All posts by Rob Hassett

Rob Hassett is an attorney in technology, entertainment and corporate law with the law firm of Casey Gilson P.C. in Atlanta, GA. He is a co-author of a leading volume on internet and interactive media law and has taught many classes in the professional education program at Georgia Tech.
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INTERVIEW OF BILL THOMPSON, DEPUTY COMMISSIONER OF FILM MUSIC AND DIGITAL ENTERTAINMENT DIVISION OF GEORGIA DEPARTMENT OF ECONOMIC DEVELOPMENT

(This is a transcript of Rob Hassett’s interview of Bill Thompson, Deputy Commissioner of Film Music and Digital Entertainment Division of the Georgia Department of Economic Development for B to B Magazine)

ROB:              This is Rob Hassett for B to B Magazine.  Today, I’m going to be interviewing Bill Thompson, who is the deputy commissioner of the Film Music and Digital Entertainment Division of the Georgia Department of Economic Development.  Bill, it’s good to have you on today.

BILL:             Well, thank you Rob.  I’m very happy to be here.

ROB:              I know that you have been in the film industry for many, many years, and you were, I know, with Crawford Communications for fourteen years.  And there you ended up as vice president of post production.

BILL:             That’s correct.

ROB:              And you’ve been the deputy commissioner and in charge of the Film Music and Entertainment Division for about two years, right?

BILL:             Right.

ROB:              What’s the mission of your division?

BILL:             Well, it’s much like the overall mission of the Department of Economic Development.  We are trying to grow the entertainment industries in Georgia, and part of that means attracting projects and permanent business locations to the state.  We go about this in a fairly traditional way.  It’s really all about business development which includes promotion, marketing and advertising.  We are doing a lot of sales calls to potential clients all over the United States.  So it’s a fairly traditional business development and sales kind of approach.

ROB:              In addition, Bill, you also worked with the governor’s office and the legislature to enact a special tax credit incentive for video game, film and television production in Georgia, isn’t that right?

BILL:             Yes, that process started in the summer of 2007.  And of course we worked closely with our private sector industry partners.  We met with the governor on three separate occasions.  Each time was probably about six weeks or so kind of apart from each other.  So it was a process that took quite a bit of time; different versions of the proposed legislation were examined and finally we came out with something we felt was pretty good, and the governor agreed.

ROB:              And it went into affect in 2008, right, about in the spring maybe?

BILL:             Yes, the bill was signed on May 12, 2008.  Of course, the legislation itself is retroactive to January 1, 2008.  And so since that time, we’ve had significant success in developing an increase in our number of entertainment projects.

ROB:              As I understand, it offers tax credits of twenty percent to any video or film production, or video game production company that spends five hundred thousand dollars or more in Georgia on production.  And it offers thirty percent if they add a State of Georgia logo somewhere on the film or video, is that correct?

BILL:             Yes, absolutely.  It’s a two-part incentive with the base incentive being twenty percent as you’ve mentioned, and then an additional ten percent for a total of thirty percent if the customer will place a Georgia logo either in the titles or the credits of the project.  Believe it or not, we’ve actually talked to some folks about the possibility of product placement within the actual film.  Some folks have not only included the logo as we require, but they’ve actually offered us other opportunities.  For example, Lion’s Gate Films actually used our movie logo on the movie posters for some of Tyler Perry’s movies.  They actually placed it on the internet site for some of those films.  So there are some unique types of exposure that we’ve been able to get so far with the logo.

ROB:              Bill, where does Georgia rank as a film and television production center as compared to other states in the country?

BILL:             Well, as you know, we’ve been at this a long time.  In the modern era, it really began for us in 1972.  So we’ve been at this for 36 years.  We have during that time, over six hundred projects have been filmed in the state or made in the state in the case of video games.  So those are film projects, television projects, music videos, commercials, video games.  So that’s kind of where we’ve been and where we are.  Also, we have a significant number of supplier companies and vendors within the state that make it very attractive to folks to come and work here.

ROB:              Where do you think we rank for film and television?

BILL:             I think that now with our new incentives, we are certainly in the top five in the United States … maybe even number three.

ROB:              Who would be first?  California, then New York second?

BILL:             Well California doesn’t have any incentives but yet still the most film making in the Unites States certainly continues to happen in California.  But they have no incentives at all.  So if you limit us to strictly to the incentive states, we are definitely probably number three.

ROB:              Who are the others?

BILL:             Well let’s see, New York has a very competitive incentive and they have the infrastructure to go with it.  Michigan as you know is sort of struggling with their new incentive even though it is very competitive.  They have very little infrastructure and they have to import almost everything.  I think you’ll see some changes with that program.  Louisiana is competitive but Georgia’s incentive is actually superior to theirs.  Those are probably some of the highlights.

ROB:              In the amount of TV and film production actually made, California would be first, New York second, and about where would Georgia fall?

BILL:             I would say that probably right now, Louisiana is still probably making more films than we are, but we’re going to fix that really soon.

ROB:              Well, good.  Okay.  Now you do a lot more for the film industry than just encourage them to produce their films here.  What other things do you do for them?

BILL:             Well, you know, first and foremost, we’re a resource for customers.  And all of our services are provided absolutely free.  So customers come to us for help about identifying certain locations that they may want to shoot in.  We have a 90,000 image database, where we can easily identify those sorts of locations and we can put together what we call a package and send it out electronically to folks.  If customers want to come and physically be here, I have two location scouts on my staff that can help show them around the state.  And then of course, we’re sort of an information clearing house for different types of resources that customers may need, including the hiring of crew people, the identifying of local suppliers and things like that; that can help them do their work here.

ROB:              Bill, what activities have you been involved in in the last, let’s say, three months to bring films to Georgia?

BILL:             Well, since the legislation was passed, we’ve been making trips out to Los Angeles to educate some of our customers there about our new incentives.  And we’ve had some pretty good success, certainly since the bill was signed.  We’ve had many, many television series projects and feature films shot here.  For example, we had a project that came in called “Van Wilder III.”  That project started shooting in August.  Even before that, we’ve had a docu drama that was shot here called “The People vs. Leo Frank.”  And that was a very good example of a docu drama here in the state.  We’ve had a project by Warner Brothers called “The Preacher’s Kid” which just finished shooting on November 17.  There’s a movie in town now that is going to wrap here in a few days called “The Joneses.”  And that stars Demi Moore and David Duchovny.  We had a Paramount project this fall called “Road Trip II.”  And there was an independent feature film made called “Our Child is Missing.”  That was produced out in the Carrollton area and was produced by a Los Angeles company that’s since relocated to Georgia.

ROB:              What company is that?

BILL:             It’s called Red Five Entertainment.  And they’ve made two movies now out in the Carrollton area.  They seem to really like working in that part of the state which is great.

ROB:              Other than the incentive, what are other draws does Georgia have for the movie industry?

BILL:             Well you know, as I’ve mentioned, we’ve been in this for a long time, so we have a high degree of experience level.  We have a very well established and professional crew base.  We have a good infrastructure in terms of suppliers and equipment rental companies and other source of vendors that are needed to support production.  And you know, we also have numerous diverse locations all over the state.  Georgia’s the largest state east of the Mississippi River.  Consequently, we have more diversity than some other states would.  We have mountains in the northern part of the state.  We have over a hundred miles of coastline on the Atlantic Ocean.  We have lots of diverse looks in the central and southern part of the state; with historic towns like Savannah, Augusta, Macon, and Columbus.  And lots of rural areas with small towns.  So a customer can come to Georgia and literally get just about every look that they could possibly need from huge metropolitan areas like Atlanta to very small rural types of areas.  So that’s one of our greatest strengths.

ROB:              And we have a mild climate.

BILL:             We do.  We’re very fortunate in that we don’t generally experience any major hurricanes.  We don’t have a lot of winter type climate.  Its fairly moderate and which means there’s a longer shooting season.  So people can come here and they don’t have to worry about … boy, like I’ve got to get done before its hurricane season or I’ve got to get done before it starts to snow.  People can come here and pretty much shoot literally year round.

ROB:              And I guess with the drought, we have generally good weather.

BILL:             Well, we do.  Certainly we have rain and we have thunderstorms and things like that occasionally but in general, compared to most other states, our climate is very, very moderate.

ROB:              Now your division also promotes the music industry in Georgia.

BILL:             Yes, we do.  The music industry in Georgia is a two billion dollar a year industry now.  It’s growing exponentially at the rate of a hundred million dollars a year.  And just like our state itself, the music industry is extremely diverse in Georgia which is actually a very positive thing.  We have a huge hip hop and rap kind of industry here.  We have a tremendous alternative rock industry up in Athens and other parts of the state.  We have lots of southern rock, bluegrass, country music and jazz, classical music.  So the music industry is an incredible economic boost to our efforts.

ROB:              And it’s been growing at a hundred million a year.  That’s incredible!

BILL:             It is!  And, of course, you know with some of the economic down turn, that could slow down a little bit, but that’s exactly what we’ve experienced in the last three years.

ROB:              How big is the film industry in Georgia?

BILL:             The film industry is not as big as the music industry at this time.  But my goal is in short order, maybe by the end of 2009 or maybe 2010, my goal is for the film and television industry in the state to be a one billion dollar industry.  We’re well on  our way.  In 2007, the economic impact of all of our entertainment segments,  was six hundred seventeen million dollars.  You can see, with the film and television segments certainly being the most of that, that we’re on our way to having a one billion dollar or more film industry here.

ROB:              So film and television was six hundred and what?

BILL:             Six hundred seventeen million in 2007, in terms of what we call economic impact.

ROB:              And finally, you’re also encouraging video game companies to operate in Georgia.  Where would you say Georgia ranks in the United States in video games, in that industry?

BILL:             Well, certainly California would be number one.  Massachusetts has a strong industry because of MIT and some other things.  Certainly, New York is strong.  You know, Austin, Texas is very strong.  And then maybe secondarily a little bit, Seattle, Washington with the whole Redmond area; that’s pretty strong.  But you know I would say that Georgia today may be somewhere, number six or something like that, you know when you look at those other states that have a more mature industry.  But as I said before, we are growing exponentially here in Georgia, so that’s a good sign.

ROB:              What’s our gross revenue in Georgia on video games?

BILL:             I think in the last three years, it’s been about a hundred eighty million dollars of revenue which translates to about three hundred million dollars of economic impact.  And as I’ve said before, it’s growing every single year so we’re very happy to be a part of that growth, and certainly we’re doing everything we can to foster that growth.

ROB:              I know you seeded and promoted the SIEGE Conference which is in the computer game industry, that started last year, and doubled in size for this year.

BILL:             Yes, and we quickly kind of identified that the SIEGE Conference was something that was very much needed in the state.  And by the way, SIEGE stands for Southern Interactive Entertainment Game Expo.  So we’ve been very happy to be a significant sponsor of that event for the last two years.  This year we saw that event double in size in terms of attendance.  We think it’s an important component of what we’re trying to do within the state along with trying to attract one or more video game publishers to Georgia, and also one or more video game testing centers which we’ve learned will be key components of growing our industry here.

ROB:              If anyone wants to reach you guys about film, music or video games, how should they contact your office?

BILL:             Well, the best way to reach us is really the main line because most of my staff is very mobile.  So it’s always best to not dial anyone person direct.  It’s better to call the main line in our division, and that number is (404) 962-4052.

ROB:              I meant to ask you this earlier, how many video game companies are in Georgia?

BILL:             There are approximately fifty video game companies in Georgia, and of course, we’re hoping that number will continue to grow.  And there are about approximately two thousand employees working in that industry in the state.  So keep in mind, some companies have very large staffs and some companies are very small.  So anyway, we’re anticipating that that will continue to grow.

ROB:              How many people work in the film industry in Georgia?

BILL:             Georgia right now has a resident crew base of about fifty-two hundred, and that number continues to grow.

ROB:              How about music?

BILL:             Music actually has the largest of all.  There are ninety-five hundred people working in the music industry in Georgia.

ROB:              Bill, if somebody is calling your office about film, who should they ask for first?

BILL:             Well, generally if they are calling us about film, they want (a) to talk about the tax credits; and (b) they may have some interest in doing a location scout or something like that, so I would say that all film calls should probably be directed to Lee Thomas.  Her number is (404) 962-4048.

ROB:              What about music?

BILL:             Any calls for music related things should be directed to Brenda Brayton and her number is (404) 962-4047.

ROB:              And what about video games?

BILL:             Video games would be under a guy named Asante Bradford and I don’t have his number in front of me but I think it’s (404) 962-4056 but I just don’t have it in front of me.  Sorry.

ROB:              Bill, thanks a lot and I really appreciate your working with me today.

BILL:             Well, thank you, Rob.  I appreciate your interest and I hope we can do this again.

(This is a transcript of Rob Hassett’s interview of Bill Thompson, Deputy Commissioner of Film Music and Digital Entertainment Division of the Georgia Department of Economic Development)

ROB:              This is Rob Hassett for B to B Magazine.  Today, I’m going to be interviewing Bill Thompson, who is the deputy commissioner of the Film Music and Digital Entertainment Division of the Georgia Department of Economic Development.  Bill, it’s good to have you on today.

BILL:             Well, thank you Rob.  I’m very happy to be here.

ROB:              I know that you have been in the film industry for many, many years, and you were, I know, with Crawford Communications for fourteen years.  And there you ended up as vice president of post production.

BILL:             That’s correct.

ROB:              And you’ve been the deputy commissioner and in charge of the Film Music and Entertainment Division for about two years, right?

BILL:             Right.

ROB:              What’s the mission of your division?

BILL:             Well, it’s much like the overall mission of the Department of Economic Development.  We are trying to grow the entertainment industries in Georgia, and part of that means attracting projects and permanent business locations to the state.  We go about this in a fairly traditional way.  It’s really all about business development which includes promotion, marketing and advertising.  We are doing a lot of sales calls to potential clients all over the United States.  So it’s a fairly traditional business development and sales kind of approach.

ROB:              In addition, Bill, you also worked with the governor’s office and the legislature to enact a special tax credit incentive for video game, film and television production in Georgia, isn’t that right?

BILL:             Yes, that process started in the summer of 2007.  And of course we worked closely with our private sector industry partners.  We met with the governor on three separate occasions.  Each time was probably about six weeks or so kind of apart from each other.  So it was a process that took quite a bit of time; different versions of the proposed legislation were examined and finally we came out with something we felt was pretty good, and the governor agreed.

ROB:              And it went into affect in 2008, right, about in the spring maybe?

BILL:             Yes, the bill was signed on May 12, 2008.  Of course, the legislation itself is retroactive to January 1, 2008.  And so since that time, we’ve had significant success in developing an increase in our number of entertainment projects.

ROB:              As I understand, it offers tax credits of twenty percent to any video or film production, or video game production company that spends five hundred thousand dollars or more in Georgia on production.  And it offers thirty percent if they add a State of Georgia logo somewhere on the film or video, is that correct?

BILL:             Yes, absolutely.  It’s a two-part incentive with the base incentive being twenty percent as you’ve mentioned, and then an additional ten percent for a total of thirty percent if the customer will place a Georgia logo either in the titles or the credits of the project.  Believe it or not, we’ve actually talked to some folks about the possibility of product placement within the actual film.  Some folks have not only included the logo as we require, but they’ve actually offered us other opportunities.  For example, Lion’s Gate Films actually used our movie logo on the movie posters for some of Tyler Perry’s movies.  They actually placed it on the internet site for some of those films.  So there are some unique types of exposure that we’ve been able to get so far with the logo.

ROB:              Bill, where does Georgia rank as a film and television production center as compared to other states in the country?

BILL:             Well, as you know, we’ve been at this a long time.  In the modern era, it really began for us in 1972.  So we’ve been at this for 36 years.  We have during that time, over six hundred projects have been filmed in the state or made in the state in the case of video games.  So those are film projects, television projects, music videos, commercials, video games.  So that’s kind of where we’ve been and where we are.  Also, we have a significant number of supplier companies and vendors within the state that make it very attractive to folks to come and work here. 

ROB:              Where do you think we rank for film and television?

BILL:             I think that now with our new incentives, we are certainly in the top five in the United States … maybe even number three.

ROB:              Who would be first?  California, then New York second?

BILL:             Well California doesn’t have any incentives but yet still the most film making in the Unites States certainly continues to happen in California.  But they have no incentives at all.  So if you limit us to strictly to the incentive states, we are definitely probably number three.

ROB:              Who are the others?

BILL:             Well let’s see, New York has a very competitive incentive and they have the infrastructure to go with it.  Michigan as you know is sort of struggling with their new incentive even though it is very competitive.  They have very little infrastructure and they have to import almost everything.  I think you’ll see some changes with that program.  Louisiana is competitive but Georgia’s incentive is actually superior to theirs.  Those are probably some of the highlights. 

ROB:              In the amount of TV and film production actually made, California would be first, New York second, and about where would Georgia fall?

BILL:             I would say that probably right now, Louisiana is still probably making more films than we are, but we’re going to fix that really soon.

ROB:              Well, good.  Okay.  Now you do a lot more for the film industry than just encourage them to produce their films here.  What other things do you do for them?

BILL:             Well, you know, first and foremost, we’re a resource for customers.  And all of our services are provided absolutely free.  So customers come to us for help about identifying certain locations that they may want to shoot in.  We have a 90,000 image database, where we can easily identify those sorts of locations and we can put together what we call a package and send it out electronically to folks.  If customers want to come and physically be here, I have two location scouts on my staff that can help show them around the state.  And then of course, we’re sort of an information clearing house for different types of resources that customers may need, including the hiring of crew people, the identifying of local suppliers and things like that; that can help them do their work here.

ROB:              Bill, what activities have you been involved in in the last, let’s say, three months to bring films to Georgia?

BILL:             Well, since the legislation was passed, we’ve been making trips out to Los Angeles to educate some of our customers there about our new incentives.  And we’ve had some pretty good success, certainly since the bill was signed.  We’ve had many, many television series projects and feature films shot here.  For example, we had a project that came in called “Van Wilder III.”  That project started shooting in August.  Even before that, we’ve had a docu drama that was shot here called “The People vs. Leo Frank.”  And that was a very good example of a docu drama here in the state.  We’ve had a project by Warner Brothers called “The Preacher’s Kid” which just finished shooting on November 17.  There’s a movie in town now that is going to wrap here in a few days called “The Joneses.”  And that stars Demi Moore and David Duchovny.  We had a Paramount project this fall called “Road Trip II.”  And there was an independent feature film made called “Our Child is Missing.”  That was produced out in the Carrollton area and was produced by a Los Angeles company that’s since relocated to Georgia.

ROB:              What company is that?

