2011 Healthcare Preview — It’s Uhhh-gly

If you’re excited about healthcare reform, you might want to slow down a little. Because in the short term, there’s going to be a lot of confusion as to how to implement it — or how to keep your small health plan from being subject to healthcare reform’s rules. For starters, a new study from PriceWaterhouseCoopers found premiums will likely go up 9 percent next year, on top of last year’s 15 percent hike .

Elon Musk: “Why Owen Thomas Is Silicon Valley’s Jayson Blair”

Tesla Motors Founder and CEO Elon Musk isn’t a man that backs down when facing the press. When the New York TImes wrote an error-filled article, Musk lashed out at the author, saying “What is he doing picking on an electric car company? Why would he pick on the little guy who is trying to do good when you’ve got egregious waste of money in the tens of billions occurring in Detroit?” He added “He’s a huge douchebag…and an idiot.” And that was just when a journalist was poking at Tesla. Get into Musk’s personal life and he’ll take off the kid gloves. Valleywag’s Owen Thomas, now writing for VentureBeat, has for some reason become fascinated with Musk’s personal life and continues to write about the man’s marital woes. He’s called Musk a liar on multiple occasions and seems delighted to get into the sordid details of Musk’s divorce. Musk wrote his side of things on the Huffington Post. Thomas hit him again . Musk is now responding yet again, below. What bothers me about this exchange is that Silicon Valley press, VentureBeat in particular, is so focused on an entrepreneur’s personal life. A divorce isn’t anything that our readers want to know about. This isn’t Hollywood and these individuals aren’t out there trying to get lots of press about their personal lives. If they were, they’d hire agents and publicists and make the best of it. Instead they are focused on imagining and building the future. There’s no place in our community for these kinds of attacks. VentureBeat should apologize and move on, and let Tesla continue to disrupt the car industry. Below is Musk’s response: Why Owen Thomas is Silicon Valley’s Jayson Blair The latest article by Owen Thomas, “Tesla CEO can’t handle the truth”, continues his damaging and fraudulent crusade against Tesla and me personally. Tesla has received a great deal of press, both positive and negative, but it is amazing how much of the truly negative press can be traced directly back to one man. Despite numerous successes at both Tesla and SpaceX, Thomas has never once written a positive article about either company. Every one of the dozens of stories he has written – without a single exception – has been a nasty hit piece. Even if all those stories were factually correct, and they certainly were not, he has still fundamentally misled the public about my companies by failing to provide even a token number of positive articles. Lying by omission is still lying. Responding below under similar headings Thomas uses in his article, I address the inaccuracies in his latest article, where he again lies with great conviction. It is impossible to stop Owen from continuing to write such erroneous garbage, but, as I do not have the time or inclination to refute all bad reporting on his part, I would like it known that nothing he writes is remotely objective. Any future articles written by Owen Thomas should be viewed with this in mind. Tesla IPO Filings Thomas says “Tesla updated its IPO filings to acknowledge substantially all of the concerns we [ie Owen Thomas] raised as potential risk factors investors should consider”. We updated our IPO filings simply to state that what Thomas had written had no basis in fact. Since Tesla was in the IPO quiet period, we could not respond directly with a press release. Instead, we had to update the IPO documents to assure investors that what Thomas had stated about Tesla being reliant on me for funding or there being a DOE loan default risk related to my divorce were both false. Even without the IPO proceeds, Tesla has enough funding from its many venture investors, Daimler and the DOE to complete the Model S with no financial help from me. The reason for the IPO was to provide cash for additional new developments and a small percentage of liquidity for long time shareholders, including me (I sold 5% of my holdings). If this had been a real issue, it would have been placed in the IPO prospectus by the bankers and lawyers long before Owen Thomas raised it. This is one of many situations where he created a real problem for Tesla out of thin air by writing a misleading article. My Personal Spending In his section entitled “Musk’s personal spending”, Thomas does some creative math to claim that one of my “whoppers” is that I suggest I’m spending $30k per month, excluding legal fees. This is completely made up. I never state that anywhere in my piece, nor can it be computed from a collection of my other statements. Thomas intentionally conflates a statement I make about the