Posts Tagged ‘New York Times’

The Great Skills Mismatch: Wall Street Quants Thumb Their Nose at Tech Startups

May 3, 2009

There’s an emerging structural shift in the U.S. economy that has created a serious mismatch between employers and employees in today’s economy. That’s the provocative thesis of this week’s cover story in BusinessWeek, “Help Wanted.”

This is a big deal that could have major repercussions. Among them, says my colleague Peter Coy, are:

The unemployment rate is likely to remain distressingly high because many people who want jobs will lack the appropriate qualifications. Second, inflation could pick up sooner than expected if employers are forced into bidding wars to recruit the few people who are qualified for the work. Third, if unemployment stays high it will put additional political pressure on Congress and the Obama Administration to push through fixes that could make matters worse in the long run, such as insulating workers from the cost of long-term unemployment to the point where they lose their appetite for work.

I was one of several reporters and editors who helped Peter write this cover. I learned a few interesting things while reporting the story, which led me to believe that this shift was having a real impact. One thing I learned is that the thousands of laid off workers from Wall Street, many of whom have high-level math and computing skills, are so far not that interested in leaving finance and going to work for a tech startup.

Consider this one story from venture capitalist Fred Wilson. Last fall after Lehman Brothers fell, Wilson, cofounder of the New York venture capital firm Union Square Ventures, backed an experimental Web site called (The other venture capital firm that backed the site was First Round Capital.)

The idea was to try to lure some of the talented software engineers who had been laid off on Wall Street to technical jobs at the two dozen New York-area companies that his venture capital firm was financing. Wilson was fishing for quants.

But it wasn’t the game-changer the VCs were hoping for. Wilson only filled a handful of jobs. “It wasn’t the panacea I thought it would be,” says Wilson.

It turns out that the learning curve was too steep for many financial engineers who were not well versed in the ins and outs of online advertising and analytics. Plus, many Wall Street refugees are not prepared to accept a massive reduction in their salary.

“For a lot of people who used to work on Wall Street they have a large personal burn rate,” says Wilson. “For them to take a job that pays a lot less they have to make a meaningful change in their lifestyle. And that is an issue.”

What does this mean for tech companies? I think it means that it will most likely be hard to poach seasoned talent from the financial world for the next few years. Most of the Wall Street folks I know who have been laid off are still looking for jobs with financial firms, though they are more likely of the smaller, boutique variety. Some of them are finding jobs. Not all of them will, though. Wall Street just won’t be big enough to absorb all the people who have been laid off or fired. That restructuring process is probably going to take a few years to play out.

Meanwhile, if I was a tech company, I would focus on trying to poach talent from other tech companies, or I would look for recent graduates or younger employees with tech skills that can be retrained much more easily.

This is the hope of President Obama. In a lengthy interview in the New York Times magazine with David Leonhardt, President Obama says that one healthy consequence of the financial crisis will be that college grads with math skills won’t automatically want to become derivatives traders. “We want some of them to go into engineering, and we want some of them to be going into computer design,” said Obama.

The President also is aware of the skills shift. In the interview, he said one of the biggest constraints holding back his plans for building electricity smart grid is a lack of “trained electricians to lay down those lines. . . Somehow we have not done a good job of matching up the training with the need out there. And that’s one of things where government can help, help to guide and steer our education process in a way that meets future needs and not just the needs of the past.”

So I would expect to see more talk and action from the Obama Admin. on this skills mismatch and retraining issue. He clearly sees it as a economic problem and priority.


Why AIG Should Not Pay Out Any Bonuses

March 18, 2009

I haven’t written that much on this blog about the financial crisis writ large but given the public furor over the AIG situation I want to weigh in with my thoughts.

I don’t believe AIG execs should get $165 million in bonuses for their performance in 2008. Here’s why:

1. It’s just not right. I don’t think of myself as a moralistic or sanctimonious person but c’mon people! This is just too much to swallow. AIG is one of three companies that the U.S. government had to take over because their collapse threatened the integrity of the global financial system. We, the U.S. taxpayers, own 80% of the AIG, after spending $170 BILLION to save it from collapse (and we’ll probably have to give it even more money). Now, the company wants to pay out hundreds of millions in bonuses to executives who ran a company that helped to drive our economy into a deep recession. I think not.

2. The executives don’t deserve it and they don’t need to be retained. These payments have been called bonuses and retention payments, depending upon who you talk to. Either way you look at it, the company can not justify these payments. Bonuses are supposed to reward performance. Clearly, AIG’s performance was horrific. It’s like a baseball player getting a bonus for taking steroids or striking out every time he was at bat with runners in scoring position.

