a long protracted downturn.

AZ Tech, Innovation, Regulation, The Future

Innovation and Entrepreneurship require Optimism

It has been an interesting few weeks… no? As a Entrepreneur and Innovator who left a comfortable job at a Fortune 500 Silicon Valley software company to follow the dream of starting my own company – I can tell you the last few weeks have been rough.

Will capital completely dry up?
Will any micro businesses form – and if they do will they still find enough value in the services cosinity provides?
How can I best conserve my resources for the next year (or God forbid 2 years) to catch the rebound?
Is there any way to protect my assets from my house and startup?

And most disturbingly – I’ve had to consider shelving cosinity all together to protect my personal assets and my family. You see there is a reason I’m approaching 40 and just now starting my first business.

When I was young – probably 3 or 4, it was about 1974 – I remember my parents both lost their jobs at the same time. Nothing shocking here – 1973/1974 were some tough economic times. It didn’t go well for us; we lost our house and just about everything else. My father had a paper route – I remember that because I used to go with him early in the morning to pick up the papers for his route. But my most distinct memory of that time was being in the car having a conversation with my parents about my jacket. It was winter in Minnesota and the zipper had broken on my jacket, but we couldn’t afford to buy a new one.

When I was 12 my father passed away – leaving us a $10,000 life insurance policy and a stack of debt. My mom – who made maybe 20k at the time – was left to raise 3 kids. There wasn’t a day that went by when money wasn’t a huge problem.

I’ve always wanted my own business. During college in Minnesota (or as I like to call it my misguided musician phase) I was the general manager of a family owned pizza joint. It was a great gig. It was owned by a father/son team who were both very italian and very eccentric – we simply called them Sr. and Jr.

Jr. became like a father to me. At one point helping me investigate the possibility of buying my own pizza joint in an adjacent suburb. You know that book – the one that says you learned everything you really need to know in kindergarten? Well I learned – nearly – everything I would ever need to know about running a business at that pizza joint. It is where I fell in love with doing all the things required to own and run small business.

It taught me the simple things that we – so often – in the Silicon Valley echo chamber seem to forget.

You have to make money – or you are going out of business.
The only asset you have that matters is your customers and their goodwill.
The only path to success is hard work.
Employees will work their butt off – provided they know what they are working for.

If you want to know or understand my motivations – put those two influences in a martini shaker and mix thoroughly.

more after the jump…

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