average of what I’ve been forced to spend on divorce lawyers over the past two years and my household expenses last year, ignoring the fact that a huge portion of the legal expenses occurred this year in the run up to trial. Founding of Tesla Motors Here Thomas relates an anecdote about a serious issue Tesla had with Martin Eberhard, one of the cofounders of the company. Eberhard filed a lawsuit against Tesla (and me) that was filled with inaccuracies. Tesla was going to file a counter suit, but before we filed, Eberhard and I settled our differences with a few hours of mediation. I’m glad that we made peace. The result obviously satisfied both Eberhard and me or it wouldn’t have been settled. However, Thomas quotes Eberhard’s lawyer as though this was a one sided victory. He could just as easily have quoted my lawyer who would have made the same statement. What Thomas forgets to mention is that Eberhard was forced to withdraw his lawsuit weeks before the mediation even began. If Eberhard’s position had been strong, he would not have had to withdraw his claims unilaterally well before mediation started. The Safety of Customer Deposits Thomas states that I both told customers that I would personally back their vehicle deposits and that I said their deposits were at risk. He is again intentionally conflating facts to make it sound as though I had contradicted myself. Here is how Owen Thomas once again misleads the reader: the statements are actually referring to different vehicles at very different stages of maturity, but he pulls each quote out of context and pretends they refer to the same thing. When I said that I would back customer deposits personally, which I did directly to customers on several occasions as well as in a Car & Driver article, that was clearly and explicitly regarding the Roadster. I knew that my resources, combined with Tesla’s, would be enough to pay them back personally if need be. Moreover, Tesla had not been sufficiently clear with customers in the early days that the Roadster deposits were at risk. It would not be right for customers to have those funds at risk without their explicit consent. On the other hand, the statement I made to Claire Cain Miller of the New York Times at the Model S launch specifically and clearly referred to the Model S reservations. I knew that my and Tesla’s resources could not also cover the Model S deposits in a worst case situation. However, unlike with Roadster, we were very explicit that Model S reservation dollars were at risk and that the funds would be put to use doing advance development of the vehicle. In this section, Thomas also says that I announced that a Tesla financing round had closed in November 2008, when it actually closed in March 2009. Whether intentionally or not, he is getting the dates confused between when the financing round documents were signed (representing firm commitments), which was actually December 2008, and when the last of the cash was wired in, which was March 2009. This is common in complex financial rounds with a large number of participants. My History as an Entrepreneur In this section, Thomas casts aspersions on both Zip2 and PayPal, my first two companies, talking about management changes that occurred at both and not acknowledging one positive thing about either company. The reality is that Zip2 (which I started at age 23) sold for over $300M to Compaq and PayPal sold to eBay for over $1.5B after going public. Anyone reading Thomas’s twisted account of their history without knowing better would think that both were failures. It is worth noting that of the five companies that I’ve been a key part of creating (Zip2, PayPal, SpaceX, Tesla and SolarCity) over the past fifteen years, every round at every company has been an up round, even in the worst of all market conditions. In other words, no matter whether you were a series A, B, C, D, etc investor, you always made money. With a public company, there are of course significant short term fluctuations in share price, but those investors that believe in a long term hold strategy should be comforted by this track record. Thomas also falsely states that I’m alienated from the rest of the management team at PayPal and have a completely different version of history to them. In reality, Peter Thiel, who replaced me as CEO of PayPal, later became one of the biggest investors in SpaceX. Max Levchin (PayPal CTO), Peter Thiel, David Sacks (PayPal COO) and I produced a movie together soon after we worked together at PayPal. There are half a dozen other ventures involving me and several other members of the PayPal management team. Tesla’s Investors Thomas references another NY Times Miller article about an email I wrote to customers and claims I said Tesla would start getting DOE funds in four to five months. What I actually said was that the DOE had told me to expect funds disbursement in four to five months. This was absolutely true. In the end, it took the DOE six months longer than they themselves