Melanie Warner is attempting to divine lessons from Google's rise to the top of internet search. She offers platitudes like "Don't sell your soul to the highest bidder" ... despite the fact that, earlier in the story, she reports that Larry and Sergey had never wanted to start a company and were interested in selling the technology to Yahoo!, which wouldn't pay the asking price of $1 million.

Or this one: "Create a culture of risk taking." Warner notes how absurd Google's business plan was because no one in 1998 thought that they needed a new search engine: "Though the quality of search results was declining as the Internet swelled, most people didn't seem to care." Are you kidding? As soon as I found Google, I started telling all of my friends because my "other" search engine (Alta Vista) was so bad. Even if she is right, what is the lesson here, exactly? Go into markets that people perceive as saturated? Tell that to all of the online pet stores.

Then there is this gem: "It's all about the product." No duh! Warner writes, "This sounds obvious ..." Yes, it does. Next!

"Don't get greedy." And Google is an example of this because ...? Oh, right, because it didn't go public at the first possible moment. "All along the way, Google sacrificed short-term gain for long-term viability." I think maybe we have the wrong adjective in play here. If you are greedy, build a company with lasting value because there is nothing more valuable than that. Perhaps the lesson should be "Don't get anxious to cash out."

Next insight: "Keep your employees happy." Could this get any more pedestrian?

The best part of this article is the first paragraph:

When Omid Kordestani showed up for his new job as head of sales at Google in May 1999, the place was a mess. Founders Sergey Brin and Larry Page, ages 25 and 26, were working out of a cramped, disheveled office in Palo Alto. Their "business plan" wasn't much more than a series of notes scribbled on a whiteboard. Nearly all 12 employees had Ph.D.s in engineering or computer science, but nobody had a clue how the sophisticated search engine technology they were building was supposed to generate any money. The first MBA hired and the only guy pictured on Google's website wearing a tie, Iranian-born Kordestani was the startup's adult supervision.

This confirms the story I was hearing in the days just before the IPO documents were filed. My reading seems to have been off, however, as I assumed that Larry and Sergey were not at the helm, that the adults had taken over. All events since that time suggest that the two founders are firmly strapped into the pilot's chair together, with Eric assisting. That's five years for the founders to learn to run a company. Anyone nervous?

Permalink | Google | Comments (0) | TrackBack (0) | Bookmark

Later today Damiano Cunego will win the Giro d'Italia (Tour of Italy). That's a photo from the Tour of Italy from Graham Watson's excellent website. The racing season is in full swing in Europe, and all of the big names are gearing up for the Tour de France.

Lance Armstrong is skipping the Tour of Italy. His next big event will be the Critérium du Dauphiné Libéré in southern France on June 5-12, which is his final tuneup prior to the Tour de France. By the way, have you seen the new Nike commercial featuring Lance? You can find it here. If that doesn't motivate you to strap on a helmet and go, you are beyond the pull of cycling.

One of the big stories of the season so far is Jan Ullrich (scroll down), who has been rumored to be out of shape and ill-prepared for a run at Lance Armstrong. Ullrich is back with Deutsche Telecom again, and I cannot believe people are counting him out of the Tour de France. He has never finished worse than second; but for Lance Armstrong, Ullrich would be acclaimed as the greatest Tour cyclist of this generation. Next up for Ullrich is the Tour of Germany (Deutchland Tour), which runs next week, followed by the Tour of Switzerland (Tour de Suisse) on June 12-20. In a recent interview (see here if you read German), Ullrich said that he did not expect to win the Tour of Germany because he is still building up for the Tour de France.

Other than Ullrich, Lance's fiercest competition in this year's Tour de France will likely come from Spain. According to Samuel Abt's column in today's New York Times, Joseba Beloki still has not fully recovered from the crash that ended his hopes of victory last year. Beloki will be riding for the French team Brioches la Boulangère, which is being built for Beloki and a run at the yellow jersey, but the results thus far this year are not encouraging.

The most vigorous challenge may come from the Spanish rider Lance knows best: Roberto Heras of Liberty Seguros. Heras was Lance's chief lieutenant in last year's Tour, but it was clear to all who were watching that Heras was one of the top cyclists in the race, and that the only reason he wasn't standing on the podium at the end was his sacrifice for Lance.

