Forbes - October 28 2013 USA

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OCTOBER 28 2013 EDITION
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BROADCASTERS HAVE
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contents octoBeR 28, 2013
VoLUMe 192 nUMBeR 6
70 | king of The Second Screen

Its prime time for Twitter CEO Dick Costolo.
108 | STarTuP School

An M.B.A. program for budding
entrepreneurs, not I-bankers.
15 | FACT & COmmEnT

by STeve forbeS
Senators: Dont be easy on the next Fed head.
LEADERBOARD
20 | THE STATE OF BAnkinG
Pay is the only thing that grows in
good times and bad.
23 | SCORECARD
Zuckerberg wins again; Hayne unravels.
26 | CASH AnD CARRIE
Less blood is better for Stephen King movies.

Plus: FORBES Makeover
28 | EvERyTHinGS JUST FinE

Banks rationalize their bad behavior.
Plus: Up-and-Comers
32 | ACTivE COnvERSATiOn
Bad-boy billionaire Stewart Rahr and the 399 other

members of The Forbes 400.
cover PhoTograPh by eric MilleTTe for forbeS

6 | FORBES OCTOBER 28, 2013
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THOUGHT LEADERS
82 | SurvivorSand ThriverS
Three distant memories from the
1990s bubble light up our list of
Americas Best Small Companies.
34 | CURREnT EvEnTS
by Paul johnSon
Obama versus Putin:

Can Obama muster the right stuf?
36 | CApiTAL FLOwS
by naThan leWiS
A stable dollar delivers economic stimulus.
40 | innOvATiOn RULES
by rich karlgaard
Taras lesson: Smart leaders copy.
STRATEGiES
42 | DETROiTS HAppy
HOmE wRECkER
The Pulte family made billions building homes.

Now Bill Pulte is tearing them down.
by joann Muller
46 | THE ApOTHECARy
Three key questions for ObamaCares rollout.

by avik roy
98 | Who needS The iPhone?

Even without Apple, InvenSenses
gyroscope business is pointing
straight up.
TECHnOLOGy
48 | A piCTURES wORTH
A BiLLiOn DOLLARS
Jon Oringer turned a side project

into a $2.5 billion photo phenomenon.
by STeven berToni
54 | CHinAS BLACk BOx
The Chinese answer to Apple TV

is full of pirated content.
by SiMon MonTlake
56 | OnE ADDRESS BOOk

TO RULE THEm ALL
Privacy experts are a little freaked out

about a startups self-updating
contact book.
92 | Say cheeSe
Annies has the right ingredients
for organic growth.
by adaM Tanner
42 | deMoliTion
Man
A home builder
turns to the
wrecking ball.
26 | Murder
doeSnT Pay
The Stephen King
Rule: fewer bodies,
more money.
invESTinG
60 | DAy TRADinG GABELLi
ETFs may soon be emerging from
their index fund ghetto.
by ari i. Weinberg
64 | pORTFOLiO STRATEGy
by ken fiSher
Betting against Bernanke.
66 | SmALL STOCkS
by jiM oberWeiS
Americas best small stocks.
68 | yEAR-EnD CHECkUp
by WilliaM baldWin
A Roth conversion formula.
BEST SmALL COmpAniES
48 | caMera Man
Oh, snap! Shutterstocks
Jon Oringer is Gothams
frst tech billionaire.
82 | DARwinS DiGiTAL DARLinGS
Some Web dinosaurs have surged back onto our list

of Americas Best Small Companies.
by naTalie robehMed
92 | miLD inDiGESTiOn
Annies has discovered the double-edged

phenom of innovation: new products fuel growth
and nasty competition.
by Meghan caSSerly
98 | THE CHipS ARE Up
A year after a management shakeup InvenSense is

out for a piece of Apples business.
by karSTen STrauSS
FEATURES
70 | CAn TwiTTER SAvE Tv? (AnD CAn
Tv SAvE TwiTTER?)
On the eve of its fervently hyped IPO, the

micromessaging service has a radical plan to nab
the ad dollars it needs to thrive: help TV networks
survive the digital media revolution.
by jeff bercovici
102 | THAT SinkinG FEELinG
Carnival has brought a new CEO on board, but

investors are headed for the lifeboats.
by caleb Melby
60 | deSigner fundS
ETFs from your favorite
mutual fund stars.
BEST BUSinESS SCHOOLS

108 | EnTREpREnEUR BOOT CAmp
Austins tiny Acton School has one goal: turning
battle-ready graduates into startup successes.
by Michael noer
Plus: The 25 Best Business Schools

BrandVoice
by SaMSung elecTronicS aMerica
Transforming STEm Education One

Community at a Time. 111
116 | TAkEOvER UnivERSiTy
102 | S.o.S.
Carnivals new skipper may be on a
cruise to nowhere.
A wildly popular Stanford class encourages M.B.A.s

to take control of a real business.
by george anderS
LiFE
122 | THE vinEyARD COLLECTOR
TPG cofounder Bill Price has a plan:
produce wine you cant buy.
by richard nalley
128 | THOUGHTS
On entrepreneurs.
122 | The good

earTh
Kistler Vineyards stars
in a private equity
princes second act.
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FORBES
FACT & COMMENT STEVE FORBES

With all thy getting, get understanding
SEnaTORS: dOnT BE EaSy

On ThE nExT FEd hEad
BY STEVE FORBES, EDITOR-IN-CHIEF
When President Obama

takes time out from stonewalling
congressional Republicans over
the continuing budget resolution
and raising the debt ceiling to pick
a nominee for the next Federal
Reserve chairman, the U.S. Senate
should be prepared to ask that candidate hard, critical questions and
to reject the person if satisfactory
answers arent forthcoming.
To stimulate the economy our
central bank, at the direction of Ben Bernanke,
has undertaken unprecedented actions that
have immensely harmed credit markets, thereby
retarding recovery. They have the potential to
infict even greater damage on us and the world
than the 200809 crisis. Without congressional
authority the Fed has assumed enormous economic powers. Even worse, despite the Feds
manifest failures before and after the economic
crisis, Congress has granted it other powers that
threaten our economic future. The Fed houses
the Consumer Financial Protection Bureau,
which wields almost unbridled authority over
banks and fnance companies regarding mortgages, credit cards and other lending activities, and gives it whatever funds it wants. The
bureau has no real accountability to Congress,
which is why it can hire like crazy at a time of
supposed federal budget tightness and lay out a
reported $95 million in ofce renovations.
Senators, whose job it is to confrm or reject
the Presidents nominee, will be highly reluctant
to do anything other than go through the motions
in the aftermath of the current circus. Republicans in particular wont want to be accused of
playing politics with such a critical, sensitive
post. But this is the time for statesmanship.
Monetary policy is that peculiar

subject that intimidates most people.
Its not because of its complexity; the
basics are simple. And, though it may
be impossible to believe these days,
there are plenty of people in Congress who can master arcane, difcult
matters. But, strangely, the psychology of monetary policy strikes anxiety
and trepidation into the hearts of
most. However, given the crucial
importance of the Fed right now, this
fear must be overcome for the sake of the country.
The nominee must be grilled hard regarding
how he/she plans to unwind the Feds promiscuous bond buying. The central banks recent
botched attempt at tapering demonstrates
how difcult this will be. Much of Wall Street is
addicted to the process, as stock and bond gyrations during the tapering fasco attest. When it
comes to bond prices, unwinding is going to be
rough. Markets try to anticipate the future, and if
traders and investors think more normal interest
rates are coming down the road, they will mark
the value of bonds down now, not gradually.
Never before in history has an important
central bank done what ours has done: loaded up
on long-term government bonds and mortgages
by borrowing short-term money from banks.
Bernanke & Co. have bought hundreds of billions
of Treasury bonds at premiums from par. That is,
they are paying, say, $1,200 for a bond that was issued at $1,000which is what happens when you
suppress long-term interest rates. Noted economist and FORBES columnist David Malpass calculates that these premiums now exceed $200 billion
and should be added to our nations debt.
This raises other obvious questions for Obamas
pick: Why shouldnt these excesses be part of the
OCTOBER 28, 2013 FORBES
| 15
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ADDING
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INNOVATION,
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THEM
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FORBES
debt, and who gave the Fed the authority to add to the national debt without
congressional approval? The debt
ceiling was exceeded before our Treasury Department acknowledged it.
Quantitative easing upended
American credit markets, just as
rent control does with local housing
markets. QE limited the availability
of credit for nonfavored borrowers.
Under QE the federal government
fnances defcits without tears.
Washington pays barely any interest
on its new borrowings, and, thanks
to the Fed, it can borrow as much
as it wants until the debt limit is
reachedat which point Congress
always raises the ceiling.
Big companies also have easy access to credit, one reason that their
balance sheets have never been stronger. The housing market has benefted
from massive, ongoing purchases
of hundreds of billions of dollars
in mortgage-backed securities. But
smaller, job-creating businesses have
sufered because of limited access to
credit. Only recently has there been
a better fow of credit to this crucial
part of our economy, thanks, in part,
to a wonderful American characteristicwhen something is blocked,
entrepreneurs fnd ways to get around
it. Numerous nonbank sources for
credit to smaller businesses, including
equity funds, are starting to fll the gap.
Who gave the Federal Reserve the
authority to allocate credit?
Another important question: Why
has one-third of the Feds bond-buying
since the downturn remained at the
Fed instead of being put to work in
the economy? This strange pattern
has been evident for several years.
Why hasnt the central bank addressed this matter? One big factor is
that regulators pressured banks not
to lend except to the federal government. This was done to improve
bank balance sheets. But this caution
clearly went too far.
Now that we have this massive
overhang, whats to prevent a return
18 | FORBES
OCTOBER 28, 2013
to 1970s-style infation?
In 2008 the Fed was given permission to pay interest on reserves. Did
this help block the fow of credit to
smaller businesses? Has the Fed conducted any studies regarding this? If
not, why not?
What real-world evidence is there
that quantitative easing here and
Vice Chairwoman of the Federal reserve

