Entrepreneurship Blog

Why is Boise State ahead of USC in the Polls?

2009-09-20T10:17:00.000-07:00

Boise State is #8 in the current AP poll. They could easily go undefeated with only 1 quality win (Oregon) on their schedule. The problem with the BCS is not its process, but rather the voter mentality that enables Boise State to move up in the polls after wins over low quality opponents. Does anyone believe that Boise State is better than USC, Ohio State, Virgina Tech or Oklahoma? If not, why is Boise State ranked higher than them? Teams in non-BCS conferences just don't face the week-in-week-out competition that SEC, Pac-10 or Big-10 do. For example, if Boise State and USC both win out, Boise State would likely go BCS championship game instead of USC. Yet, USC will have played 10 quality opponents to Boise State's 1.

Teams that play in the WAC, MAC, Mountain West, Sun Belt and Conference USA should be explicitly banned from competing in BCS bowls because no matter how difficult of a non-conference schedule they play, having 8 conference games simply makes their schedules too weak to take a BCS bid away from an SEC or Pac-10 team with 1 or even 2 losses. Any football team playing in a non-BCS conference that wants to compete for the national championship should only become eligible if they go independent and schedule at least 8 opponents from BCS conferences or join an existing BCS conference.

Obama's Tire Tariff Smacks of Special Interest

2009-09-17T11:29:00.000-07:00

Barack Obama won the election on a platform of change with particular reference toward minimizing the role of special interests in politics and he did some great work early in his term to reduce the influence of lobbyists, but whats up with his recent decision to impose a 35% tariff on Chinese tire imports?

The AFL-CIO and the United Steelworkers pushed for the tariff but the Tire Industry Association (TIA) strongly opposed it. Shouldn't the TIA have more say in tire trade than the AFL-CIO or the United Steelworkers? The issue isn't 100% clear cut because the the United Steelworkers do represent some tire factory workers and some of the tire manufacturers did want protection, but it sure seems like the special interests won at the expense of the general public.

An Idea for Bank Pay Reform

2009-09-15T21:59:00.000-07:00

In general government regulation hurts economic growth. However, there are circumstances where minimal controls may be necessary. Wage controls and banking/trading are particularly tricky because bankers and traders can easily evade national regulation by moving to foreign firms while still operating in domestic markets. Despite the public outrage at Wall Street, its not entirely clear if pay regulation is necessary, but if it is, here are a couple ideas on how to approach it.

First, lets clarify that the goal of any regulation should not be to punish. It doesn't matter how much bankers and traders earn relative to the general public or that they may be perceived as overpaid. Everyone loses if regulation disincentives economic growth so there is no point in capping pay if the goal is assuaging the public.

The goal of any regulation should be to add stability to the system without dampening growth. In this case the goal of pay regulation should be to more closely align the banker/trader's interests with the long term success of the firm they work for. The problem with compensation is not how much is made, but rather how its made.

The problem in a nutshell is that system rewards individuals for taking outlandish risks without much downsides. Barney Frank calls it "Heads I win, Tails you lose." For example:

Year 1: Trader nets $100M for the bank and receives a $3M bonus
Year 2: Trader looses $200M for the bank and gets fired

Net-net, the trader has lost $100M for the bank but got paid a handsome $3M over a 2 year period and while s/he was fired, finding a new job probably won't be too difficult. Heck, even if takes them 2 more years to get a job they'll still average $750K per year in compensation over the total 4 year period. Thus, it really doesn't matter how much of the bank's money a trader looses over the course of his/her career so long has s/he has a couple good ones to lock in multi-million dollar bonuses. Thus the individual is rewarded for destabilizing the system by gambling with the banks money in order to maximize their personal compensation.

An outright compensation cap would be problematic because it wouldn't reward those that go above and beyond and could lead top talent to flee to unregulated foreign banks. However, shifting compensation above and beyond a certain level from cash to stock grants on a vesting schedule would align the banker/trader with the long-term interests of the bank that s/he works for. By putting the excess bonus into a stock grant the banker/trader would be motivated to maximize the value of his/her firm's equity and by putting the grant on a vesting schedule the interests could be aligned over a number of years.

Its tough to say exactly at what level the cash bonus cap would be most effective or over how many years the vesting schedule should be. Getting it wrong could be ineffective and/or lead to talent flight. However, a $1.5M cash cap and a 3 year vesting schedule seems like good starting points for discussion purposes. While many analyst/associate level bankers make bonuses that are below the $1.5M level, the managing directors that they report to (and who ultimately decide the analyst/associate bonuses) will be effected by the compensation plan and therefore highly motivated to run their departments with the goal of maximizing the firm's stock value.

Going back to the two year scenario above, in year 1 the trader would get $1.5M in cash upfront and $1.5M worth of stock in his firm vesting over the next 3 years. In year 2 the trader is highly motivated to do what is right for the firm because if s/he is fired or leaves the firm for any reason a portion of the bonus will be lost. On the contrary, if the trader makes a positive contribution to the firm's growth, not only will they secure another great bonus in year 2, but they will also increase the value of the stock that they were granted in year 1.

