A blog about business and economics.

Oct. 30 2014 10:08 AM

What Happens During the First Years of Your Startup

This article originally appeared in Inc.

When I start a new company and successfully get it funded, I sometimes get eye rolls from first-time entrepreneurs. What they are communicating is “of course you did—you have done it before.” While that’s true, I have done it before, and it is a little easier the second and third time, there are aspects that actually get harder every time.

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Following are things to expect and anticipate in the first few years as a CEO for a startup.

Year 1—Work a Lot, but Worry Even More

A good run with a startup can often take seven to 10 years. In the first year of a startup, expect to do about two years’ worth of work. Why? Well, in the first year there’s typically a lot of product-creation and compensation anxiety.

Product-creation anxiety is managed by just doing. Writing code all day, into the evening, on the weekend, etc. If you are exhausted at the end of the day, that’s good, you should feel like you’ve moved the ball down the field.

Compensation anxiety is trickier. If you are young and this is your first company, this is often minimized by the fact that you have a fairly “unencumbered lifestyle.” If you are older and have a more “complicated lifestyle” then this can be tough.

Regardless of how many times you start a company, you generally pay yourself between zero and 25 percent of what you could be making nearly anywhere else. Having the resolve to work twice as hard for 25 percent of the pay is difficult. As the CEO, you are lead cheerleader; you really aren’t treated special. There is nothing exciting about your role.

Year 2—Work a Lot, Get Paid a Little

In the second year of the company, expect to do about one and a half year’s worth of work. You really aren’t getting paid any more than you were in Year 1, but the anxiety of product realization is minimizing as you see it take shape.

A new anxiety, however, takes its place: market acceptance anxiety. You are trying to hold your ground on the idea, convince your employees what they are building is filling a need in the market even though there is no validation yet. You are transitioning from doer to decider. The company is no longer the democracy it was at first. You feel more exposed. Will people buy the product?

Year 3—Start to Find the Balance

In the third year of the company, expect to do about a year’s worth of work.

By now, let’s hope, you have found the product-market fit. People are buying the product, and it has problems but they are generally manageable. With some success, you can raise more money and pay yourself 75 percent of your street value.

Product-market acceptance anxiety is diminished. You have a few specialists who can unload you a bit. Employees are getting excited and everyone can explain the product in an elevator.

By Year 3, I find that thinking is almost as valuable as hands-on working. I try to start taking vacations again as a way to help the creative thinking process. By being in different physical locations, you can just think and solve problems or challenges more easily. Usually at this stage, you need to strategize your way to success.

A new anxiety enters the picture at this stage, however--making-the-numbers.

The Out Years—Life Is Good, Until …

In what I call the out years--Years 4 and beyond—is where the company establishes its more mature trajectory.

You have good people who understand their roles in the company with great clarity. You know what generally works and what doesn't. In the out years, there tends to be a bit of decompression and your life can be more normal. You are finally paying yourself a standard market salary and, if the company is performing, nice bonuses that help on the home front.

Life is good again, until someone comes along and makes an offer to buy the company. Eventually, you move on and it all starts again. You need to take a deep breath and find the courage to go back in that house.

Startups are front-loaded with respect to work versus life. It almost goes without saying that it's quite different from working for someone else—almost. Creating startup after startup in a serial manner presents a feast or famine situation with relation to compensation. Entrepreneurs need to be ready for it. On the flip side, it can be one of the most rewarding careers you can have.

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Oct. 30 2014 9:09 AM

Apple CEO Tim Cook Comes Out: “I’m Proud to Be Gay”

In a lovely essay for BloombergBusinessweek today, Apple CEO Tim Cook confirmed that he is gay. "While I have never denied my sexuality, I haven’t publicly acknowledged it either, until now," he writes. "So let me be clear: I’m proud to be gay, and I consider being gay among the greatest gifts God has given me."

Cook's sexuality has long been a mostly open secret. Out magazine ranked him at the top of their "Power 50" list back in 2011. Gawker has called him "the most powerful gay man in America." There was this awkward incident on CNBC last summer. And in December 2013, he edged towards discussing the subject himself in a speech on gay rights and racism, saying, “I have seen and have experienced many types of discrimination and all of them were rooted in the fear of people that were different than the majority.”

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But in his Businessweek essay, Cook says he finally came out in the hopes that he might serve as an inspiration for others. "I don’t consider myself an activist," he writes, "but I realize how much I’ve benefited from the sacrifice of others. So if hearing that the CEO of Apple is gay can help someone struggling to come to terms with who he or she is, or bring comfort to anyone who feels alone, or inspire people to insist on their equality, then it’s worth the trade-off with my own privacy."