Janet Yellen, who likes an ultraweak dollar, is
favored to succeed Ben Bernanke.
elsewhere has actually stimulated

economic growth? Never before in
U.S. history has there been such a
punk recovery after a sharp downturnand that includes the Great
Depression. A severe contraction
has always been followed by a sharp
upturn. The question then becomes
whether the upswing can be sustained. In the 1930s it could not.
When the Fed tapers again whats
to prevent a repeat of the 199798 Asia
crisis? We got a taste of what could
happen with the brief tapering this
year. The anticipation of higher rates in
the U.S. led to an outfow of funds from
such emerging and middle-income
countries as Brazil, India and Indonesia
and to attacks on their currencies.
This is a vitally important issue.
Too often central banks dont know
how to defend their currencies. The
frst thing a government must do is
announce unequivocally that it will
defend its money. Next it must raise
interest rates to underscore that
intent. Then it must aggressively buy
its currency in foreign exchange markets with its reserves, usually dollars
(other currencies, such as the euro
and yen, as well as gold, make up the

rest of a countrys reserves). Done
right, this last step will decisively end
any assault on the integrity of the
currency. However, where a central
bank too often falters is in reducing
the size of its monetary base, which
is made up of the currency in circulation and domestic bank reserves.
Heres what happens. A central
bank buys its currency with dollars
which is goodbut it then promptly
puts that money back into its domestic economy by, most likely, buying its
government debt. What the central
bank took away with one hand has
been given back with the other; the
monetary base remains unchanged.
All thats happened is that the central
bank has reduced its reservesand
done it for nothing. Economists call
the process sterilization.
This self-defeating exercise happens time and time again. Look at
Thailand in 1997, when the economic
crisis in Asia began. Bangkok had
ample reserves, almost $40 billion. At
the time its currency, the baht, was
fxed to the dollar at roughly 25 bahts
to the dollar. When the baht began to
weaken, the Bank of Thailand should
have reduced its monetary base by
using dollars to buy bahts in foreign
exchange markets. Thailand had
enough dollars to buy its entire monetary base twice over. Instead it engaged in sterilization. It ran down its
reserves and then let the baht foat,
which sent it into a free fall.
One country that didnt fall into
the sterilization trap during the
fnancial crisis of 200809 was Russia. When the ruble came under
assault the Bank of Russia initially
responded the conventional sterilization way. Then in early 2009, after an
op-ed piece by monetary expert and
FORBES columnist Nathan Lewis
appeared in Pravda, Russia reversed
course, reducing its monetary base.
Result: The ruble strengthened, the
speculators were routed and the crisis
ended with the ruble triumphant. F
Andrew HArrer/BloomBerg
FACT & COMMENT STEVE FORBES
Handling $421 billion in accounts payables annually.

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LEADERBOARD
KEEPING SCORE ON WEALTH & POWER
2.150 M
2.046 MIL EMPLOYEES

$60,883 SALARY/EMPLOYEE
1.41
ROAA%
1.3
1.33
INDUSTRY ATLAS
THE STATE
OF BANKING
$65,608
2.097 M
$60,724
THANKS TO the government, U.S. banks are

back on a solid footing. Return-on-averageassets, shown in the center of each bubble,
and stock prices have rebounded impressively
since the depth of the nancial crisis. But trillions in stimulus spending has done little to
revive banks core missionlending money
with the ratio of loans to deposits still falling.
The only thing that has consistently grown, in
good times and bad, is bankers pay, represented by the ever-expanding colored circles.
$12 Trillion
10
1,200%
100%
SNL U.S. BANK AND
THRIFT INDEX
TOTAL RETURN
GROWTH OF LOANS
AND DEPOSITS IN
U.S. BANKS AND THRIFTS
1,000
80
800
60
600
40
Loans (left scale)

Deposits (left scale)
Loans/deposits (right scale)
400
20
2003
05
07
09
11
13
200
2003
05
07
09
11
13
SOURCE: SNL FINANCIAL.
2003
2004
2005
2006
1.5
COMPENSATION PER
BANK EMPLOYEE
2.205 M
+90K
1.37
8090K
$91,694
7080K
$68,987
6070K
1.2
2.213 M
$87,893
1.11
$72,282
1.02
$84,217
.94
0.9
.91
2.097 M
2.108 M
$80,971
2.089 M
2.108 M
.65
0.6
2.150 M
0.3
$72,434
.13
$79,767
2009
2007
2008
2010
-.10
0
2011
2.061 M
2012
2013
OCTOBER 28, 2013 FORBES | 21
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2013 Xerox Corporation. All rights reserved. Xerox, Xerox and Design and Ready For Real Business
are trademarks of Xerox Corporation in the United States and/or other countries.
LEADERBOARD
$53 MILLION
The civil penalty Ty Warner must pay

in his federal tax-evasion case.
SCoRECARD
WINNERS
Mark
Zuckerberg
Jef
Bezos
Phil
Knight
scorecard by scoTT decarLo; new biLLionaires by aLex morreLL

ZUCKerberg: ANDrew hArrer/bloomberg; beZoS: t.J. KirKpAtriCK/bloomberg; AriSoN: JohN pArrA/getty imAgeS; hAyNe: george wiDmAN/Ap; wArNer: ChriS hoNDroS/getty imAgeS
+$4.7 billion
+$2.6 billion
+$1.3 billion
Net worth:
$23.5 billioN
Net worth:
$29.8 billioN
Net worth:
$17.7 billioN
As wall Streets infatuation

with Facebook continues
and the stock keeps rising,
Zuckerberg makes his
fourth straight appearance
as a big gainer.
Amazon trades at an
alltime high as it introduces
three new Kindle Fire
models, while its founder
ofcially takes control of
the Washington Post.
Nikes stock soars after

the company posts
impressive quarterly
earnings and is made
part of the Dow Jones
industrial average.
nEW billionAiRE
LOSERS
Micky
Arison
INSYS
JOHN KAPOOR
Richard
Hayne
Ty
Warner
$560 million
$180 million
Guilty
Net worth:
$5.3 billioN
Net worth:
$1.6 billioN
Net worth:
$2.7 billioN
his holdings in Carnival,

the worlds largest cruise
company, tank with lower
quarterly earnings and
weak bookingssee that
Sinking Feeling, p. 102.
Urban outftters, which

he cofounded in 1970,
falls 10% in a day after the
company reports weak
sales and fails to meet
analysts forecasts.
the beanie babies founder

faces up to fve years in
prison after pleading guilty
to federal tax evasion for
hiding millions of dollars in
a Swiss bank account.
stock of his pharmaceutical company,

