Another worthwhile read from Fred Wilson’s http://www.avc.com blog.  The posting itself is rehashed from 2007.  I recently went through a negotiation with a large corporate law firm representing the other side.  The corporate attorneys HATED when I asked them to explain certain provisions, or why the provision was needed.  They could not BELIEVE that I would not change my seller’s disclosure document to match their chosen format.  And they did not like that I often ignored their redlined documents.  But my point was not to anger or upset them, its just that the agreement did not HAVE to be their standard way.   It did HAVE to be in a way acceptable to all parties.  I think Fred Wilson’s blogpost about Morty nails what my personal mindset is when it comes to negotiations and contracts.

http://www.avc.com/a_vc/2013/04/because-its-standard.html

And as always, the follow up comments are awesome.  A great learning tool.

Today’s New York Times Op-ed piece by US Senators Sherrod Brown (D-Ohio) and David Vitter (R- Louisiana) puts “Too Big To Fail” back in the headlines (I hope).  Their bill which will be introduced today would require the largest of banks to increase their capital levels to match the capital levels required of regional and mid-sized banks.  The piece is a good explanation of how e got to where we are and makes the case for one way to fix “Too Big To Fail”

http://nyti.ms/10dbrRg

I think the Op-ed Board of the NYT nailed it.  I was contemplating a follow up for my earlier posting about Miranda rights when I read this NYT piece.  Well put and worthy of 5 mins of anyone’s time.

http://www.nytimes.com/2013/04/22/opinion/how-to-handle-a-terrorism-case.html?hp&_r=0

I am still weighing the considerations and learning more about the difference between treating a suspect as a enemy combatant, or a domestic criminal.  Domestic criminals are supposed to get their Miranda rights (though there are exceptions as noted in the NYT article), and enemy combatants can effectively be shipped off to black holes with no public information about them or their activities ever to see the light of day.

I understand that Terrorist is subjective; many in parts of Afghanistan, Pakistan, and Yemen would have a case that the CIA are terrorists with the drone strikes that kill and maim non-combatants.  But I view a Terrorist as one who purposefully kills and maims the general public as a means of sowing fear and/or attempting to make a political statement.  And those who engage in Terrorism are the dregs of humanity just as pedophiles are.  So I have no mercy for Terrorists.  Part of me says to take Terrorists to a black hole and do anything/everything necessary to get any valuable information from them.  No need for regard to their rights or physical well-being.  But I also am skeptical about the actions of those in power when we as citizens give them cart-blanche power with little or no oversight.

I actually believe that a happy medium of “black hole” treatment in the initial interrogation of a suspected Terrorist, followed by a public and a fully disclosed trial similar to what a domestic criminal would receive.  As I work through my thoughts and opinions, this New York times blog posting is a great tool with information on the different means of treating Terror suspects.

http://fivethirtyeight.blogs.nytimes.com/2013/04/21/small-majority-approved-of-miranda-rights-for-terror-suspects/

Terror works when the Good change their life in a negative way because of the Evil.  The events of the Boston Marathon are in hyper-focus in today’s 24/7 news cycle.  It does not matter if this event turns out to be a “one of” event executed by a society misfit, or part of a global insurrection planned by a group with a larger message to the planet.  Taking a translation from Latin, “Terror” means “great fear” which the Boston Marathon incident has caused.

But Terror only wins when it effects people negatively.  For me, this Terror incident makes me feel more love; for my family, for those who have been killed and seriously wounded, for those families directly effected by the blasts.  It makes me sad for the loners who do not comfortably fit into modern society’s norms and who are outcast.  It makes me want to do more for others.  It re-enforces a core belief of mine that in the end, we are all judged by our Creator (pick the God of your choosing) by some simple questions; Were we good to others?  Did we benefit society?  Or were we a purposeful drain on society?  Those who wage Terror, for whatever justification they choose, do not pass these simple questions.

