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
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.
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.
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.
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.
We also run a legal outsourcing company, and it's not easy. The main challenge is convincing lawyers to trust offshore workers. But many companies in service industries are outsourcing. Why not the legal industry? I disagreed with expert Jane Hanner Allen's view that only a local licensed lawyer should handle the legal research and review documents. Law firms frequently give that sort of work to paralegals and bill their clients at lower rates. How is that different from outsourcing?
Just Browsing, Thanks
Having a live-chat feature on your website can certainly be helpful, but I doubt that very many people would want a salesperson to contact them automatically ["May I Help You?" January]. I stopped buying from one distributor because every time I logged on to its site, I got a phone call from a representative asking me if I found what I was looking for and why I didn't buy anything.
I think it's pointless to try to compare online sales with offline sales in the first place. The reason 98 percent of visitors leave without buying is that you invest less time and energy checking out an e-store than you would a real one. And the main reason that more than half of Web shoppers abandon the items in their virtual carts is that usually you can't find out the total cost of an item (including shipping) until you add it to your cart.
New Egypt, New Jersey
Get More From Start-up Banks
In Dan Ackman's article about de novo banks, he says that if your lending needs exceed a de novo bank's limit, you should go elsewhere ["A Bank, At Your Service," January]. While it's true that every bank has a lending limit for a single borrower, a small bank can easily share a loan with another small bank to meet a larger client's needs.
Senior vice president
Indiana Business Bank
In Search of a Tax Plan
Robert Litan correctly chastises the President's Advisory Panel on Federal Tax Reform for its essentially DOA report ["Almost a Tax Plan," January]. But what I hoped to read in the column was a decent proposal from Litan for real reform of the tax system. I'm in favor of replacing the current tax system with the Fair Tax Plan. We'd eliminate the IRS, corporate taxes, income taxes, Social Security taxes, inheritance taxes--the lot. And the government would collect a federal sales tax. It would eliminate the horrendous expense of keeping track of the thousands of loopholes and lines of tax code with which all businesses struggle.
Director of engineering
Micromeritics Instrument Corp.
The December cover story on Ping Fu, founder of software company Geomagic, overstated the company's revenue when it cited a figure of $30 million. The source for the figure, a member of the company's board of directors, was offering an opinion about Geomagic's long-term potential. Geomagic has declined to give an accurate revenue figure for 2005 but acknowledges that its revenue was significantly lower than the figure printed in Inc. Additionally, the undergraduate degree Ping earned in China was in literature, not English as a second language.