NY attorney general Andrew Cuomo produced evidence today showing that many AIG employees in the infamous financial products group received bonuses. This is the group that created all these exotic derivatives that caused AIG’s near collapse. That is unconscionable. But even the employees that had nothing to do with the financial products group that ruined AIG should not be paid bonuses since the entire company lost lots of money and had to be taken over by the government.

The second argument, which was actually made by AIG’s CEO, is even more galling. “We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” wrote AIG CEO Edward Liddy to Treasury Sec. Timothy Geithner on Saturday.

Really? Many of these executives were supposed to manage the risk of the firm. Clearly, they did an awful job and should not be seen as stars that need to be retained. Get rid of ’em I say. Moreover, last time I checked Wall Street was filled with tens of thousands of highly qualified and unemployed people. Many of them would be happy to take those jobs at AIG in a heartbeat.

3. Contracts are malleable. This week, New York Times columnist Andrew Ross Sorkin audaciously put forward the best argument for paying out the bonuses: that the government should not break a contract. Sorkin is a great reporter but I have to say he’s wrong about this one.

As one law professor put it, “contracts get repudiated, renegotiated, modified, delayed, worked out, managed — pick the euphemism — all the time.” I know this from personal experience too having covered the tech bust. Giant multi-billion outsourcing contracts were renegotiated many times during that period because both sides knew the contracts did not make sense with business volumes falling off so much.

That’s why I applaud President Obama’s efforts to stop the bonuses. He is using the bully pulpit to pressure and shame these executives to give up their bonuses. I agree the government should not unilaterally break the contracts but it has every right to use its power to get the executives to give up what they don’t deserve. I think he’s going to get his way, and that’s a good thing for Obama and America.

Then we should focus on the bigger issues. Like, why did AIG pay out more than $100 billion of the money the government gave it to counter-parties. Goldman Sachs got $13 billion, Société Générale received $12 billion, and $12 billion went to Deutsche Bank, nearly 100% of what they were owed.

That strikes some financial professionals as egregious. If AIG had filed for Chapter 11 bankruptcy in September, those same firms would have gotten in line with other creditors and received pennies on the dollar. There’s no reason AIG–or the U.S. government–couldn’t have negotiated better terms.

Why Now is the Best Time to Poach Talent

March 15, 2009

If imitation is the best form of flattery, I feel pretty good this morning.

The lead story on the New York Times Business section, “Secrets of the Talent Scouts,” picks up one big theme I highlighted three weeks ago in my online feature, “Startups in a Downturn,” which revealed the lessons of success from entrepreneurs and financiers who created great companies during past economic downturns.

Heck, the TImes even opened the story with the same guy I led with: venture capitalist Mike Moritz.

I want to return to this theme though because I still think a lot of people in business don’t realize the opportunity that exists now to poach world-class talent.

I’ll give you three examples I heard of just this week. I visited the offices of a Knewton, an online education startup in downtown NY. The CEO Jose Ferreira told me that the talent market is so rich right now that he is actually turning down Harvard grads who scored 1600 on their SATs. Peter Miron, the current chief technology officer of the company, was the former vp of product development of the troubled startup Vonage. He joined the company in May 2008 because he got sick of doing depositions for all of the company’s messy court battles.

Poaching opportunities also exist in big companies. Ferreira is in the market to hire an executive assistant. He said he is going to be able to hire the former EA of one of the top five executives at Morgan Stanley for less than half of what she was making at the bank. When Ferreira first heard people tell him that downturns were a great time to build your business, he sort of laughed. “Now I believe it,” he says.

Think of all the thousands of great people that have been laid off from Wall Street, various media giants such as Time Inc. and Conde Nast, and many other top companies. Even Goldman Sachs, the company that only hires A team players, laid off thousands of people. Where are all those genuises now? If you’re smart and opportunistic, you’ve already hired one of these folks in marketing, engineering, research, whatever.

If you have any open positions in your company, you should be digging through these resumes to find your next great stars. Or even if you don’t have any openings, you might want to make room for that special person who you’re going to need when the economy eventually picks up.

Andreessen & Friedman: Start-ups and VCs to the Rescue!

February 22, 2009

I gotta hand it to Marc Andreessen and Thomas Friedman–they both nailed it this week and repeated a message I’ve been preaching for the last year on this blog, in my book talks and in my work for BusinessWeek.