Insys Therapeutics, has quintupled since
its May IPO, catapulting him to billionaireship at 70. Insys produces drugs to alleviate
cancer patients symptoms; hes its founder
and executive chairman, and his stake is
now worth more than $600 million. He also
owns more than $400 million of drugmaker
Akorn. The frst member of his family to go
to college, he arrived in America from India
in 1964. His career took of when he joined
LyphoMed, a struggling pharma company, in
1978, worked his way up to general manager,
turned the business around and sold his
share of it in 1990 to net $100 million. He has
been a serial entrepreneur ever since. This
is the country you can do it in. Nowhere
else, he tells FORBES.
FigUreS reFleCt the ChANge iN VAlUe oF pUbliCly trADeD holDiNgS From AUg. 23 to oCt. 2.
SourceS: InteractIve Data vIa FactSet reSearch SyStemS; ForbeS.
october 28, 2013 ForbeS | 23
Conundrum: What exeCutives

think of their Companys risk
management skills
At least half of the more than 400 executives in a Forbes Insights/Zurich in North
America survey rated their companys overall risk-management skills as very
good or outstanding in a number of areas. Among them: how it managed fnancial
risk, corporate responsibility/sustainability risk, strategic risk, operational risk,
regulatory/compliance risk and reputational risk. The respondents represented
four industriesbanking and fnancial services, construction, healthcare and real
estateand worked for companies with annual revenues between $25 million
and $750 million.
Most executives (76%) also gave their company high marks for
acknowledging the importance of aligning risk management
with its growth strategy. Almost as many (68%) said that they
believe their company was indeed aligning the two. The construction industry had the smallest gap between talking alignment and walking it: 72% of its executives said their company
prized the alignment of strategy and risk management, and
70% said it did, in fact, align the two.
Executives werent that confdent of how ready their company was to meet catastrophic emergencies. For example, only
29% thought it was well or extremely well prepared for cyber
terrorism of the kind that has recently played havoc with the
computer systems of several large corporations.
Executives who were aware of the risks

in their companys growth strategy
Banking/financial services
59%
Construction
57%
Healthcare
42%
Real estate
60%
The survey illustrated

a puzzling conundrum
when executives were
asked to rate themselves
the percentage of those
who said they were even aware of the risks their company faced
was relatively low across all four industries. Those in real estate
seemed to be the best informed, but even then only 65% of them
claimed to be risk-aware. The least risk-aware were healthcare
executives, with only 41% describing themselves as aware.
On the whole, respondents seemed to underestimate a number of particular risks, including hostile social media. An ether
onslaught by a disgruntled customer that goes viral can leave a
companys reputation badly battered.
The executives were better able to get their arms around
more easily defned emergencies, like food damage, and
showed some confdence that their company had plans in place
to recover. For example, 49% said they were very or totally
satisfed that their company had planned to build or replace
damaged infrastructure, and 43% felt the same about their companys plans to build or replace damaged homes, commercial
property or factories. Some 47% said they were very or totally
satisfed that their company had planned how to fnance any
of the above. Almost as many (46%) thought thered be no or
little signifcant delay if an emergency forced their company to
relocate ofces or manufacturing facilities within the U.S., and
38% thought that would be the case abroad.Those percentages,
of course, still show that more than half of those surveyed have
reservations about their companys preparedness.
*The complete study is available at www.forbes.com/forbesinsights/Zurich_Risk

Zurich neither endorses nor rejects the recommendations of the discussion presented. Further, the comments contained in this brieng are for general distribution and
cannot apply to any single set of specic circumstances. If you have a legal issue to which you believe this article relates, we urge you to consult your own legal counsel.
$18.3 BILLION
LEADERBOARD
Diference in Fords net income between 2006,

when Alan Mulally was hired ($12.6 billion),
and 2012 ($5.7 billion).
forbes makeover
fOrds aLaN muLaLLy

Our fashion pros trade in the auto execs look for a newer model.
JOsEPh AbbOuD: the award-winning designer and
entrepreneur got his start at louis boston before serving
as director of menswear design for ralph lauren.
he launched his namesake brand in 1987 and is currently
the chief creative director for mens wearhouse.
After
shiRt
JA: the deep blue is much better
than the white, with his complexion.
Ki: now hes the epitome of power

dressing, rather than letting an
overpowering outft wear him.
tiE
Ki: the wider windsor knot flls the
space between his collars and gives
him a more relaxed, confdent look.
JACKEt
JA: the navy and the brass buttons
feel a little nautical or military. hes
not Javert in Les Mis.
Ki: the ft isnt worthy of him. its
lumpy, frumpy and bumpy, more an
edsel than a mustang.
suit
JA: more of a custom look, with its
slanted pocket and the coat a little
shorter. the clothes are much better
proportioned to his body.
PAnts
JA: much too baggy and much too
full. theyre just too 1980s.
shOEs
Ki: the wingtip oxfords enrich the
overall statement, and their slight
heel improves his posture.
tiE
Ki: the four-in-hand knot is too
tight for this wide-collared shirt.
the aFter image iS a Simulated image oF what alan mulally would look like iF he had actually ParticiPated in the ForbeS makeover, which he did not. nor doeS he endorSe any ProductS Pictured here.
trendline
thE gREEn MilE
Killed: Prison inmates
cash aNd
carrIe
Make no bones about it: The fewer killings a
Stephen King movie has, the better it grosses. The one
big exception: Carrie (1976), a good sign for the remake
creeping into theaters this month.
Box office ($Mil)1
200
thE shining
Killed: Father, head chef
150
B
B
100
MisERy
Killed: Sherif,
crazed fan
50
CARRiE
B Killed: Mother,
B
PEt sEMAtARy
Killed: Son, mother,
father, friendly
neighbor, cat
daughter, most of
class at prom
ChilDREn OF
thE CORn
Killed: Every
adult in a
Nebraska town
FiREstARtER
Killed: Father, B
mother, entire
secret army base
B
B
thE Mist
Killed: Most of
a Maine town
0
1
Body count
10
100
1,000+
ToTal domesTic box office

adjusTed for inflaTion.
Suit ($3,150) and Shirt ($375) by PortS 1961; www.PortS1961.com. tie ($165) by maSSimo bizzocchi; www.maSSimobizzocchi.com. Pocket Square ($50) by robert talbott; www.roberttalbott.com.
belt ($320) by Salvatore Ferragamo; www.Ferragamo.com. ShoeS ($1,230) by louiS vuitton; www.louiSvuitton.com.
toP: bloomberg; makeover image (leFt): getty imageS. carrie movie Still: getty imageS
Before
CEO MAKEOVER: PhOtOgRAPhER: CAMEROn R. nEilsOn; stylE DiRECtOR: JOsEPh DEACEtis; FAshiOn AssistAnt: ERiC AzEVEDO; tREnDlinE by AbRAM bROwn
thE VERDiCt
JA: driving people to a new
product, you need to look a little
more forward. this does that.
KAthy iRElAnD: the supermodel turned supermogul

is the chief executive and chief designer of kathy ireland
worldwide, a design and marketing frm she launched
in 1993. Womens Wear Daily has named her one of the
50 most infuential people in fashion.
Some things just feel right.
Our new Premium Economy Class is a total

enhancement of our Economy Class experience.
Youll relax in a wider seat with more space
between you and the seat in front of you and youll
sleep more soundly with eight inches of recline.
Weve designed this seat to make your journey as
comfortable as possible. Visit cathaypacic.com/us
The new Premium Economy Class
Our new Premium Economy Class is being progressively introduced on our Boeing 777-300ER, Boeing 747-400, selected Airbus A330-300 and Airbus A340-300 aircraft.
Aircraft deployment varies and availability is subject to operational requirements.
LEADERBOARD
$50,597
Amount raised via CrowdTilt and Facebook to replace

the damaged boat Dzhokhar Tsarnaev was found in.
penalty box
everythingS juSt fine

If the JustIce Department succeeds in getting JPMorgan to pay $11 billion for
alleged misconduct in the housing market collapse, it will be just one of eight billiondollar mortgage-related settlements regulators have struck with the four biggest U.S.
banks in the past two years. The others all involved charges of widespread mortgage
and foreclosure abuses or robo-signing. Of course, the banks portrayed them as altogether great news.
$11.82 bil bank of america, 2012 (14% of revenue) extends our ongoing commitment to help
homeowners who are struggling to make their mortgage payments.
$5.35 bil Wells fargo, 2012 (6.2% of revenue) Wells Fargos adherence to responsible lending and
servicing principles has resulted in delinquency and foreclosure rates below industry averages.
$5.29 bil Jpmorgan, 2012 (5.5% of revenue) will help keep customers in their homes, forestall
ask 50 billionaires
Safety
firSt?
How many
bodyguards does your
family employ?
More than 5
11.4%
foreclosures and stabilize communities around the country.
$2.9 bil bank of america, 2013 (3.4% of 2012 revenue) a signifcant step in resolving our
remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses
$2.2 bil citigroup, 2012 (3.1% of 2012 revenue) citi has worked hard to help families avoid foreclosure
and stay in their homes [and] self-identifed opportunities to improve its foreclosure processes ...
2 to 5
11.4%
$1.97 bil Wells fargo, 2013 (2.3% of 2012 revenue) allows us to move forward and continue our
focus on doing all we can do to provide relief to our customers and restore stability to housing markets
$1.95 bil Jpmorgan, 2013 (2% of 2012 revenue) We worked very hard fulflling our obligations under
the independent Foreclosure review and are pleased to have it now behind us.
15.9%
Up-anD-CoMers
online money men