expected, since the ATVM loan program was brand new. In any event, Thomas bizarrely manages to create a fake negative story out of what was actually a huge victory for Tesla. We were selected as the first winners of the Advanced Technology Vehicle Manufacturing program, along with Ford and Nissan. One of the requirements of this program was that you had to demonstrate that you were a viable ongoing business and that you had a compelling technology and business model for the funds sought. This is completely different from the auto bailout program for GM and Chrysler, although many in the media confused the programs. In fact, the reason that GM and Chrysler were excluded from the ATVM program, is that they were going through bankruptcy and therefore obviously failed the requirement to have a viable ongoing business. Thomas falsely states that Tesla wasn’t profitable last year, even though I said it would be. In fact, Tesla was profitable in 2009, albeit only for the month of July. That’s the best we could do, given the ramp up in Model S expenses, but nonetheless it was an important symbolic victory. If all Tesla did was focus on being a small sports car company and sell powertrain technology, it would still be profitable today, as both businesses generate a good margin. However, my goal from the beginning has been to make electric cars that anyone can afford (Model S is step two in that process, not the end game), which requires a huge expansion in production. We are trying to go from about 500 Roadsters per year to 20,000 Model S vehicles. In other words, production is intended to be 4,000% of what it is today in only a few years time. There is just no way to remain profitable with that level of growth and capital expenditure. Regarding Car & Driver quoting me as saying that GE would be an investor, that was an error on my part that was corrected as soon as C&D published. The C&D interview occurred a few months earlier when GE had confirmed via email that they would be investing. Then GE had some sort of internal crisis and pulled out at the thirteenth hour (they had asked us to extend the closing deadline to allow them to participate), which was unfortunate for them. Their investment would have done incredibly well. Thomas pointedly ignores actual Tesla investors. In addition to the excellent venture investors of Valor Equity, DFJ, Technology Partners and others, there is Daimler and Toyota. Daimler invested $50M in Tesla after working with us for a year on the electric Smart car and doing extremely detailed technical and financial due diligence. When we did another investment round late last year with ADWEA and Fjord Capital, they invested again. When we did the IPO, they didn’t sell a single share, despite having a roughly threefold return on investment. The Toyota Deal Thomas states that although Toyota and Tesla announced that they would be developing a vehicle together, the SEC filings done right after the press conference say that we have no written agreement and there is no guarantee that we will get one done. Therefore, he concludes that I (and presumably Akio Toyoda), were misleading the public at the press conference! Thomas actually knows better, but, for those who aren’t familiar with the requirements of an IPO prospectus (aka S-1), you always have to state the worst case scenario. This is done for liability protection, but is definitely not what is actually expected to occur. Anyone who thinks that Akio Toyoda, the president of Toyota, would give a major public speech in front of the governor of California about doing a joint electric vehicle project with Tesla and not follow through is a complete fool. As was announced last week in Japan by Toyota, we have now signed the agreement and will be delivering the first prototypes this month. The vehicle and details of the program will be unveiled at another event later this year. Despite Toyota’s recent troubles, they are still the largest car company in the world and by far the leader in hybrid electric vehicles. For them to have invested in Tesla, (moreover at the IPO price) and want to partner with us to produce a vehicle is a great honor and a powerful endorsement. Purchasing the NUMMI plant for $42M, which has the ability to manufacture half a million vehicles per year or almost 1% of global automotive production, and making that our Tesla factory is another valuable element of the relationship. I should mention that NUMMI was owned half by Toyota and half by the General Motors spinoff (Motors Liquidation Corp), so we owe them a debt of appreciation too. The main reason I love this factory is that it accelerates our ability to produce an affordable mass market car. The Model S platform will at most consume 50k to 100k of the NUMMI capacity. The remainder of the plant will be sectioned off until we can bring our high volume affordable electric car to market, which has always been my dream for Tesla. CrunchBase Information Tesla Motors Elon Musk Information provided by CrunchBase