It is the idea that the entrepreneurial economy will play a key role in lifting America’s economy out of the recession. But each of them addressed the challenge in a slightly different though related way.

Andreessen broke the news during an interview with Charlie Rose that he is starting a new venture capital fund focused on investing in young and unproven companies with big ideas. I find it really fascinating that the best entrepreneur of his generation has decided to take off his operating hat to become a full-time venture capitalist.

Andreessen must believe, as I do, that this is actually a very good time to be in venture capital, as long you are able to raise money, of course. Although Andreessen has never been a professional VC, I am sure he’ll be able to easily raise a modest to large-sized first fund based on the reputation of himself and his partner, Ben Horowitz, and the fact that he’s gained a lot of experience the last few years doing dozens of angel investments. This is great news for entrepreneurs, and I can’t wait to see how Marc shakes up the industry.

One of the things I’ve been saying on book tour is that one of the great ironies of venture capital is that an industry all about promoting innovation has not been very innovative itself the last 30 years. So I hope that the financial crisis will lead us to try to experiment and create new approaches that can help finance and stimulate innovation.

Which brings me to New York Times columnist Thomas Friedman. In his column today, titled “Start Up the Risk-Takers,” Friedman boldly proposed that the federal government should temporarily get into the business of venture capital and help finance a new generation of biotech, info-tech, and clean-tech companies.

“When it comes to helping companies, precious public money should focus on start-ups, not bailouts,” wrote Friedman. “You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.”

Friedman suggested a new motto for the stimulus program: “Start-ups, not bailouts: nurture the next Google, don’t nurse the old G.M.’s.”

This is actually not a totally crazy idea. While I largely agree with VC Fred Wilson that the top VC firms do not need and probably would not take government money, I bet more second and third tier firms in need of capital, or young promising firms without a track record, would consider taking on the government as an LP–especially if it came with no strings attached.

We’re not that far away from this right now. Many venture-backed startups have already said they would take and apply for various bailout funds. Wireless provider Clearwire is an obvious beneficiary of the $7 billion in broadband grants, and many clean tech startups are going to tap into the tens of billions in bailout funds dedicated to smart grid and renewable energy.

Even if the plan doesn’t fly, I applaud Friedman for making a creative proposal and focusing the discussion on the need for supporting the new, rather than bailing out the dinosaurs.

Phrase of the Moment: Stress Test

February 15, 2009

If I hear the word stress test one more time today I think I am going to hurl.

“Before Stress Testing Banks, Find a Pulse,” reads the headline for Gretchen Morgenson’s New York Times column in the Sunday Business section. Listening to the Sunday morning talk shows, I heard the word stress test used at least three times. My editor at BusinessWeek recently inserted the words stress test in a story I wrote about a company’s finances that were under pressure.

What’s going on? Well, the global financial system is in a crisis, so we’re inventing new phrases to describe the horrific situation. In fact, part of Treasury Secretary Timothy Geithner’s plan to fix the banking crisis actually involves a stress test of every bank to determine its financial health. So I guess we’re going to be hearing these words a lot more over the next few months.

A CreditSights analysis, reported in the Times blog DealBook, found that according to its “severe” case situation, all the major banks and brokerages — Citigroup, Bank of America, Wells Fargo, JPMorgan Chase, Goldman Sachs and Morgan Stanley — might require further capital injections from the government. The future losses for some banks are staggering by CreditSights’ estimates: Wells Fargo, $119 billion; BofA, $99 billion; JPMorgan, $124 billion; Citi, $101 billion; Goldman Sachs: $47 billion; Morgan Stanley, $34 billion.

It’s not such a bad metaphor, given that our financial system is clogged up like a bad artery with all these toxic assets. The concept of a stress test actually derives from the medical field. Stress tests are given to patients with heart problems to determine the ability of the patient’s heart to pump blood.

It also has other uses. Apparently, there are tests that can gauge the level of stress in your life. I suppose a lot of people are taking these tests right now with the economic implosion. And engineers do stress testing to figure out the strength and durability of physical structures.

Ok, now that I am stressed out talking about all these stress tests, I am going to go to the gym and get rid of my stress.

2009: The Year of Hard Choices for Mass Media, says Craigslist Founder

January 9, 2009

I ran into craigslist founder Craig Newmark Wednesday night at a book party for my colleague Stephen Baker.

I asked Newmark what he thought about the state of the mass media. Newmark is a great person to ask this question since craigslist was an early disruptor of the newspaper business. His answer reinforced my growing belief that 2009 could be a watershed year for mass media, a sort of reckoning.