BILL:             It’s called Red Five Entertainment.  And they’ve made two movies now out in the Carrollton area.  They seem to really like working in that part of the state which is great.

ROB:              Other than the incentive, what are other draws does Georgia have for the movie industry?

BILL:             Well you know, as I’ve mentioned, we’ve been in this for a long time, so we have a high degree of experience level.  We have a very well established and professional crew base.  We have a good infrastructure in terms of suppliers and equipment rental companies and other source of vendors that are needed to support production.  And you know, we also have numerous diverse locations all over the state.  Georgia’s the largest state east of the Mississippi River.  Consequently, we have more diversity than some other states would.  We have mountains in the northern part of the state.  We have over a hundred miles of coastline on the Atlantic Ocean.  We have lots of diverse looks in the central and southern part of the state; with historic towns like Savannah, Augusta, Macon, and Columbus.  And lots of rural areas with small towns.  So a customer can come to Georgia and literally get just about every look that they could possibly need from huge metropolitan areas like Atlanta to very small rural types of areas.  So that’s one of our greatest strengths.

ROB:              And we have a mild climate.

BILL:             We do.  We’re very fortunate in that we don’t generally experience any major hurricanes.  We don’t have a lot of winter type climate.  Its fairly moderate and which means there’s a longer shooting season.  So people can come here and they don’t have to worry about … boy, like I’ve got to get done before its hurricane season or I’ve got to get done before it starts to snow.  People can come here and pretty much shoot literally year round.

ROB:              And I guess with the drought, we have generally good weather.

BILL:             Well, we do.  Certainly we have rain and we have thunderstorms and things like that occasionally but in general, compared to most other states, our climate is very, very moderate.

ROB:              Now your division also promotes the music industry in Georgia.

BILL:             Yes, we do.  The music industry in Georgia is a two billion dollar a year industry now.  It’s growing exponentially at the rate of a hundred million dollars a year.  And just like our state itself, the music industry is extremely diverse in Georgia which is actually a very positive thing.  We have a huge hip hop and rap kind of industry here.  We have a tremendous alternative rock industry up in Athens and other parts of the state.  We have lots of southern rock, bluegrass, country music and jazz, classical music.  So the music industry is an incredible economic boost to our efforts.

ROB:              And it’s been growing at a hundred million a year.  That’s incredible!

BILL:             It is!  And, of course, you know with some of the economic down turn, that could slow down a little bit, but that’s exactly what we’ve experienced in the last three years.

ROB:              How big is the film industry in Georgia?

BILL:             The film industry is not as big as the music industry at this time.  But my goal is in short order, maybe by the end of 2009 or maybe 2010, my goal is for the film and television industry in the state to be a one billion dollar industry.  We’re well on  our way.  In 2007, the economic impact of all of our entertainment segments,  was six hundred seventeen million dollars.  You can see, with the film and television segments certainly being the most of that, that we’re on our way to having a one billion dollar or more film industry here.

ROB:              So film and television was six hundred and what?

BILL:             Six hundred seventeen million in 2007, in terms of what we call economic impact.

ROB:              And finally, you’re also encouraging video game companies to operate in Georgia.  Where would you say Georgia ranks in the United States in video games, in that industry?

BILL:             Well, certainly California would be number one.  Massachusetts has a strong industry because of MIT and some other things.  Certainly, New York is strong.  You know, Austin, Texas is very strong.  And then maybe secondarily a little bit, Seattle, Washington with the whole Redmond area; that’s pretty strong.  But you know I would say that Georgia today may be somewhere, number six or something like that, you know when you look at those other states that have a more mature industry.  But as I said before, we are growing exponentially here in Georgia, so that’s a good sign.

ROB:              What’s our gross revenue in Georgia on video games?

BILL:             I think in the last three years, it’s been about a hundred eighty million dollars of revenue which translates to about three hundred million dollars of economic impact.  And as I’ve said before, it’s growing every single year so we’re very happy to be a part of that growth, and certainly we’re doing everything we can to foster that growth.

ROB:              I know you seeded and promoted the SIEGE Conference which is in the computer game industry, that started last year, and doubled in size for this year.

BILL:             Yes, and we quickly kind of identified that the SIEGE Conference was something that was very much needed in the state.  And by the way, SIEGE stands for Southern Interactive Entertainment Game Expo.  So we’ve been very happy to be a significant sponsor of that event for the last two years.  This year we saw that event double in size in terms of attendance.  We think it’s an important component of what we’re trying to do within the state along with trying to attract one or more video game publishers to Georgia, and also one or more video game testing centers which we’ve learned will be key components of growing our industry here.

ROB:              If anyone wants to reach you guys about film, music or video games, how should they contact your office?

BILL:             Well, the best way to reach us is really the main line because most of my staff is very mobile.  So it’s always best to not dial anyone person direct.  It’s better to call the main line in our division, and that number is (404) 962-4052.

ROB:              I meant to ask you this earlier, how many video game companies are in Georgia?

BILL:             There are approximately fifty video game companies in Georgia, and of course, we’re hoping that number will continue to grow.  And there are about approximately two thousand employees working in that industry in the state.  So keep in mind, some companies have very large staffs and some companies are very small.  So anyway, we’re anticipating that that will continue to grow.

ROB:              How many people work in the film industry in Georgia?

BILL:             Georgia right now has a resident crew base of about fifty-two hundred, and that number continues to grow.

ROB:              How about music?

BILL:             Music actually has the largest of all.  There are ninety-five hundred people working in the music industry in Georgia.

ROB:              Bill, if somebody is calling your office about film, who should they ask for first?

BILL:             Well, generally if they are calling us about film, they want (a) to talk about the tax credits; and (b) they may have some interest in doing a location scout or something like that, so I would say that all film calls should probably be directed to Lee Thomas.  Her number is (404) 962-4048.

ROB:              What about music?

BILL:             Any calls for music related things should be directed to Brenda Brayton and her number is (404) 962-4047.

ROB:              And what about video games?

BILL:             Video games would be under a guy named Asante Bradford and I don’t have his number in front of me but I think it’s (404) 962-4056 but I just don’t have it in front of me.  Sorry.

ROB:              Bill, thanks a lot and I really appreciate your working with me today.

BILL:             Well, thank you, Rob.  I appreciate your interest and I hope we can do this again.

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INTERVIEW OF TERI DENISON OF THE SMALL BUSINESS ADMINISTRATION

 (Transcript of Rob Hassett’s interview of Terri Denison, District Director of The Small Business Administration for Atlanta area for btobmagazine.com)

ROB:     This is Rob Hassett for btobmagzine.com. Today I’m going to be interviewing Terri Denison who is the District Director of the SBA (Small Business Administration) for Atlanta. Terri is a graduate of Cornell and also has a graduate degree from a small school in Texas, and has been the District Director for the SBA in Atlanta for about seven years, right?

TERI:     Exactly.

ROB:     Terri, I really appreciate you’re being on the program today.

TERI:     Glad to be here.

ROB:     I also want to mention and thank, Gregory Henley, who is the Director of the International Center for Entrepreneurship at Georgia State, for helping me prepare for the interview today. Terri, what is the mission of the Small Business Administration?

TERI:     Basically, we’re a federal government agency whose purpose is to help the national economy through helping small businesses to start and expand.

ROB:     And you have different programs within the SBA don’t you?

TERI:     Yes, we do. I would categorize them in five different ways in terms of the types of assistance that we provide. First, we provide financial assistance mainly in the form of guarantees on loans made by commercial lenders.

ROB:     And that’s where most of the activity the SBA deals with comes in isn’t it?

TERI:     That’s the one … I think … We do a lot in that area, and I think that’s the one that most people associate with the SBA. We also work with several organizations to provide management and technical assistance to not only startup businesses but for existing businesses as well. We partner with the Small Business Development Centers, which are hosted here by the University of Georgia.

ROB:     How does that work? What is the Small Business Development Center?

TERI:     Actually, it’s an entity which the SBA partly funds along with the University of Georgia to provide counseling and training to people who are thinking about starting a business, in the process of starting a business, or who are currently operating an existing business. Counseling is always free. Training is usually at minimal costs, basically to cover the cost of the training, and it covers a variety of subjects that would be of interest and of benefit to the small business community. In addition to the Small Business Development Center, SCORE is our volunteer partner organization made up of not only retired business people, but actually current business people as well that also provides a wealth of knowledge through training and through one-on-one counseling. We also have in Metro Atlanta two Women Business Centers, one at Kennesaw State and one near the West End in Atlanta proper. They provide counseling and training as well focusing on one of the fastest growing segments of the small business community, and that’s women entrepreneurs. But they will assist men as well.

ROB:     Now if somebody wanted to benefit from that training, what would they do? How would they get in touch and find out when the classes, or the programs, or the counseling was available?

TERI:     Probably the easiest way for them would be to go to the SBA website for the Georgia District Office, which is available here   www.sba.gov/localresources/district/ga/index.html. We have an events calendar on that page that would have information on things that are going on here at the District Office as well as some of our resource partners. There are also links to some of the organizations that I’ve just mentioned so that you can go directly to their website and see what kind of training is coming up.

ROB:     For the counseling, is that done over the phone or in person generally, or both?

TERI:     Actually both. A lot of it, I would say the lion’s share, is probably done in person. But a lot of our organizations that we work with do e-mail counseling. For example, SCORE has been doing that for several years. They’ll also do remote counseling facilitated by a PC camera. So if you have a camera, they have one, then you could still have interface counseling but only done through the internet, done online, versus in person.

ROB:     Terri, in order to obtain the counseling you get, is there a wait or is it pretty much available when people need it?

TERI:     It depends. For example, the SCORE Atlanta Chapter, which is actually located here at the Georgia District Office, will take walk-ins for counseling. Generally the first appointment, they’ll start counseling at 10:00 in the morning, and then they usually take the last client around 1:00 or 1:15 to finish up by 2:00. But the Small Business Development Centers tend to provide counseling on an appointment basis, and the waits on that may vary.

ROB:     Where are they located? Is there one or are they all over the state?

TERI:     The Small Business Development Centers, there’s actually 17 around the state. There are several in metro Atlanta, and then in several other cities outside the metro-Atlanta area. SCORE, the Atlanta Chapter, has several satellites away from the main site here in downtown Atlanta. There are also chapters in Augusta and Columbus and Dalton. So there’s a lot of coverage … and in Savannah.

ROB:     Terri, what are the requirements for a loan under the SBA’s loan program, the main one which is the 7A Program, right?

TERI:     Yes.

ROB:     What are the requirements? What do you have to have to qualify for that loan?

TERI:     Well first of all, I think we should clarify that it’s a guaranteed loan, so the first interface is going to be with the commercial lender who actually provides the funding of the loan. The lender, having looked at the application, any business plans, or financial information, decides that it needs additional security for that loan, because maybe it doesn’t quite meet all of its conventional underwriting criteria, then the lender would request a guarantee from the Small Business Administration. Or if they are a preferred lender, they’ve actually been delegated authority to provide the guarantee themselves without prior approval from the SBA.

ROB:     A preferred lender is a bank that has proven that they know what the rules are, right?

TERI:     Yes. They have a track record with us and they have shown, not only in terms of the level of SBA-related activities that they have expertise, but also how they handle the servicing and liquidation of those loans.

ROB:     What is the interest rate on those loans?

TERI:     Well it varies. Generally, there are variable rates, and they are generally pegged to the prime. The SBA does have a cap on the maximum spread above that peg rate, which is 2.75%.

ROB:     Is there a cap on how much you can borrow under that program?

TERI:     The maximum loan that can receive an SBA guarantee is Two Million Dollars.

ROB:     And does the borrower have to pay any points?

TERI:     I’ve not heard of that being associated with commercial lending.

ROB:     Closing costs?

TERI:     Generally, yes.

ROB:     And the borrower has to guarantee the loan, but that’s typical of any bank loan isn’t it?

TERI:     It’s pretty standard practices in commercial lending that the principals of the company that’s to borrow put up personal guarantees. We require that if someone has more than 20% ownership interest that they have to provide guarantees.

ROB:     Now there’s another program that you have called the 504 Program, right?

TERI:     That’s correct. And that program is geared towards fixed asset financing. So land, buildings, long-life machinery and equipment for production purposes. It cannot be used for working capital or purchase of inventory, whereas with the 7A Program which we just talked about, those would be eligible uses of proceeds for loans with that 7A guarantee.

ROB:     Are the qualifications otherwise the same as the 7A Program except for the fixed asset?

TERI:   Pretty much. The other component is that it has to meet an economic development objective. That can be achieved in a couple of ways. A certain number of jobs will be created or retained. Usually that would be one per every $65,000 of the SBA 504 loan. If a project does not meet those job creation requirements, then the loan has to meet other public policy goals or development objectives. For example, if the project is in an area that is slated for revitalization, there’s a revitalization plan for that area, that would make it an eligible project. If it is in an area that has been impacted by federal cutbacks, like probably here in the next few years, you’re going to have the closure of Fort McPherson and Fort Gillem, army installations. So the areas around those installations, projects in those areas would probably be eligible.

ROB:     What is the interest rate on the 504 Program generally?

TERI:     The 504 loan is pegged to the U.S. Treasury rate versus the prime. It depends on what the U.S. Treasury rate is. The five-year loan rate applies to a ten-year loan; and a ten-year loan rate applies to a twenty-year loan.

ROB:     Now with what’s going on in Washington, have there been any changes in these two programs to try to help get us out of this recession?

TERI:     Yes. Of course back in February, the America Recovery and Reinvestment Act, or as a lot of people know it as the Stimulus Bill, was signed into law. There were several provisions in there related to SBA programs. First of all, on the 7A Loan Program, the maximum guarantee is normally 75% of the loan for loans over $150,000. Under the Recovery Act, there is a temporary increase in the guarantee up to 90% for these loans. And that’s very significant because that means higher guarantee equals less exposure for the lender and reducing their risk. So the idea would be with the higher guarantee, lenders would be more inclined to approve loans that maybe they would not do in this current environment under their regular underwriting criteria.

ROB:     Oh, definitely.

TERI:    But both the 7A and 504 Loan Programs, there are fees attached to the guarantee of the loan, and the fees are a way for us to try to offset some of the costs for the program for the taxpayer by having the actual user or the beneficiary of those guarantees assume some of the costs. Under the Recovery Act, there is a temporary elimination of the fees for the borrower. Of course, that would make the transaction less costly, and then that’s money that the borrower can then put into the business to help them to continue to operate and to prepare for recovery as we move forward through this economic downturn.

ROB:     How much was that fee that’s been eliminated for the time being?

TERI:     In terms of?

ROB:      Is it a percentage?

TERI:    On the 7a Program, it is a percentage depending on the amount of the guaranteed portion of the loan. It can be anywhere from 2 – 3.75%, depending on the amount of the guaranteed portion. Generally on the 504 Loan Program, the fees are approximately 3% of the transaction.

ROB:     Got you. What is the America’s Recovery Capital Program?

TERI:     The America’s Recovery Capital Program, or ARC Program, is a measure to try and assist small businesses that have existing business debt, to help them be able to cover that debt during this time of economic difficulty. Basically, the loan is a 100% guaranteed loan. It’s still made by a commercial lender. However, the borrowers would not have to start repayment until 12 months after final disbursement of proceeds from that loan. There would not be interest for the borrower on that loan because the SBA would cover the cost of interest over the life of the loan. The loan could be up to $35,000, and cover up to 6 months’ worth of principal and interest payments on non-SBA related debts that the small business may have.

ROB:     Is there a cap on that program on how much you can borrow?

TERI:     $35,000 is the max.

ROB:     Are there any special criteria that you have to meet?

TERI:     Well, we’ll be getting more details actually next week.

ROB:     Oh, it’s new!

TERI:     Yeah. It was part of the Recovery Act. Actually our administrator will be making an announcement early next week to rollout more of the details on how the program works. But based on the statute, the business has to be viable. So in other words, it could not have been in trouble prior to the economic downturn, and that there’s a likelihood that it will be able to survive with the assistance of the loan. But at the same time, the business has to be in a position where it is having difficulties making its existing loan payments. It cannot be a matter of they can pay it but they choose not to pay it. There has to be a difficulty there for them.

ROB:     Terri, who decides whether they qualify? Is that something the bank does or does what?

TERI:     Well, the bank would … It would work like our guaranteed loans. They would do an evaluation, and we will be providing them criteria and guidelines on what that would be. Then they would make a recommendation to approve the loan, and then meet the requirements for a guarantee from us. And then we would, based on their analysis and our analysis, go ahead and approve the guarantee if it qualifies.

ROB:     What is the Surety Bond Guarantee Program?

TERI:     It works very similar to the loan guarantees, except it’s on surety bonds which, of course, businesses that are in construction or construction related industries are often required to put up a bond. Surety bonds are often required to submit bids or for payment, and also for performance. In case there’s a problem with performance, the surety would be responsible for getting that work completed. The bond covers against that. A lot of times, small businesses have difficulties acquiring surety bonding through regular conventional channels, just like small businesses have trouble a lot of times getting loans through conventional commercial channels. So the Surety Bond Guarantee Program once again tries to encourage surety companies to issue bonds to these small businesses by reducing their exposure on the bonds. The SBA would guarantee anywhere from 70-90% of the bond value.

ROB:     Is there any cap on that?

TERI:     Well normally the maximum contract that would be eligible for a surety bond guarantee from the SBA would be Two Million Dollars. However, as part of the Recovery Act, there is a temporary increase in the maximum contract value from Two to Five Million Dollars. Then there also are provisions that are in the works where that could go up to Ten Million Dollars in terms of a maximum contract amount, if the contract is a federal government contract and the contracting officer that’s responsible for that contract certifies that up to a Ten Million Dollar bond is necessary in order for that company to be able to receive the contract.

ROB:     Is that increase in effect now, so potentially a bond guarantee could be that much?

TERI:     No, the Five Million Dollar threshold is in effect. There’s a little more guidance that was needed for determining when a bond between five and ten million could be guaranteed. We’re looking forward to that being finalized here in the near future.

ROB:     Terri, what is the Small Business Investment Company Program?

TERI:    The Small Business Investment Company Program, or SBIC Program, is a program that focuses on equity investment as opposed to debt as a means of providing financing in a company. That could be straight equity or it could be convertible debt, an instrument where’s initially a debt, but, depending on the performance of the company with the infusion of cash, the SBIC could have the option of converting that to an ownership interest at some point. The SBIC Program is pretty much run through our headquarters office, the Office of Investments. So we don’t really work with it a whole lot here at the local level. But I know we have several licensed SBICs in Georgia who serve the state and the southeast part of the country.