Mechanically, this could mean that large portions of what the bank would have paid in bonuses will now go into buying their own stock, which could provide a nice initial pop in stock price if the bonuses are large enough relative to the firm's market cap. Although Wall Street will likely resist any wage controls, this could be a motivating factor to get on board with pay regulation.

One downside to this plan is that the stock vesting schedule would decrease financial industry labor flexibility because moving firms would always leave 2-3 years worth of grants on the table. An approach to this problem could be enabling hiring banks to offer a hiring bonus of equivalent value (or a fraction of) in their own stock on the same schedule as the unvested portion of the banker/trader's grants at the old firm. A fraction would probably be best in order to discourage taking outlandish risks and then simply moving banks before the shit-hits-the-fan.

Obama Speaks but will Bill Maher Listen?

2009-09-13T21:41:00.000-07:00

Earlier this evening on 60 Minutes Barack Obama said:

"In the era of 24 hour cable news cycles that the loudest shrillest voices get the most attention... And so one of the things that I'm trying to figure out is how can we make sure that civility is interesting... And that hopefully I will be a good model for the fact that you don't have to yell and holler to make your point and to be passionate about your position."

Hopefully this is a wake up call to fans of Bill Maher, John Stewart and Steven Colbert. Although rarely subjected to the same level of criticism, their influence degrades the quality of political discussion equally as much as their more notorious conservative counterparts, Rush Limbaugh and Michael Savage. Everyone could benefit from taking more time to understand the complex issues that we face today and the manipulations, sound bites, jokes and polarization that these pundits rely on are not helpful. Lets turn them all off and pickup a newspaper instead.

Taxes Paid by Income Level

2009-08-05T23:57:00.000-07:00

Land's End

2009-07-31T15:10:00.001-07:00

iPhone is my bookshop killer

2009-03-21T17:49:00.000-07:00

I really do love having local bookshops. Keplers in Menlo Park is definitely a favorite. But I really don't like paying full price when Amazon seems to sell most books at 40% off. I have an Amazon prime account and now that I have the Amazon app for my iPhone, it's just too easy and cheap to buy books. I hate to admit this, but I've started browsing in local shops and buying from my Amazon right there in the shop. It's the best of both worlds for me but kinda shitty for the local shops that I do want to support. I'm not sure how I'm going to reconcile this one quite yet.

Buy American Clause

2009-02-15T21:27:00.000-08:00

The inclusion of the "Buy American" clause demonstrates just how broken our political process is. Its amazing that congress leaned so little from the Great Depression. Protectionism doesn't work.

Watch CBS Videos Online

Hourly Wage @ Walmart

2009-01-25T00:33:00.000-08:00

According to an NY Times article, Walmart's average hourly rate for full-time employees is $10.83. Most people seem to believe that Walmart pays only minimum wage but apparently thats not true.

An Auspicious Start

2009-01-22T00:05:00.000-08:00

Barack Obama starting his first day in office by increasing government transparency and erecting barriers to lobbyists was a great move. The more secrecy and the more lobbyists the more distorted the politics becomes. Now this could lead to real change.

Best & Worst of Obama's Inauguration Speech

2009-01-21T02:44:00.000-08:00

Barack Obama is unquestionably a fabulous speaker and while his election night speech was much better, his inauguration speech didn't disappoint. The best line from his speech was:

"Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some but also our collective failure to make hard choices and prepare the nation for a new age."

And the worst:

"Yet, every so often the oath is taken amidst gathering clouds and raging storms."

...not only super cheesy but don't gathering clouds happen before raging storms rather than at the same time?

Obama & the Status Quo

2009-01-21T02:12:00.000-08:00

Barack Obama's inauguration represents "change" in several important ways. However, it is equally important to recognize several key ways in which his election victory also represents the status quo:

The candidate that raised the most money won
Charisma was exponentially more important than policy
Change was a key campaign promise of non-incumbents

An Intro to Ubuntu for Non-Techies

2009-01-11T10:33:00.000-08:00

The NY Times has a good intro article on Ubunutu for any non-geek that's interested in learning what all the fuss is about.

Fife's Law

2008-11-23T18:53:00.000-08:00

Fife's Law:

Whatever a channel partner can confuse will be confused

What Would You Pay for Wikipedia Access?

2008-11-16T15:02:00.000-08:00

I use Wikipedia virtually everyday. Its an incredible resource that frankly I often take for granted because its free. I've skimmed past the donation button at the top of their content pages for a while now, but it dawned on me today, that this incredible resource depends upon donations to stick around. Imagine Wikpedia's infrastructure cost of hosting, servers, bandwidth and electricity.

Seriously, what would you pay for Wikipedia access? O'Reilly's Safari service ranges from $23 to $43 per month and thats for a lot less content. (Though this is an outstanding value as well)

Anyway, I made a small donation today and I encourage everyone that finds Wikpedia useful to consider doing the same here. There isn't a minimum donation so give what ever makes sense for you.