As the Jobs Act opens up crowdfunding, these entrepreneurs stand
ready with fast-growing networks for raising cash.
Naval Ravikant anGellist
Zero
61.4%
banking by alex morrell; up-and-comers by meghan casserly
top: Massachusetts state police/Getty iMaGes: Brian ach/Getty iMaGes
in september ravikants angellist, a matchmaking site for entrepreneurs and would-be

investors, raised $24 million and launched angellist syndicates, where accredited investors
can create and lead fundraising rounds for individual startups. 4-hour guru tim Ferriss
raised $250,000 in under an hour to invest in startup shyp. angellist takes a cut.
Stephan Vermut prosper
chris larsen cofounded prosper in 2005 as the frst peer-to-peer lending marketplace.
Vermut, founder of Merlin securities, took over as ceo this year. the company has raised
$126 million ($25 million in september alone) from sequoia capital, accel partners and
Benchmark capital. it facilitates personal loans of from $2,000 to $35,000.
James Beshara and Khaled Hussein CroWDtilt
the two founded their y combinator-backed startup last year. in august they updated
its crowdhoster platformthe Wordpress of crowdfundingwith a mobile app that
provides the frst tool for fnding investors on the go. theyve raised $14 million from
backers including sean parker, and charge a 2.5% fee on every investment.
responses to an anonyMous poll oF 50 MeMBers oF
the ForBes WorlDs Billionaires list.
28 | FORBES OctOBER 28, 2013
The New Sprinter
Safety should never be a luxury.
Starting At:
$35,920
2500 Cargo Van 144", Low Roof, 4-Cylinder
Ever since we invented the van, Mercedes-Benz has been the leader in safety innovations
for commercial vehicles. The New Sprinter is no exception. With advanced standard systems
such as the Load Adaptive Electronic Stability Program (ESP) and optional safety packages
with sophisticated features like Lane Keeping Assist, Blind Spot Assist and COLLISION
PREVENTION ASSIST the Sprinter is again the most advanced vehicle in its segment
because your safety is worth it. To learn more visit www.mbsprinterusa.com.
2013 Mercedes-Benz USA, LLC

*Excludes all options, taxes, title, registration, transportation charge and dealer prep fee.
1 No system, regardless of how advanced, can overcome the laws of physics or correct careless driving.
Please always wear your seat belt. Performance is limited by available traction, which snow, ice and other
conditions can affect. Always drive carefully, consistent with conditions. Best performance in snow is
obtained with winter tires. 2 Lane Keeping Assist may be insufficient to alert a fatigued or distracted driver
of lane drift and cannot be relied on to avoid an accident or serious injury. 3 Blind Spot Assist may not
be sufficient to avoid all accidents involving vehicles in your blind spot and does not estimate the speed
of approaching vehicles. It should not be used as a sole substitute for driver awareness and checking of
surrounding traffic conditions. 4 COLLISION PREVENTION ASSIST may not be sufficient to avoid an accident.
It does not react to certain stationary objects, nor recognize or predict the curvature and/or lane layout of the
road or every movement of vehicles ahead. It is the drivers responsibility at all times to be attentive to traffic
and road conditions, and to provide the steering, braking and other driving inputs necessary to retain control
of the vehicle. Drivers are cautioned not to wait for the systems alerts before braking, as that may not afford
sufficient time and distance to brake safely. Options shown. Not all options are available in the U.S.
Promotion
Innovation Insights
Customer Conversations Provide Food for Thought
hen Hyatt invited guests to the table to share their

expectations about hotel restaurant and banquet food,
some surprising and healthy ideas emerged.
Staying in front of food industr y

trends is a constant challenge, says
Susan Santiago, vice president of
food and beverage for Hyatt Hotels
& Re sor ts. We have to disce r n
which trends represent substantive
changes, so we connected with our
guests to learn whats really important
to t h e m a n d w h a t w i l l m a ke a
difference in their travel experience.
f o r H y a t t s f o o d a n d b e ve r a g e
innovation. We see more female
travelers staying with us, and women
are more apt to be vocal about their
needs, especially around dining,
says Santiago. They told us they
want healthy food available while
theyre on the road.
In response to customer feedback,
Hyatt now has a rotation of vegetarian
When we set out to serve up a more satisfying

experience, we wanted it to be exactly what our
customers are asking us to do.
Susan Santiago, Vice President of Food & Beverage, Hyatt Hotels & Resorts
N e a r l y a ye a r s w o r t h o f
conversations with customers
s ha p e d Hyat t s new p hilo s op hy,
which focuses on healthy people,
healthy communities and a healthy
planet: Food. Thoughtfully Sourced,
Carefully Se r ve d. We a ske d all
of o u r c h e f s to a d o p t t h e n ew
philosophy, and they have embraced
it, says Santiago.
H y a t t s h o t e l r e s t a u r a n t a n d
banquet ser vice menus emphasize
portion control, calorie counts, food
nutrition and natural ingredients, all
based directly on guest feedback.
Company-wide, Hyatt has mandated
that at least five ingredients on each
m e nu re f l e c t l o c a l ve n d o r s a n d
ingredients, and Santiagos team
continues to enlist vendors who use
sustainable practices. Hyatt chefs
and their associates even take field
trips to local farms to gain firsthand knowledge of the locally and
s u s t a in a b l y s o u r c e d in g re di e nt s
featured on their menus.
The expectations of women
travelers were a top consideration
items on its banquet menus.

Hyatts new offerings in-room and
in its restaurants include a perfectly
por tioned menu with items of 500
calories or less and a create your
own menu option with choices of
d i f f e r e n t p r o te i n s a n d c o o k i n g
te chnique s. We launche d the se
menus based on the feedback we
g o t f r o m wo m e n, b u t a n e q u a l
number of men and women order from
them, Santiago says. Since guests
do not have to make a special request
Hailes Salmon Teriyaki on

the For Kids, By Kids menu
or feel out of place when they order

a meal, it makes for a better overall
travel experience.
Hyatt also reworked its childrens
menu with input from a team of young
people led by 12-year-old Arizona
chef Haile Thomas, host of the online
show Kids Can Cook. Fried chicken
nuggets and mac and cheese are
absent from the For Kids, By Kids
menu, replaced by mahi-mahi and
an all-natural steakwhich ended
up as the summers number- one
seller among kids. I was surprised
at how discerning and sophisticated
our young guests palates are, says
Santiago. The fact that they wanted
tofu on the menu just blew me away.
The changes we have made are
examples of the lengths that we go
to on the food and beverage side
for all our guests, says Santiago.
When we set out to serve up a more
satisfying experience, we wanted it
to be exactly what our customers
are asking us to do.
FUNNY HOW A GUEST

FORGETTING A CHARGER
HELPED US REMEMBER WHAT
WE DO FOR A LIVING.
If only when you were packing thats all you were doing. But chances are there was someones
English homework you were checking or pressing emails you were answering. Which is why
your charger is lying on the living room floor. And why weve jumped into action.
Introducing Hyatt Has It. The things you forget or need most, here just waiting for you to
borrow. From chargers to curling irons to yoga mats. Its not just hospitality with you in mind.
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from 9/9/13 through 11/30/13 (Promotion Period). Points can be earned at any participating Hyatt property or any participating M life resort for Eligible Nights during the Promotion Period and are cumulative. A max of 50,000 points may be earned
during the Promotion Period. To participate, Hyatt Gold Passport members must register for this Promotion from 9/9/13 through 10/31/13. Other restrictions apply. For complete Terms and Conditions, visit goldpassport.com/possibilities.The trademarks
Hyatt, Park Hyatt, Andaz, Grand Hyatt, Hyatt Regency, Hyatt Place, Hyatt House, Hyatt Gold Passport, and related marks are trademarks of Hyatt Corporation. 2013 Hyatt Corporation. All rights reserved.
thought leaders
Paul JohNsoN CurreNt eVeNts
Obama versus putin

can obama muster the right stuff?
No loNg-term solutioN to
the problem of international terrorism is likely until Russia and China
join the U.S. and other Western powers in devising one.
China is not unwilling. Its leaders
have many powerful motives to come
in from the cold and become respectable members of society. Whats
required is time, patience and the kind
of diplomatic intelligence once so plentifully supplied by Henry Kissinger.
The difculty is Russia and, in particular, its entrenched leader, Vladimir
Putin. He rose through the ranks of the
KGB and since worming his way into
power has become the most difcult,
dangerous and unassailable master
of Russia since Joseph Stalin. Is he as
evil? Many think so. Other things being
equal, hes a natural ally of terrorism.
Putins character is seen in the way
he treats those whom he regards as
personal enemies, including two young
women, members of the feminist punk
rock protest group Pussy Riot, who
were sentenced to penal servitude for
participating in a punk prayer demonstration at a Moscow cathedral in 2012.
The prayer included a 30-second appeal to the Virgin Mary to drive Putin
from powerthe kind of outrageous
gesture Westerners would dismiss as
mere childishness. But for this ofense
the women were each sentenced to
two-year terms in prison colonies notorious for their appalling conditions.
One of the two, Nadezhda Tolokonnikova, contrived to get a message
outside. In it she says she and other inmates work 16 to 17 hours a day sewing
police uniforms and are allowed only
4 hours of sleep a night and one day
of every six weeks. Your hands are

pierced with needle marks, she writes,
and covered in scratches. But you keep
sewing [because] if you fail to deliver
your whole unit will be punished.
Beatings are common, and last year
one woman was beaten to death.
She goes on to say that disobedience
is punished by being sent outside into
the intense cold. One woman was kept
outside for an entire day and had such
bad frostbite that they had to amputate her fngers and one of her feet.
Ms. Tolokonnikova went on a nineday hunger strike Sept. 23 to protest
these conditions. She ended it two
days after being taken to a prison hospital. Putin takes a close professional
interest in Russias penal system and
is fully aware of whats happening to
these women. An earlier hunger strike
by the other prisoner, Maria Alyokhina, ended when concessions were
made, quite possibly because Putins
advisors persuaded him to intervene.
The fact that Putin isnt totally
beyond the reach of outside infuence
is something on which the West can
build. He has a weaknessmoney
and by demanding and getting payofs
he is believed to have become one of

the richest men on Earth. The more
Putin can ingratiate himself with reputable members of the international
elite, the more he can live the life of an
ordinary billionaire. But to succeed
in this he needs a change in friends.
Hitherto, Putin hasnt found being
the chief upholder of Syrian dictator
Bashar al-Assad too restrictive. But
Assads identifcation with the use of
chemical weapons has now made him
an outcast. Putins shift regarding these
weapons indicates he feels his own position is in need of moral strengthening.
EvEnts can makE thE man