Another rider to watch is American favorite, Tyler Hamilton, who distinguished himself by riding last year's Tour with a broken collarbone. This year he is racing with Swiss team Phonak Hearing Systems (with Oscar Sevilla, among others).

Unfortunately, I will be returning from Europe prior to the start of the Tour de France, though I will be around for the Tour de Suisse and the Dauphiné Libéré. Fingers crossed: if we can find the time and the means, we will see some fine racing this summer.

Permalink | Cycling | Comments (0) | TrackBack (0) | Bookmark

One issue has continued to vex me about my Google rankings (for prior posts on Google search results, start here): why doesn't my blog title appear in the search results? When you search "entrepreneurship law," for example, this blog is the #2 result, but Google displays only the url, not the blog title. Look. It's a very uninviting link. No surprise that I get very little search traffic from Google.

So I finally broke down and asked the folks at Google why this would happen. This was their response:

The Google index contains two types of pages: fully indexed and partially indexed pages. Your page is currently partially indexed. This means that although your page is included in the Google index, our robots have not completely reviewed the content of your site in past crawls. Partial indexing does not adversely affect your PageRank or your inclusion in the Google index. However, it does mean that our crawlers do not have enough information about your site to provide a detailed title. As a result, your page is listed by its URL in the Google index.

OK, that makes sense. I hope my status will change when Google updates again. By the way, I have to hand it to the folks at Google. They are very responsive. They even apologized and said that they were working to improve on this:

We understand the frustration this situation may cause you. We are working to change the way that partially indexed pages appear in our search results, and we hope that you will find the descriptions and titles of these pages more satisfactory in the future. Additionally, we will continue working to increase the number of fully indexed pages in our index.

I will not buy shares in their IPO, but I like the way they do business.

Permalink | Google | Comments (3) | TrackBack (0) | Bookmark

Nicholas Berg's name will forever be associated with the gruesome manner of his death, a low point in a very low time. Today, The New York Times published a story describing Berg: "An adventurous entrepreneur and religious Jew, Mr. Berg had a passionate belief in capitalism's power to transform poor nations. He really believed, friends and relatives said, that he could help rebuild that war-shattered country one radio tower at a time. It was a vision that almost immediately aroused suspicions." The story then details the many mysteries that surround Berg's presence in Iraq. To some Berg looks like a spy. They cannot understand the forces that would impel someone to act the way he did. To his family and friends, Berg was simply idealistic, and he clearly found himself in the wrong place at the wrong time. Consider this:

He attended Cornell University, distinguishing himself in engineering courses, a faculty adviser said. But his defining semester came in a small Ugandan village, where he spent the spring of 1998 in an exchange program. There he was exposed to poverty he had never imagined, friends said. He turned his inventiveness to good use, fashioning a brick-making machine to help villagers stabilize mud huts. In letters, he described schemes to help the Ugandans market mushrooms and make bricks from indigenous materials. "He was shaken by his experience," a friend, James Wakefield, 52, said. "He had nothing but a pair of pants, a shirt and boots when he came home. He gave away his clothing."

If you cannot imagine people like Nicholas Berg, people who want to change the world one idea or one good work at a time, I am sorry for you.

Permalink | Entrepreneurs | Comments (3) | TrackBack (1) | Bookmark

I don't do those silly internet quizzes ... unless they really grab me. And this one grabbed me. Thanks to the Cheese Diaries for the pointer. By the way, here was my result:

I am not a big fan of bleu cheese. Does this mean I don't like myself? (Now I am reminded why I don't take these quizzes.)

Permalink | Cheese | Comments (1) | TrackBack (0) | Bookmark

The United States is much derided around the world today, but in the area of entrepreneurship we are still the model. The European Union's recent report on "Helping to create an entrepreneurial culture" testifies of that fact:

The image of entrepreneurs as positive role models has never been as strong in Europe as in the US. Becoming an entrepreneur has long been seen as an unsafe and risky option, not particularly appealing and less socially rewarding than other, more traditional professions. The educational systems have not in the past been geared towards the development of entrepreneurship and self-employment, the final goal of the educational path being rather to produce employees working in a big company or in public administration.