One has to wonder if this might also signal Cook's transition into a more vocal advocate for LGBT rights. In his piece, he notes that in many parts of the country, gay and lesbian Americans can still be fired from their jobs or evicted from their homes based on their sexuality. "Countless people, particularly kids, face fear and abuse every day because of their sexual orientation," he writes. Recently, he criticized his home state of Alabama for its own lack of progress on marriage equality.  

All that said, the most shocking section of the essay is this paragraph:

Part of social progress is understanding that a person is not defined only by one’s sexuality, race, or gender. I’m an engineer, an uncle, a nature lover, a fitness nut, a son of the South, a sports fanatic, and many other things.

As Bloomberg View's Adam Mintner put it:

Oct. 29 2014 5:57 PM

SodaStream Is Shutting Down Its West Bank Factory

SodaStream announced today that the company will close its controversial factory located on a West Bank settlement—the focus of an international boycott campaign. The company will move the plant's operations to a new location in southern Israel by late 2015. This is pleasant news for guilt-ridden liberals who also happen to be SodaStream fans, and (far more importantly) it's a small victory for Palestinians who would prefer not to live in an occupied territory.

SodaStream's defenders have pointed out that its factory employed some 500 Palestinians out of roughly 1,300 workers. But by locating in the West Bank—which critics say made it eligible for tax breaks as well as cheap land—the company helped anchor the settlements. As the Jewish Daily Forward explained it:

SodaStream’s factory is not located in a radical settlement; it is located a 10-minute drive from Jerusalem in an industrial park next to one of the largest settlement blocs—Ma’aleh Adumim—which will likely be incorporated into Israel in any future deal. But it does exploit the commercial benefits of its location, essentially profiting from occupation, and contributes to the slow closing of the E1 corridor that is necessary for the contiguity of a future Palestinian state.   
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Over time, the brand has been engulfed by controversy over the plant. Actress Scarlett Johansson had to step down as an ambassador for the humanitarian group Oxfam International, which is against trade with West Bank settlements, after she became a pitchwoman for SodaStream. According to the Wall Street Journal, "Online calls to boycott the company’s products have more than doubled since 2013 and represented 29% of SodaStream’s brand conversations on the Internet between July and October." In a remarkable act of corporate plainspeak, CEO Daniel Birnbaum eventually called the factory "a pain in the ass" and said with hindsight he "never" would have opened it. 

Perhaps today's announcement will offer a little pain relief. And what of the plant's current workers? According to the WSJ, Birnbaum says SodaStream "will try to secure Israeli work permits for Palestinians" at the new site, which is about 60 miles from the West Bank factory. That's a long commute. But this seems like it might be a win-win for all involved.  

Oct. 29 2014 5:21 PM

The Fed Has Ended Its Historic Bond Buying Program

It's official: The Federal Reserve is taking away Wall Street's favorite punch bowl. On Wednesday, the Fed ended its historic bond-buying program known as quantitative easing, or QE3. In this massive effort to stimulate the economy, the Fed spent a little more than a year purchasing $85 billion a month in mortgage-backed securities and debt. As things picked up, the Fed began to consider when it could take its foot off the gas pedal—aka dial back its hefty bond purchases.

After beginning to taper its stimulus in January, the Fed is finally bringing the whole thing to an end. The Federal Open Market Committee said in its statement that interest rates will stay low for a "considerable time" even after asset purchases end. The committee emphasized that labor market conditions have improved and the economy is growing "at a moderate pace," with "solid job gains and a lower unemployment rate." Nonetheless, an important chapter in Fed history has wrapped up. For a look at some of its key moments, check out the timeline below.

Oct. 29 2014 3:59 PM

Study: It’s Student Debt, Not the Economy, That Forces Millennials to Move In With Their Parents

Ask a millennial why so many twentysomethings live with their parents, and he’ll probably let out an exasperated sigh and then patiently explain that we're a whole generation loaded down with student debt and navigating an economy that's been cruddy for years. It’s hard to make your rent when you’re jobless and paying off a bachelor’s degree.

But that narrative may only be half-right, according to a new study by a pair of Federal Reserve Board economists. Student loans, the study argues, may be a big reason so many young adults are moving in with Mom and Dad. But the bad economy? Not so much.

