Readers react to recent Inc magazine articles. Plus: An update on the MEP and why the Bush administration is significantly cutting its funding to this successful, cost-efficient program designed to help small manufacturers.
Vern Raburn wants to rescue us all from airline hell. Backed by investors like Bill Gates, Raburn hopes to spawn a nationwide air-taxi system that will bypass the grind and gridlock that marks today's air travel. But as Hesh Kestin's June profile of Raburn, " The Plane Truth," shows, the entrepreneur is something of a modern-day Icarus: dogged, charismatic, and perhaps also reckless.
Raburn's start-up has spent nearly $220 million to create a Checker cab for the airways: the Eclipse 500, a relatively low-cost six-seat plane, hailed as aviation's "next big thing." Kestin's article raised serious doubts about a much-publicized order for 1,000 planes that Raburn had received -- an order that appeared to have helped him win critical capital. One reader raises further questions about Raburn's plan.
This story was a great piece of reporting. Hesh Kestin asked the right questions and came to the right conclusions. There is, however, one assumption left unchallenged that deserves redress. The piece assumes that a lack of suitable airplanes is the main factor driving the concept of "air taxis." Having been in that field (providing charter air services to companies and individuals), I think not!
Potential users of air taxis have numerous options open to them, from partial ownership of planes to chartering any of the thousands of aircraft residing around the country. The ready availability of planes extends from inexpensive, small single-engine aircraft that travel at speeds of 100 to 200 mph, to upscale Turboprops that can carry more passengers at 200 to 300 mph, to Swift Jets carrying still larger loads at speeds of up to 600 mph. The idea that the Eclipse is filling an unmet need is a fallacy. The need has already been filled by existing service providers -- and those businesses require far less capital investment than Raburn's does.
Author of First World Flight: The Odyssey of Billy Mitchell
Daytona Beach, Fla.
Kestin replies: Fractional ownership? That's like buying the cow when all you need is the occasional quart of milk. Charter? Try chartering a plane from East Hampton, N.Y., to French Lick, Ind. Whoops: EH's runways are too short for charter jets, which shifts us to Westhampton -- in traffic that adds two hours' driving time round-trip. Then there's price. For a Citation V (a little faster than an Eclipse 500) one national charter outfit wants $10,650 round-trip -- $2,130 each for a party of five. That covers 4.25 hours in the air and 3 hours for plane and pilot waiting for me and four associates to get sloshed in French Lick. Using Raburn's far-cheaper plane, which supposedly can fly into and out of most anywhere, the business plan for one air-taxi start-up puts the price at $600 per flight hour and $50 per hour waiting time -- $2,700, or $540 per passenger. Charter is air limo. Air taxi is what we need.
This reader loves Kestin's plane-spoken style.
I don't think that Eclipse Aviation has legs, much less wings, but then again, the aviation industry has always attracted people who love enormous challenges. Hesh Kestin treats his subject matter with a nice combination of respect and skepticism, especially the latter. Kestin has more than a little bit of Studs Terkel in him. All in all, an extremely enjoyable read.
Bartizan Data Systems
The risks involved in hiring a new CEO, examined in Jennifer Reingold's " The Most Dangerous Hire" (June), impelled this professional recruiter to make his own suggestion of what to fear.
As managing principal of a search firm since 1980, I find that the phrase "most dangerous hire" brings another thought to mind. At any level, including CEO, the most dangerous person is the one who can almost do the job. He or she is not bad enough to be an obvious mistake but represents a missed opportunity by being just a hair away from what the job calls for. Perhaps that is a thought for another article. I certainly appreciated how well you did this one.
Stanley Herz and Co.
Senior writer Susan Greco's June cover story, " Finding the Perfect Pitch," followed a group of aspiring female entrepreneurs as they honed investor pitches in a grueling boot camp run by Springboard Enterprises.
As an investment banker who has worked with many young entrepreneurs raising early-stage capital for their emerging growth firms, I thought "Finding the Perfect Pitch" was right on the money.