There are signs that world opinion is
changing fundamentally over the issues raised by terrorism and its links
to Islam. The recent attack at a Nairobi shopping mallitself an ofshoot of
piracy in Somalia and regional eforts
to deal with ithas introduced a new
phase. The question is whether Washington will be able to take advantage
of these changes to create the global
front required to overcome terrorism.
A great deal depends on Barack
Obama. Taking on a devious and evilminded operator like Putin requires a
rare combination of subtlety and personal strength. However, events can
help Presidents grow. The 9/11 terrorist
attacks made George W. Bush a diferent man, and he fnished his two terms
as a formidable fgure. It may be that
Syrias use of chemical weapons and the
outrages in Nairobi will have a stimulating efect on Obamas presidency, giving
him the decisive impetus hell need in
a personal confrontation with Putin
that now seems increasingly likely. f
Paul Johnson, EminEnT BRiTiSh hiSTORian and auThOR; DaviD MalPass, glOBal ECOnOmiST, pRESidEnT OF EnCima glOBal llC; aMity shlaes, diRECTOR, ThE 4% gROwTh
pROjECT, gEORgE w. BuSh inSTiTuTE; and lee Kuan yew, FORmER pRimE miniSTER OF SingapORE, ROTaTE in wRiTing ThiS COlumn. TO SEE paST CuRREnT EvEnTS COlumnS,
viSiT OuR wEBSiTE aT www.forbes.coM/currentevents.
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Latin America +55 12 3927 3399, U.S., Canada and Caribbean +1 888 510 7649,
Europe +44 1252 379 270, Middle East and Africa +9714 4280682,
China +86 10 6598 9988, Asia Pacific +65 6734 4321
thought leaders
NathaN lewis CaPital Flows
A StAble DollAr DeliverS

Economic StimuluS
For 182 years, from 1789 to
1971, the United States embraced
the principle of stable moneyin
practice, a gold standard system.
During that time it rose from a
not-very-promising experiment in
government to a global superpower. The U.S. was the most successful country of the 19th and 20th
centuries.
The last two decades of the gold
standard era, the 1950s and 1960s,
were especially prosperous. The
middle class achieved an unprecedented level of material affluence. Over the 42 years leading to
the end of the Bretton Woods gold
standard system in 1971even beginning in the rather inauspicious
year of 1929per capita GDP, as
measured in ounces of gold, rose
by 223%.
What about the 42 years since
1971? In 2012 per capita GDP, as
measured in ounces of gold (the traditional way of measuring monetary
value for most of U.S. history), had
fallen by 78%.
Even the U.S. governments own
rosy-hued statistics tell a similar
story. The median male full-time
income, as adjusted by the ofcial
Consumer Price Index, has been
stagnant since 1972. It was $50,336
in 2011. In 1972 it was $50,665, measured in 2011 dollars.
During that time the CPI
underwent numerous alterations
in the way it was constructed, each
time making the result look better. The economist John Williams
has recalculated the CPI without
any changes in methodologyan
apples-to-apples comparison.
Williams statistics show a decline

in the real median wage by 71%
between 1971 and 2011.
What about the pre-1914 era?
GDP statistics from before 1940 are
highly dubious, so lets take another
measure of prosperity: industrial
production. For a 42-year period,
18701912, industrial production
grew by 682%.
During the 42 years of foating
currencies since 1971, industrial
production has grown by 159%.
Big diference.
thE unitEd StatES

roSE to global
SupEriority with
a StratEgy oF
StablE monEy
Even that mediocre result refects
some good times between 1982 and
2000, when U.S. monetary policy
most resembled a stable money
approach. If you take the times
when the Fed most enthusiastically
embraced easy money, it doesnt
look so good. From 1970 to 1982 U.S.
industrial production rose a meager
NathaN Lewis laTEST BOOk, Gold: the Monetary Polaris (CanyOn maplE puBliShing), waS puBliShEd in auguST 2013.
36 | FORBES
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21%. Yes, 21% in 12 years.

From 2000 to the present it rose
by 7%. Not 7% per year7% total.
From 1870 to 1913 industrial
production rose by a compound
annual growth rate of 5%. During
the prosperous 1950s and 1960s it
grew by 4.8%.
By this measure the gold standard years before 1914 were even
more prosperous than the 1950s
and 1960s.
On-the-ground data tell a similar
story. Between 1870 and 1912 an
index of crop production rose 247%.
The acreage planted with the ten
major crops rose 160%.
This was the great era of railroad building. With little more than
physical labor and hand tools, the
U.S. added an average of 4,800 miles
of railroad track every year during
this period.
Yes, nearly 5,000 miles of new
railroad, every year, for more than
40 years. In the peak year of 1887
more than 13,000 miles of new railroad was opened.
Today we believe that easy
money will solve all our problems.
There is little evidence that this will
work. Our own experience over the
past two generations shows that it
will not.
Eventually people will figure
this out. For nearly two centuries
the United States rose to global
superiority with a strategy of
stable money. Perhaps the U.S. will
do so again.
If not, the secret will no doubt be
discovered by some other government, which will put it to use and
get the same result. F
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thought leaders
rICh Karlgaard INNoVatIoN rules
Taras Lesson:
Smart leaderS copy
In 2012 CBS SportS ranked the top
college basketball teams of all time.
Heading the list, ahead of the legendary 1968 and 1972 UCLA Bruins
and the 1996 University of Kentucky
Wildcats, were the 197576 Indiana
University Hoosiers. Coached by Bob
Knight, the Hoosiers went 32-0 and
crushed the University of Michigan in
the 1976 NCAA championship game.
Many insiders, including those winning Hoosier players, believe Indianas
197475 team was even better. That
year the Hoosiers went 31-1. They
lost an NCAA tournament regionalfnal game while playing largely
without their star player, Scott May.
He had broken his arm and could
play only seven minutes.
By the mid-1970sand after the
retirement of UCLAs John Wooden
following the 1975 seasonBob
Knight had become the best-known
active college basketball coach in the
country. Knight was famous for his
stern, winning ways. He commanded
with an iron discipline, tolerating no
dissent. Players were not allowed to
speak during practice. His conditioning workouts were legendary. Our
freshmen couldnt believe it, said a
senior center, describing the intensity.
When we began last year, I almost
went into shock. And if a player
skipped class or got a bad grade
Knight made him run up and down
the stairs of Indiana Universitys Assembly Hall arena. Not surprisingly,
there were no repeat ofenders.
Knight insisted on his players
going to class and graduating. If a
kid comes to Indiana and all we teach
him is basketball, then weve really
fouled up, Knight told a sportswriter
in 1973. Fouled up? Its almost certain
copious. Soon after her studies VanDerveer became a coach herself, and within
ten years embarked on one of the most
successful coaching careers in the history of NCAA womens basketball.
secret: Hang around
coach Knight didnt use the words

fouled up, though these were close.
Knights infamous profanity would
have embarrassed a drill sergeant.
Just because Indiana University
Coach Bobby Knight, that mellowing maniac, has not punched a player,
strangled a referee, pistol-whipped
a writer or howled at the moon in
the last few minutes, is no reason to
ignore his team, Sports Illustrateds
Curry Kirkpatrick wrote in a 1975
story. Knight confded to Kirkpatrick
that hed tried his best to put a lid on
his profanityfor a whilebut doing
so wasnt worth the efort. Im not getting any more bleeping mellow, you son
of a bleep-bleep, he fnally conceded.
Im only getting bleeping smarter.
Of course, he didnt say bleep.
Along with Knights players, assistant coaches and trainers, there is
only one other persona female studentwho saw it all. She was studying
Knight, for good and bad, at every Indiana University home game and every
Hoosier home practice during those
greatest of college basketball seasons.
Her name is Tara VanDerveer. Her
notes about Knights practices were
In November VanDerveer begins her