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Between 2005–2014, Lisa Dettling and Joanne Hsu write, the percentage of 18-to-31-year-olds living with their parents grew at an “unprecedented” speed, hitting a high of about 36 percent. Using credit agency data on more than 1.8 million young adults, they look at how changes in indebtedness and the economy writ large affected the rate at which the kids moved in with their parents. During this period, student loan burdens skyrocketed, while other types of debt shrunk back a bit. Meanwhile, we all know what happened to the unemployment rate.

Their conclusion? The rise of student debt and delinquencies could potentially explain about 30 percent of the increased frequency with which twentysomethings moved back in with their parents. The health of the economy, measured by factors such as local unemployment rates, had an effect during the heart of the recession in 2008 and 2009. But over the whole nine-year time frame, the downturn couldn’t sufficiently explain the changes that occurred.

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Intuitively, it seems absurd to posit that the recession itself didn't send millennials back into their parents' basements. As Pew has pointed out, much of the increase in children living back at home seems to have been "concentrated" among young adults who never went to college. Are we really to believe that the astronomical unemployment rate didn't play a role?

Dettling and Hsu's paper also doesn't draw a super-clean line between debt and the rest of the economy. It notes, for instance, that rising delinquencies seem to have increased the rate at which young adults moved back home. But delinquencies tend to rise when the overall economy goes sour. It seems hard to completely separate out causation.

That said, Dettling and Hsu's findings may dovetail with other recent studies. As Neil Shah reported earlier today at the Wall Street Journal, for instance, Census Bureau researchers have shown that "the Great Recession’s impact on kids living with parents isn’t actually that special as far as recessions go."

New studies with counterintuitive findings should always be treated with a dash of skepticism. But consider this one a bit of ammo for those who are particularly alarmed at the rise of student debt: College loans may bear greater responsibility than the Great Recession for the growing ranks of boomerang kids.

Oct. 28 2014 4:50 PM

Don’t Let Anyone Blame Single Mothers for Economic Inequality

When it comes to talking about economic inequality, conservatives generally aren't too comfy discussing how skyrocketing CEO pay and Wall Street lucre have concentrated income among America’s tip-top earners. They are, however, extremely at home talking about families—namely, single mothers, and how the dissolution of the two-parent household model has set back the middle and working classes.

In that vein, the American Enterprise Institute has released a new report, “For richer, for poorer: How family structures economic success in America.” (I spoke about it on a panel earlier today). The paper's goal is to put marriage in the center of the public discussion about inequality and opportunity. And its point, to simplify a bit, is that marriage is really, really great. It’s good for men, who tend to make more when they’re hitched. It’s good for women, who end up with higher household income. It’s great for children, who generally fare better in life when raised by married parents. In fact, the report argues that whether or not someone grows up with both parents predicts about as much about their future income as race.  

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Social scientists can debate whether marriage actually turns men into more responsible, ambitious, and higher-earning individuals (as some have argued), or whether responsible, ambitious, and potentially higher-earning men are just more likely to get married. But common sense tells us that the truth lies somewhere in between. You can debate whether family income or family structure plays a more important role in shaping kids, but I think most people would agree that two parents are preferable to one. Raising children solo is an insanely difficult undertaking. Life isn’t an episode of Gilmore Girls.

But I’m also skeptical about efforts to turn the inequality debate toward single mothers and absent fathers—because, in the end, it’s simply not driving the changes in the economy we’re experiencing today. As Timothy Noah wrote in Slate years ago, the biggest changes in American family structure took place in the '70s and '80s, and they help explain why, for instance, the ratio between the 90th percentile of earners and 10th percentile is higher than it was 30 years ago. But the shift away from two-parent households doesn't really factor into the concentration of wealth among the 1 percent. And the rise of the 1 percent, and the 0.1 percent for that matter, is the real story when it comes to how income inequality is evolving today.

Conservatives will point to recent research showing that economic mobility is stronger in places with fewer single mothers. But that same work also shows that mobility has been weak for decades. The notion that Horatio Alger stories are just myths isn’t new. But the share of the economy that the rich are chewing up is relatively new.

Single mothers and fragile families are a fact of American life, and we certainly need to find better ways to support them. But that discussion isn’t a substitute for grappling with the rise of the 1 percent.

Oct. 28 2014 3:26 PM

FTC Sues AT&T for Misleading Customers Over Unlimited Data

The Federal Trade Commission seems to have had it with AT&T. Three weeks ago, the regulator ordered AT&T to pony up $105 million for bogus "cramming" charges on customer bills. Today, the FTC is slamming the wireless carrier with a lawsuit for allegedly misleading millions of its users about their unlimited data plans.