ROB:     Do they get their funding from the SBA, or do you know how they’re tied to the SBA?

TERI:    Yes, the SBA licensed them to operate as small business investment companies. There is an application, an evaluation process, involved there, both a paper application and then an actual presentation by the management team of that perspective SBIC to our Office of Investments. They are required to raise a certain amount of capital to bring to the table if you will, and then the SBA matches that capital. There’s a formula for doing that. So the SBA’s role would be to help the SBICs leverage more capital that would be available for investments in small businesses.

ROB:     Is there any program that the SBA has that we haven’t talked about that you can think of?

TERI:     Well, in addition, you know, we’ve talked about our financial assistance and our management and technical assistance. We do have programs related to government contracting. Some of those, we work with in our office. Others are handled through a separate office within the SBA, the Office of Government Contracting. For instance, here in the District Office, we administer the Section 8A Program which has been around for probably about 25-30 years. It focuses on helping small businesses that are majority owned and controlled by disadvantaged individuals. That could be minorities or others who meet the criteria for social and economic disadvantage as is defined in our regulations. This helps them enter the federal procurement market as well as to receive other business development assistance from us. We also have through our Office of Government Contracting a Certificate of Competency Program that a lot of people don’t know about. If a small business is the apparent successful offerer or low bidder on a government contract, but maybe the contracting officer still doesn’t feel that the company has either the financial or technical capability to perform on that contract, the contracting officer can request the SBA to do a Certificate of Competency analysis on that company. Sometimes our office helps out with that if there’s a question as to the company’s financial capacity. Others will look at the technical aspects of the company to see if they have the technical wherewithal to perform. Based on that analysis, if the SBA determines that the capacity, both financially and technically is there to perform, then the contracting officer has to award the contract to that small business. So it’s a way for small businesses to get a little bit of additional leverage to get their foot in the door in federal procurement.

ROB:     I see. Terri, if anybody wanted to find out more about your programs, what should they do? Should they go to your website or should they call?

TERI:     They might want to start off with our website because that would give them a good overview of the full range of SBA products and services. They can go to our main website of the Agency, which is http://www.sba.gov/. It provides information on all of our programs, not just the ones you and I have talked about here but others that are part of the agency’s offering. We have a lot of business how-to information. We have online training courses and evaluation tools in terms of if you’re thinking about starting a business — am I really the entrepreneurial type — What types of things do I need to consider to help me decide what would be the best business to go into — or, how I might structure that business – and where to go to obtain information! Who do I see about an employer identification number, or who do I talk to about wage issues at the Department of Labor? There is a whole lot of information there [on the Agency’s website].

ROB:     Now small business is a big part of the commercial activity in the United States isn’t it?

TERI:    Yes, small business has a very prevalent role in the economy. I’m truly convinced that small business is the reason the American economy is so dynamic. Even though we’re struggling now, I think a lot of that dynamic will help get us out of the situation we’re in now.

ROB:     Do you happen to know off the top of your head what percentage of new jobs come from small business? By that I mean I think the general definition is something like businesses that have revenue that’s maybe less than twenty million a year and starts at zero, that goes from zero to twenty million a year.

TERI:     Actually, what constitutes a small business is … there’s a short answer and long answer to that. However, our working definition is a business that has fewer than 500 employees. In some of the specific programs, there are more specific criteria as to what constitutes a small business. But I think based on most people’s definition of a small business in the public sector anyhow, probably anywhere from 50-70% of new jobs are generated by small businesses.

ROB:     Terri, thanks a lot for being on today. You’ve been very, very informative.

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INTERVIEW OF LANCE WEATHERBY OF GEORGIA TECH ADVANCE TECHNOLOGY DEVELOPMENT CENTER

(Transcript of Rob Hassett’s podcast interview of Lance Weatherby of Georgia Tech Advance Technology Development Center for Business to Business Magazine)

ROB:      This is Rob Hassett for Business to Business Magazine. This is going to be a podcast interview of Lance Weatherby with the Advance Technology Development Center. Lance, are you on?

LANCE:     I am, Rob.

ROB:      Good morning.

LANCE:       Good morning.

ROB:       Lance, where is the Advance Technology Development Center, which we know as the ATDC, located?

LANCE:      We’re located in Technology Square which is the recent development at Georgia Tech. They spread it a little bit more east off of their traditional campus. So it is a great location in Midtown at 5th and Spring Street. It’s really kind of the hub these days of the technology start up community.

ROB:       Lance, when was the ATDC first established?

LANCE:      Oh my! The ATDC was first established back in 1980 when Governor Busbee wanted to do something to keep the engineers that were graduating from Georgia Tech in the State of Georgia as opposed to them moving off to California or Massachusetts or other places. We were established in 1980 to help increase the technology base in Georgia, which is essentially to create technology companies and jobs for technologists.

ROB:       Is that the mission today?

LANCE:      Yes, our mission really hasn’t changed. It is to create jobs in Georgia, not only for technologists, but for people of all walks of life as well.

ROB:      Is it part of Georgia Tech?

LANCE:       It is. We are part of Georgia Tech. I am a Georgia Tech employee. However, the companies and entrepreneurs that we help are not necessarily associated with Georgia Tech. About 1/3 of the companies that we have in our incubator program do have some relationship to Georgia Tech, either being a graduate or the technology came out of that university, but clearly 2/3 don’t. They have no connection whatsoever, and when we look at our broader programs that we do in terms of educational programs and things of that nature, I’m sure that it’s even less than 1/3 of Georgia Tech associated people that are benefited.

ROB:       What is Venture Lab?

LANCE:       Well, Venture Lab is our sister organization. The Advance Technology Development Center is now part of something called the Enterprise Innovation Institute, and that’s a mouthful. So what Venture Lab does is they only commercialize technology that is developed at Georgia Tech. So whenever a professor, graduate student, or PhD. candidate has an invention/discovery, that invention/discovery is filed with the university, and then Georgia Tech sends that invention/discovery to Venture Lab. And Venture Lab has a group of folks called “Venture Catalysts” that help determine whether or not that invention would best be suited, commercialized if you will, as either a licensing opportunity, a consulting opportunity, or an opportunity to actually to go and start a company. And they, at any one time, probably have 75 or so opportunities that they are evaluating. What Stephen Fleming, who is the Chief Commercialization Officer of Georgia Tech, likes to say is that if ATDC is an incubator, then we’re prenatal care. So they take companies that are at an even earlier stage than ours.

ROB:      Do some of the Venture Lab companies eventually become ATDC companies?

LANCE:       Yes, they often do. It does just depend on the nature of the company and what they’re doing, and how well that lines up with what we’re doing and if we have the ability to help them or not.

ROB:       What does the ATDC offer its companies?

LANCE:       We have five member benefits that we kind of conveniently call the five C’s. The first one of them is consulting to get practical advice from experienced entrepreneurs like myself who have been in start ups before, been with successful start ups before and are able to provide some guidance based on that. We provide them connections to the people and resources that are necessary or best, whether that’s investors, customers, business partners or other advisors. We have a really dynamic community of entrepreneurs down here. There is a great deal of peer-to-peer learning that takes place among the companies within the incubator, and that might be one of the most valuable aspects of what we do. We have a facility that is designed for start ups with very flexible lease terms, and the type of facilities that start ups want. And finally, being associated with ATDC gives the start ups and entrepreneurs credibility. It is instant recognition. Our companies have been very successful, and when investors and some of those other people, such as I just mentioned, come to ATDC, they know that the companies associated with us have a greater chance of success.

ROB:      Lance, now I understand that you are a Venture Catalyst. I know you are very popular. I know you’re well liked among the start up tech companies down there, but as a Venture Catalyst, what do you actually do?

LANCE:       Well, as a Venture Catalyst, I do several things. I spend a good deal of time consulting with the companies that are here in the incubator. The way that we break things up are into interesting categories, and based on my background, which I was with Mindspring and Earthlink and then Cyphertrust in its early stages, I deal with the internet, the new media companies, as well as the information security companies, and I am the lead counsel for them. I also spend a good deal of time talking to applicant companies, people, entrepreneurs that are interested in ATDC, and let them know a little bit more of what we are about and whether or not there is a potential fit with us, and if there is anybody listening to this that would like to get together and talk, I might suggest that they go to http://atdc.org/inquire, and they can get in front of me and some other people to try and figure out whether or not there’s a fit. And then the last thing I do is, I spend time with companies helping them with their marketing and business development efforts, as functionally, that’s where I kind of grew up.

ROB:       How long have you been at ATDC?

LANCE:      I’ve been here for two years now. I’m having lots of fun.

ROB:       And what were your positions? At Mindspring, I know you were one of the earliest employees at Mindspring.

LANCE:      Yeah, well I was actually there pretty early and that’s actually how I ended up at ATDC. As I started with that company when it was in the incubator back in 1995. So I had a bunch of different titles there. I was what they called a market development manager, and then it turned in to the vice president of business development and from there it became an EVP of sales and marketing. In that role, I was responsible for business development, marketing, product management, and product development for a period of time. When we merged with Earthlink, Gary Betty decided he wanted his marketing guy to be the marketing guy, and I was fine with that. But I was like, well what am I going to go do then? And what I ended up doing was I started their mobile wireless business unit, and grew that into a pretty substantial business in a short period of time. I left there and went to Cyphertrust, and was the chief marketing officer there. Now, I’m hanging out at the ATDC having lots of fun.

ROB:       What was the business of Cyphertrust?

LANCE:      They were an enterprise e-mail security company. So they made a box that kept bad people and things out of your e-mail system, specifically out of corporate e-mail systems. That was really our focus. Companies like Coca Cola and Home Depot, you know.

ROB:      If a company becomes a part of the ATDC, what do you call them — a member or a participant or what?

LANCE:      Yeah, we call them a member company and we kind of wrestled with … rassled, that sounded kind of like the wrestling you see on Friday night. We kind of wrestled with, you know, if that’s the right thing to call them or not, because we do have some limitations in the number of companies that can actually get into the incubator program. And what we have been doing is working on ways that we can help companies that for whatever reasons, aren’t such a good fit with our incubator program. Or perhaps they’re too early to really want to join the incubator. We try to offer them resources through educational programming and online services.

ROB:      How many actual member companies do you have?

LANCE:      I believe we have about 45 right now. We’ve got a pretty vibrant group of companies that are here. We typically in any year take in 13-15 companies, and graduate six maybe. And the way that a company graduates is that they get to a point where we consider them sustainable, and just kind of as a marker, once they get around $1M revenue, that’s when we typically start saying okay it’s time for you to move on and make some room for somebody else.

ROB:       About how many applicants do you have per year for that average of 14 positions?

LANCE:       We receive about 180 applicants here, which is a lot for those slots. It’s part of the reason why we’re expanding our educational programs because we just don’t have the resources to be able to accept more. And what we do as an incubator is really pretty tightly defined. We are looking for companies that fit in their own slice of the pie of all the start ups in the world out there.

ROB:       What are the criteria that you look at to bring in, to decide whether to select a company from the 140 or so that apply?

LANCE:      There’s really five things that we look at. One, we’re looking for some innovative science or technology-based concepts. You know our companies are bioscience companies, energy companies, hardware companies, internet companies, telecommunications companies. The keyword is innovative. The question that I always ask is, what are you doing that is unique from whatever’s out there and is going to give you some competitive advantage, and that’s a big question. We look for a strong and committed management team. At least one person has to be working on the business on a full-time basis. And typically when companies come in, they have two or three people that are members of the founding team. Because of our mission to create jobs in Georgia, we look for companies that have the ability to generate significant revenue and technology jobs. And we want companies that have an interest in participating in our community. As I mentioned, one of the biggest benefits the companies get from joining the ATDC, is the community and if the member companies aren’t willing to give back and participate in that way, then it probably isn’t really a good fit. And the other thing that really has to take place is the company really has to be far enough along that they can pay rent. And oftentimes a company that comes to us in very early stages of life, with just one person with an idea or concept. You know it’s either a business person or technology person, and we help nurture those companies.

ROB:       Lance, could you give us the names of some companies that have gone through the program and graduated, that people would know about, would have heard of?

LANCE:      Yes, Relevant Knowledge is the first one that pops in to my head, that was a company way back with Jeff Levy and Tim Cobb. It got sold to Media Matrix. Mindspring obviously is probably one of the bigger ones that came out of here. A little bit more recently, a company called Cardiomem is doing pretty well. Companies we have in here right now actually are a really strong set of companies. There’s Sineva that it seems like everyone has heard about. A company called Clear Leap is doing really well in the marketplace. It seems to be getting a lot of traction that I think you’ll be hearing about.

ROB:      What do those companies do?

LANCE:       Sineva makes solar panels more efficient. As a matter of fact, they are just today starting up a plant up in Gwinnett County where they are going to manufacture solar cells.

ROB:      That’s today, which is October 20.

LANCE:       October 20th, yeah. Clear Leap, basically enables video content owners to deliver a lot more video over the cable plant. It’s really interesting technology. There’s just such a host of companies. PureWire, which is a lot of my old friends at Cyphertrust, are making a security service. They’re basically doing security in the cloud which is pretty hot these days. But the number of companies that we have in here that have great potential right now, and I think it’s probably stronger than it’s ever been. And when I start mentioning companies, I invariably mention a company that something happens and they get waylaid, or I don’t mention companies that turn out to be very successful. So there’s a little danger there.

ROB:       Yeah, that’s true. Well, Lance, I really appreciate your working with me today and being on the podcast. We’re supposed to try to keep this under 16 minutes and we are there.

LANCE:       Excellent. Thank you very much, Rob, for having me on the show. And again, if any of your listeners would like to learn more about the ATDC, I suggest they go to our web site which is atdc.org and they can find out more information about it.

Uncategorized

INTERVIEW OF KNOX MASSEY, MANAGING DIRECTOR AND MEMBER OF ATLANTA TECHNOLOGY ANGELS

 (This is a transcript of Rob Hassett’s interview of Knox Massey who is a member and managing director of the Atlanta Technology Angels for B to B Magazine)

 

 

ROB:              This is Rob Hassett with btobmagazine.com.  Today, I’m going to be interviewing Knox Massey who is a member and managing director of the Atlanta Technology Angels.  Knox, good morning.  It’s good to have you on.

KNOX:           Thank you.  It’s great to be here.

ROB:              Knox, before you came back to Atlanta, I know you grew up here, you were working for AOL, is that right?

KNOX:           That’s correct.  I worked for America Online in the late ‘90s.

ROB:              In what capacity?

KNOX:           I was the sales manager of an office here in Atlanta, and I covered the territory in the southeast.  Most of my business was done in Georgia and Florida, with a little bit of business in Alabama and South and North Carolina.

ROB:              And then you went to get an MBA at Georgia State?

KNOX:         Yeah, I entered the program in 2001 and finished up in 2002 over at Georgia State.  It’s a great program.  It’s called the Global E-Management Program, which I don’t think actually exists any longer, but it was geared towards sort of an MBA program and it focused on technology, which is what I was focusing on at the time, and of course still do with the Atlanta Technology Angels.

ROB:              Knox, when did you first become a member of the Atlanta Technology Angels?

KNOX:           I joined ATA, we call the Atlanta Technology Angels “ATA” for short, in 2001.  I met a person by the name of Mike Dickerson who I had met over at E-Hatchery, if anybody remembers that.  And he introduced me to the folks at ATA and I joined in the middle of 2001.  Then I became the managing director I believe, it was in late June of 2002.

ROB:              When were the Atlanta Technology Angels first formed?

KNOX:          The group itself was formed in late 1998.  They did a little bit of leg work and visited some Angel groups up in North Carolina, which had some early Angel groups back in the early to mid ‘90s.  The group actually started meeting in ’99 after they sort of formed the group, which is actually a C-Corp, a non-profit C-corp.  So the group started meeting in ’99 and started investing in, I believe the first investment was in October, 1999, in a company which is now called Connecture and is still an ongoing concern.

ROB:              What is the mission of the Atlanta Technology Angels?

KNOX:          The mission of ATA is to fund young Georgia-based technology companies, and young sort of means early stage formations of a company, and also to help the entrepreneurs.  So, it’s sort of a double mission.  We put capital in to the young companies to get them up and running, but we also will pick one or two or three individuals that may invest in that company, and have them work with the management team over time.

ROB:              What are the requirements for being a member of ATA?

KNOX:        Well, generally, you have to be an accredited investor to invest in a lot of these young companies.  So as an accredited investor, you have to have an affinity for technology, be it you started or worked in a technology company.  Of course, you have a commitment to Atlanta and more broadly the state of Georgia.  So it’s a fairly simple requirement — if you’re willing to take a little bit of time and effort and capital and work with young companies to get them up and running and started in the state of Georgia.

ROB:             How many members do you have?

KNOX:          We’ve had as many as 75 members and as few as about 25 members.  We tend to stabilize right around 50-55 on an annual basis.

ROB:              What is the process, Knox, for an entrepreneur that’s interested in trying to obtain an investment from the Angel investors, from your group?

KNOX:        The best way is, if you’re a young entrepreneur and you’re looking to raise capital in Atlanta, that you do a little bit of leg work and pound the pavement and find the people that are in the area of capital raising, and you usually can find them fairly simply in Atlanta.  All the way from Nora Moseley or HIG down to ATA, which is sort of a private group, as well as maybe the ATDC Seed  Fund or some other private investment groups around town.  So really you have to do a little bit of leg work or due diligence, and find the people in the community.  If you can find someone that knows me, that’s an obvious and they can do a quick introduction.  We have some very public investment criteria on the web.  We’ve got a web site and I’ve got a blog, so there are numerous ways you can find us.

ROB:              What is the web site?

KNOX:           It is http://www.angelatlanta.com.

ROB:              And what is the process once they contact you?  Should they send you an e-mail with a business plan or what?

KNOX:          Typically, we’ll ask for a short executive summary or a short business plan.  So a short executive summary of one or two pages describing the business, the product, or the service, and the management, or a short business plan, maybe a little bit more detailed maybe four to five pages.  That gives us an idea of the company itself, the product and the company and the management.  We quickly take a look and see if it meets the investment criteria.  And if it does, which can be very broad-based in terms of what technology we look at, then we’ll move it in to a screening process that we have.  It meets twice a month.  Usually anywhere from three to eight members of the group will sit down for three to four hours, twice a month, and review the companies. We actually bring the companies in to do a short presentation.  And then at the end of every month, we have a formal meeting where we invite all the investors of the group to come listen to at least two companies.  And generally, we’ll also have a speaker.  At that time, after the companies have presented, we can determine if there’s a high enough interest that would make an investment viable for that company as well as the group itself.

ROB:              And does the group ever invest or just the individuals that decide themselves whether they want to in          vest?