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Elon Musk: “Why Owen Thomas Is Silicon Valley’s Jayson Blair”

TechCrunch TV: Speaking Of… Detroit, Featuring Scott and Jay Adelson

Guest post by Cyan Banister… I’ve met a lot of engineers and entrepreneurs from Detroit and there’s an underlying vibe that resonates from all of them: a specific attitude or work ethic – possibly left over from the automotive industry – that either causes them to try to work harder than their fathers or go against the grain trying to figure out how they can live life to its fullest. As Jay Adelson takes his first break from work in 20 years, we get to time travel with him go back to the land of Henry Ford (the ultimate Detroit entrepreneur) to see where people like Jay come from. Interviewing Jay (founder of Equinix, Revision3 and CEO of Digg for five years) with his brother Scott was a real treat, because we don’t often get to see the family that surrounds the entrepreneur. With the exception of Ron Conway , who works with his sons, family is often under represented in the entrepreneurial story. One point Jay makes in the extended version of the interview (which we’ll publish later) is that there are amazing entrepreneurs coming from the midwest that lack the same support structure you see in cities like San Francisco, New York, etc. Although, there’s no solution offered quite yet, he proposes that instead of people yearning to get away, some of these companies may start sprouting up. As Jay says, there is a bouquet of Kevin Roses in the Midwest waiting to get funded. (Watch Episode One of Speaking Of… With Cyan Banister – featuring RockJazz pianist Eric Lewis – here .) CrunchBase Information Jay Adelson Information provided by CrunchBase

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TechCrunch TV: Speaking Of… Detroit, Featuring Scott and Jay Adelson

Attention Ecommerce Sellers: Streamlined Sales Tax Is A’comin’

For more than a decade, online retailers have been able to make the case that they can’t be required to collect sales tax. With every state, city, and county making its own sales-tax rules, it’s just too complicated! Or was. After many years of effort, a streamlined sales tax bill has been introduced in Congress that aims to take the air out of that argument. The Main Street Fairness Act of 2010 would take a simplified sales tax scheme 23 states are currently participating in and make it a national norm. Presto, end of complexity in collecting sales tax. Pay up. Rep. Bill Delahunt (Dem-Mass.) introduced the bill. (Is it a coincidence that he’s already announced he’s not running for re-election?) Even if the federal bill doesn’t go anywhere, ten more states are already considering signing onto the simplified tax program, which sets down agreed-upon tax rates for scores of different merchandise categories. So the movement to collect online sales tax was picking up steam already with states hungry for revenue in the downturn. Some of the ecommerce giants have been aggressive in defending their right to not collect sales tax, even resisting efforts to get them to help states collect the sales tax from consumers (technically what’s supposed to be happening now, except it mostly isn’t).

Exclusive: The Sexy Russian Spy’s Business Plan (And A Video Interview)

The bizarre case of Russian Spy ring arrested by the FBI earlier this week just keeps on getting stranger. In particular, one of the alleged spies, 28-year-old Anna Chapman, is getting a lot of attention because of her “vixen” looks and lingerie shots on Facebook. Now, her former husband in London says her father was a former KGB officer and that she left him to pursue her startup dreams in the United States. Chapman networked her way into the New York City entrepreneurial scene. In fact, during New York Entrepreneur Week earlier this summer, she sat down for a video interview to talk about her apartment rental Website, NYCRentals.com . You can watch the video below, courtesy of And Now Media (it has appeared elsewhere on the Web). Chapman does not come across as a very sophisticated businesswoman, or spy for that matter. Initially, she comes across as something of a red-headed ditz flirting with the camera, but as she begins to talk about her business she starts to sound a little more believable. The Website is up and running, although it is barebones. And she was shopping around a business plan, really more of a two-page executive summary, which we have obtained exclusively (also embedded below). NYCRentals is an apartment search engine which brings together listings for a very limited number of apartments in some neighborhoods of New York City. The executive summary pitches it as a vertical search engine for apartment rentals which aggregates listings from different broker sites. It is not a particularly original idea. The name of the company behind the site is PropertyFinder, which is described as an “affiliate of a holding company in Russia by Anna Chapman who holds the majority shares in that company as well.” It is obvious the document was written by someone without a full mastery of English. It lists “Graigslist” as a competitor and is filled with grammatical errors. One typical sentence reads: By specializing on narrow region it will allow for a system to gather not only information about letting but also create rich with information database with buildings, city infrastructure, other useful and relevant for choosing real estate to live area specifics. Maybe NYCRentals was just a front to give Chapman an excuse to meet high-profile targets. Or maybe she really thought she could crack the New York City rental market. It is still not clear what Chapman’s role in the alleged spy ring was or why she sought publicity. One theory is that these so-called spies were really trying to infiltrate different parts of American society to network and perhaps find valuable contacts who could provide real intelligence to Russia. But all evidence so far is that these spies who could not shoot straight. One contact from New York Entrepreneur Week who met with Chapman on several occasions, Aron Shoenfeld (no relation to me), describes her as a “very aggressive networker.” But she seemed no more aggressive than any ambitious entrepreneur. Maybe entrepreneurs would make good spies. Or maybe she just wasn’t a very good spy. View this document on Scribd