The FTC's complaint is this: AT&T did not deliver truly unlimited data to customers on unlimited data plans. At issue here is something the industry refers to as "throttling," which occurs when carriers decide to slow data speeds for consumers after they hit a certain usage threshold in a given billing period. (For example, imagine AT&T serves a customer's first 3 GB of monthly data at normal speeds but drastically reduces the pace for anything beyond that—that's throttling.)

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The way the FTC sees it, an unlimited data plan with throttling is not an unlimited data plan. In its complaint, the FTC notes that customers on AT&T devices have had their data speeds reduced by between 60 percent and 95 percent after using as little as 2 GB. "Many everyday applications, such as web browsing, GPS navigation, and streaming video, are significantly slower, and in some cases are severely impaired or rendered practically inoperable," the FTC writes.

In a statement on its website, AT&T dismissed the FTC's allegations as "baseless" and "baffling." AT&T argues that it has been "completely transparent with customers since the very beginning" of its throttling program, informing them of changes in billing statements and through a national press release. AT&T stopped offering unlimited data plans to new customers in 2010; it has allowed existing customers with unlimited data to stay on grandfathered versions of those plans but has made it increasingly difficult for them to maintain the arrangement.

As consumer frustration with throttling has grown, regulators have taken note. In late July, FCC Chairman Tom Wheeler wrote a letter to Verizon saying he was "deeply troubled" by the company's intention to start throttling its heaviest data users. On Oct. 2, Verizon abruptly backed away from its plan.

The FTC's case against AT&T will largely hinge on whether the carrier adequately disclosed its throttling program. So far, the FTC is being careful to note that "data throttling isn't always illegal" but that "when it's done in a way that's deceptive or unfair, it most certainly is." It argues that AT&T's customer agreements do not state that AT&T may "modify, diminish, or impair the service of unlimited mobile data plan customers" if they use more than a certain amount of data. The FTC also alleges that most AT&T customers with unlimited data plans have "never been sent a text message or email" about the company's throttling program.

What's unclear is why the FTC is bringing its case now, after several years of throttling on AT&T's part. The FTC has been on something of a roll with wireless regulation lately, including its early-October settlement with AT&T and a July complaint that accused T-Mobile of cramming. FTC officials didn't address on a conference call why the mobile industry has suddenly caught their interest. But all the same, other wireless carriers might want to watch out.

Oct. 28 2014 9:40 AM

Wow Air Lives Up to Its Name With $99 Flights to Europe

Looking to fly to Iceland? On a tight budget? Wow Air might have a deal for you. The discount air carrier announced last week that as of March 2015 it will offer flights between the U.S. and Europe for as little as $99.

If a $99 flight from Boston to Reykjavik sounds too good to be true, that's probably because it is. Already, most of those offerings appear to be sold out, with remaining one-way flight tickets closer to $150 or $200. Then there are additional fees. Since Wow is so bare bones, it follows the EasyJet model of charging extra for just about everything. The only free baggage is a small carry-on weighing less than 11 pounds. A carry-on larger than that (up to 26 pounds) costs $29 when booked online and $48 at check-in. Each piece of checked luggage costs $48 if booked online and $67 at check-in.

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Extra legroom, of course, is also extra money—$24 online and $38 at check-in for flights over four hours. Prebooking seats carries additional fees as well. Point being that once you add in all the fees on top of the base fare and tax, that super-cheap flight to Europe is left looking less cheap than it once did.

It's also unclear how tightly packed passengers will be on these low-cost flights (Wow did not respond immediately to a request for comment). USA Today reports that Wow will use the Airbus A321 Extended Range jet, a 200-seater, for its flights from Boston and Baltimore-Washington International Airport to Iceland. The aircraft is "configured in an all-coach-class layout," according to USA Today, "though customers can pay more for economy seats with extra room." So no promises that these flights will provide top-notch comfort. But if you're looking for a cheap escape to Iceland or another part of Europe, it might be worth considering.

Oct. 24 2014 4:45 PM

Surprising Findings About Introverts in the Workplace

This article originally appeared in Inc.

Do you have the extroverted personality of a natural-born leader? If not, you can still be a successful entrepreneur. In fact, introverts make better listeners and can switch back and forth between introversion and extroversion to outperform their chattier counterparts.

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"Being a high self-monitor, a standup chameleon as I like to call them, that can shift positions to suit the situation is most effective in the early stages of entrepreneurship," says Brian Little, author of Me, Myself, and Us: The Science of Personality and the Art of Well-Being. Little has researched on how personality traits can affect personal and professional relationships, dispelling many common myths about introverts along the way.