Why? The Great Recession will likely force more companies to finally restructure their businesses for the digital age, instead of making more of the modest, incremental changes they’ve been dribbing out for the most part over the last 10 years.

“The recession will accelerate the problems of the mass media,” said Newmark. “There are going to be some hard choices that need to be made.”

Newmark didn’t elaborate on those choices but it’s not too hard to see the options. Michael Hirschorn (who edited SPIN when it was worth reading back in the 90s) addressed this issue head-on in an interesting essay in The Atlantic about the growing problems of the New York Times.

Among the hard choices that will probably be made by more mainstream media outlets such as newspapers and magazines:

1. Digital-focused distribution. In March of 2007, IDG publication InfoWorld led the way by abandoning print distribution. Last October, the Christian Science Monitor announced it was going to become the first nationally circulated newspaper to replace its daily print edition with its Web site. The paper isn’t totally abandoning print, though. It will publish a weekly print edition. Expect more papers and mags to go digital.

2. More aggregation. The open nature of the Web has undermined the value of original reporting to a certain extent since readers can access much of that content for free across multiple places. As a result, more media outlets will retreat from areas they don’t consider essential. Intead of original reporting, editors will filter the Web and serve up the most relevant links, much like the Huffington Post does, or many other blogs.

3. More journalistic outsourcing: To make up for the inevitable staff cuts that are coming, more media companies will outsource reporting to blogs and other new media companies. The New York Times recently announced syndication deals with several blogs, including VentureBeat, Read/Write Web and the GigaOm network. The popular politics blog Politico is delivering content to many newspapers now, including the Philadelphia Inquirer, the Denver Post and the Atlanta Journal-Constitution.

Of all the changes, this is probably the most hopeful since it will lead to more investment in new media journalism. This will be crucial since the decline of the mainstream media–at least in the short term–will damage the press’s ability to serve as a foundation of democracy.

Why Randall Stross and the New York Times Don’t Get Wireless

December 31, 2008

Here’s the beginning of a post I just published on BusinessWeek’s Tech Beat blog:

This Sunday, New York Times business columnist Randall Stross devoted his column to dissing the U.S wireless industry for doubling the cost of text messages to consumers to 20 cents from 10 cents. But what really got Stross lathered was his claim that the cost of transmitting text messages is far less than the public supposedly assumes.

Stross backed up his argument by quoting Srinivasan Keshav, a computer science professor at the University of Waterloo, who said that “it doesn’t cost the carrier much more to transmit a hundred million messages than a million.” Stross also noted that 20 class action lawsuits have been filed around the the country against AT&T and other carriers, alleging price-fixing for text messaging services.

Stross is not only flat out wrong, but his argument is overly simplistic and suggests that he doesn’t really understand the economics or business model of the wireless industry.

Let me explain.

First off, it costs more to send more text messages–contrary to what Stross and Keshav claim. Verizon Wireless, AT&T and Sprint declined to speak with Stross. But James Gerace, a spokesman for Verizon Wireless, told me in an email that the company “had to invest an additional $200 million in the network just to accommodate the ’08 volume in text messaging.” That is not chump change.

“This op-ed is bunk,” wrote Gerace, adding that he sees the Times story as an example of “trial lawyers placing it looking for a new revenue stream.”

Second, Stross totally discounts the price of wireless spectrum, which is really, really expensive. In the most recent spectrum auction, wireless carriers and other technology companies paid an astounding $19.6 billion to acquire the nation’s most desirable remaining airwaves. Yes, Stross mentions that the “carriers pay dearly for the rights to use” spectrum. But in the next breadth he writes off the cost by noting that text messages are “free riders” that piggyback on the control channel of the wireless network.

This gets me to my last point. Stross doesn’t seem to grasp the current economics of the wireless biz. Here’s the deal. The voice side of the business is becoming increasingly commoditized. So the future success of the industry hinges on the ability of carriers to grow the revenue they get from data services such as text messaging, wireless web surfing and wireless applications.

That’s the fundamental reason why carriers have doubled the price of text messages from 10 cents to 20 cents over the last few years. I have no idea if the carriers engaged in price fixing. If they did, they should be punished. But there is a legitimate economic reason why they have raised prices for individual text messages.

Click here to read the rest of the post.

Questioning the Google-Yahoo Search Deal

September 13, 2008

BusinessWeek technology reporters Spencer Ante, Heather Green, Arik Hesseldahl and Catherine Holahan talk about new iPods and the health of Steve Jobs, the latest BlackBerry Pearl, and the Google-Yahoo antitrust investigation.