This is a fascinating document, which raises important questions about the creation of entrepreneurial culture.

I am headed for Europe next week, and among the stops is the Babson-Kauffman Entrepreneurship Research Conference, being held this year in Glasgow. Among other things, I expect to see a lot of European academics who study entrepreneurship in countries that are not very entrepreneurial. A few years ago, a friend from Finland commented that Finns study entrepreneurship to death, but ultimately do nothing. To me the problem seems more complex: what exactly is to be done?

The premise of the EU report is that most entrepreneurs are made, not born, and the purpose of the report is to encourage efforts toward developing education in entrepreneurship. This includes "promoting the development of personal qualities that are relevant to entrepreneurship, such as creativity, spirit of initiative, risk-taking and responsibility; raising students’ awareness of self-employment as a career option ...; and providing the business skills that are needed in order to start a new venture." Will this work in any meaningful sense? Well, it isn't clear to me that public primary and secondary school teachers are effective entrepreneurship instructors, but I like the aspiration. One of the reasons I feel a sense of mission about entrepreneurship is that entrepreneurs in the mold contemplated by this report are independent and self-directed, not mere cogs in a great machine. Ultimately, entrepreneurship is about leading a better life, not just making money.

Permalink | Entrepreneurship | Comments (2) | TrackBack (3) | Bookmark

Simon Winchester is a marvelous author. You might be familiar with his excellent books, The Professor and the Madman: A Tale of Murder, Insanity, and the Making of The Oxford English Dictionary and The Meaning of Everything: The Story of the Oxford English Dictionary. What you might not know is that Winchester's is a geologist, which adds immensely to his telling of Krakatoa: The Day the World Exploded, August 27, 1883. This is not merely the story of a volcanic eruption in a distant land, but an intellectual history of the science of geology suitable for a layman. He also provides a history of the Dutch spice trade in Indonesia and claims (rather astonishingly) that Krakatoa was the event that caused Indonesia to turn against Christianity and toward Islam. For those interested in a focused examination of the volcano and its immediate effects, look elsewhere, but if you like to sprinkle a little history and culture atop your natural disasters, this is a nice read. By the way, I listened to Winchester's own reading of the book, which was excellent.

Permalink | Comments (0) | TrackBack (0) | Bookmark

After a week in cheese-free China, I had to make a stop in Brennan's this morning, where I picked up one of the remaining World Championship cheeses, this one an Ouray from Sprout Creek Farm in Poughkeepsie, New York. According to the Farm's website, "this cheese has a buttery fresh flavor that is best eaten without crackers or bread." Funny, but I kept wishing I had a good cracker. My hunk was a bit chalky and it was bitter, not buttery.

Unfortunately, I was unable to discover the origins of Ouray cheese. A search of CheeseNet comes up empty. Is it possible that is comes from Ouray, Colorado?

Despite my disappointing first encounter with Sprout Creek Farms, I would be completely on board for a Vocation Vacation -- a two-day cheesemaking trip to Sprout Creek. Hmm. Maybe something to think about for my sabbatical next spring?

Permalink | Cheese | Comments (0) | TrackBack (0) | Bookmark

On the trip home from China, I read this story of the Cold War chess match between Bobby Fischer and Boris Spassky. The central events in the story took place in 1972. I was nine years old. Nixon was in the middle of trouncing McGovern -- the Watergate story had not yet unfolded -- and Vietnam was the focus of American political discussion. In the middle of all of that, I remember hearing about Bobby Fischer, and having warm feelings toward him. He was, after all, an American doing battle against the Soviets ... at least that is the way I viewed it. That is the way Bobby Fischer wanted me to view it.

This book restored some of my memories of those times, and destroyed any lingering fond feelings that I had toward Bobby Fischer. The authors have done an exhaustive job researching the chess match of the century, speaking to many (other than Fischer himself) who had a hand in the match, including Spassky, and researching both FBI and KGB documents. Their descriptions of Fischer's behavior seem almost too bizarre to be credible, but Fischer's own record (check out this website [Warning! This site contains lots of anti-Semitic material. Click at your own risk.], which is operated by Bobby Fischer or this story in The Atlantic) suggests that he is a deeply troubled individual whose brilliance at chess cannot redeem him.