KNOX:          Well the Atlanta Technology Angels is not a fund.  Members of ATA have invested in over 40 companies through ATA, so hopefully we’ve learned something.  But typically each individual will make an individual investment.  But we’ll take those investments and aggregate them into one investment, and we will form an entity, generally an LLC or partnership, and that partnership or that entity will invest in the company itself.  We do that for many reasons.  It’s easier for the company to sort of handle those multiple investments.  It’s actually easier for the Angel group because what we do is take one person and we make them the general manager of that entity, and that person is responsible for interacting with the company as well as the other investors.  And last, most of our companies, about 80-85%, go on to get venture capital, and the institutional capital likes to see a very clean cap sheet or structure.  And what we want to show to them that it’s not nineteen different investors they have to deal with; it’s one entity as well as maybe the founders and maybe some early friends and family money.  So it’s easy for the institutional investor to understand and work with as they go forward.

ROB:             So after a presentation is made to the formal group, anybody that’s interested would tell you if they’re interested, and then if there’s enough interest.  So if four members are willing to put up enough money for it to work, then you say okay, you guys, go ahead and do it.

KNOX:          Well what happens is a group will really form from within the Atlanta Technology Angels.  Let’s say, for example, we’ll have a meeting at the end of the month and eight people have a high level of interest.  What we’ll probably do, and we all pretty much know each other in the group, and we all will show the interest, we’ll find out who’s interested and we’ll put together most likely either one or two, depending on what we need to understand, due diligence sessions after that formal meeting where the company presents to the Atlanta Technology Angels.  And that’s a chance for the investors to come in and spend more time on maybe the product or maybe the financials, maybe a little bit more about the background of the management, it just depends.  Every investment is a little bit different in terms of what we concentrate on.  So that group will concentrate doing their due diligence and once they’re satisfied then they’ll put the investment together like I mentioned a little bit ago.  They’ll create an entity they’ll invest in to the company themselves.  And that’s also a process as well.  I’m not sure we want to go in to it right now though.

ROB:              What’s a typical investment that the ATA group members would invest in?  I mean what’s a typical amount?

KNOX:          Well, there’s no typical investment.  Generally, the investments range from about maybe $250,000 up to a million.  It just depends on the situation; it depends on what the company’s trying to raise.  If a company is raising as much as a million, generally you’re probably … well, a group like us, is probably going to have to co-invest with another group, for example, Imlay Investments or another Angel group.  So you have a small syndicate that would invest for those larger amounts.  ATA has done multiple investments in the range of 200, 250, to up to $500,000 individually.  Not individual persons but a loan as a group.  So it just depends.

ROB:             What’s the typical form of the investments that the members make?

KNOX:       Most of the investments are in preferred shares and/or convertible notes.  The convertible note being a debt instrument that will convert to a preferred share at a later point.  We rarely, rarely due common stock.  In fact, I think the last common stock investment we made was maybe in the year 2000.

ROB:             Do the ATA members offer anything other than money?

KNOX:         Well, I mentioned earlier that often we’ll pick one or two or maybe as many as three members from that investment group that will work with the management team and mentor them over time.  Again, that depends if we can find someone within the group that has the capability and expertise that can help that management.  If so, then  they’re an obvious choice and they can go on and serve as a mentor.  So yes, we don’t advertise that we have some sort of wonderful added value beyond the money because we want to make sure that our members helping makes sense before we have that person help the company.

ROB:             What type of business plan are you looking for?

KNOX:          Well, you know, the Atlanta Technology Angels are technology oriented.  Georgia based, and very broad.  And we do that on purpose.  A lot of our members have varied backgrounds.  They could be semiconductors or internet security, or telecomm, or sensor related and so on.  So we try to keep it very broad because the membership has a broad interest base.  We don’t want to narrow that so that we only see software and we can only see semiconductors.

ROB:             Knox, what do you want to see in a business plan in the sense of how many pages are you looking for in general?  Are you looking for something long and deep, or short and sweet?

KNOX:        The shorter the better.  Generally, I mentioned earlier, an executive summary of one to two pages, or a short business plan.  Maybe the most is four to five pages.  Most of the information that we need to see can be put into four to five pages.  We don’t need a fifteen page or twenty page business plan just to show that you can create one.  We’d rather have shorter so that we can quickly review the company, the product, the service, the management, the financials if they’re there.  So we can determine if it’s a good opportunity that we’d want to review.  I mean over the years we’ve looked at thousands of business plans.  We generally know what we’re looking for pretty far up front.

ROB:             Are you more interested in them going directly to you or do you appreciate it when they have a go-between?

KNOX:         You mean a broker?

ROB:             A broker, right.

KNOX:         Generally, we don’t work with companies that have brokers.  And one big reason is that all the money that we invest we want to go to the company.  For example, if the company raises $750,000 and a broker takes $75,000, that’s $75,000 which, in our world is a lot of money, that can help that company.  We prefer that the company not use a broker, and that’s one reason.  Another reason is we want to hear from the company and the management.  We don’t want to hear from a broker.  We want to understand the management, know their backgrounds, see how they work in front of a group, can they tell the story.  If a broker’s doing that, you don’t get the full impact of how the management team is going to work going forward.  Those are the two main reasons.

ROB:             Knox, you had mentioned to me that there was a particular reason that North Carolina did so well early on in the high tech area.

KNOX:         Well, from what I could determine, they passed a tax credit, I believe it was in 1996.  I’d have to go back and look at my notes.  But the tax credit gave a specific tax credit to investors in early stage technology companies.  There were some provisions in that tax credit bill which stipulated that the Angel groups or early stage investments groups had to form a fund.  Actually, I believe the fund may have gotten the tax credit which flowed down to the individual investors.  So you saw really an explosion of Angel groups happen in North Carolina based on that tax credit.  And since that time, I believe there’s over twenty states that have implemented tax credits; Hawaii, Wisconsin are two of the ones that are very, very successful.  I believe North Carolina still has the tax credit, and there’s numerous others.  In 2007, me and one other ATA member, Dan Pompilio, put forth a bill in the legislature and it was called House Bill 435 which was a tax credit bill for early stage investors in technology companies.  Unfortunately, it did not succeed and we tried again last year.  That did not succeed based on some other bills that had higher priorities.  We’ll probably continue to try that, but I think it is absolutely needed in the state of Georgia … that the state encourage private investment in young companies.  The tax credits for early stage individual investors, in my opinion, is needed and is very, very essential especially in these tough economic times.

ROB:             So twenty or more states have the credit right now, and Georgia has none.

KNOX:          That’s correct.

ROB:             Now what is the Angel Capital Association you had mentioned to me?

KNOX:        The Angel Capital Association is a trade organization that was formed in 2003, and it is comprised of over 150 Angel groups throughout the nation.  All the way from Florida up to Maine, over to California, Texas, etc.  I believe that there’s quite a number of international Angel groups as well in the group.

ROB:             And you are an executive of that organization?

KNOX:          I’m on the Board, that’s correct.  I joined the Board in 2007, so I’ve got a three year stint, so through 2010.

ROB:             And there’s a major meeting planned in Atlanta shortly right?

KNOX:        That’s correct.  We have an annual summit.  Last year it was in San Diego in May.  This year, I convinced the Board to bring it to Atlanta.  So the Angel Capital Association Annual Summit will be in Atlanta this year April 15-17 at the Intercontinental Hotel in Buckhead.  We are just now distributing the agenda.  If you go the Angel Capital Association web site, you can find the agenda and more information on the summit.  Last year in San Diego, we had 300 Angels there, which represented about a hundred Angel groups.  So I imagine we’ll have just as many this year here in Atlanta, even with the tough economic times.  I would encourage all individual investors who are interested in this field to attend.  We’re inviting entrepreneurs to attend the Thursday night cocktail reception where we give a specific reward to an Angel who’s done a lot in the field.  It’s a great way to meet Angel groups and Angel investors.

ROB:             And any one that’s interested in attending that event, any entrepreneurs that want to attend that event or Angels that want to attend the summit, should go to the Angel Capital Association web site?

KNOX:         Yes.  Well, the actual summit is for Angels only, so investors only.  And it’s a crowd of Angel investors and Angel groups, and we talk about specific content about this type of investing.  We always invite local entrepreneurs to the event on Thursday night which is about a three hour cocktail reception that we have for the attendees as well as local entrepreneurs and local businessmen.

ROB:             And Knox, there was a web site you mentioned that entrepreneurs could use to find out who the Angel investment groups were.

KNOX:         There is on the Angel Capital Association web site, there is an area  … I’d have to take a look, but there is a listing of all the Angel groups that are members of the Angel Capital Association by geography.  So literally southeast, northeast, midwest, west.   I believe I looked at it last week, it’s listed by state.  So it’s a very, very easy way to find out what Angel groups are in what states and in what geography.  So it’s easy to find out who runs the Angel groups, what they do, etc.  Most Angel groups have web sites, or there is the ability to find them fairly easily.  And there’s no charge at all to access these Angels.  In fact, the Angels and major Angel groups want to hear from the entrepreneurs.

ROB:             And is there a particular stage in a company’s business life that you are looking for?  Do you guys, in other words, fund start ups generally or fund companies that have already gone through initial seed capital and they’re looking for the next round?

KNOX:         Well, people can have different definitions for seed capital, or start up capital, or early stage capital.  A lot of times, those terms get intertwined.  Typically, and every Angel group is a little bit different.  So it’s very important for a company or an entrepreneur looking to raise capital to understand what metrics that Angel group or Angel is interested in investing in.  So our group will do early stage.  What does that mean?  It probably means that you have a small team; you have identified or have management on board, meaning a CEO.  You have a product that is maybe finished, maybe in beta.  We have funded start ups, literally stuff written on napkins.  That was very common in ’99 through 2001.  That doesn’t happen that much.  Some Angel groups may do that.  We typically don’t anymore.  Typically, we’ll come in after their friends and family monies.  So the company’s up and running; it’s been established; it’s raised a little bit of capital maybe from the founders, maybe from friends and family.  They have a good idea of the product or service.  They’ve identified the management, or they have the management on team, and then it’s very obvious.  Hey look guys, and then we’ll dive right in.

ROB:             Knox, thanks a lot for being available today.  You’ve really been a big help, I believe, to a lot of entrepreneurs that will listen to this.

KNOX:          Sure.  Glad to do it.

ROB:             Thanks.

KNOX:          Okay.  Talk to you soon.

Business/Effectiveness

INTERVIEW OF MARCUS HARWOOD, TEAM BUILDING EXPERT

 

ROB:               This is Rob Hassett with tellmesomethingidontalreadyknow.com.  Today I’m going to be interviewing Marcus Harwood who is an expert in putting teams together and selecting people that should be on the teams.  Marcus, how are you doing?

MARCUS:       I’m good, Rob.  I’m doing fine today.  How are you?

ROB:               I’m good.  Marcus, tell me something that I don’t already know.

MARCUS:       Well, I think the core of the work we do, Rob, is something that certainly 99% of companies out there don’t understand.  When we ask companies: “Do you do your most important work, your most critical work, the work that your future of your company relies on in teams?”  They respond:  “Yes, it’s true.”  And then we ask the question: “Okay, so what is your methodology for teaming?  What’s your language for teaming?  What science do you use for how you create mission-perfect teams?”  Rob, they look at us like a deer in the headlights.  They don’t have a clue.  So, just to be sure, we say: “Look, let me get this straight.  You do your most important work in teams, all the important critical decisions, all the new product development, all the strategy development in teams, yet you have no science, no language, no methodology to create those teams, is that correct?”  And they say: “Yes, it is.”  And they usually say “That doesn’t make much sense, does it?”  And we say: “No, we don’t think so”.

MARCUS:       So what we’ve done, Rob, is developed a science and methodology to fill that massive void.  The other thing we’re trying to do is address our research that 38% of every dollar spent on employment costs, salary, and other employment costs is completely wasted.  And when you start to do the math on how much money that represents for the typical company, it’s probably a bigger number than what they might be trying to generate with their ten biggest improvement initiatives, meaning it would dwarf all the other ten improvement initiatives they’ve got going on combined, if they could get rid of that 38 cents on the dollar they’re wasting.  Because, as you know, salary and employment expenses are a big number.

ROB:               Now the method you developed is called Method Teaming, right?  That’s what you call it as I understand it?

MARCUS:       Correct.  Method Teaming.

ROB:               And what have your results been like, using Method Teaming versus not using it, versus doing nothing in that way?

MARCUS:       Yeah, so our results have been terrific.  The amount of improvement depends, in part, on what part of companies that you’re talking about.  If you’re talking about sales organizations, which is one of the areas that we work in, but certainly not the only one, I’ll tell you the story of one account team at HP and their experiences have been typical at HP and all the account teams we’ve worked with.  Just by making an adjustment of adding one individual, one intellect to a particular team in HP, they were able to increase their run rate for the software, hardware and services they sold to one of their clients, which is one of the biggest banks in the world.  When we started with them, their run rate was $350,000,000 per annum.  Almost as soon as they added this one intellect that we had pointed out to them that was missing, their run rate went to $650,000,000 per annum.  And then when this same resource, this extra person they added, when she went on extended medical leave about eleven months later, the run rate went back down to $350,000,000.  When she came back after five months, the run rate went back up to $650,000,000.  So you can see the effect of adding that one person with a different intellect can make all the difference in the world.  But in order to determine that, you have to use some science to understand what’s missing, what are the weaknesses, and what are those weaknesses costing us, and how do we, with precision, find just the right individual that will fill that gap.  That’s what we did for them, and then we’ve done that many times over at Hewlett-Packard.  We have trained most of the account managers at HP.

ROB:               Now you’ve mentioned the term intellect.  How many intellects are there?

MARCUS:       There are four primary intellects in our science.  Would you like me to describe them a little bit?

ROB:               What are they?  Yes, please.

MARCUS:       Well they are the PD, which stands for project director, but we don’t use that term anymore.  We just say PD.  And PDs are people who are very focused on getting work done.  They are people that like to reuse processes, procedures, protocols, rules and structures.  They are people that do not like to get it wrong, and they do want to get it right.  Because they don’t want to get it wrong, they do their homework.  They’re very analytical.  They’re very careful.  They don’t like risk.

ROB:               They do best in school I take it?

MARCUS:       They do the best in school simply because our school system is of the PDs, for the PDs, and by the PDs.  PDs are about 55% of the population.  So if you have a child who’s one of the other three intellects, our point of view is they’re not getting the preparation they need for life in our school system.  And most of the school officials I’ve talked to absolutely agree with me on that point.  Now going on to the other three intellects.  One is called the Networker.  And these are the people who are gifted in creating and sustaining and nurturing relationships.  They’re all about two words, trust and empathy.  The PDs are the work machines, the gears that go round and round to get our work done.  Every machine needs to be lubricated, and the Networkers are the lubrication.  Whereas the vast majority of PDs are introverted, the vast majority of Networkers are extraverted; but there are exceptions.  The Networkers can read people like a book.  They are the masters of reading the 93% of communication which is nonverbal communication.  Any valid source out there will tell you non-verbal communication is about 93% of communicating.  The Networkers are gifted at reading that 93%.  But they don’t have a language for how they read it; they don’t have a method.  Then there are the EQs, the third intellect.  These are people that you and I would know as pure sales people.  They are people who are moving fast in life. They’ve got a big foot on the accelerator of life, and no foot on the brakes.  They’re willing to take a big risk for a big reward.  They’re very comfortable in a situation or game where there’ll be one winner and all others will be losers.  And they’re going to make it their business to try to be that winner.  Because they are people moving in such a hurry. Rob, they learn how to communicate their ideas in quick, powerful sound bites.  And that one ability fuels a disproportionate number of EQs becoming CEOs in our point of view?  The final intellect is the strategist.  Should I go on with that one?

ROB:               Yeah, go ahead.  That’s good.

MARCUS:       Strategists are the people who can give us on-demand creativity any time any place.  Their creativity comes from an ironic combination of a great strength and a great weakness.  The great strength is that they see patterns that other people don’t see, and that leads them to a point outside the proverbial box.  The great weakness is they are oblivious to protocols as well.  The proverbial box is a form of a protocol.  It’s not as though they see the box and choose to think outside of it.  They don’t even see the box.  Well, it’s a lot easier to think outside the box if you don’t see it.  So that combination of that strength and that weakness gives them their creativity.  And their ideas are definitely their babies.  Most of them are very introverted, but there’s a sizable minority that’s extremely extraverted.  So that’s kind of the penny tour, Rob, of the four intellects.

ROB:               You said that PDs make up 55% of the population.  What about the others?

MARCUS:       Well the networkers are 20%.  And the strategists are 7%.  And the EQs are the balance.

ROB:               The EQs are about 18%?

MARCUS:       Yep.

ROB:               Can you tell how you determine what someone’s intellect is?

MARCUS:       Well, there’s a couple of ways.  But by far the best way, the most accurate way, is to use our science.  And our science is very unique, compared to other companies using psychometric science.  The vast majority of people using psychometric science out there to determine somebody’s intellect use only one instrument, which makes really no sense at all.  We learned back in 1990-91, when I was a partner at Ernst & Young, that you can’t get it right with one instrument.  You just can’t.  The human intellect is far too complex to only look at one dimension of the intellect and try to make your determination from that.  But most people who use psychometrics are using one instrument.  And we learned back then we needed more than one.  We needed two.  And actually, when we found the best two in the world that work together, we realized there was still something missing, that we were only at about 95% accuracy.  So when I started this company in early ’03, Rob, I knew I needed to find the right third instrument that would bring that accuracy up to right at a hundred percent.  And I found that instrument in early ’03, and added that to make our “array” of three intruments.  So we use three instruments, and then our intellectual property, Rob, sits above these three instruments and arbitrates any differences of opinion when the instruments disagree as to primary and secondary intellect, which is quite frequently.  So that is how we determine intellect.  Now if you’re a sales person and you’re trying to determine what intellect you’re selling to, because you know we teach you how to sell to each of the four intellects effectively.  And, by the way, they each make their buying decision in completely different ways.  So if you’re that salesman and you’re trying to figure it out, we give you some physical clues to determine somebody’s intellect and also teach you how to ask the right business appropriate questions that will lead you to an accurate determination of intellect, or at least as accurate as you can get without administrating instruments.

ROB:               Oh you teach that, how to gauge what they may be as best as you can—

MARCUS:       Yes.

ROB:               Without giving them a test.

MARCUS:       Yes.  And once you know what they are, we teach you exactly how to sell to them.

ROB:               And what’s an example—

MARCUS:       Think about that.  If you don’t know that, you’re using one size fits all in terms of your selling approach, you’re frequently going to be wrong in how you’re trying to sell to somebody, and that’s why our batting averages for most sales people are quite low.