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Exclusive: The Sexy Russian Spy’s Business Plan (And A Video Interview)

Many Entrepreneurs Would Swap Ownership for a Job

I hate to be the bearer of bad news, but it’s been a bad week for business, no doubt about that. New jobless claims are on the rise –again. The stock market has dropped below 10,000–again. The national debt has climbed to its highest level since World War II, and pending home sales plunged a record 30 percent . And it’s only Thursday. On top of all this, a new survey shows that fully one-third of small-business owners say that–given the opportunity–they’d swap their business for a job working for someone else. As long as they were paid what they’re now making or more, these entrepreneurs said they’d drop everything, close up shop and take a job. Another 13 percent said they’d certainly consider selling for employment with someone else. This second-guessing of business ownership was revealed this week in The Discover Small Business Watch , a survey compiled each month by Rasmussen Reports LLC , an independent research firm. Conclusions are based on interviews conducted a with about 750 small-business owners, and it has a margin of error of plus or minus 3.8 percentage points. The small-business owners were also asked what it would take for them to sell their business. Forty-one percent said they’d never sell. Of the remaining 59 percent: 27 percent said they aren’t sure. 18 percent said they’d need to make money on what they’ve already invested. 11 percent said they’d be happy just to recover what they’ve put into their business. 3 percent would be willing to take a loss to get out of the business. The survey also reports that 40 percent of those responding to the survey said they’ve given some thought to modifying their business model or entering a new line of business. And half of those claim the recession has “severely” hurt their business, prompting those thoughts of change. In addition, the economic climate has seen more small-business owners experiencing temporary cash-flow issues in June–51 percent compared to 45 percent in May. These are the highest figures since January. The percentage of owners who say the economy is getting worse remained steady at about 51 percent. Forty-three percent of June’s respondents said business conditions are getting worse, down only one point from the 44 percent reported in May. On the other hand, 30 percent of those answering the June survey said economic conditions for their businesses are improving, a 2 percent increase over May’s figures. What about you? If you were offered a job working for someone who offered more money than what you currently make, would you take the job or continue to own your own business?

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Many Entrepreneurs Would Swap Ownership for a Job

What’s Missing From ‘Social Media Day’

Just 22 days ago, on the 8th of June, the minds over at Mashable.com decided we needed Social Media Day , a special day on the Gregorian calendar celebrating social dialogue and the tools and platforms enabling the “revolution” (Mashable’s word, not mine). And they decided that day would be today. While I’m all for raising awareness of social media, it seems to me that the vast majority of businesses would be better off celebrating Social Media Strategy Day . As Tac Anderson of Waggener Edstrom points out in The 3 Types of Social Media Strategy , what’s missing from most social media strategy is the actual strategy part. That’s a bingo! In my experience, far too many companies launch themselves into the web’s socially enabled ecosystem with nary a clue as to how their efforts relate to business strategy and ultimately, the bottom line. We all know of businesses that have a Facebook Business Page or Twitter account, give it the old college try for the first month or so, and by day 90–when they’ve either become sidetracked by other areas of the business or don’t see a social media-related impact on the bottom line–throw their hands up in the air and arrogantly proclaim that social media marketing doesn’t work. Well, duh. If you don’t have a business-aligned strategy to guide your efforts in the first place, social media marketing isn’t going to work for your business. In fact, according to the folks at Digital Brand Expressions , nearly 60 percent of businesses today don’t have a strategic media communications plan to guide their social media efforts. With numbers like those, it’s no wonder so many company blogs, Facebook business pages and business-related Twitter accounts either sit dormant for weeks on end, or contain little more than ill-advised advertisements or “deal of the day” posts. If your business has a social media presence and you operate without a business-aligned social media strategy, you’re going in through a series of heavily trafficked and fast closing “out” doors . . . wearing a blindfold. Do yourself a favor (and not just because today is supposedly Social Media Day), address exactly how word-of-mouth, social media, and social networking relates to your businesses top line goals. Decide who or what department in the organization “owns” the effort (versus who serves as a “vendor”). And then determine how all of this shows up in your communications strategy.