Check out the video here.

Also, today Joe Nocera from the New York Times devoted his column to questioning the Google-Yahoo search deal by focusing on the tale of Internet entrepreneur Dan Savage. Nocera was right in zeroing in on Google’s ability to set a price floor for search engine keywords. Determining whether or not this price-setting ability can have anti-competitive effects is likely to be a central question of the DoJ’s analysis, as BW’s Catherine Holahan points out in our Dish segment.

Big Bet: BusinessWeek To Launch Business Exchange

August 18, 2008

Over the last year, I’ve been part of a team of people working on a top secret project at BusinessWeek. It’s called the Business Exchange and it’s the company’s biggest bet to date in the new media space. Today, the New York Times wrote a story about the site, which will launch in September. So I am free to talk about it now in public.

The idea is to create a sort of social network-cum aggregation site for the business world. The organizing principle of the site is topics–hundreds and probably thousands of them. Here’s how it works: Anyone can post a link to a story or blog post or video, whatever content you want from whatever source, and it will appear on the topic page. If the concept takes off, the site will really tap into the wisdom of the Web crowd, providing a powerful filter that will help people stay on top of their most important issues and discover new ideas and information.

All of the editorial employees of BusinessWeek have been asked to curate one topic so we can help cultivate the content and keep it fresh and relevant. I’ve been focusing on venture capital and social networking. But there are hundreds of others you can pick and choose from, including everything from biofuels to the Beijing Olympics. This is the Long Tail of Business content writ large.

I think the site has a lot of potential. But I’m really curious what other folks think about it. So please post your thoughts about the Business Exchange now and after it launches. As with most other Web projects, the Business Exchange is a work in progress.

Says Richard Perez-Pena:

“The core of Business Exchange is hundreds of topic pages, on subjects as broad as the housing market and as narrow as the Boeing 787. Plans call for the number of topic pages to grow quickly into the thousands. (The first one created, which may or may not be in the public version of Business Exchange, was “BlackBerry vs iPhone.”)

A few other magazines and newspapers have also become serious about building verticals, but they tend to jealously guard control of their online audiences and content. Not this one.

Each Business Exchange topic page links to articles and blog posts from myriad other sources, including BusinessWeek’s competitors, with the contents updated automatically by a Web crawler. Nearly all traditional news organizations offer only their own material, spurning the role of aggregator as an invitation to readers to leave their sites.

On Business Exchange, a user can post new material to a topic page, or even create a new page, choosing the subject and the title, and write a brief introductory description. This is hardly a revolutionary idea in the wiki era, but for a mainstream publication, it represents a significant loosening of control. (But not too loose — new topics require editorial approval, promised within 24 hours, and objectionable posts will be taken down.)”

Click here to read the rest of the story.

OMG: New York Times Reviews Creative Capital

June 1, 2008

As a writer, there are certain things you dream about but don’t think will ever happen. One of those long-held fantasies just became a reality today.

The New York Times reviewed my book.

The review, titled “Venture Capital, Before High Tech,” is on page 6 of the Business section, and includes a nice color photo of Creative Capital.

Reviewer Stephen Kotkin called it “a sometimes slow but ultimately satisfying biography of Georges F. Doriot, the transplanted Frenchman who is often called the father of V.C.”

He continues: “Silicon Valley was decades in the future when, as Mr. Ante writes, “Doriot learned how to become a venture capitalist” during World War II. Mr. Ante, an editor at BusinessWeek, explores the Army-business connections, a remarkable trans-Atlantic extended family of colleagues, the rise of high technology and a love story.” Later in the 1020-word review, Kotkin writes that “as the book advances it gathers poignancy.” Yes!

I still can’t believe it even though my publicist at Harvard Business Press gave me the head’s up on Thursday that it was slated to be reviewed in the Sunday paper. I was ecstatic that the book had already received positive reviews in numerous other prestigious publications, such as the Financial Times, Forbes and the Wall Street Journal. But the Times review still carries a special cachet–signaling that the book has crossed over to a truly broad and mainstream audience.

That is all I could ask for. When I set out to do this project, I wanted to restore and revive Doriot’s reputation as one of the 20th century’s most visionary and important characters. With all the attention the book is receiving, I feel as if I have accomplished this goal and it’s very gratifying.

So thanks to everyone–friends, family, colleagues, strangers–who helped me get the word out. All that hard work is paying off in spades!