ROB:               What would be your suggestion, or what is shown to be the best way to sell to PDs as opposed to EQs?

MARCUS:       Well, remember the one liner we use for PDs is:  they hate to be wrong.  So if what you are selling to that PD gives them the ability to avoid being wrong more frequently, that’s very important.  If, in what you’re selling, if you’ve got proof, these are people that want proof.  Data.  So when you’re selling to a PD, you want to provide them a lot of proof, a lot of data, a lot of examples of where whatever you’re selling has been used before to generate a value that is consistent with what the client PD is looking for.    You want to convey either no risk for your product, or low risk, because PDs do not like risk.  Complexity is okay when you’re selling to a PD, not okay selling to other intellects.

ROB:               And what about EQs?

MARCUS:       If you’re selling to an EQ, it’s completely different.  Almost 180 degrees different.  Whereas a PD wants the maximum information to make a very well researched, well-founded decision, the EQ’s point of view is give me the least possible information you can for me to make a reasonably well informed decision.  I don’t need to know everything you know, nor do I want to, nor do I have time to hear everything you know.  I just want to know the Pareto principle aspects of what you know that lead me to a place where I can make a pretty well-founded decision.  So give me the least possible information you can, where as a PD says give me the most information you can.  So quite different.

ROB:               Now you mentioned secondary intellects.  How does that fit in?

MARCUS:       Well most people have a discernible secondary intellect and our array of instruments can detect that.  For some people, the secondary intellect is almost as strong as the primary, never as strong, but almost as strong.  And then for some people, the secondary intellect is quite distant.  It’s in the picture, but barely in the picture.  So we see any and all of those capacities.  So generally speaking, if I give you work to do that’s in line with your primary intellect, Rob, you’re going to be very efficient.  And we do this research in every class we teach, and our class members tell us that they’re somewhere between 90-95% efficient if we give them work aligned with their primary intellect.  If we give them work that’s aligned with their secondary intellect, they’re going to be okay at it, but not great at it.  So that efficiency drops down to about 70% efficiency when we’re giving you work that aligns with your secondary intellect.  And, of course, when we give you work that’s diametrically opposite your primary intellect, that’s when productivity drops massively down to a number of about 40% efficiency.  So you can see the difference between giving you work that’s in alignment with your primary intellect, which we call “Talent-Aligned” versus work that’s, say the opposite of your talent which we call “Talent-Opposed”.  That work, that difference in productivity, is more than a hundred percent, meaning work that you’re naturally gifted to do, you’re going to be more than a hundred percent more productive at than work that we give you that’s diametrically opposite.  The tragic thing is that most American jobs, a vast majority, are approximately a third talent-aligned, a third talent-neutral lining up with a secondary intellect, and a third talent-opposed.  It’s just a terrible job that we’ve done in constructing these jobs.  And there’s reasons why it’s so messed up, but we can go into that failure another day.

ROB:               Well how would you change the schools to teach some of these other kind of, these kids with different intellects other than PDs?

MARCUS:       Well, I think you’d first have to make the schools aware that there are kids with these four different intellects that they’re trying to teach.  Now the problem is, even if you think that once you made them aware, they would fix the problem immediately, but that doesn’t tend to happen because it is the PDs who typically control the school system.  It is the PDs that typically control the school system, and they’re very comfortable with the system the way it is.  What is also tragically true is that many teachers, particularly when you get to the college level, they’re there for one primary reason, and that is because that environment allows that professor to learn more than any other environment, and the professor is usually highly motivated to acquire knowledge.  And some will tell you: “The fact that I have to have students is a nuisance.”  So those people, as you might suspect, are not too interested in changing the system.  The system’s working fine for them, because they’re in a situation where they can acquire a lot of knowledge.  So I think the first thing, Rob, is awareness.  And then the second thing would be to generate, at some point in the future, understanding that you have kids of all four intellects and make some curriculum available to develop the kids who are Networkers to develop their skills more quickly so that they would be able to utilize those skills to be successful in life as Networkers.  And to develop other skills that the Strategists need to be successful in their role, and develops other skills that the EQs needs.  The EQ child, think about this, Rob, will go through our primary, secondary, high school, college education, possibly never having heard the words:  sell or selling or sales.  And yet, the majority of EQs will make their living as sellers.  Tell me how that makes any sense.

ROB:               Yeah, well it doesn’t.

MARCUS:       No, it doesn’t.

ROB:               Tell me a little about the history behind this field of putting teams together.

MARCUS:       Well I can tell you the history around Method Teaming because that’s the history I lived.  Is that what you’re asking for?

ROB:               Yes.

MARCUS:       Yeah.  Method Teaming is like a lot of things where you hear the expression necessity was the mother of invention.  And that was definitely true in this case.  The development of the crude predessessor to Method Teaming goes back to 1990-91.  I was a partner with Ernest & Young Consulting.  At that time, we were ranked sixth of a field of six firms in terms of the big six consulting.  And into that situation, we brought a new leader.  He came in and said that we were going to do two things and do them within five years.  One was double revenue.  We thought he was crazy.  The second thing he said we were going to do was reduce the number of accounts we served from 2000 to 300, and those would be the 300 biggest companies in the world.  I was fortunate in that he named me to his executive committee.  So I’m listening to these two objectives for the first time, sitting with my fellow executive committee members, about twelve of us sitting around in a room, and I am thinking that the guy is crazy.

ROB:               What numbers did he give you?

MARCUS:       The most surprising things he said was that we’re going to double revenue in five years and while we’re doubling revenue, we were going to reduce the number of accounts we served from two thousand to three hundred, and the ones we were going to continue to serve were going to be the biggest companies in the world.  And then he immediately broke us into committees to figure out how we would accomplish this.  And through fate, good fortune, divine intervention, whatever you want to call it, he named me to be his co-chair for the People and Culture Committee.  So, you know, when you’re the co-chair with the boss, you know who does the work, right, Rob?

ROB:               Yeah, you do.

MARCUS:       That’s right.  So I was tasked with figuring out how we were going to do this on a people dimension.  And the very first thing that I focused on was this:  up until then, the entire big six, not just our firm, operated on the notion that if you were a partner, you sort of owned your own business.  You had your own clients, you frequently used the same people in your engagements to deliver the work, and you didn’t team with another partner.  That just wasn’t done.  And it wasn’t done anywhere in the big six.  You were a fiefdom unto yourself.  And I always thought that was pretty ridiculous to be honest with you.  Because different partners had different strengths, and we weren’t using each other’s strengths.  But now this new boss gave us an opportunity to change that.  And so in the end it was a deeply held cultural belief that if you were good enough to be a partner at Ernest & Young, you were good at everything, which, of course, is ludicrous.  Well, I figured if we’re going to go from 2000 to 300 accounts, by definition, we’re going to have to have more than one partner on an account and we don’t know how to team together, so let’s search the world for a teaming methodology.  And I wrote down ten attributes I wanted to have in that methodology.  I launched two teams of bright young MBAs from schools like Harvard and Kellogg.  I figured they’d be the best researchers.  And I gave them the same mission; find a team methodology somewhere in the world that would do these ten things.  They both came back at the end of 30 days, Rob, and said sorry, boss, we couldn’t find one.  I said you got to be kidding me!  You couldn’t find a methodology that does this?  And they said no we couldn’t find one.  I said well, okay, we are Big Six consultants, and by the way, I’m a strategist.  I’m a creative guy.  So, I said we’ll just have to create one.  And that’s what we set out to do.  We set out to create a methodology whose language made sense in the business world.  That’s a big difference in what we have today versus what our competitors have.  Most other people who use psychometric instruments use a clinical language suggested by the instrument.  We do not.  We use a business language that makes sense for business people, and then we translate the technical jargon and the technical math into this business language.  At any rate, we started developing that methodology in 1990-91, as I’ve told you before.  We eventually said we have to go to the world of psychometric instruments.  We found the single best instrument on the market at that time, but it only gave us 78-82% accuracy.  It’s a behavioral-based instrument.  Then we added to that a motivational instrument.  Shortly after acquiring the behavioral instrument which brought total accuracy up to 95%.  And then it wasn’t until 2003 when I started my company that I found the right third instrument as I mentioned which brought our accuracy right up to 100%.  So that’s some of the story of Method Teaming.  And oh, I didn’t tell you the punch line of the story is that we doubled revenue in three years instead of five years at Ernest & Young Consulting.  We moved from the number six firm out of six firms to the clear number two firm out of a four firm field by the end of the ‘90s.  In other words, we were taking share from all of the other players at a very, very high rate, including the big dog in the market which was Accenture.  We got to the point where we felt we could beat them regularly, and did.  One unexpected benefit was that our income went up about 450% per partner in those first seven years.  So we were doing well.  Although we did a lot of things well to achieve that success, not just one, I will tell you that in my view the single most important thing we started doing is using each other’s strengths and teaming around each other’s weaknesses.

ROB:               Well, Marcus, this has been very interesting and I’ve enjoyed talking to you today and learning more about Method Teaming.  Is there anything else you’d like to say?

MARCUS:       Well, I only want to say this.  From a more humanistic point of view, our hope is that all people can find, that we can facilitate a process where they can find, what their natural gifts are, their natural talent, and that we can create a world where that natural talent can be used.  That is extremely fulfilling for most human beings if you consider how many man-years we’re going to spend at the work place.  We believe everybody should have work that they love, work that they’re naturally gifted at, and that’s easy for them, and not have to do work they hate.  So that is another, I think, worthwhile reason that we look at a science like Method Teaming to help us do that.

ROB:               Marcus, if anyone wants to get in touch with you, what is the best way?

MARCUS:       Probably phone number would be the easiest for me to give you over this interview.  (770) 919-0200.  I’d love to talk to anybody that has questions about teaming.

ROB:               Thanks a lot.

MARCUS:       Thank you, Rob.

Business/Marketing

INTERVIEW OF CHARLES LUMPKIN, SOCIAL MEDIA ADVERTISING PROFESSIONAL

 

 

This is Rob Hassett with tellmesomethingidontalreadyknow.com.  Today I’m going to be interviewing Charles Lumpkin who is Vice President of Product Management and Innovation at BLiNQ Media.

ROB:                     Charles, tell me something about your business that I don’t already know.

CHARLES:           Well at BLiNQ we do a lot of work around social media advertising, and the largest avenue of social media advertising today is Facebook.  Facebook has over 850 million people active on the site every month.  Half of those people log in every single day.  Over half of those people use mobile devices to access Facebook.  And we’re seeing a major transition from PC to mobile devices.  And there are millions of sites connected into Facebook by the social graph.  So the world is changing dramatically online and just in general.  So we like to place ourselves firmly in the middle for the advertising side of things.  And that’s kind of what we do over at BLiNQ Media.  We do social media advertising, particularly around Facebook at this time, but we’re expanding out.

ROB:                     You were telling me there were a lot of page views, a significant percentage of page views that are on the internet are on Facebook.

CHARLES:           That’s right.  About 20% of all time spent online is spent on Facebook, and about 30% of all page views online.

ROB:                     That’s unbelievable!

CHARLES:           Yeah, it’s huge.  I mean it’s just amazing to think of this site that was of relatively small value just a couple of years ago, and now it’s a juggernaut.

ROB:                     Could I put an ad on Facebook myself?

CHARLES:           You can, sure.  They have a self-service system, and you go in and enter in a credit card number and place an ad.

ROB:                     What do you do different from what I can do myself?

CHARLES:           The differences in what we do is that we have a direct, basically main line connection into their servers through an API.  And instead of going in and launching, say, one or five ads by hand, we go out and launch many, many versions of ads in what’s known as a full factorial multi-variant design, so we might have two thousand ads in a given campaign instead of five.

ROB:                     For one customer?

CHARLES:           Yeah. We work with some of the largest ad agencies in the world and work with hundreds of the top consumer brands. But for any particular campaign, what we do there is we go out and we’re launching a whole bunch of different creatives, so different images, different body copy headlines, etc.  Then we’ll have a whole bunch of different target segmentations, so we might be targeting people who like beer or cowboy boots or Nascar or they like teenybopper stuff or hip hop or whatever it might be.  And so we create large stratifications of targeting and we combine all of that together and create a whole lot of variations of the advertising.  And then we go and we actually optimize all that using some algorithms we built here internally.

ROB:                     How do you know which people to target?   Or are you saying that people, if they click on “like” about something are they put in a particular category?

CHARLES:           Yeah, that’s right, in a way.  A given profile has roughly 200 or more different points that can be used for advertising targeting.  Now this is anything from geographics and demographics to likes and interests.  Now we’re not talking about being able to identify any particular user.   We’ve never, nor do we have the desire, to collect personally identifiable information, but what we’re talking about is things in aggregate, so we know that 50,000 people like punk rock in Georgia, for instance. And we might advertise to that audience specifically.

ROB:                     And you would not only write your ad copies so that it would be interesting to that audience, you would be picking a product you think they would like, or a service that they would like?

CHARLES:           Yeah.  Particularly when an advertiser comes to us, and most of the time the big brands have a reasonable idea, who their audience is.  And so based on that, we’ll go out and create a plan and recommendations, and we have some other tools to help us understand which audiences will work.  So they come to us.  We create the plan.  But a lot of times we’ll find different segmentations or demographics that are really surprising to them.  You know we had a client a couple of months back, a sports bar, and we found that people who like hip hop music love that sports bar.   People who support our troops or support very patriotic kinds of things and like those kinds of things on Facebook, were much more highly likely to be a fan of an orange juice brand we work with.  So, you see some very interesting corollaries.  You know we found one segment for a brand, and it’s like “Women Who Like Manly Drinks”, like the brand, you know.  There’s just some crazy stuff that you’ll find out about these different niches that really construct your total brand and your audience.

ROB:                     And people that are patriotic are more likely to like a particular brand of orange juice than other people?

CHARLES:           Considerably more likely.

ROB:                     What do people who aren’t patriotic like to drink?

CHARLES:           I’ll have to run a specific study on that one, Rob.

ROB:                     Are there correlations between people who like Chic-Fil-A and coke or anything like that?

CHARLES:           We can definitely run those kinds of studies, and we do that on a regular basis for our clients.

ROB:                     And you’ve amassed a lot of data on that already?

CHARLES:           We have.

ROB:                     Are there other companies that do what you do, what BLiNQMedia does?

CHARLES:           There are a few other companies that have API access to Facebook.  We have different approaches.  So you have some companies that were originally search engine and marketing tool companies and they’ve kind of come over and bolted on to Facebook, but they’re not necessarily creating and innovating in the space like they should be.  Then you have companies that are analytics companies such as Omniture that come in and they really are looking at things from a statistical standpoint.  So we have a handful of competitors, but I’d say we’re one of the top guys in the industry, particularly because of some work we’ve been doing recently.

ROB:                     Now what advantage does it give you to have an application interface right into Facebook?

CHARLES:           It allows us to use computers to do all of the network scale work, and to do all of the data selection and analysis.  I remember a couple of years ago when the Facebook advertising program had just come out.  Back then there were no tool sets whatsoever to do the automation of ads other than browser scripting where you’re going in and programming your browser to do specific actions which is a major pain . You had to go in and set up ads one by one by hand.  It might take you three or four minutes to set up one ad.  But in my world, the world of online media, it’s really super important to be testing a lot.  You want to be able to advance your knowledge of this client or this campaign, or who their audience or how the Facebook algorithms work or whatever it is.  So back then, it’d take you three or four minutes per ad to do it, and so if you wanted to try ten ads, you’re going to be sitting down for 45 minutes, and that’s if you got everything super organized beforehand.  Whereas here, we can pop out, 2,000 ads in 15 minutes if we’ve got all the resources collected ahead of time.

ROB:                     How much does it cost to hire you guys to do the ads?  Do you have to be a large company?

CHARLES:           We typically work with agencies and brands, and …  I’ll have to get with the sales team.  I don’t know if they’ve updated those.  But we work on basically an insertion order basis.  And I remember an insertion order is about five grand.

ROB:                     And that’s just for one ad to be placed?

CHARLES:           That’s for a campaign, to put out lots of ads for a particular initiative.

ROB:                     Would that be over a 30 day period or a year, or a week?

CHARLES:           It would be probably a 30 day period, somewhere between three and six weeks probably.

ROB:                     Other than Facebook, which social media are most interesting to you guys right now?  What do you find that you think has the second or third highest potential?

CHARLES:           The one that we’re looking at in particular right now is Twitter.  Twitter has a lot of scale.  It has about 150,000,000 monthly actives right now.  But it’s a totally different beast.  We are running some advertisements though there.  You know we’re also looking at LinkedIn.  And then Google Plus.  Google Plus is a new entrant on the scene.  They have a lot of users already and pretty quickly at that.  I’m sure it will happen because Google’s really good at advertising, but so far they haven’t used Google Plus for advertising purposes, so you don’t see any ads on it.

ROB:                     And how does advertising on Facebook compare in effectiveness to advertising with search words on Google?

CHARLES:           Sure that’s a good question.  So it’s a totally different kind of thing.  In search, people are expressing their intent.  So if you go out and want to buy some patio furniture, you type in patio furniture or lawn furniture or whatever, and then people advertise to you.  You go to their sites, and you’re able to potentially sell them something, but it’s a lot closer to the point of purchase.  We use Facebook more for demand generation and branding.  Especially the large brands that the face of advertising is changing.  You have people doing these conversations, you have to understand that people can’t just sit on their laurels as a brand anymore, that people are talking about you, irrespective of whether or not you’re in the conversation.  So you probably want to be in the conversation.  So you’ve got brands that are going out there and, for instance, we do some things called liking campaigns where we’re building out a fan basis for brands, but that’s really just the first step in a more cohesive marketing plan.  So you gain fans for your brand page and you’re certainly going to be engaging them through their Facebook walls.  But you will also want to use the ads to re-market to them and make sure that you’re getting messages out, and the advertising has had an effect through  recall and stuff like that.  You know, it’s very  effective in the branding space for continuing to stay top of mind and as an actual demand generation vehicle. Search is not a demand generation vehicle.  The demand is generated out in the marketplace.  And basically you’re seeing an ad for Sears and they’re  advertising their appliances.  And that’s keeping  buying appliance at top of mind.  I may be thinking that I need to replace my dishwasher.  It’s breaking down.  Or it’s about to break down.  So the demand generation is done elsewhere.  And search has the benefit of being a demand facilitator vehicle.  So we liken this more to being on the demand generation side and helping brands tap into the right audiences and make sure that they’re getting their engagement rates up as high as possible.

