Saturday, August 24, 2002

Le Tour de France

Two years ago, my entire family spent nine weeks in the summer traveling around central and eastern Europe. We become hooked on the tour, and all of us are now huge Lance Armstrong fans. Last year, I was able to teach in Paris during July, and the whole family was there for a trip to Normandy, where we watched one of the stages. Of course, you see much more on television than in person, but the sight of the peloton -- about 150 riders -- screaming past at roughly 35 miles per hours was the most exciting sporting event I had witnessed since September 8, 1999, when I sat in left field as Mark McGwire hit his 62nd home run. This year, we will be watching again to see if Lance can win his fifth straight, tying Miguel Indurain (1991-1995) as the only other rider to achieve five straight tour victories. Good luck, Lance!

Thursday, August 22, 2002

The eBay Phenomenon

In another piece from the NYT, we see some handwringing by eBay sellers over lower margins. But eBay remains the best idea to emerge from the Internet boom. For a fun read about how eBay became a phenomenon, take a look at The Perfect Store: Inside eBay, by Adam Cohen. While the author has been criticized for becoming to attached to his subject, this lapse is understandable. EBay is simply hard to resist. I teach a case study on eBay's venture capital contracts, and the students always laugh when they learn that eBay took the VC money and put it in the bank. By the time the VCs joined the party, eBay was already turning a profit, and it has never looked back. (By the way, eBay was the investment that made Benchmark Capital. For an interesting look inside a venture capital firm, see eBoys: The First Inside Account of Venture Capitalists at Work, by Randall Stross, which describes a year in the life of Benchmark.)

Tuesday, August 20, 2002

Abraham Lincoln the Grinder

David Brooks has an interesting piece in the New York Times, suggesting that Abraham Lincoln might become the "dominant image of business success" in the United States. At first, I thought Brooks was trying to be funny, but he has a very nice point. He writes, "Success, for most Americans, really is built upon the slow, steady, boring accumulation of accomplishments and money. Most successful people, like Lincoln, also have a core faith in the moral power of hard work." Count me in!

Sunday, August 18, 2002

Risk-Averse Venture Capitalists

I recently discovered Venture Blog: A Random Walk Down Sand Hill Road, which is maintained by three venture capitalists with August Capital. (Gee, I guess VCs aren't as busy as they were in the late 1990s?) It is a smart-looking site with good insights on the world of Silicon Valley startups.

A recent post by Andrew caught my eye. He contends that Sarbanes-Oxley (SOX) will help startups by "increas[ing] conservatism in corporate decision making." I respectfully disagree.

Andrew falls into the common trap of assuming that boards of directors of large companies participate in strategic decisions. While this is a common board function among startup companies, boards of publicly traded companies are increasingly unlikely to play this role, except in fundamental transactions such as mergers and acquisitions. Instead, the emphasis in modern corporate governance is on the board as a policeman. SOX exemplifies this. Shareholders (particularly pension funds) now attempt to participate directly in policy decisions (often through informal mechanisms, but also through shareholder votes) and are looking to the board primarily to prevent fraud.

So who is determining strategy? In large companies, that task falls to the senior executive officers, who have many incentives to take risks. In startup companies, by contrast, strategy typically is shaped by the board of directors, some of whom are substantial investors. I don't mean to imply that startups will not take risks -- after all, that is the whole game -- but my hunch is that startup boards may be less eager to roll the dice than public-company CEOs. For an example of the latter in Silicon Valley, consider Carly Fiorina and HP's bold takeover of Compaq. On risk-averse VCs, see