29th season as Stanford Universitys
womens basketball coach. At Stanford she has won two NCAA titles.
Her lifetime winning percentage is
82%. She also coached the U.S. womens team to an Olympic gold medal
in 1996. She is, by any standard, one
of the best CEOs you will fnd.
I visited VanDerveer recently to
learn what secrets, if any, had propelled her to the top of her profession.
Her answer was disarmingly simple:
She hung around. At Indiana she
hung around and watched coach
Knight. When starting her career at
Stanford, she hung around a former
college and Olympic team mens
coach named Pete Newell, thought to
be the best centers coach in basketball. The two spent hours working
and talking, with VanDerveer taking
notes. Many lunches later she had a
fle cabinet full of notes shed taken
from her meetings with Newell.
In the 1990s, when football legend
Bill Walsh returned to coach at Stanford, VanDerveer always sat next to him
during athletic department meetings.
Learn from the best. Thats
VanDerveers simple secret. But dont
get so close you become a nuisance.
During Indiana practices in 1975,
she recalls, I always sat a few rows
up. When coach Knight lost it, I
didnt want to be in his eyesight. F
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BEND THE RULES
STraTeGIeS
urban renewal
Detroits Happy Home Wrecker

The Pulte family made billions building houses across the U.S. Now Bill Pulte is
tearing them down to save the nations most blighted city.
By Joann Muller
than 600,000 homes in 28 states, and its

stock is worth some $6.5 billion. Bills father
owns Boca Raton-based Mark Timothy,
which builds $50 million mansions.
But here in the Brightmoor section of
Detroit the 25-year-old family scion isnt
building houses. Hes razing them, clearing
out blighted neighborhoods with an efciency that has astonished this bankrupt city.
Yall have done an awesome job! resident Judy Jones calls out to Pulte, now a familiar face in the neighborhood. She used to
live in Brightmoor, and her grown children
still do. People thought this was a dumping
ground. They didnt care. They gave up, she
urban renewer: Pulte

is restoring Detroit
neighborhoods by
demolishing their
abandoned homes with
industrial efciency.
Chris ArACe for forbes
ill Pulte bounded into the middle

of the street, grinning as he surveyed the unfnished neighborhood around him. Like so many
subdivisions built over the years
by Pulte Group, the 500-lot area was thrumming with contractors, trucks and earthmoving machines. If theres one thing Pulte
Group has mastered over 60 years, its building homes efciently.
Indeed, the Pulte name has been synonymous with home building since 1950, when
Bills grandfather, also named Bill, constructed his frst bungalow on Detroits east side.
Since then Pulte Group has delivered more
STraTeGIeS urban renewal
western University and running an investment group called Pulte Capital Partners,
didnt give up. He eventually got his grandfather on board, arguing that the citys crisis
and changing political climate made it the
right time to try something big. He then approached Bing, who jumped at the idea. Pulte
created a nonproft called the Detroit Blight
Authority, which raised about $750,000, including $100,000 from the Pulte family.
Using the same economies of scale that
apply when erecting houses, Pulte fgures, the
Blight Authority can demolish homes for less
than $5,000 eacheven less if Detroit would
reform its cumbersome regulations. Instead
of hiring a single contractor to tear down one
house, the Blight Authority brings in an army
of specialized laborers and equipment to rid
an entire neighborhood of its empty houses,
haul away the debris, clear out overgrown
brush and regrade the property.
In its frst project the Blight Authority cleared ten blocks in ten days, at a cost of
$200,000. Eight structures were demolished,
including two churches. Prostitution and drug
activity in the area have vanished since. The
second project, in Brightmoor, is much larger, involving over 500 lots. Workers spent a
couple of weeks, and about $500,000, clearing the land, uncovering 300 tires, a couple of
boats and the body of a 22-year-old woman.
But demolition of blighted homes in Brightmoor will have to wait until more funding
arrives. The U.S. Treasury has approved $100
million for blight removal in Michigan under
the Troubled Asset Relief Programs Hardest Hit Fund, designed to help states hit hardest
by the housing crisis. The city of Detroit will get half the money, and Pulte
hopes the lions share will go to his organization for mass demolition. We have a
proven model, he says.
Detroit Emergency Manager Kevyn Orr
has proposed spending $500 million by 2020
to conquer the citys blight problem. But that
expenditure, like anything the city does now,
has to go before a bankruptcy judge. And that
means delays.
Pulte, meanwhile, is trying to remain patient.
I think were on the precipice of something really big, he says. Weve got the knowledge. We
just need the government to give us the clearance, and we can take it everywhere. F
TrenDInG
What the 51 million
Forbes.com users are talking
about. For a deeper dive go
to ForBeS.CoM/BuSIneSS
COMPANY
J.C. Penney
With big investors eeing
and cash dwindling, Myron
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lurches into the holidays
with hope fading.
PERSON
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says. Just navigating around the mounds of

trash and overgrown brush on her street was
like four-wheeling through the jungle. Now
the area is transformed into green space.
Thats the kind of entrepreneurial spirit we
need, says Michigan Governor Rick Snyder,
heavily involved in Detroits aairs since appointing an emergency manager last spring.
Yet theres something bittersweet about
the Pulte familys eort to revitalize neighborhoods in Detroit, which has lost a quarter of its
population in the past decade and is forecast to
keep shrinking until 2040. In May Pulte Group
announced it, too, is leaving. The company, in
which the family is no longer involved (other
than as a 10% shareholder), is moving its headquarters from Bloomfeld Hills, near Detroit,
to Atlanta, citing better opportunities. Just
because your names on the building doesnt
mean you have control over anything, says
Pulte, who said his family had no prior knowledge of the move and was disappointed by it.
Still, he has plenty to distract him. There
are at least 78,000 abandoned and blighted
structures in Detroit, nearly half of which are
considered dangerous because of fre damage or criminal activity. Another 66,000 lots
are vacant or strewn with trash.
Detroit has sporadically tried, but failed,
to keep up with the problem. In 2010 Mayor Dave Bing launched a program to demolish 10,000 vacant structures in three years.
So far about 5,000 have been torn down, one
at a time, at a cost of some $72 million. But
the city says it is still $40 million short of the
money needed to fnish the job.
Pulte got interested after reading a newspaper article about how children were afraid
to walk to school in their blighted neighborhoods. He approached his grandfather, now
retired in Florida, about applying his expertise in building homes to demolishing them
instead. My granddad said, I wouldnt touch
that with a 10-foot pole!
The red tape and expense are enough to
discourage anyone. First, you must prove
ownership or that the owner has agreed to
the demolition. Hiring a contractor is $5,000.
Surveying and asbestos abatement is another
$1,500. Then you must show documentation
that utilities are disconnectedanother $1,300.
Administrative costs? $750. Add it up and youre
talking $8,500 to $10,000 to tear down a house.
But Pulte, just a few years out of North-
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STRATEGIES
AVIK Roy ThE ApoThEcARy
Three Key QuesTions

For obamacares rollout
unsupportable levels.
are young and healthy people
signing up? A key contention of the
Obama Administration is that, despite
the fact that health insurance will cost
more under the law, the quality of that
insurance is higher because it contains
consumer protections, such as ensuring that no one can be denied coverage
because of a preexisting condition.
But if youre healthy and/or young
today, you dont have a preexisting
condition. So doubling the cost of your
If the actual fgure ends up being lower,

or comprises a sicker population, exchange premiums will increase further,
making it even harder for some healthy
individuals to gain coverage.
are employers dropping coverage
and moving workers into the aCa exchanges? In 2011 Shubham Singhal and
his colleagues at McKinsey published a
survey indicating that 30% of employers will defnitely or probably stop
ofering [employer-sponsored insurance] in the years after 2014, because
the subsidized exchanges ofer workers
and employers a better option.
Large employers dont appear to be
dropping coverage. Instead companies
like Walgreen are using outside vendors
to set up private insurance exchanges,
in which workers are given a defned
contributionsay, $5,000 per yearto
shop for coverage from a number of
company-sponsored options.
What we do know is that it appears small employers with close to 50
full-time employees are shifting many
doubling the cost oF your insurance

may not seem like such a great deal
insurance might not seem like such a
great deal. And the success of the exchanges depends on the willingness of
these healthier individuals to pay more
for coverage in order to reduce the costs
of other people who are sick.
Well know how this has all played
out by the end of March, when the
exchanges initial open enrollment
period ends. The CBO has predicted
that 7 million Americans will sign up
for coverage on the exchanges by then.
of their workers to part-time status in

order to avoid being forced by ObamaCare to pay for their health coverage.
In the near-term, for most people
the Afordable Care Act is likely to
make health insurance less afordable, not more. But the law could also
encourage more Americans to shop
for their own coverage and care. If
that happens, the law could end up
seeding a consumer-driven health
care revolution. F
AVIK ROY iS A SEniOR FEllOw AT ThE MAnhATTAn inSTiTuTE FOR POliCy RESEARCh And A FORMER hEAlTh CARE
POliCy AdviSOR TO MiTT ROMnEy. TO REAd MORE OF hiS wORk, viSiT fORbes.cOm/sItes/theApOthecARY.
Thomas KuhlenbecK for forbes
President Obamas signature