ROB:                     What does Facebook charge?  You mentioned $5,000.  Does that include what you have to pay Facebook?

CHARLES:           Yeah, we do.  We charge on a CPM basis.  So yes, it’s all inclusive.

ROB:                     When you say you charge on a CPM basis, what do you mean by that?

CHARLES:           We sell advertising on flat cost per thousand impressions.  That’s a CPM.  So I don’t know what our rates are.  But right now I think it’s $1.50 or $2.00 CPM.  So that’s for every thousand impression we charge a dollar or $2.00.

ROB:                     And how much of that goes to Facebook?

CHARLES:           It depends on the campaign.  We take on the risk of that because we understand the advertising environment.  And so we know the tricks of the trade.  But it’s totally different for every campaign and every target and market.  So we’re bidding for each one of the constituent segments in an auction environment.  So there’s a lot of auction dynamics at play.  So it’s all over the board.

ROB:                     If I were to try to advertise on Facebook myself directly without an API, would I have to go through the auction process?  Is that how the price would be determined?

CHARLES:           Yeah exactly.  You probably wouldn’t even realize it, but you are.

ROB:                     Because the search on Google keywords is auctioned off.

CHARLES:           It is.  Oh yeah.  It’s a highly competitive auction.  However, it’s kind of a black box auction.  Used to be a lot clearer.  But they’ve added some factors in that made it a heck of a lot more difficult to understand the real dynamics of the auction marketplace.

ROB:                     You mean Facebook’s done that or Google?

CHARLES:           Google.

ROB:                     Oh it’s gotten much more difficult to know how that’s working?

CHARLES:           They’ve gotten a lot better at separating our collective money from our wallets.

ROB:                     Okay.  Now what about YouTube now that it’s owned by Google?  Are they an effective place to advertise?

CHARLES:           Yeah.  We’ve done some YouTube advertising in the past.  It’s not something we do regularly but yeah it’s a good market right now.  It’s fairly cheap in the comparison of things.

ROB:                     If someone had a small business that they started in the last year and the gross was $1-5 million dollars, would you suggest that they hire you to advertise on Facebook?

CHARLES:           It really depends on the circumstance and the business.  You know some businesses are going to be more likely to succeed.  Internally we say is it a fun brand.  What kind of industry are you in?  I can tell you there are some things that are just not particularly going to set your hair on fire in social media.  So I’d have to know more on the specifics.

ROB:                     Among large companies, which ones would gain the most or do gain the most from advertising on Facebook.  What are some that would work well?

CHARLES:           There’s lots of companies that do very well.  I mean large consumer brands do very well.  The entertainment brands do very well.  You know if you’re a well known brand, you’ll probably do well.  There are some in some industries that it’s not particularly interesting.   People are attracted to the brands that they know.  And it is a very effective channel across a whole variety of industries.

ROB:                     I guess Apple would be a good example of one that would do well.

CHARLES:           Oh they crush it.  They would crush it!

ROB:                     I guess Disney?

CHARLES:           Disney would do very well.  They do very well actually.

ROB:                     Coca-Cola?

CHARLES:           For sure.  Coke doesn’t do much advertising per say, but actually their fan base was started by just a Coke loyalist consumer, and eventually they did take it over from him once they had a couple million fans.

ROB:                     Charles, it’s been great talking to you.  Is there anything else that you’d like to say?

CHARLES:           I’d encourage everyone to go out there and take a look at Facebook and the changing nature of advertising because it’s really changing dramatically.  It’s changed a lot over the last few years, and will continue to.  So just understand how it might apply to your business.  Certainly, if we can help you, please let us know.

ROB:                     How would they contact you if somebody wants to talk to you about this?

CHARLES:           Sure.  You can contact me at charles@blinqmedia.com.  And I’ll be happy to answer any questions that someone might have.

ROB:                     Thank you, Charles.

ROB:                      After the interview, GM announced that it was ending its advertising on Facebook.  I asked Charles for his view of that decision and he pointed to an article by his company’s CEO, Dave  Williams, on the AdAge website.  Here is a link to the article.

 

Business/Marketing

INTERVIEW OF UDAIYAN (U.J.) JATAR, MARKETING PROFESSIONAL

 

This is Rob Hassett with Tell Me Something I Don’t Already Know.com.  Today I am going to be interviewing Udaiyan Jatar, CEO of Blue Earth Network, who is most often referred to as “U.J.”  U.J. is an acknowledged authority on what it takes to develop an “iconic” brand.  U.J. are you on?

U.J.      Yes, I am.

ROB    U.J., what can you tell us that most of us don’t already know about iconic brands?

U.J.      The thing that the average business person doesn’t know about iconic branding is that the world’s greatest iconic brands were all created by small entrepreneurs, who came from outside the industry and had virtually no experience in that industry. It is amazing that iconic brands like Coca-Cola, Nike, Apple, Harley Davidson, and Gatorade were launched, not by big corporations, but by small entrepreneurs with no money and no industry expertise!

ROB    What is the difference between a “great” brand and an “iconic” brand?

U.J.      Whether a brand is iconic, or “merely” great, is determined by the depth of the loyalty it commands from its customers.  If some of a brand’s customers demonstrate their loyalty to the brand by using the brand in contexts unrelated to the product, like tattoos on their skin, it is iconic. Harley Davidson is a great example of that.  You’ll find athletes have tattoos of the Gatorade lightning bolt or the Nike swoosh.  I’ve even found Apple logos on people’s Dell Computer covers and on minivan bumper stickers! Great brands like Tide or Folgers don’t get this level of loyalty. How many Folgers’ customers have that brand tattooed on their skins or stickers on their car bumper?

ROB    What does it take – what is involved in creating an iconic brand?

U.J.      The key to unraveling the secrets of how iconic brands actually get created, lies in truly comprehending that small entrepreneurs, because they had no money and no industry “mental models,” did things exactly the opposite of what a well-resourced business would do.

  1. Possibly because these folks were by and large not business school educated, they did not follow the norms of what traditional business education would teach you to do.  The first question I see most entrepreneurship programs in different business schools asking is, “what is your market?” That is the worst place to start. Iconic Entrepreneurs focus on identifying and satisfying unmet human needs. This creates new markets where previously there were none. Business school programs ask you to substantiate demand for your product/service by conducting consumer research. Unfortunately, there is a profound difference between satisfying a “human need” and satisfying a “consumer need.” By definition, a consumer is a consumer of an existing product.  Someone looking for a human need is identifying needs that are not adequately met by any existing product.  So this “human centric” thinking forces you to develop a new product altogether to solve needs not met by current products.  There is a massive advantage in learning how to see things from a perspective that is not filtered by your  industry!
  2. Also, because Iconic Entrepreneurs were small and had no money, they weren’t able to sell these products to big retailers, so they had no choice but to start small.  Phil Knight, the founder of Nike, sold his shoes from the back of a pickup truck at universities’ athletic fields.  Coca-Cola was an elixir sold to pharmacies long before it became available in large retail chains.  You look at Apple – one of the first, most important areas of distribution for them were public schools in California.  If you look at Red Bull, an energy drink, it wasn’t sold at Wal-Mart and 7-11 here or in Europe, but rather it began to be successful once it got into nightclubs.  Alternative channels not only helped iconic brands win loyal consumers, but also kept them under the radar long enough until it was too late.
  3. Another key factor is the “innovation process.”  When you have a strong passion, but little to no money, you innovate in a totally different way. You might Think Big, but you are forced to “Start Tiny,” get rapid feedback and evolve versus stage-gate your product innovation. This prevents the biggest reasons for new product failure – scaling too big too fast, or killing an idea before it has been developed through adequate trial and error. There is an optimal pace for product evolution, and ironically, it actually gets results faster than the usual process which only gives the illusion of speed.
  4. There are a bunch of other things that you need to do, of course, if you want to create an iconic brand. This includes learning the principles of communicating what your brand stands for, as opposed to merely touting its features and benefits. This is unintuitive and opposite to conventional wisdom! Again, remember, these Iconic Entrepreneurs had virtually no money, so why was their advertising so effective?
  5. The decision-making processes of an iconic organization are critical. How the founder infuses the essence of the brand into every single thing the company does is vastly different than most organizations that operate in functional silos in the best of cases. Steve Jobs was notorious as a micro manager who even designed the buses that ferried Apple employees around Cupertino. Jobs, a college dropout, intuitively understood that everything communicates. Iconic Entrepreneurs make sure that the brand remains true to the purpose behind which they invented the brand in the first place.  This is usually not done with as much integrity, dedication and vision by even great, but non-iconic, organizations. And especially not by most large corporations, which tend to be governed more by quarterly targets rather than achieving the brand’s vision. Steve Jobs exemplified the principles of Iconic EntrepreneurshipSM right to the end. He always told his employees that Apple was not about selling computers or gaining market share or making money. Jobs’ focus was to help people be as creative as they can be without the stress of dealing with technology.  And that truly is a human need and not just a context of how to sell more computers.

ROB    Would you consider the iPhone to be iconic or is that just based on the Apple brand?

U.J.      To my mind, the real brand is Apple.  All of these products that he launched under the Apple brand are brand extensions.  Even though, to be honest, they are transformational products in many ways, but to me, it’s still the Apple brand that defines the experience you have with each one of these products.

ROB    If something is iconic starting out, is it harder to access?  Is that part of what leads to the brand becoming iconic since it’s not in the big retailers?  Is that part of the charm: that the less the majority of people know about it, the more that those who do know about it feel more privileged?

U.J.      You’re absolutely right.  It is indeed one of the phenomena that we stress a lot on when we build iconic business plans for our clients.  The key is to understand and leverage the innovation adoption curve. The curve for iconic brands is similar to how social movements form and how transformational ideas gain adoption by the masses.  Now there are two ways to gain market share.  One is to distribute the product in every single outlet that you can get into.  What that does is, it instantly makes the brand ubiquitous and at the same time removes any charm of someone discovering it because obviously we can’t be the first to discover something that is available everywhere.  You get sales and large volumes quickly, but you also attract the competition before the brand has gained real traction, and commoditization ensues.  What happened, serendipitously, with iconic brands is because they didn’t have the power or resources to attain wide distribution as quickly as brands launched by corporations or VC backed entrepreneurs, iconic brands ended up being distributed only where the brand had the most salience or resonance in their early life! This is the leading edge of the Innovation Adoption Curve (IAC). Innovators and early adopters like discovering things for themselves and telling other people about what they’ve discovered.  It gives them a sense of pride and a sense of being able to help others.  Also because innovators in the IAC tend to be expert consumers, they’re trusted by other people in a peer-to-peer network.  If you know someone who is an innovator or an early adopter of a certain kind of solution, whether they’re an artist who likes to paint with new kinds of brushes or techniques or if it’s a sportsman or an athlete who uses all kinds of different gear, and who tells you he or she has used a product and likes it, it is very convincing – much more so than any ad or even celebrity endorsement could ever be.

ROB    How does that compare to celebrity endorsements?

U.J.      Everyone who sees a celebrity endorsement knows that the celebrity is being paid to say what he or she says.  A recommendation by someone you know who is not being paid is likely to have a much stronger impact. So that leads to what we call Evangelical MarketingSM, which gains brand loyalists at the start of the IAC (innovators) who are tenacious and love to help other people discover what they have discovered.  They tell people that they know about a product or service that they really like and that news spreads from person to person to person, creating a far more loyal consumer base than would otherwise be possible.  After a tipping point is reached, conventional marketing can be used.

ROB    As far as being an iconic brand, would the Beatles rank as an iconic brand?

U.J.      Indeed, the Beatles are an iconic brand.  Some of the greatest movements and leaders in history have become iconic like Martin Luther King or Mahatma Gandhi. The Occupy Wall Street movement could learn a lot from how iconic brands and personalities become iconic. If you see the history of how movements form and how iconic brands form, it is not too different. They all had humble beginnings, a higher True PurposeSM, engaged in a lot of trial and error initially, gained traction through a small group of early “evangelists,” and gradually built purpose driven organizations that were globally scalable in terms of ideas. In the modern world, Muhammad Yunus’ Social Business concept is similarly gaining traction not only in Bangladesh and developing countries, but even here in the United States! It usually starts with an individual with great vision who tries to make change happen in the world.  The social reform folks were trying to change society and the business reform folks were trying to help people do better things with their lives.  Phil Knight wanted to help people run and exercise and be healthier.  So he started a movement – the fitness movement.  Pemberton wanted people to feel a little better about themselves and developed Coca-Cola, the ultimate affordable luxury providing moments of joy to paupers and princes alike for the last 120 years. It starts with that vision and purpose, it moves towards establishing a core group of people, who are the innovators and earlier adopters to that idea and that vision, who then embrace it and spread the movement on their own so you’re harnessing the energy of evangelists to move the brand forward.  Music is kind of the same thing.  The Beatles in the early days in Liverpool used to play in little pubs and clubs and the movement started from there for them.

ROB    I suppose you’d say that there are companies that have done extremely well that are not iconic – like maybe Facebook and MicroSoft or (as a brand of a product) Tide?

U.J.      Yes.  We deliberately try to make a big difference between brands that became truly iconic and brands that are merely great.  I joke when I say they’re merely great because a lot of people would give their right arms to have been the founders or the owners of businesses like MicroSoft of course.  But, the downside of a great brand versus one that is iconic is that merely great brands keep their growth coming not so much because of deeply loyal customers but through having to continuously earn their leadership every year through sheer hard work. It is much easier for iconic brands to maintain their edge. And the greatest advantage of being an iconic brand is that occasionally when a competitor outperforms you (which is inevitable) you don’t lose your loyal customers and margins. You have a much longer rope, better margin protection and, ultimately, more breathing room to innovate and make mistakes. Take Coca-Cola for example.  The one time they actually tried to re-invent the formula, it backfired on them.  So the product’s not had to fundamentally change for 120 years.  How many non-iconic brands can claim that?  Almost everybody else has to continuously innovate and keep changing.  Just think about Tide — how many innovations has it had and how many other reformulations has it had to take to be able to maintain its leadership? Not that innovation is bad. It is great, especially when it is driven by human need and not merely because of decreasing margins or competitive threat. People could argue that Apple has had to innovate too. But, the truth is, they usually take existing technologies and package them better. And when they make mistakes, like with the iPhone 4 antenna fiasco, consumers forgive them – a luxury Microsoft doesn’t have. Take the case of Harley Davidson – it is probably one of the most iconic brands on the planet, but one doesn’t refer to Harley as the most innovative motorcycle technology out there.  And they don’t need to be.  Many motorcycle brands out there can claim to have better technology or ride etc., but Harley is the talismanic icon. The sad thing is their target audience is aging out of the market, and Harley is struggling to figure out how to tap the next few generations. The answer for them lies not in consumer research or clever innovation, but in looking deep within themselves to their iconic True PurposeSM.

To summarize, we help our clients replicate the Iconic EntrepreneurshipSM code, what we call the Six Disciplines of Iconic EntrepreneurshipSM so that they can invest less, and get a bigger bang for their buck. This model requires lower investments and has higher returns.  It doesn’t mean that you shouldn’t innovate and you shouldn’t have a big organization like some of the great brands and obtain investments into the business.  You can continue to do what Apple did – and maintain a massive lead versus competition.  But you could also be like Harley.  Sometimes it is better to be a relatively small business – a small but iconic brand and be able to sustain your competitive advantage for a much longer time. To quote Steve Jobs again, Apple was never about market share – it was always about creating tools that unleash people’s creativity and doing it better than anyone else. Ultimately Apple Inc. has higher market capitalization than others that were market share focused.

ROB    U.J., this has been very interesting.  I would like to let the audience know where they can get in touch with you.  Your company is Blue Earth Network.

U.J.      That’s right.  They can reach us at our website, www.BlueEarthNetwork.com.  They can contact us through there.  They can also follow us on Twitter @blueearthnetwrk.

ROB    Very good.  Thank you very much U.J.  Is there anything else you wanted to say?

U.J.      I’d like to say that if one of your readers is a true change maker who wants to transform the world, or they have an idea in the non-profit or for profit world, that is truly game changing, or they believe that they might have found a human need that they have a solution for or want to develop a solution for, we’d love to work with them.  We work with organizations that range from startups all the way to Fortune 100 companies, from NGOs to Governments.  Our mission is not driven by a category or sector. The 6 Disciplines of Iconic EntrepreneurshipSM apply to anyone that has a transformational idea. We’d love to hear from folks like that.

ROB    Thanks, U.J.

U.J.      My pleasure, Rob.

 

Iconic EntrepreneurshipSM, Iconic EntrepreneursSM, True PurposeSM, The Six Disciplines of Iconic EntrepreneurshipSM are service marks of Blue Earth Network Inc.

Family History

MY FAMILY’S JOURNEY

 

MY FAMILY’S JOURNEY

By Rob Hassett

1st Published in April of 2008

Updated with New Information on December 13, 2015

In 1905, 19  year-old Lieb Chusid left his home near Kiev, Ukraine, for a better life in America. Sometime during his stay at Ellis Island, his name changed to Louis Hassett—later to become “Papa Louie” to me, my siblings, and my cousins.

Louis’ final months in the Russian Empire were harrowing.  At age 18, he was drafted into the Russian army and sent to Manchuria to fight in the Russo-Japanese war—a war over the control of full-year seaports in Southern Manchuria. Initially, the war was popular in Russia. However, due to the incompetence and corruption of the Romanov government, the Russian troops received little training and support, and the Japanese won most, if not every, battle.

Louis told my father that the soldiers did not have enough weapons, warm clothing, or food. Exhibiting the resourcefulness and determination that he would later pass on to his sons, Louis waited until the military situation was especially confusing, and he deserted.  Riding on trains and with great care, he managed to travel back from the warfront through Siberia to his hometown.

Back home, Louis knew that he could not remain in  the Russian empire.   He decided he would try  to move to the country that offered the best promise  of freedom and opportunity — the United States.

Louis got word that soldiers were in town looking for draft dodgers and deserters, with a quick death as the usual punishment. The soldiers used tactics such as curfews to make an escape from town supposedly impossible.

Louis took his modest savings and some money his parents and grandmother gave him, said goodbye to his family, cut open a mattress, and stepped inside.   Louis’ grandmother sewed the   mattress back up.   T hen, the family   put the mattress  with Louis inside, on a wheel burrow and  Louis’ grandmother pushed the wheel burrow to a nearby train station.  Louis then got out of the mattress and jumped on a freight train headed west.

He barely escaped arrest by border guards, resorting to bribery on at least one occasion. He made his way to Hamburg, Germany, and there boarded a ship to the United States.  He thus reached New York, passed through Ellis Island and settled in Philadelphia.

