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This month's letters to the editor.

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Not a Rule Breaker, But That's Great

A few months ago, I had a job right across the street from Mike's Famous Harley-Davidson dealership ["Reborn to Be Wild," January]. I wasn't interested in bikes, so I never stopped in. After reading how Mike Schwartz turned it into a $53 million-a-year business, I wished that I had. But it doesn't sound like he "broke the rules" to me. He got rid of the wrong people, brought in the right people, then came up with a plan to build a great company by putting the customers first. Aren't those the rules of creating a great business espoused by Jim Collins in Good to Great?

Gary H. Lucas
project manager
Dynatec Systems
Hightstown, New Jersey

Go With the Vision Guy

As an intermediary with 20 years of experience helping retiring owners get the highest possible sale price, I noticed a few things about the appraisers who were asked to place a value on the three companies ["The Number Cruncher Versus the Vision Guy," January]. Leonard C. Green, the venture capitalist, is looking to the companies' future, while Mary O'Connor, the financial analyst, is looking only at their past. Even though Green's valuations tended to be higher in these cases, I believe focusing on future growth, as he does, will help business buyers locate the most profitable and successful acquisitions. Unlike O'Connor and most prospective buyers, Green can see when a business is far more valuable than its financials indicate.

Gregory Caruso
Principal
Harvest Associates
Baltimore

Assessing the value of your company is an important subject, but the three companies you chose to analyze are too esoteric to have a valuation your readership would find useful. First of all, there was little mention of these companies' profitability. Second, you picked fairly embryonic companies. The valuation methodology for start-ups automatically departs from conventional metrics. You are forced to look at continuity of management, "key" (a euphemism for intangible) assets, projections (ugh!), and other amorphous signs of value that are, by themselves, way too subjective to be accurate. And the only folks interested in buying into these types of valuations are venture capitalists, who are inclined to speculate because one out of 50 investments could be their home run.

For your next valuation guide, I'd suggest you select more companies that make money and have been around longer. That's the category most business owners fall into, and they could use some assistance in this area.

Rockwell Marsh
President
Shoreline Holding
Madison, Connecticut

Pitfalls of the Shell Game

Your article about PIPEs is a great case study for companies tired of wooing risk-averse venture capitalists ["Striking Out With VCs?" January]. A PIPE (private investment in public equity) is a plausible way for cash-strapped businesses to tap into the trillion-dollar hedge fund market. In fact, our company is considering the possibility of listing stock on the over-the-counter Bulletin Board in order to raise PIPE financing, which is one strategy mentioned in the story.

However, I'm more cautious about reverse mergers, the other method described in the article. Reverse mergers--in which a private company goes public by merging with a publicly traded shell--have been under increased scrutiny by the Securities and Exchange Commission. This past July, the SEC voted to adopt regulations designed to deter fraud and abuse related to shell registrations. These new rules could make it more difficult and expensive for companies to perform reverse mergers.

Raj Suri
Controller
DKRW Energy
Houston

The Outsourcing Dilemma

David Galbenski's decision to outsource to India confused me [Case Study, January]. The pretext of the story was that revenue at his company, Contract Counsel, was flattening. But it seemed that Contract Counsel was enjoying a very profitable line of work in which customers and employees were happy. There didn't appear to be any real reason to outsource, and Contract Counsel could have tried to increase productivity in its own office before going overseas. Now that Galbenski is outsourcing to India, I hope the company can stay on track without spending too much time managing its new group of vendors.

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