Below, read some of Little's other surprising findings about introverts.

1. Introverts Should Avoid Coffee

While a caffeine kick may work wonders to get you through the midday work slump, it has an adverse effect on introverts, according to Little, especially if they are tasked with performing quantitative analysis under time pressure. According to Little, introverts are more receptive to brain stimulation, and too much of it can actually deter from clear and effective thinking. Similarly, being in a noisy, crowded environment also can overstimulate an introvert's brain activity. They do their best work under relaxed circumstances.

2. Introverts Make Better Salespeople

"Leaders are typically seen as extroverted in the corporate world because they can lead the charge … but introverts are better listeners," Little tells Inc., and that's one tremendously important quality needed especially in the sales department. Little says that an introvert's listening ability can make for better understanding of a client's needs and expectations.

3. Introverts Score Higher in Job Interviews

This is another instance when an introvert's listening skills come in very handy in a professional setting, unlike extroverts who often talk too much and prefer to be the star of the show. "Extroverts may be [so] pumped to display their good qualities that they may fail to grasp the subtle questions and what's really being asked," Little says. 

4. Introverts Work Well With Extroverts

A common misconception about introverts and extroverts is that they speak different languages, especially in workplace scenarios. "There are exceptions," Little points out. "When an extrovert and an introvert engage in conversation, the introvert takes on the role of interviewer." This can actually lead to an effective way of sharing information and communicating.

5. Introverts Can Be Extroverted

Adults are not fixed into just one personality paradigm and have the flexibility to "act out of character," especially when a job or project requires them to take on a certain role, according to Little. Oftentimes introverts take on the role of a pseudo-extrovert in order to engage in highly social situations that frequently occur in professions like public relations, communications, and marketing.

6. Introverts Burn Out Easily

When introverts are thrown into a situation in which they have to be extremely extroverted—delivering a keynote at a high-profile conference, for example—they should take the time to regain their center, Little says. He suggests reading a book, meditating, or taking a relaxing walk to avoid burning out.

Oct. 24 2014 12:39 PM

Go to This Site Right Now and Check If Someone Owes You Money

Go get your money, people.

For much of yesterday afternoon, Slate staffers were sending giddy emails to one another about this website from New York State’s Office of Unclaimed Funds. Just type in your name, and you can check whether the state is holding onto money that you were owed but that never reached your bank account. Maybe you overpaid Comcast one month and the refund got lost in the mail. Maybe one of your employers sent a paycheck to the wrong address, and you forgot to follow up. If so, the money is probably listed on New York's site, which you can use to collect it. Even if you don’t find anything, just checking is fun—kind of like scratching off a lotto game that you found lying on the ground.

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It turns out that every single state has a similar unclaimed property program. When corporations can’t track down their creditors, they’re required to hand over the money to the state comptroller rather than pocketing it to themselves. According to the New York Times, New York alone is holding onto $13.3 billion, “accounts surrendered by banks, insurers, utility companies and others that said they had tried but failed to find the rightful owners of deposits, dividend checks, back wages, rebates and other forgotten funds.” Nationwide, states are sitting on a combined $62 billion.

Wondering if any of that’s yours? You can check many of the state databases at once using Missingmoney.com, which (in case you’re worried about scams) is endorsed by the National Association of Unclaimed Property Administrators, or NAUPA. If that doesn’t work, you can check individual state databases one by one.

Where does all this money come from? According to NAUPA:

Common forms of unclaimed property include savings or checking accounts, stocks, uncashed dividends or payroll checks, refunds, traveler's checks, trust distributions, unredeemed money orders or gift certificates (in some states), insurance payments or refunds and life insurance policies, annuities, certificates of deposit, customer overpayments, utility security deposits, mineral royalty payments, and contents of safe deposit boxes.

After a few emails, the Slate hive mind started wondering: Why didn’t we know about these sites already? And more importantly, why don't more Americans? It’s not for lack of reporting—even Good Morning America was running stories about them back in 2011. And yet, the U.S. has a heap of lost change languishing under our sofa cushions that could nearly fund the federal food stamp program for a year. The Times found unclaimed funds for, among others, Jerry Seinfeld, Bruce Springsteen, Anna Wintour, Ann Coulter, Tom Wolfe, the Clintons, and President Obama. These are wealthy people with accountants who you might assume would check this sort of thing. And sure, most of the unclaimed sums are relatively small—but in New York, they've been as large as $4 million.  

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