Book Review: The Winner’s Brain

The Winner’s Brain: 8 Strategies Great Minds Use to Achieve Success by Jeff Brown and Mark Fenske (with Liz Neporent) intrigued me because it brings up the nature vs. nurture argument.

U.S. Mail Delivery on Saturday — Important, or Irrelevant?

Would your business be affected if the U.S. Postal Service ceased delivering mail on Saturdays? Congress heard testimony about this proposal last week, and business owners were split on whether the end of weekend delivery would pose a problem. Amazon.com executives

Getting the Numbers to Add Up

As a consultant to start-ups and early-stage companies, I see a lot of business plans. Often, these plans are written by entrepreneurs with great ideas and promising products but only a vague idea of the size of the market or how many middlemen they’re going to have to cut in along the way. As a result, the sales projections that they come up with are often wildly optimistic — $50 million the first year, $100 million the second year and $250 million the third — and the profits are so enormous that an investor might wonder why the company needs to raise any capital at all. And yet these entrepreneurs wonder why their business plans aren’t getting funded. The reality is that no matter how passionately you believe in your business, you’ve got to make the numbers work before you can turn your entrepreneurial dream into the reality of a profitable and scalable business. While nobody has a crystal ball that can predict the future, a good financial model will help you understand the key drivers that make your business tick and help you avoid the kind of problems that can sink your venture before it even launches. Here are three common business mistakes that a good financial model can catch: 1. Your business must hit critical mass before it can reach profitability. Any business that relies on the power of database marketing — a time-share group, house-swapping club or online dating service, for example — requires its database to grow to a certain size before other members will be interested in joining. And that’s the catch: Until the database is large enough to attract a significant number of members, few people will want to join. Therefore, database marketers must spend big dollars to acquire customers without knowing whether their investment will ever pay off. The solution: Give channel partners (trade associations, clubs, affiliate web sites, etc.) a piece of the action in return for helping lower the cost of customer acquisition. 2. The cost of customer acquisition is too high for your company to ever become profitable. As many dot coms discovered 10 years ago, you can’t always spend your way to profitability. While laying out millions of dollars for advertising may be the quickest way to pump up revenue, it’s a money-losing strategy if your company can’t turn those dollars into life-time customer value. Magazine publishers, e-commerce merchants and other direct marketers may break even or lose money when they first acquire a customer but ultimately recoup their investment when the customer comes back to renew his subscription or place another order. By contrast, a company that spends $300 to acquire a subscriber who spends $20 a month and cancels his subscription at the end of the year is pouring its money down the drain. The solution: Test, measure and test again. Only when you’ve done enough testing to figure out how to create a positive arbitrage between how much you pay to acquire the customer and how much revenue the customer is likely to generate should you throw big money at a roll-out campaign. 3. Your company has no reseller channel. Because it’s difficult and time-consuming to acquire customers, most new companies find it easier to break into a market by tapping into a network of manufacturers’ reps, agents, brokers and other third-party resellers. At my former company, NetCreations , our email marketing business skyrocketed once we were able to tap into the network of list brokers and ad agencies that recommended direct mail lists to leading magazine publishers, catalog marketers and other corporate clients. By contrast, companies like public relations firms, yoga studios and pet grooming businesses that enter a market without an existing reseller channel often struggle to survive, alternating between feast and famine. The solution: Make a list of potential channel partners before you start your business and ask them if they’d be willing to send some business your way.

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Getting the Numbers to Add Up