In Philadelphia he met the woman who would become my grandmother,  Yetta Friedman.   Yetta Friedman had come to America from Poland as a young child.  Louis and Yetta married in 1908. Louis first worked as a wallpaper hanger.  A short time after they married, Louis was offered a job by Yetta’s sister’s husband, Hymie Greenstone, who owned a successful store in Staunton, Virginia, in the beautiful Shenandoah Valley, near Charlottesville. Yetta and her sister were close, and Louis, ever the adventurer, accepted the job. Louis learned how to operate a business from Hymie and then became a partner with Yetta’s brother, Harry, in a store in South Hill, Virginia. Louis later moved on with his family to Colonial Heights, Virginia, where he opened a dry goods store. Louis and Yetta had four boys, Harry, Sam, Abe (my father), and Jay. Papa Louie was a wonderful father—something his sons appreciated more and more as they grew older.

Around 1928, Louis was riding on a train from Petersburg to Ocean View, a beach in Norfolk, Virginia. The train broke down in Franklin, a pleasant little town about 60 miles from the coast. Louis walked around the town and loved it. He sent Harry and Sam to open a store there. A few years later, when Abe turned 18, he turned down a scholarship to Virginia Tech and followed Sam and Harry to Franklin.  When Jay finished high school, he joined his three older brothers.

Franklin, which then had a population of about 5,000, was a rural community where farmers grew peanuts and raised Virginia hams. The Union Bag Corporation (later Union Camp and now International Paper) operated a paper mill. Prior to 1950, the only Jewish families in Franklin were the Hassetts, the Sifens, the Sobles, and the Hirsches. The Sobles eventually moved away. Franklin lured Dr. Hirsch and his wife, who were Holocaust survivors, to the city because it needed a surgeon, which worked out very well for everyone.

Louis’ belief that Franklin would be a good place for a second store proved correct.  Eventually, the Franklin store became much more successful than the one in Colonial Heights. Around 1953, after Grandma Yetta passed away, Papa Louie moved to Franklin .

From hiding in Ukraine to thriving in rural Virginia

Louis’ resourcefulness carried over to his sons. In the late 1940s, Sam and Jay shared ownership of an airplane. They kept it at the little Franklin airport, which had no lights and could accommodate only daytime landings. One day, Jay flew to Norfolk, about 50 miles away. The plane had no radar, and the only way Jay could navigate was by following the roads. On the return trip, Jay realized that he was following the wrong road. He turned around and eventually found the Franklin airport. However, it was already dark, and he could not see the runway.

Jay considered his choices.  He was running low on fuel and began buzzing the homes around Franklin, hoping someone would realize the problem  and help him. A man, who later lived near us on the same street, figured out what was going on. He called about twenty friends and led them all down to the runway, where they lined up ten cars on each side, turned on their headlights, and waited for the plane to land. When Jay saw the headlights, he turned the plane around, approached the runway, and safely landed. Visibly shaken but relieved, Jay spent the next hour shaking hands with and thanking the rescuers.

Sam also showed courage and ingenuity under pressure. When I was ten years old, Sam and his wife, Agnes, took me fishing in the sound on the back side of North Carolina’s Outer Banks. It was a beautiful day, and we were catching lots of fish. Suddenly, a huge water moccasin slid out of the reeds and headed toward our little boat. I alerted Sam to the snake. He attempted to start the engine, but it would not start. The snake, probably attracted by the fish hanging off of the boat, was coming at us full speed. Sam grabbed an oar and waited as the snake approached.

Just when it was at the side of the boat, Sam, a former semiprofessional boxer, hit the snake on the neck with great force and killed it. Sam said he had to hit the snake in just the right place to avoid flipping it into the boat. Years later, when Jimmy Carter talked about how he courageously fought off a rabbit, Sam, Agnes, and I had a good laugh.

From a young age, Abe liked working with electronics. At age 13, using parts he found mostly in junkyards, he built a working ham radio from scratch. In 1941, Abe was drafted into the army. He was stationed at Ft. Monmouth, New Jersey, where he taught radio repair and learned about television.

In 1945, soon after Abe returned to Franklin, the brothers started selling televisions.  They had a competitive advantage, because Abe was the only person in Franklin who knew how to fix them. Later, they were the first in town to sell window air conditioners.

Around 1947, one of the Sifens set Abe up with Peggy Scher, the daughter of Joe and Josie Scher, who lived in Portsmouth, Virginia, about an hour’s drive east of Franklin.  Abe and Peggy were married in 1948 and had four children, Ellen, Lewis, Bruce and me.

There were lots of Hassett cousins in Franklin. Harry Hassett and his wife had two daughters, and Jay and his wife had one son and four daughters.  Sam had no children and spent a great deal of time with his nephews and nieces.

Papa Louie spent his final years in Franklin with an aura of calmness and generosity. He played cards with his daughter- in-law, Peggy, and his grandchildren.  He traveled to Richmond with my mom, my sister, and me. He enjoyed taking walks in the neighborhood.

As it turned out, the lives of four children, thirteen grandchildren, eighteen great grandchildren, and even a few great-great grandchildren all resulted from the courage, cleverness, and determination of a nineteen-year-old boy hiding in a mattress over 100 years ago. All of us owe a debt of gratitude to him, which I hope we have paid in part with this article.

My mother, Peggy; my brother Lew, his wife, and two children; my cousin, Hank Greenstone (grandson of Hymie); and three Sifen children and their children now live in the Atlanta area.

I do wish to thank my brother Lew; cousin Hank; my brother Bruce, who lives in Vienna, Virginia; cousin Valerie Hassett Drazen (daughter of Harry), who lives in Lake Mary, Florida; cousin Ray Hassett, M.D. (son of Jay Hassett), who lives in Rocky Mount, North Carolina; cousin Kim Hassett Slagle (daughter of Jay), who lives in Richmond, Virginia; and my wife, Lynn, for their contributions to this article.

China and Southeast Asia

INTERVIEW OF PROFESSOR PENELOPE PRIME, Phd

SOMETHING YOU MAY NOT ALREADY KNOW

China has suffered from corruption regarding distribution of land and other assets in connection with the changes to a market economy, but, unlike in some other emerging markets, foreign business representative are not expected to pay personal bribes.

ROB:               This is Rob Hassett for btobmagazine.com.  Today I’m going to be interviewing Penny Prime who is the Director of the China Center in Atlanta and teaches in the MBA program at Mercer University.  Penny, it’s a pleasure having you on today.

PENNY:          Thanks, Rob.

ROB:               Penny, I understand that you have a Ph.D. in economics from Michigan, and economics is basically your field, right?

PENNY:          Yes, that’s correct.

ROB:               And you also learned Mandarin.  Now how did you learn Mandarin?

PENNY:          My major in undergraduate school was Chinese studies and Mandarin was part of that major, so it was my language in college.

ROB:               And you had mentioned to me that it wasn’t so terribly hard to learn to speak it, but that the hardest part was learning to read it.

PENNY:          That’s correct.  You have to have a good memory, I think.  Memorize each character in terms of its meaning, its sound, and how to actually write it.

ROB:               Penny, when we’re talking about China, China has become a major trading partner with the U.S. and there’s a lot of controversy about the balance of payments issue with China, and that we spend a lot more for their goods and services than they do for ours.  As an economist and a person knowledgeable about China, do you consider the balance of payments to be an important issue for the U.S.?

PENNY:          Well, the balance of payments is always important if it gets too out of balance which, I think for the U.S., is definitely the case in the 2000s.  In general, I don’t think it’s an issue.  The problem with China and the U.S. is that they are such big major trading partners and China has a large trade surplus of which the U.S. is a major part, and we have a very large trade deficit of which China is a major part.   Of course, it creates a lot of attention and controversy.  One of the focus points is always the currency.  The accusation is that China has an undervalued currency, maybe as high as 40% some people say.  If that changed, the balance of payments would change.  And China has appreciated its currency about 20-25% since 2005.  That actually hasn’t made much difference yet.  But they still need to appreciate it more to achieve the goals they want as well, and they will, but I think what will affect our balance for us will be behavior at home, such as saving and less consumption.

ROB:               Approximately what do you think the Chinese currency would have to be upwardly valued in order to reach its true value?

PENNY:          I would guess somewhere around 20%, but I’m just guessing.  They have a very large trade surplus, and for them, just changing the currency won’t be enough either.  There are structural problems.  Maybe 20% is too high.  They still need to do other kinds of reforms domestically in order to rebalance their external and internal resources as well.

ROB:               What are the structural problems?

PENNY:          Well, in China they consume too little and save too much, and we just do the reverse here.  And it has to do with the way incentives are set up in each place.  China needs to create more of a competitive domestic market and allow more entrepreneurship and payments.  For example, if you invest in the stock market in China, you don’t get paid dividends.  You only trade on price differentials.  And one of the things in the U.S. is, if we invest, it’s often an income stream for us.  Those kinds of reforms are on the table in China, but just haven’t happened yet.

ROB:               In the U.S. we also get an interest tax deduction for buying homes and that increases home ownership and a lot of spending on that.

PENNY:          Right, exactly.

ROB:               So there’s a lot of that sort of thing I guess.

PENNY:          Yeah, and that’s not the case in China.

ROB:               What is the China Center?

PENNY:          The China Research Center is a group of people who follow the developments in China closely.  Most of us do research on China, most of us are academics, but not all.  And the goal is to share our research results with a wide audience.  We do an online journal and lots of public speaking and custom programs for companies and for universities.

ROB:               And the China Center has a lot of Atlanta schools, including Mercer, that are part of it or involved in it, right?

PENNY:          Right.  There are China scholars in the area who are interested in working with our mission.

ROB:               Other than the savings rate, are there any other advantages China has that make a huge difference in the trade balance?

PENNY:          Well, China’s advantage has been really, I would say, opening to globalization and doing their reform at a time when globalization really took off.  After the fall of the wall in Berlin in 1989, China was poised having had a few years of reform already, to join that, and it became a place where foreign investments could build manufacturing facilities.  And, of course, it was very close to Hong Kong, so the companies could also utilize the financial and logistic strength of Hong Kong, but then use the relatively inexpensive labor and land costs in China.  And lots of manufacturing globally has clustered and conglomerated in southern China, which then led to economies of scale and other benefits.  China has become kind of a center for manufacturing, partly by timing.  Some of it was good policy, obviously, and they built the infrastructure to serve those business needs.  That’s a main advantage.  And the second main advantage is their domestic market which attracts companies, and that’s the piece that needs to be developed further.

ROB:               What is the population of China now approximately?

PENNY:          About 1.3 billion.

ROB:               And the U.S. is about what, 300 million?

PENNY:          Right.

ROB:               Are there any competitors for China in the foreseeable future, any countries that could displace China in part as a source of cheap manufacturing?

PENNY:          Well certainly at the low end in terms of low tech, Vietnam is one popular place where some manufacturing is moving.  Also Bangladesh and to some extent India.  And in other places, even the Philippines, other places around Asia.  At the higher end, the main competitor of China is really Mexico, and they tend to produce very similar kinds of products at similar technology levels.  And, of course, both want to compete in the U.S. market in particular.

ROB:               And Mexico has the advantage of proximity, and I would imagine the increasing fuel cost is an advantage for Mexico.

PENNY:          Right, it could be.  But Mexico has to overcome the fact that China has this really geographical concentration of manufacturing and services, that makes it very convenient for companies to manufacture and export from southern China.  And Mexico hasn’t built that sufficiently, but it has these other advantages as you mentioned.

ROB:               And right now, China is way ahead of Mexico in the heavy goods?

PENNY:          Yes, it is.  Yes.

ROB:               Now in China, does China have an advantage in having an autocratic government?  I mean I know it can be a disadvantage, but economically, does it give it an advantage over democracies?

PENNY:          Well, I would argue it doesn’t, but there are people who find that convenient.  But it does create lots of other problems in terms of transparency and what can and can’t happen in terms of decisions.  I think it makes the long term more problematic than a democracy.

ROB:               Just in the sense that in the long term there may be more disagreements with the government that don’t come to light?

PENNY:          Well, yes.  And there are very few avenues for expressing differences of opinions and dissent, and those kinds of things actually lead to progress in many cases.

ROB:               You had mentioned to me that we think about all the scientists that come from out of China that are in China and engineers, and we get the feeling here that there are just millions of graduates of engineering and science schools in China, but you had mentioned to me that actually a small percentage of the Chinese students go on to college.

PENNY:          Well, now that’s true.  At least the census, China’s census in 2000, put the number at 3.5% of college age people go to college.  Now it’s a little bit higher than that now because the central government has really made an effort to expand the number of seats in the main universities and also allowed private universities to start to develop, but I think it’s still perhaps 6-7%.  On the other hand, 6-7% of 1.3 billion, whatever the right demographics, is still a lot of people.  In absolute numbers, it’s still a lot, and many of them do choose science, but certainly not all of them.

ROB:               And they have a very, very competitive system for advancing in school to college?

PENNY:          Right.  That’s right.  Because there aren’t many seats at the top.

ROB:               I don’t know if you would know this, but do you know whether it’s as competitive as getting into the Indian Institute of Technology?

PENNY:          I don’t know.  I would guess it’s somewhat similar but I don’t know.  I don’t have a gauge for that.

ROB:               Sure.  Also in China, because of what I understand was a tendency to favor baby boys over baby girls, and an incentive to have only one child per family, there are a lot more men in China.

PENNY:          Yes.  A one-child policy has definitely exacerbated that preference largely, especially in rural areas, because if you can only have one child and you don’t have a male child, then your one daughter will marry into another village in another family and you won’t have someone to help with the farming and to take care of the parents when they’re older.  Certainly rural families want to have at least one son.  But there seems to be a general preference to have at least one son for many families, so there is that bias.

ROB:               But it’s lessening somewhat now.  The government’s become less strict about the one child per family rule, right?

PENNY:          Somewhat less strict, and families can pay a fee to have more than one child in many cases, but the imbalance is quite serious.  I mean by now, because of a number of decades of one child per family policy, the national average is 119 males to 100 females.  And the UN’s maximum recommendation is 107 males to females.  They are way beyond that, and in certain areas it’s much higher than that.  Just relaxing the rules a little bit isn’t going to change this anytime soon.

ROB:               Do you know what the ratio is in any other countries?

PENNY:          Well it always tends to be a few more males than females — it’s like a 105 or 103, something like that, per hundred, would be more of the norm.

ROB:               One thing that was interesting is you had mentioned to me that as far as personal corruption there, where people take bribes and that sort of thing for personal reason, there’s not much of that in China.

PENNY:          Well, in terms of day-to-day activities there’s not much.  But the reform process where China slowly introduced the market into the planning system, actually created a lot of opportunities for corruption, where you had two prices for the same good in many cases, and you can see right away what problems that would cause, and access to resources.  And one of the big ones now is how land gets distributed.  And there’s certainly lots of corruption attached to all of those kinds of activities.  But I think in a general people sense that corruption’s gotten worse with reform, even though there’s more market activity which would tend to bring corruption down.  It’s more than before, but perhaps reached some kind of peak and may improve from here.

ROB:               But it’s less in the way of personal bribes than a lot of other countries, as I understand.

PENNY:          Well I think in terms of just day-to-day and getting things done, you don’t necessarily have to bribe people, which is nice.

ROB:               Right.  And which is common that you do have to bribe people in a lot of areas of the world, I understand a lot, I guess.

PENNY:          Yeah.

ROB:               Now China holds a lot of U.S. debt, right?

PENNY:          Yes, it does.

ROB:               Why did they buy so much debt?

PENNY:          Because they have a fixed exchanged rate system and they have had a trade surplus for many years, and they have, therefore, collected foreign reserves.  And when governments have foreign reserves they want to invest it some place safe, but that actually makes some positive return.  U.S. debt seemed like a good place for a long time.  But of course, it’s just piled up over time and China holds actually more than they probably prefer to hold at the moment.  It’s just a process of trying to invest those resources.

ROB:               Do you know what percentage, approximately, that China holds of U.S. Treasury debt?

PENNY:          I think it’s about half of what foreigners hold.

ROB:               And do you know what foreigners hold?

PENNY:          I kind of forget what the number is now.  I mean many, many governments hold our debt.  Also many U.S. citizens and institutions hold our debt as well.  It’s a big piece given it’s just one country.  But you know, there’s lots of people who are invested in our debt.

ROB:               With China, it’s sort of the old adage that if you owe the bank a million its your problem; if you owe the bank a hundred million it’s their problem.

PENNY:          Well, in a way.  I mean China certainly wants the U.S. to have good policies so the dollar doesn’t decline too far, and their investment is not into much jeopardy.

ROB:               Do you think it’s wise to invest in the Chinese stock market?

PENNY:          Well, I personally would not, since it’s not very transparent.  It’s not transparent at all, and because you can’t earn dividends.  It’s very hard to know really anything about the company you’re investing in.   But if one wants to make bets on price changes, then it’s a great place to invest.

ROB:               But the government in China sort of controls the price changes, don’t they?

PENNY:          Well, I wouldn’t characterize it that way.  The government does control who gets to list in the markets.  There are increasingly more companies — more private companies as well as state companies.  But once they’re on the market, it really is much more of a true demand and supply determining those prices.

ROB:               What do you see the future of China’s balance of payments and the U.S. balances of payments going?  Do you think it’ll get better, or get worse, or stay the same?

PENNY:          I think that in the median term it’ll get better.  In short term, maybe not.  But in the median term it will.  You know China’s leaders and policy makers are not happy with the very large trade surplus that they have, the same way we’re not happy with a very large trade deficit.  And for future growth, they understand that developing their own consumer market would be very beneficial.  I believe they are moving in that direction.  It won’t necessarily be easy to accomplish; there’s lots of road blocks along the way.  But I think that will happen . And I think the U.S. households are adjusting their consumption expectations as well.  We will consume less and that will help our trade deficit, although the government has kind of replaced households in terms of heavy borrowing which won’t help for a while.  But I think it’ll rebalance.  It’s partly a historical moment when it got so out of balance, and it partly had to do with the financial excesses that were happening in the U.S. as well.

ROB:               For a long time, you’ve been very, very interested in China, and you’ve been to China many times as I understand it.  Just visiting there, how has it changed in the most important ways over the last 15 years, or whatever period you’ve been going there?

PENNY:          Well I first went in 1976, and actually Mao was still alive, and so the reforms hadn’t even started.  And I’ve gone back very often since then.  And, of course, the whole economic transformation is very impressive and a major, major change.  But I think the most striking thing to me, or impact of that, is how individual families and peoples’ lives have changed.  It’s just a much, much better place to live as a Chinese citizen than it used to be.  People have many more freedoms.  We look at China and say oh it’s not free, but individuals and families have much more freedom to make decisions about where they work, and whether they start a business, and where to go to school, and whether to study abroad or travel, and to work hard and save their money for what they want to do, to buy property, and all of those things, none of which they could do before.