When you are speaking to investors, you must engage them with a compelling message, but more than that, you must also convince them that you and your team can take your venture all the way, no matter what obstacles and setbacks you will face. It's a time to get real -- there can be no fluff in the numbers. And you will need to demonstrate that your management team can steer your company through down markets and tough competition.
Author of Winning Strategies for Capital
Amelia Island, Fla.
Going public by reverse merger has always been a controversial alternative to an initial public offering, as Thea Singer wrote in her May article, " Shell Game."
There's no doubt that a lot of controversy surrounds shell mergers, and they always seem to come to the forefront whenever Wall Street closes its wallet and stops underwriting new issues. In fact, the controversy surrounding shell deals lies in the lack of any real statistics on them.
Neither the Securities and Exchange Commission nor the National Association of Securities Dealers tracks reverse mergers, and I suspect that the Thomson Financial statistic that is quoted in the article -- that there were 14 reverse mergers between 1990 and 2000 -- is incorrect.
Axiom Capital Corp.
The editors reply: We agree that the number of reverse mergers between 1990 and 2000 may have been higher than the 14 that Thomson Financial reported, because some reverse mergers may have been classified as mergers or acquisitions rather than as reverse mergers. We regret that, owing to an editing error, that qualification got cut.
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Will Bush Budge on the Budget?
Small manufacturers lobby the White House over an 88% cut to a key assistance program.
The Bush administration has us scratching our heads. In a January 2002 article, " Made in the USA," Inc praised the Commerce Department's Manufacturing Extension Partnership (MEP), an impressive, effective, cost-efficient program designed to help small manufacturers become more competitive. A recent independent calculation asserts that MEP centers generate $4 in federal tax revenues for every $1 they invest. Just over a month after that article appeared, however, Bush's Office of Management and Budget recommended slicing MEP's funding from $106 million to $12.9 million. The reduction would cut the legs out from under MEP's 400-plus local consulting centers, which rely heavily on federal funds. The official explanation for this and every other cut in Bush's budget is that the program doesn't fit into the president's three priorities, which are economic recovery, the war on terrorism, and homeland security.
Helping manufacturers is not tied into the recovery, you ask? Ironically, it appears that MEP's very success made it a target. "On the face of things, it's a backhanded compliment," says Mike Wojcicki, president of the Modernization Forum, a trade association for MEP centers. "They're saying that the program is so good, maybe it can survive without federal support."
Budget writers also point out that MEP's original legislative design called for "a phaseout of federal monies to each center after six years ... with the goal of making each center self-sufficient." Now "MEP should market its services without government assistance," explains OMB spokesperson Amy Call. Well, yes, federal funding was scheduled to end after six years, but Congress repealed the sunset in 1998. MEP has always argued, successfully until now, that centers need federal money to pay for marketing to the smallest businesses. "Without that funding, centers would go where the money is easiest, and that's with large manufacturers," Wojcicki fears.
If MEP's budget is annihilated, proponents of the program predict painful consequences for small manufacturers. In a study that MEP conducted two years ago, manufacturers reported total increased or retained sales of $2.3 billion after receiving MEP assistance, in addition to $483 million in cost savings. Those businesses also said they created or retained 25,569 jobs.
To fight the cuts, a grassroots group of MEP clients flooded the administration and members of Congress with protest mail and sent an army of supporters to Washington to state their case in person. The result: 54 senators and 226 representatives signed letters in support of restoring MEP's funding. Senator John McCain, a fellow who knows a corporate entitlement program when he sees one, says that MEP "plays an important role ... giving small manufacturers access to technology to stay competitive." And Ernest "Fritz" Hollings, who chairs the appropriations sub-committee responsible for MEP, notes that his state, South Carolina, turned a $2-million federal investment in MEP into $150 million in economic benefits and 500 jobs. "With a success story like ours, you can bet that I will work to restore funding," he says. At press time, MEP's fate was still an open question. --Donna Fenn