By the way, if you are into the chess, check out this site, which allows you to see every move in every game of the Fischer-Spassky match.

Permalink | Books | Comments (3) | TrackBack (0) | Bookmark

When I returned to my office this morning, I found a nice surprise: a box of souvenirs from India. When the folks at the University of Connecticut heard about my disastrous luggage adventure returning from India, they offered to restore some of my lost souvenirs, including the fun wooden Cobra toys for my sons. Double bonus for my kids!

Permalink | India | Comments (0) | TrackBack (0) | Bookmark

We returned from China late last night. We were supposed to arrive in Madison at 7 pm, but we had the misfortune of routing through O'Hare on a stormy day. Our original flight to Madison was cancelled, but we were able to take a later flight, arriving in Madison at about 11 pm. Once we arrived home, my daughter and I were wide awake. It was midday on our body clocks!

On the way to school this morning, my daughter commented that this was her best trip ever, and I have to agree that it was pretty cool. Our favorite part was socializing with the Chinese students. This picture shows me with my student Jonathan, who is a member of the Communist Party of China. As we rode around the old part of Beijing (the Hutong) in this pedicab, we discussed China's past, present, and future. Jonathan is an enthusiast for the Communist Party. He said that the Party was encouraging entrepreneurship and that business people had the freedom to start and build (almost) any business they might want. To listen to Jonathan talk, the Communist Party of China would rival Venturpreneur for entrepreneurial cheerleading.

Later in the day, a group of nine (four Chinese and five US) ate dinner at a restaurant whose name literally translated was "The Noodle King." According to our Chinese hosts, this restaurant was known throughout Beijing for its fine noodles. During the meal, one of the American students asked his Chinese counterparts about religion. The question -- which was prompted by a discussion of Buddhism in China -- was phrased something like this: "What religion are you?" As a person who has no qualms talking about religion, I was a bit surprised at the discomfort caused by this question. All of the Chinese students demurred, disclaiming any religious affliation.

The discomfort caused by that question was magnified by the next question from an American student: "When you read the Chinese newspaper, do you believe what you read?" I was interested to see that one Chinese student began to answer the question reference to how often he was able to see CNN and the BBC. As he fumbled for a way to express himself, another Chinese student interrupted and an animated discussion in Chinese followed. It was apparent to the Americans that it was time to change the subject.

These discussions were not the only times that we were made aware of the still precarious position of freedom in China. Despite Jonathan's protestations, the constraints on personal freedom were all too obvious to Americans. For example, when I attempted to show a Chinese student how to retrieve Google's registration statement, I was told that classroom computers could not access websites outside of China. Although students have broader access to the internet from their dorm rooms, the American students found that certain websites were blocked from their university dorms. (I had similar problems from my hotel room, but I couldn't tell whether sites were being blocked or were merely down.) The military presence on Tiananmen Square was a reminder of those deadly events 15 years ago next week, and recent efforts to raise the topic illustrate the continued sensitivity to discussions of real democracy in China.

Driving and walking around modern Beijing, I was struck by how Western the country had become (or is becoming). Businesses are flourishing, and not just on tourist dollars. China has a conspicuous middle class, which wears fashionable clothes, buys cutting edge electronics, and (increasingly) drives luxury automobiles. New, sleek buildings are popping up all over Beijing, replacing or supplementing the drab white and gray boxes. The people of Beijing remain excited about the Olympics, despite the fact that construction is everywhere. The theory of our foreign policy towards China has been that economic development will spur political reform, but the jury is still out on that. issue. In Eastern Europe -- the closest I have come to the situation in China -- political reform has been driven by economic desperation. Will prosperity give new force to reform efforts? Or cause them to lose urgency?