ROB:               What about their pollution situaon?  Have they started to get serious about reducing that?

PENNY:          Clearly it’s a concern of both citizens and of government and non-profit organizations, so it’s gotten a lot more attention.  It’s a very difficult problem to solve in any country.  We struggle with it here in the U.S. as well, so it won’t be an easy solution.  And probably because China’s growing so fast, it’s easier to create new pollution at the same time you’re trying to reduce it in other places.  But it’s definitely an issue on the table, and working at it in lots of different levels.

ROB:               When we had our meeting, and I want to thank Phil Jones and Scott Roberts for joining us, it did strike me that they are both entrepreneurs that have had products made in China, and have products made in China.  It struck me that there was complete agreement between what they said about their activities at the entrepreneurial level and what they saw and thought, and what you were telling me from an economics perspective.

PENNY:          Yeah.  It’s a dynamic place.

ROB:               No doubt.  Penny, is there anything else you’d like to add?

PENNY:          Only that I would be generally optimistic for the long run.  People in China are very resourceful, and even though there are many challenges in the meantime, I think it’s a place that’s going to do well.

ROB:               Thanks a lot for being on today.

PENNY:          Well thanks for having me.

Technology

INTERVIEW OF STEPHEN FLEMING

SOMETHING YOU MAY NOT ALREADY KNOW

There are at least four programs at Georgia Tech that promote the growth of technology companies:  the Venture Lab helps Georgia Tech students, faculty and staff start businesses based on research from Georgia Tech, the Advanced Technology Development Center helps new startups that may, or may not, have originated from Georgia Tech, Tech Partnerships, which can be hired by any entity or government agency to exploit technology on a contract basis, and a grant application assistance program described in the next sentence.    There is a federal grant program called Small Business Innovation Research, or SBIR.  Grants can be as high as $100,000 in the first phase and $750,000 in the second phase.  A department  at Georgia Tech, that is funded by the state, will help not just Georgia Tech, but any qualified Georgia related entrepreneur,  to apply for SBIR awards.

ROB:          This is Rob Hassett with btobmagazine.com.  Today, I’m going to be interviewing Stephen Fleming who is in charge of commercialization activities at Georgia Tech.  You know Stephen, you’re the only person I know that went to Georgia Tech and majored in a science or engineering field and had a 4.0.  I don’t want to put you on the spot, but I’ve never known anyone else who did that.

STEPHEN:      It was a lot of work.  I enjoyed school.  I had a lot of people, you know, complain about their time at Tech.  You know, Ma Tech screws you and things like that.  I actually had fun at Tech.  I enjoyed it.

ROB:               And after Tech you worked for Bell Labs, right?

STEPHEN:      Right.  I worked for Bell Laboratories and I usually describe that as back when that meant something, back before divestiture, when we still had, I think it was, seven. Nobel Peace Prize winners on payroll, and I think three of them were in my building.

ROB:               And what were you doing for Bell Labs?

STEPHEN:      Working in fiber optic lasers.  My specialty is optical physics, and I was working on a new class of a conductor laser to be used for fiber optic telecommunications.

ROB:               And then you went to Nortel?

STEPHEN:      Nortel, in the early ‘80s, after the divestiture.  This was back when Nortel was still a fabulous company to work for.  Obviously, it’s fallen on hard times in the last year or two.  I worked through the engineering ranks, system engineering, and got into product management, and then into general management.  So I did a little of everything at Nortel.

ROB:               And you worked at other companies and eventually ended up at a venture capital firm, didn’t you?

STEPHEN:      Right.  When I left Nortel, I did a venture-funded startup which went spectacularly broke, and of course, that qualifies me to give people advice on how to do it themselves.  So I was recruited into the venture capital business here in Atlanta as really a spin out of the Georgia Research Alliance.  And it’s ironic because fifteen years later, I’m now working closely with the Georgia Research Alliance; in fact, with some of the same people.  We raised about $260 Million of venture capital, which in the southeast, made us a pretty substantial fund, focused entirely on early stage technology.  We did a bunch of deals mostly here in the southeast, made a little bit of money, and were, I think, a part of the ecosystem that flourished here for a while in the late ‘90s and early 2000s.

ROB:               That venture firm was Alliance Technology Ventures, right?

STEPHEN:      That’s right.

ROB:               How many of the companies that you worked on went public?

STEPHEN:      I did four IPOs.   I did 18 deals total and I think 7 or 8 of them got acquired at some sort of positive number and a couple of them went bankrupt.  I mean, you know, that’s the nature of the game.

ROB:               Can you name a few that listeners may be aware of?

STEPHEN:      The only ones that they might have heard of is RF Micro Devices, which is a semiconductor company up in Greensboro and Highpoint, North Carolina, which makes semiconductors for cell phones.  Now it’s for almost any wireless device, a big public company.  And the other which you’d at least recognize the brand name of, at the time when I invested in it, it was Sportsline.com.  It is now CBSSportsline.com.  It belonged to Viacom, and it’s the website for CBS Sports.

ROB:               Sounds good.  And then, at some point, was it about four years ago, you became responsible for the commercialization of inventions at Georgia Tech?

STEPHEN:      Right.  When I was in the venture capital business, I had pulled about 5 deals out of Georgia Tech research, so I had some familiarity with the other side of the equation.  As you mentioned, I’m a Georgia Tech alum.  I love Georgia Tech.  I’ve been involved with Georgia Tech ever since graduating.  And when I got out of the venture capital business, I started doing some volunteer work there on campus.  That volunteer work proved the axiom that if you set the price of your time at zero, the demand is, indeed infinite.  I spent a lot of time here at Georgia Tech doing volunteer work and somehow wound up on payroll.  I’ve been here full time for the last 4 years.

ROB:               Stephen, about how many inventions are made at Georgia Tech that you guys become aware of each year?

STEPHEN:      We don’t look at any of the classified research, and there is a little bit of classified research done at Georgia Tech, actually a lot.  But we don’t see any of that.  If you filter that out, we’re looking at probably about three hundred invention disclosures a year which, for a university without a medical school, is actually quite a lot.

ROB:               How many make it into the venture lab program that you are in charge of?

STEPHEN:      Usually between 10-20%.  So I’d probably say 30-40 a year have at least some combination of strengths, which would include both what our folks and those who have private sector backgrounds, we’ve all worked in venture-funded start ups, and believe there’s potential for a start up, and that there’s somebody on the invention side who’s interested in a start up.  You really need to have both — neither one is sufficient alone.

ROB:               About how many make it out of your program per year?

STEPHEN:      Well, we just had a graduation ceremony about a month ago where we graduated 7 for the year.  And that’s probably about right, assuming there’s a time delay.  So I wouldn’t say that, you know, 40 come in one year and 7 make it out, but it’s probably on that order with a couple of years’ time delay built in.  I’d like to get to maybe 10 a year, but you know, that’ll happen.

ROB:               And I know you can’t give specific figures but generally, what does Georgia Tech get out of the deal?

STEPHEN:      Well, there’s a couple of things.  The obvious one is the least important which is licensing revenue.  We actually own the intellectual property; that’s the way that federal law works.  We write a license, a contract, with the start up company, and Georgia Tech gets a mixture of equity in the start up company and some royalties on the sale of the products that are based on that technology.  And that’s a nice thing to happen, it pays a couple of bills around here.  The more important things we get are more difficult to quantify.  For example, these companies that form, maybe they really want the next generation of the technology, and they sponsor research back at Georgia Tech.  That will pay for graduate students to do their thesis work on building the next generation of technology.  These companies will hire Georgia Tech graduates, so it’s a place for both undergraduates and graduates of Georgia Tech to go find careers here in Georgia without having to leave the state.  If they’re successful, they’ll actually give money back.  You look at the Klaus Advanced Computing Center at Georgia Tech; it’s a gorgeous, quarter million square foot building, and the core gift behind that was given by an entrepreneur who started his company as a sophomore here at Georgia Tech.  So there’s a lot of benefits that flow back to campus other than just the licensing revenue.

ROB:               And also sometimes you license the technology directly to a large corporation, right?

STEPHEN:      Oh sure.  You know there’s a lot of technologies that don’t belong at a start up, and it’s kind of the reverse of what I said a few minutes ago.  Either we don’t think that the technology has stand alone potential, in other words, it really belongs as a feature or as a part of an industrial process for a bigger company, or it may be just that the inventors have absolutely no interest in being involved in a start up.  And in that case, it’s kind of hard to build a start up if the creators of the intellectual property aren’t at least neutral to supportive, and if they’re hostile, the idea is very difficult.  So we license things to Intel.  We license things to IBM.  We license things all over the map.

ROB:               And when the inventor starts a small company, you help put together a team if necessary, right?

STEPHEN:      Yeah.  We really focus on three things when we’re trying to get a start up out the door here at Venture Lab.  Those three things are:  First, pulling together a business plan that makes sense where all the numbers add up, and we can believe that in the face of the competitive environment that there’s justification for creating a new company.  The second is recruiting management as you said.  We’re not really big fans of having our professors become CEOs of companies.  We want them to be involved but we don’t want them to be the person in charge.  So we recruit and we play matchmaker and find successful entrepreneurs here in the community.  And the last thing we do is find some money.  We’ve got several little pots of money around that we can dip into for small amounts and help get the company through that very, very early period.  Some people call it the valley of death.  I think that’s over dramatic, but you’ll find that phrase a lot in literature for getting a company started up and ready to talk to customers.

ROB:               And many of the small companies, after they finish going through the Venture Lab program, they end up at the ATDC for awhile too, right?

STEPHEN:      It’s not required; it certainly is encouraged.  You know our graduation criteria out of Venture Lab happens to look a lot like the entrance criteria into ATDC; that’s not by coincidence.  You know we’re corporate siblings so we’re both part of the same organization, the Enterprise Innovation Institute at Georgia Tech.  And a lot of our companies do find that ATDC is the logical next step for all the benefits that it provides, both in terms of the bricks and mortar facility, but more importantly, in terms of the coaching and in terms of the connections they can develop while being part of the ATDC for a couple of years.

ROB:               And just for the benefit of the listeners who may not have lived in Atlanta a long time, the ATDC is the Atlanta Technology Development Center which is located at Georgia Tech in the same building as Venture Labs, right?

STEPHEN:      Except I’ll correct you on two things.  It’s the Advanced Technology Development Center, not the Atlanta Technology Development Center.

ROB:               I’m sorry.

STEPHEN:      The reason that’s important is we do have a facility in Savannah.

ROB:               Oh okay.  And you also do something, you run something called Tech Partnerships?

STEPHEN:      Technology Partnerships is another group here at Georgia Tech.  We’ve developed a lot of hard earned knowledge on how to truly commercialize technology, taking it from the laboratory to the market, whether it’s through a start up or through it’s licensing.  And that knowledge is worth something.  So we have a group, as part of commercialization services, that does that on a contract basis, and we’ve had contracts .  We currently have one with NASA; we’ve done it for the Navy; we’ve done it for a foreign government in partnership with a U.S. company.  So we actually will help other people figure out what their technology is, which of their technologies could be suitable for start ups, and help do things much like we do for Venture Lab with the exception that we don’t actually put money into those.  We only put money into the companies that have Georgia Tech intellectual property.

ROB:               Understood.  And then you also help small companies apply for research grants, right?

STEPHEN:      There’s a federal program which has been around for a while called Small Business Innovation Research, or SBIR.  This is a program where 11 agencies of the federal government essentially have to pay a tax of  2½% of their research budgets which has to go to qualified small businesses.  These are usually on the order of about $100,000 to start with, and they grow to $750,000 in the second phase.  This is wonderful money for start ups.  Because it’s aimed at start up companies, you’re not competing with the big boys; you’re only competing with other start ups.  There’s no equities; they’re not taking ownership, and there’s no debt component.  You don’t have to pay it back.  It’s a pure grant.  Really, all you have to do is find an agency that wants something that you have, convince them that you can develop it, and go through the solicitation and the competitive process, and it is competitive.  Once you win it, you have that money to work on developing the technology, giving back whatever deliverable the agency has asked for.  It has helped create or strengthen the growth of your company.  It’s a great federal program.  We do have a department here at Georgia Tech that is funded by the state to help anybody in Georgia, not just Georgia Tech companies, but anybody in Georgia who is interested in exploring or in applying for this SBIR awards and we help with that.  That’s a free service we provide.

ROB:               Stephen, what is the Seraph Group?

STEPHEN:      Seraph Group is a different hat that I wear.  It’s an investment vehicle aimed at high net individuals.  Mostly folks who have either looked at Angel Investing and decided that it takes more time and effort than they have because they have a day job, or they’ve tried Angel Investing and discovered that it’s a lot harder than it looks and they’ve lost a lot of money.  So what Seraph Group does is provide them a vehicle by which they can invest a certain amount of money.  Seraph Group is set up to make capital calls.  Seraph Group charges management fees and carries interest.  Seraph Group has full time due diligence staff.  Seraph Group has all the capabilities of a venture firm.  It simply does not take money from the large institutional investors so the individuals aren’t trying to compete with a pension fund to get into the mix.  Seraph Group targets early stage deals, not solely technology.  Although I’d say a preponderance of the 18 deals we’ve done have been technology related.  And the sweet spot is that between a $250,000 and $1.5 Million into a serious A-round.  That’s where Seraph Group is targeting, and that’s nationwide.  So we have 130 investors scattered all around the country.  And we’ve done deals in half a dozen states at this point.

ROB:               And you were one of the founders?

STEPHEN:      Well, I helped assemble it.  The true founder is the one full time partner.  I’m on the investment committee and helped to get it organized and helped to recruit some of the investors.  Now I spend a little of my time looking at the deals that come through Seraph Group’s deal flow and help them make the decision about which ones to invest in.

ROB:               What range of money does the Seraph Group generally invest?

STEPHEN:      Like I said between $750,000 and $1.5 Million is kind of the sweet spot for early stage investment for us.  And that’s an area in which a lot of funds have been kind of abandoned.  It’s really up to the Angel market and to new intermediate vehicles like Seraph Group to fill that.  So deal flow has not been a problem.

ROB:               So does Seraph Group invest in start ups or do they have to go through a friend an family round first?

STEPHEN:      They don’t have to.  A lot of deals do go through friends and family rounds just because that’s kind of the natural progression, but Seraph Group absolutely has been first money into several of the deals we’ve done.

ROB:               I believe you mentioned to me that sometimes, Seraph Group will invest in a deal, and then some of the Seraph Group investors that are particularly interested will buy the deal from Seraph Group, and take it over.

STEPHEN:      Yeah.  The way the model works, most of the investors that we have are involved in Seraph Group.  To be blunt, they have a lot more money than they have time.  So they don’t have a lot of time to look at individual deals.  They don’t have a lot of time to manage individual deals, but they do have significant financial ability.  So what we can do is we make the investment so that Seraph Group is the general partner and the investors are limited partners.  The general partner makes the investment.  Then it shows that through a showcase, that we do three times a year, to the limited partners.  And the message is essentially that if you like this deal, if you’d like to put more of your financial wherewithal into that deal, we’ll transfer a portion of  Seraph Group’s holdings to you at Seraph Group’s cost.  We don’t make any money on that transaction.  But we get our money back from the investment that we’ve made, and it essentially lets us recycle our money if we do it right, 4-1 leverage.  To be accurate, we’ve got 130 investors at a $100,000 a piece.  That means we have $13 Million under management.  But since we’ll do this 4-1 leverage, we get to act like we’re a $65 Million fund because we’re making investments that would be appropriate for a $65 Million fund.

ROB:               Also, you are involved with a group that’s trying to develop an airplane that can actually make it into orbit, right?

STEPHEN:      Well, I’m involved in a spaceship company.  I don’t know if I’d call it an airplane that makes it to orbit.  That’s going to take a little longer and cost a little more than we’re working on right now.  We are building a runway-launched vehicle, which takes off horizontally just like an airplane, then goes vertical and will go into space.  It does not go into orbit.  There’s a difference between being in space and being in orbit.  Space is just a matter of altitude, whereas orbit is a matter if speed.  You have to be going fast enough that when you fall you don’t hit the ground, which is essentially the definition of orbit.  But we are building a suborbital; in other words, just a straight up and down vehicle which will be a really fun ride for passengers.  And there’s also some scientific and industrial applications for the flight that we’re selling some seats for that as well.  But the one that catches everyone’s attention is obviously passengers.  The company’s called XCOR, X-C-O-R, and we have partnership with a company that is selling tickets for us.  So far, we’ve taken deposits on 22 tickets for this very fun ride.

ROB:               How much is a ticket?

STEPHEN:      $95,000 which is a lot of money, but it’s not the $20 Million which is what people thought space tourism was going to cost which, of course, gets you to the international space station.  We don’t go to the space station.  You don’t get to hang out in orbit for a week.  You are strapped into the seat of a small vehicle that looks a lot like a jet fighter except it’s powered by rockets.  And you get a really fun ride going up, and you get a great view.  You get a little bit of microgravity, which people call zero gravity.  And you come down and land at the same runway you took off from.  There seems to be a pretty significant category of individuals who believe that’s absolutely worth $95,000, and those willing and able to pay.

ROB:               Has the aircraft, the rocket, been tested yet?

STEPHEN:      The engines have flown in a winged vehicle that we built under contract to a private company.  So the engine has been flown, I don’t know the right number, but probably on hundreds of flights.   So it is a well-tested engine.  The actual vehicle is still under construction so that hasn’t been tested yet.  But I’ve gone out and sat in the cockpit of the vehicle being built, and I fit.  So I’m excited about getting a chance to ride it one of these days.

ROB:               Wow!  Stephen, if anybody wanted to get in touch with you about any of these programs, is there one number they should call, or a website?

STEPHEN:      I’m pretty easy to find on e-mail; just Google me.  You have to put “Stephen Fleming Atlanta,” or “Stephen Fleming technology,” or “Stephen Fleming Georgia,” because if you just put “Stephen Fleming” you will find out a lot about New Zealand Cricket.  There’s another Stephen Fleming out there who runs the Cricket team.  But I’m pretty easy to find and all my contact information is on my blog, which is academicvc.com.

ROB:               That’s all they need?  They could get all your information at academicvc.com?

STEPHEN:      That’s right.

ROB:               Well, I really appreciate your being on the program, and it’s been a pleasure Stephen.

STEPHEN:      I’m happy to do it anytime.  Thanks for the call.

ROB:               Thanks a lot.