There is horrible Terror that happens everyday in places like Afghanistan and Iraq, Syria and parts of Africa.  Thankfully it happens rately where I live in the US.   Sure the Evil will have their days and the Good will temporarily have to change their lives to accommodate the Evil and their actions.  But Evil and Terror can never win in the long run.  Where one or a group of Evil create Terror, many more Good come to assist those effected by Terror and work to resolve issues.  If Terror were truly effective, many Good would be turned into Evil.  But that’s not the case.  Mankind is innately Good.

Terror loses again.

“Love is love’s reward” – John Dryden

Thank goodness for all the regulations coming out of Washington DC, right?  Dodd-Frank laws, SEC fines, Swap Execution Facilities (“SEFs”).  Don;t you feel so much safer?  In fact, the list of new rules and agencies are mind numbing.  So the government adds agencies and jobs to its payroll, the costs to the entities they regulate goes up as they spend more time and money on compliance, the legal and accounting industries cheer, and end users (you and me) face higher costs for the products and services we want and need.

In fact, the regulators are always a step or two behind the operators.  “Operators” in any industry are those individuals and organizations who determine (or create) what the public wants.  Operators then spend lots of time and energy to internally build products and services, find partnerships, market their products, all at a cost that the public is willing to pay and that generates benefits to the operators.  Operators are forward thinking and resourceful.

http://dealbook.nytimes.com/2013/04/10/seeking-relief-banks-shift-risk-to-murkier-corners/?hp

Regulators are generally accountants and attorneys.  Rarely have they been in the position to need to create and generate and respond to client demands.  Regulators craft rules and review companies after the fact, but regulators are not forward thinking.

The world needs regulators, no doubt.  But regulators seem to be failing again and again, especially here in the US.  In the UK and other jurisdictions, regulators tend to use principal-based rule making; act in the best interest of your clients, be transparent, know your customers.  In the US regulations are generally rules based; don’t do this, and don’t do that.  But by telling operators what they can not do, and what they have to do, they leave a lot of grey area.  And grey area’s are where bad operators take advantage of people and rules, and where good operators fear to tread because of potential retribution from regulators.  So what about a re-think of the way regulators in the US go about their business?  What about regulators hiring former operators to help them think forward?  Is it unreasonable to ask that leadership in Washington DC to think like operators themselves and not like the attorneys and accountants that they are?

Some love him and worship at the altar of all things Tim Ferris.  And some dismiss him as a self-promoter whose chief value is his ability to sell himself.  Either way, Tim Ferris (most famous for his first book, The 4 Hour Work Week) should get a bit of your attention every once in a while.  And I recently found an article by Tom Foster that is more about time Ferris than from Tim Ferris.  And its a great read.  Tom Foster cuts through the self-promoting BS that Tim Ferris generates and drills down to the actual guy.  There is a lot to be learned.

http://www.inc.com/magazine/201304/tom-foster/tim-ferriss-four-hour-reality-check.html?nav=pop

Fred Wilson is a partner at Union Square Ventures and a leading investor in technology firms.  In addition to being a successful investor, Fred is also a proliferate blogger on his website, http://avc.com.  Of the media I consume, Fred’s http://www.avc.com is a must; a broad array of topics, succinct analyses, and a lively and informed set of followers and commentors.

Of all the interesting posts Fred has made, his “MBA Mondays” are my favorite.  Between his postings and the comments section, its like getting a light version of an MBA.  And a heck of a resource as well.  I am posting a link to his MBA Mondays content page below.  If you are a small business owner, an executive who needs to catch up on some concepts from your past academic work, or just want to understand some higher level business concepts and terminology, MBA Monday’s is the place to go.

http://mba-mondays.pandamian.com/tableofcontents/

Some co-workers find it incredulous that I have always gone downstairs to the local Starbucks when I need to get into creative mode.  I have always responded by saying, it just works for me.  The background noise and commotion acts as white noise to me and allows me to focus.  When there is a lack of background noise/movement, my brain seems to look for distractions.  Some people get it, and some people don’t.  Today I saw an article that better defines and confirms what I have always instinctively known.