Permalink | China | Comments (0) | TrackBack (0) | Bookmark

Permalink | Blogs and Blawgs | Comments (1) | TrackBack (0) | Bookmark

Paul at TaxProf Blog pointed to the Tax Code Termination Act, a new piece of legislation that boldly declares: "No tax shall be imposed by the Internal Revenue Code of 1986 for any taxable year beginning after December 31, 2009." In addition, the proposal states, "The Congress hereby declares that any new Federal tax system should be a simple and fair system that (1) applies a low rate to all Americans, (2) provides tax relief for working Americans, (3) protects the rights of taxpayers and reduces tax collection abuses, (4) eliminates the bias against savings and investment, (5) promotes economic growth and job creation, and (6) does not penalize marriage or families."

This is not the first time such an act has been proposed, and while it has all of the markings of a publicity stunt -- other than the fact that it has gotten almost no press -- I like it. As vigilant readers of this blog will know, I despise the complexity of the current tax code. As if on cue, today Paul provided an excellent example of why we need a new tax code.

Permalink | Miscellany | Comments (2) | TrackBack (0) | Bookmark

While I was away in China, Google filed the first amendment to its registration statement. Most of the stories about the amendment focus on the naming of additional underwriters, but I was more interested in another addition to the registration statement.

The first amendment to the registration statement usually contains the most substantial changes that the document will see before the SEC declares the document effective. In this amendment, the company has an opportunity to respond to the SEC's initial comments. Also, if the underwriters have uncovered new information as a result of their due diligence examination, that information will be reflected in an amended filing.

In that light, Google's first amendment is remarkable for the limited number of changes. The Letter from Sergey and Larry is unchanged; the financial numbers have been tweaked only slightly; and the company provided new disclosure about taxes that only an accountant could love. The most substantial change -- other than the addition of underwriters -- was the disclosure of the voting power of principal and selling shareholders. From a purely personal standpoint, I wish this information had appeared in the first installment of the registration statement (I had to calculate this myself for a presentation in China), but the results are interesting:

Name (Pre-IPO Voting Power)
Eric Schmidt (6.3)
Sergey Brin (16.4)
Larry Page (16.4)
L. John Doerr and Kleiner Perkins (10.2)
Michael Moritz and Sequoia (10.2)

Why is this interesting? Well, for one thing, it shows that none of the major players has outright voting control. Taking an insiders v. outsiders perspective, the advantage goes to the insiders. But in the event of conflict, alliances are brittle, and Google's pre-IPO capital structure would allow for substantial gamesmanship.

Despite having four series of preferred stock, Google has had only one round of venture investment, with Kleiner Perkins and Sequoia taking almost all of the shares in that round. Although the venture capitalists obtained only 20% of Google's shares, they also obtained significant control rights. For example, this is the board composition provision from Google's charter:

The holders of the Preferred Stock, voting as a single class, shall be entitled to elect two (2) directors (the ‘Preferred Directors’), and the holders of the Class A Senior Common Stock and the holders of the Common Stock, voting as a single class, shall be entitled to elect three directors (the ‘Common Directors’). The remaining director shall be elected mutually by holders of the Preferred Stock, the holders of the Class A Senior Common Stock and the holders of the Common Stock voting together as a single class and on an as-converted basis (the ‘Joint Director’).

This is a fascinating example of control allocation. The venture capitalists were entitled to elected two of six directors, and the common stockholders (the insiders) were entitled to elect three of six. The remaining director was called a "Joint Director," but assuming that common stockholders and preferred stockholders comprise two potentially conflicting groups -- an assumption not wholly merited here, but close enough to make the point -- this Joint Director would be elected by the group with the most shares. In this instance, that would be Google's founders and other insiders, who own the common stock.

Google's current Joint Director is Eric Schmidt, undoubtedly a consensus choice among all of the relevant parties. The structure of the board composition provision, however, would allow for a shift in board control away from the insiders and toward the venture capitalists. If the venture capitalists, through additional rounds of investment, were to acquire a majority of the voting power of the corporation, they would be entitled under the foregoing provision to elect the Joint Director. (Of course, this board composition provision could be changed with an additional round of investment.) That would earn the venture capitalists only the power to deadlock the board of directors, assuming the two sides remained fixed in their loyalties. What is the purpose of having an even number of directors? Did the parties intend to lay the foundation for deadlock? Or were they assuming that the board would continue to act by consensus?