Lessetarian

2008-10-20T01:51:00.000-07:00

I've eaten less than an ounce of meat over the last 2 weeks. I ate vegetarian for a year in college and haven't had much of a desire to go back since. I don't plan on eliminating meat 100%, but thanks to veggie burritos I'm really not struggling without it at the moment.

Vote for Andrew

2008-10-18T09:37:00.000-07:00

I've come to the conclusion that the 2008 Presidential election offers no electable candidates so I am writing myself in on the ballot. Both candidates have major flaws that I can't get past.

Newman

2008-09-14T18:58:00.000-07:00

Newman is definitely my favorite Seinfeld character.

Doh!

2008-09-11T22:53:00.001-07:00

Okay maybe I owe jawbone an apology... It's pretty easy to turn the thing off. All it takes is holding down the side button for several seconds. Could have sworn I tried that, but I guess not.

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Not Liking Jawbone

2008-09-10T00:02:00.001-07:00

I can't ever seem to have my cell phone headset with me in the car when it's charged. It's either on my desk at home or in my car out of juice.

One of the problems is that I can't seem to tell if the darn thing is off or not so I seem to kill the battery in less than a day. Seems like it should have a sleep mode to conserve power. A car charger might help as well.

I guess I haven't read the manuel so maybe I'm doing something wrong. But then again consumer electronics really should just work these days.

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Trying Lifecast App

2008-09-08T21:48:00.001-07:00

Trying out blogging from my phone. If this works okay, I may start blogging more often again.

Posted with LifeCast

Feeling Great About Moutain Biking

2008-04-23T00:40:00.000-07:00

On Friday night, I picked up a new Fuel EX9 mountain bike from Trek and I've managed to get at least a quick ride in 3 of the last 4 days since. I used to road bike all the time, but over the last year, I haven't been disciplined about making time to exercise regularly and I've really gotten out of shape.

Right now I'm feeling so good from putting my legs to work that I can't understand how I ever got out of my riding groove. Unfortunately, I'm heading to Linuxfest Northwest tonight, so I won't be able to ride again until Monday but I'm already itching to get back on the bike! ...now I just need to figure out how get through a ride without falling off the bike...

Dophins Virtually Guarantee Unsuccessful Draft

2008-04-23T00:20:00.000-07:00

In advance of this weekend's NFL Draft, the Miami Dolphins announced today that they had signed Michigan tackle Jake Long and will select him with the number one pick. Offensive and defensive line are the most important (and under appreciated) parts of any football team, so I like the pick in that sense. However, the reported $57.5M contract with $30M in guaranteed money makes Long the highest paid lineman in the league.

I'm excited about Jake Long, but the odds are really low that he'll become the best lineman in the league, so why make him the highest paid? Compared to the opportunity cost of signing veteran players with far less risk on the free agent market it just doesn't make any sense to risk a Robert Gallery or Tony Mandrich type bust when the salary cap makes dollars scarce in the NFL.

The #1 pick in the draft has negative value. The only time top draft picks have value is when the bigger fool theory kicks in and another team is willing to trade for it.

Always Trade the #1 Pick in the NFL Draft

2008-03-20T20:36:00.000-07:00

Why give $50-60M to an unproven player? Thats All-Pro money. I'd trade the #1 pick every time.

1977 - Ricky Bell - Bust
1978 - Earl Campbell - Stud
1979 - Tom Cousineau - Good not great
1980 - Billy Sims - Injury
1981 - George Rogers - Injury
1982 - Kenneth Sims - Bust
1983 - John Elway - Stud
1984 - Irving Fryar - Good not great
1985 - Bruce Smith - Stud
1986 - Bo Jackson - Injury
1987 - Vinny Testaverde - Bust
1988 - Aundray Bruce - Bust
1989 - Troy Aikman - Stud
1990 - Jeff George - Bust
1991 - Russell Maryland - Good not great
1992 - Steve Emtman - Injury
1993 - Drew Bledsoe - Good not great
1994 - Dan Wilkinson - Bust
1995 - Ki-Jana Carter - Injury
1996 - Keyshawn Johnson - Stud
1997 - Orlando Pace - Stud
1998 - $48M - Peyton Manning - Stud
1999 - $44M - Tim Couch - Bust
2000 - $45M - Courtney Brown - Bust
2001 - $62M - Michael Vick - Bust
2002 - $60M - David Carr - Bust
2003 - ???? - Carson Palmer - Stud
2004 - $54M - Eli Manning - ???
2005 - $49.5M - Alex Smith - Bust
2006 - $54M - Mario Williams - Stud
2007 - $61M - JaMarcus Russell - ???

Interview on the CBS/KPIX News

2008-03-13T22:20:00.000-07:00

Earlier this month I was interviewed on the morning news at CBS/KPIX Channel 5 about the Installfest for Schools, which was a great success. We recycled 350 computers with Ubuntu that will be donated to Northern California schools. The interview took place the morning of the event on March 1st. I was a little bit nervous, but it was a lot of fun. One really strange thing about being in studio is how few people there were... all of the cameras are robotic and the place feels really empty and ridiculous... If you didn't know they were broadcasting live on T.V. you ask yourself "why are these two people sitting behind the desk talking to an empty room?" Its weird.