From the New York Times article, “The Noisy Clatter of Traveling” on April 9, 2013

Research shows that some noise might promote creativity, said Ravi Mehta, co-author of the paper “Is Noise Always Bad? Exploring the Effects of Ambient Noise on Creative Cognition,” published by The Journal of Consumer Research in December 2012. Based on five experiments with different types and volumes of noise, Mr. Mehta and his colleagues found that a moderate level of noise — 70 decibels in contrast to a low level of 50 decibels — enhanced performance on creative tasks. But higher levels of noise, say, 85 decibels, had the opposite effect, diminishing creativity, Mr. Mehta said. “Seventy decibels is the sweet spot,” he said. What the study found was that the voices of multiple talkers in the background could enhance creativity, but a single loud voice, like one side of a cellphone conversation, could be too much distraction and interfere with the creative process.

“We want distraction but not a very high level of it,” he said. “It depends on the kind of work you are involved in. If you are looking for new ideas, it’s different than if you are filing your taxes, work that requires attention to detail.

“In the creative process, you want the creative juices to flow, you want sound,” Mr. Mehta said, adding that if you are trying to focus on highly technical material, you want quiet.

Software as a Service (“SaaS”) is a great business model; simple deliverable processes, massively scalable operations, and a distribution network (the internet) that is effectively free.  Many entrepreneurs with a great idea build their offering as a SaaS business model.

But especially for start up firms, the role of CFO in a SaaS business needs to think about and implement processes and procedures that traditional business models do not.  In many start ups, the founder is also wearing the CFO hat at the start and he/she may not have a traditional accounting background.  This is good because the CFO’s role needs to be incorporated early in the venture and it needs to consider these specific points:

1)      Revenues and costs recognition needs to be super tight.  Traditional long sales processes and large upfront contracts in the software industry allow for revenue and cost accounting to get sloppy.  No so in a SaaS business.  Often times a company must deliver their services before getting paid in a SaaS environment.  Even in a month-to-month invoicing cycle, the company is effectively financing their clients (albeit for a short period).  Most firms do not take these financing costs into account.  Also, the timing of revenues generation vs. cashflows is critical in a SaaS environment.  Just because you invoice in arrears, does not mean your revenues are generated in that invoicing period.  Keep your revenues and costs in the correct time period or your growth metrics will be off and your future planning will not be effective.

2)      Important metrics are no longer purely financial.  In setting up your SaaS business, ensure that the CFO has access to the following metrics:

1. Client attrition.  The biggest factor in success or failure for a SaaS company is client churn.  Inherent to the thinking of a SaaS business is the recurring revenues stream from existing clients.  The financial effect of high client churn is an exponential (not linear as many would first think) decrease in revenues.  It may be the Sales & Marketing team that is responsible for keeping client churn low, but the CFO better be aware in real time of the trends in client churn.
2. Upgrades.  Most SaaS firms have differing levels of services and costs.  A rolling, validated estimate of ongoing upgrades is crucial for a CFO to allocate resources to different projects within the company.  This is also crucial so that the company can invoice correctly.  Allowing for clients to upgrade without cost not only hurts the bottom line, but makes the company look sloppy.

3)      Get Paid Up Front.  Ideally the SaaS Company can convince its clients to make payment up front.  Maybe even use a client dashboard for clients to log into and allow them to select which services they wish to use for the upcoming payment period.  The client dashboard is a great place for SaaS companies to introduce new services and or partner firms as well.  But payment up front can be a barrier to the sales process.  The company may want to offer an invoicing option for enterprise level clients and use the “pay first dashboard” option for smaller clients.  Another option is to offer a discount to clients who use the dashboard/upfront payment system.

4)      Service Sells.  SaaS businesses are less dependent on traditional sales roles and more dependent on customer referrals.  Therefore your best salesperson is probably your best client service representative.  An SaaS business will see a better return on investment by grabbing an all-star client service team manager than an all-star sales person.