Normally, the venture capital contracts tell an interesting story, but in Google's case, the story is opaque. The board composition provision just discussed suggests that Google's founders would not relinquish control easily. Then there is the fact that Google's venture capitalists did not obtain a right of first refusal for subsequent rounds of investment. Such a right is routine in venture capital investments, and it allows the venture capitalists to maintain their ownership interest in the portfolio company. Why didn't Google's venture capitalists obtain this right? Perhaps Google's founders denied them the right for the purpose of maintaining maximum flexibility in future financings? Would there be some advantage to Google's founders if the current venture capitalists could have their ownership interests diminished by future investments (from other venture capitalists or strategic partners)? I can't discern the answer just by looking at the documents.

Then there are the strange voting rights for the pre-IPO shares. The Common Stock (held only by Sergey and Larry) has one vote per share, but the Class A Senior Common Stock (owned by Sergey, Larry, Eric, and other employees) has ten votes per share, as does each series of Preferred Stock. Given the small number of shares of Common Stock outstanding, the effect is simply to multiple the number of votes by ten with no discernable effect on control. Presumably, Google had some other plan in mind when it created the unusual class of common stock (complexity for its own sake is unappealing in creating a capital structure), but what was the plan?

By the way, Google's current board of directors numbers nine, with three directors being appointed to fill vacancies created by the increase in the size of the board. This change does not fit comfortably with the aforementioned charter provision (who would elect the new directors at the next shareholder meeting?), but it doesn't need to as Google's charter will be amended upon IPO (i.e., before it would make a difference).

Permalink | Google | Comments (4) | TrackBack (2) | Bookmark

Today my daughter and I visited the popular Silk Market. We had been warned against it by some of our Chinese hosts, while others said that it was popular even with the locals. Having visited the more genuine local markets, however, we decided to leap into the tourist trap. In this photo, I am bargaining over some silk scarves, which I ultimately passed on. The Silk Market has much more than silk: watches, purses and packs, shoes, "jade" trinkets, etc.

If you are familiar with the problem of adverse selection, the Silk Market is a vibrant example of it. Many of the items are copies of famous designs. Close examination sometimes reveals the shortcomings of the goods -- for example, I picked up a Prada pack today and the imprint on the front was off center and crooked, and many of the "Pashmina" wool scarves are of such low quality that they threaten to tear in my hands -- but other items seem to be of good quality to the untrained eye. For example, many of the ties are attractive and the fabric looks very much like silk. Everyone knows that the products in the market are knockoffs, but the consumer is hard pressed to distinguish the good knockoff from the bad.

Of course, buyer and seller do not trust each other in the least. There is almost no reputational capital at stake in a market like this ... on either side of the deal. So when the seller says "trust me" (or some variation), all but the most gullible buyers just roll their eyes.

In this environment, the price drops toward zero very quickly. Some very handsome ties sell for about $1, for example. The sellers start the bidding much higher, of course, usually at $6 - $10 per tie. This, in itself, is an interesting experiment in anchoring. The temptation is to bargain from the initial asking price, which is a very bad indication of value. When approaching these negotiations, I counter the temptation to bargain from the initial asking price by offering a price based on my predetermined willingness to pay. This counteroffer would seem ridiculously low to the disinterested onlooker, but it usually ends up being very close the sales price. Most items that I purchased today sold between 10% and 30% of the initial asking price.

The Silk Market is more about the experience than the goods. I enjoy interacting with the vendors. While my daughter negotiated a particularly thorny purchase, I spoke with a neighboring vendor who wanted to practice her English. She had learned some English in school, but most of her English was comprised of the very limited vocabulary of the marketplace. My daughter's purchase completed, I wished the young woman the best and departed for the next shop. Now, thinking back, I wonder about her and how her life here will change over the next decade or two. Whether the "rich Americans" will continue to make their way to the Silk Market. Whether her life's work will consist of more than haggling with tourists over a few pennies.

Permalink | China | Comments (0) | TrackBack (0) | Bookmark