health law achieved a major milestone on Oct. 1, when its subsidized
insurance exchanges went online. But
ObamaCare is already reshaping the
health insurance landscape. If you
want to track how well the law is working, keep an eye on three aspects of it:
is it driving up the cost of insurance? According to the Congressional
Budget Ofce, 25 million Americans
today shop for health coverage on their
own. That fgure could hit 46 million
by 2017, as ObamaCares exchanges get
under way.
But a critical problem is emerging
with the exchanges. The health law
imposes a battery of new regulations,
mandates, taxes and fees upon the
individual-insurance market. According
to research conducted by my colleagues
and me at the Manhattan Institute and
published at Forbes.com, many will see
their rates double or even triple under
the law. Healthier and younger individuals will face the steepest hikes.
The White House argues that subsidies will protect most people from these
rate increases. But our interactive map
(Google What will ObamaCare cost
you) shows that, on average, ones income must be 40% below the median in
order to save money on premiums.
In addition, many of the laws taxes
and regulations apply to people with
employer-sponsored health insurance.
In June Delta Air Lines wrote a letter to
the Obama Administration complaining
that its health care costs would increase
by nearly $100 million in 2014 when
adjusted for infation. In September the
AFL-CIO passed a resolution grousing that the law will drive the costs of
union administered plans, and other
plans that cover unionized workers, to
Its not called

a sickcare system.
So lets stop using
it only when
were sick.
The way we see it,

health care should be
about people living
healthier lives.
So were empowering them
to take an active role in their
health with easy-to-use health
and wellness resources.
For instance, the CarePass
platform lets people track
health goals like dieting
and exercising by connecting
some of the most popular health
and wellness apps. Plus, it also
connects with iTriage, an app
that helps consumers identify
health symptoms and choose
the best, most convenient
place to get treatment.
Empowering people
to stay healthy through
innovative technology.
Thats our healthy.
Whats yours?
aetna.com/ourhealthy
2013 Aetna Inc. Health benets and health insurance plans are oered by Aetna Life
Insurance Company and its aliates (Aetna). Any health-related information available
through the CarePass platform is general in nature, is provided on an as is basis and is not
a substitute for professional health care. iTriage is a registered trademark of iTriage, LLC.
2013140
TECHNOLOGY
iNTErNET
A Pictures
Worth
A Billion
Dollars
Jon Oringer turned a side
project into a $2.5 billion photo
phenomenon. Shutterstock
is out to become the worlds
biggest image broker.
By steven Bertoni
tributors in more than 100 nations.

Were moving faster and faster. Right
now we sell two images per second, Orin
ger says in his small, sparse ofce in Shut
terstocks current Wall Street location. His
communications head interrupts to say that
its now three photos. Thats the new pub
lic number? Awesome, Oringer says with a
wide grin. Three per secondthats the frst
time Ive ever said that.
Thanks to this breakneck usage Shutter
stock is on pace for $230 million in revenue
this year (according to Jeferies), a 35% jump
from 2012. Ebitda should be $49 million, up
39% from last year. Stock photography will
be a $6 billion market, and Oringer is betting
he can snag $1 billion of it. If I wanted to do
something else I wouldnt have gone public.
Programming always came naturally to
Oringer, who grew up in Scarsdale, N.Y. and
started coding in elementary school. Soon
he was using his Apple IIe to make simple
shutterstock founder
and Ceo Jon oringer
snapping away on
his new empire state
Building roof deck.
david yellen for forbes
on Oringer marches along the gut

ted 21st foor of the Empire State
Building and ducks out a window
onto a deck to pose for a magazine
shoot, snapping his own photos
as the photographer snaps photos of him.
Starting this winter, the entire foor (and
an identical one below it) will play home to
Shutterstock, Oringers 295person photo
website whose shares have more than tri
pled to a $2.5 billion market value since their
debut on the NYSE last October.
Its an appropriate headquarters for New
Yorks frst tech billionaire ($1.3 billion, to be
exact) as he looks to ride the proliferation of
screens, smartphones and bandwidth to turn
Shutterstock into the worlds largest market
place for buying and selling images. Right now
that title belongs to the Carlyle Groupowned
Getty Images, but over the last few months
Oringer, 39, has inked a deal with Facebook
for its advertisers, launched oferings of high
end photography and raised $276 million in
a secondary oferingall while expanding
and simplifying his library of 25 million im
ages and a million videos searchable in 20 lan
guages. What began ten years ago with one
$1,000 Canon Rebel and a 600squarefoot
ofce has exploded into a platform that adds
20,000 new photos a day from 40,000 con
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Image shot with the E-M1 and Zuiko Digital ED 35-100mm f2.0 Lens.
Move into a New World
TECHNOLOGY iNTErNET
games and plugins for bulletin board sys
tems. To make a computer do something
that would take a human a long period of
time was always interesting.
So was making money. While studying
computer science and math at Long Islands
Stony Brook University, Oringer created one
of the Webs frst popup blockers and sold
thousands of copies. He graduated in 1996
and enrolled at Columbia for a masters de
gree in computer science. I wasnt that into
the masters program, Oringer says. I was
trying to create products to complement the
popup blocker. All these people were giving
me their credit cards. I fgured I could sell
them something else.
Sell he did, enough to buy a $450,000
apartment in Gramercy Park in 2002.
Oringer continued to pump out products
marketed through his massive mailing list:
personal frewalls, accounting software,
cookie blockers, trademark managers. The
emails hed send out always did better with
photos in them, and instead of paying for
expensive stock photos, Oringer bought a
Canon and shot his own. He quickly real
ized other Web en
Id shoot
trepreneurs might
need images, too. He everything I
built a site, and in
could nd
2003 Shutterstock
breakfast,
was born.
Over the next year lunch and
he took 30,000 pic
dinner. Id
tures. I would shoot
shoot my
everything I could
fndbreakfast, lunch friends and
make them
and dinner. Id shoot
my friends and make
sign releases.
them sign model
releases, he says. It
turned out it was really easy to create com
mercial stock footage. Eventually he hired a
photo director to organize shoots and hired
models at $100 per day through Craigslist to
fll boardrooms, hold fake picnics in Central
Park or pose with a newspaper and a mug of
cofee.
For a subscription of $49 a month cus
tomers could download as many images as
they wanted. Oringer bought ads on Google
and in person pitched his site to creative
types around the city. Soon images were
being downloaded faster than he could up
load them, so he hired contributors to in

crease his supply.
The emergence of microstockthe low
priced, generic images that customers dont
want to shoot themselvesknocked the
photo industry on its heels. Shutterstock and
a competitor, iStockphoto, were selling im
ages that once cost $500 for $1. Incumbent
Getty Images ended up acquiring iStockpho
to for $50 million in 2006 and then took itself
private in 2008 at a 65% discount to its pre
creditcrisis high. All the trends line up with
what Jons doing today, but he saw it when
others didnthe saw it ten years ago, says
Jef Lieberman of Insight Venture Partners,
which invested in Shutterstock in 2007.
That year Shutterstock grew to 30 em
ployees, who handled Web development, cus
tomer service and billing. Oringer was strug
gling to run the place. I had never worked
for a company before, so I spent a lot of time
bringing on operational help, he says. In
2010 he hired a chief operating ofcer, Thilo
Semmelbauer, whod done stints at Weight
Watchers and jobs site TheLadders.com.
Oringer also ignored the West Coast hype
and habit of raising funds from big venture
capital frms. He didnt need the cash; Shut
terstock made money from its very beginning.
That discipline paid of when Shutterstock
went public in 2012 with Oringer still own
ing about 50% of the company. (He took some
chips of the table in September, selling $145
million in shares in the secondary.) For Orin
ger, going public wasnt an easy decision, but
in the end he decided an IPO would strength
en the balance sheet, give Shutterstock more
exposure and add legitimacy when dealing
with large corporate clients.
But going public put pressure on Shutter
stock to keep hitting its big revenue targets.
Oringer is looking to expand Shutterstocks
foreign business, with an ofce now in the
U.K. and one soon to come in Berlin.
He is also betting that video will be as
ubiquitous in advertising and media as pho
tos are now. When it is, hell have millions of
cheap, highquality clips ready for download.
We create marketplaces, says Oringer. As
we continue to grow, the question is, how do
you keep the company as innovative as it was
15 employees ago? Weve been able to do it up
until now and will continue going forward,
but its not easy. F
EXECUTiVE
SUMMArY
WaTCHfUl eyes
Step back, Evgeny Morozov:

The notion of Internet-aspanacea has a prominent new
critic in literary heavyweight
Dave Eggers. His new novel, The
Circle (Knopf), set in the near
future, chronicles the rise of the
titular corporation, which has
subsumed Facebook, Google
and Amazon to become the one
company tracking everything
we do and buy. Its TruYou
account is near-mandatory
for Web use, and its cheap
neck-cams enable millions to
go transparent. Eggers isnt
worried about the NSA; hes
terried of the power that
FaceGoogleZon has to dictate
societal norms. Unlike 1984,
this book doesnt open in
dystopia; instead, we witness
a totalitarian future take shape
with the full acquiescence
of a transparency-obsessed
populace. Broad but shallow
(like the social media Eggers
lampoons), The Circle is dark
comedy for this moment
in history. Will its warnings
persuade readers to quit
Facebook? Good luck with that.
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Promotion // technology
Cloud Computing
You Cant Afford Not to Embrace a Cloud Strategy
By Rick Vanover
e now live in a world

where we have to
make IT service decisions based on new
ways of delivering
applications and infrastructure. Service
models that leverage public, private
or hybrid clouds do not perform in the
same way as traditional models. Businesses run on technology, and there is a
real need to separate the hype from the
benefts with these new approaches. But
where should you start?
If applied correctly, a private cloud
provides agility that solves a number of
key business challenges while maintaining proper control. The technology is the
technology, but the business is the business. A complete cloud vision enables
these two driving priorities to work very
well together. Combining them is the
hard part, so its best to work from the
bottom up to see how weve arrived at
a point where cloud technologies are a
realistic option. Josh Kahn, Senior VP of
Solutions Marketing at EMC, puts this
in a context that companies can clearly
understand. What matters is that application teams get nearly instantaneous
access to an infrastructure thats going
to meet their needs. But on the other
side of that request, IT organizations can
leverage cloud technologies to maintain
control, deliver optimal service levels,
meet requirements and control costs.
Thats a fundamental point that connects
the technology to the business.
Over time, storage systems and networks have gotten smarter. Companies
have already been modernizing the data
center with hypervisor server virtualization technologies, accomplishing great
things such as cost savings, deployment
time reductions and greater availability.
Those technology improvements alone
were important, but they do not complete
the cycle to the business in terms of the
applications and infrastructure they need.

There are many ways to arrive at a
point where connecting the business to
the technology can bring a real beneft to
an IT workfow. This is a priority for all of
the big players in the data center today.
According to Kahn, Not adopting the
right cloud strategy puts IT departments
at risk of being irrelevant. While technologies are important, it is the building
of that cloud strategyaround delivering
the infrastructure and applications that
companies need, when they need it and
with the right controlsthat will ultimately
create the competitive advantage. Companies must invest in a cloud strategy to
deliver IT as a Service (ITaaS) and more,
but if it is not a fully orchestrated solution,
its a wasted investment.
Companies generally invest in new
technologies and equipment separate
from the requirements of the business.
This capital expenditure cycle is comfortable and familiar to CTOs and IT decision
makers, but it is an at-risk process going
forward due to the sheer fexibility of cloud
computing technologies. Kahn explains,

The CIO needs the choice to decide
what goes where, but also the ability to
manage across public, private or hybrid
clouds. Keeping business requirements
centralizedin a private, public or hybrid
cloud environment that leverages both
on-premise and off-premise resources
can meet those needs. The business will
beneft from quicker time to market for IT
services, self-service provisioning, and
the ability to respond more quickly to
business needs.
Is this the competitive advantage you
need? The trending of the market suggests that it is. Considered another way,
can you afford not to have every competitive advantage available? Chances are, a
private cloud investment, made correctly,
will give you that advantage.
For more information, visit

www.emc.com.
LEADING EDGE IN
CLOUD
EMC2, EMC, and the EMC logo are registered trademarks or trademarks of EMC Corporation
in the United States and other countries. Copyright 2013 EMC Corporation. All rights reserved.
TECHNOLOGY
ONLINE VIDEO
Chinas answer to Apple TV is full of pirated content. Hollywood

cant sue because the government owns a piece of the action.
BY SIMON MONTLAKE
vestor is Tencent Holdings, Chinas largest Internet rm, with $9.7 billion in revenue. And
Futures main hardware partner is Xiaomi
Corp., a midprice-smartphone maker
that outsells Apples iPhone in China. A
Xiaomi set-top box costs only $50 and
streams free content, from Chinese costume
dramas to U.S. blockbusters. Xiaomi expects
ollywood is schooled in the
to sell a million boxes this year in a market
ways of video pirates, from
expected to sell 10 million overall. Partners
le-sharing sites like the
like these help to explain why Future readily
Pirate Bay to street-corner
thumbs its nose at Hollywood.
DVD sellers. Rarely, though,
Ironically, Hollywoods own lobbying
do Tinseltowns targets warmly invite studios group, the Motion Picture Association of
to a Go to Hollywood seminar on U.S. soil.
America, helped to introduce Future execs to
Future TV is dedicated to innovatively
the studios during a February visit. Once bitpropelling the growth of the OTT [over-theten, twice shy: Future canceled its Hollywood
top] ecosystem, read an invitation sent in
seminar after studios demurred, though its
August to six major studios for a seminar in
executives went ahead with their visit. In
Los Angeles. Hollywood, we are coming!
anticipation Future took down unauthorized
How do you say chutzpah in Chinese?
content, such as Jurassic Park 3D and
Future TV is one of seven rms licensed
Mr. Beans Holiday, a Universal title that had
to stream content into Chinese homes via
been Xiaomis most-played movie.
the Internet to set-top boxes and smart
Despite its name, Future is a throwback.
TVs. (Over-the-top refers to video delivMany Chinese video sites and cable channels
ered outside of a cable or satellite service.) It
now pay for popular imported TV shows and
claims to ofer 1.5 million hours of content, of
movies, says Kristian Kender, a media conwhich half is high-denition. But among U.S.
sultant in Beijing. Tencent signed a licensstudios it is notorious for uploading hundreds ing deal in September with Disney to stream
of copyrighted movies and evading tens of
movies on its video-on-demand service.
millions of dollars in licensing fees. Chinese
Kender puts the total market for nontheatproduction houses also say theyre being
rical content (everything but box ofce) at
cheated. If you ask anyone in China theyll
$60 million to $70 million a year, a pittance
tell you Future TV is a pirate, says a
compared with what it could be. One
U.S. studio executive in Beijing.
studio said it makes more from home
Future pitches itself as a edgling
viewing in Indonesia than it does in
that needs Hollywoods support. Yet its
China, whose economy is ten times
biggest shareholder is CCTV, Chinas
the size. Asked about the contrastate-owned broadcaster, which enjoys
diction between its Disney deal and
huge subsidies and sells $3.6 billion a
its investment in Future, a Tencent
Xiaomi CEO Lei
Jun: not guilty.
year in advertising. Futures other inspokesman declined comment. F
TRENDING
What the 51 million
Forbes.com users
are talking about.
For a deeper dive go to
FORBES.COM/TECHNOLOGY
PERSON
ROSS ULBRICHT
The FBI busted the alleged
mastermind behind the
$1.2 billion drug-trafcking
site Silk Road. Friends say he
was just a mild-mannered
libertarian materials scientist.
Hello, son of Walter White!
COMPANY
TWITTER
Neither snow nor rain nor
government shutdown nor
fears of a Facebook-like asco
will stop the messaging service
from its cash-gusher IPO
(see story).
IDEA
LONG-STRING SEARCH
Googles rst update to its
search algorithm in three years
is capable of handling more
complex queries, especially as
people speak longer searches
into their phones.
LEI JUN: KEITH BEDFORD / BLOOMBERG
Chinas Black Box
centurylink.com/link
GamE CHaNGErs
One Address Book

To Rule Them All
A startup bets $9 million it can build
the perfect self-updating contact book.
Privacy experts are a little freaked.
By adam tanner
FullContact founder
Bart Lorang has 300
million names in his
database and is not
even out of beta yet.
When entrepreneur Bart Lorang

met his future wife in 2010, he fell in love
with her address book, too. She had pruned
and preened it every week, and it had updated
titles and photos and e-mails and phone numbers for pretty much everyone she knows, he
says. I wanted that address book. I wanted a
perfect address book that just worked.
So he created a startup called FullContact,
which aims to gather a persons contacts in
one place and automatically update them everywhere at once by reaching out to Facebook,
Twitter, Gmail, iCloud and other Internet sites
to grab the latest publicly available information. It would be a step ahead of Plaxo, now a
subsidiary of Comcast, which hosts 50 million
address book accounts.
Pitching the promise of doing for contacts

what Dropbox did for storage, Lorang raised
nearly $9 million in venture capital, including a $7 million round in July 2012 led by the
Foundry Group.
Since early this year FullContact has
been selling a card scanner to frms such as
Amazon, Coca-Cola and Hewlett-Packard to
upload employees contacts. Other smaller
customers have used its data-appending
service to supplement their contact lists with
public information and social network data.
FullContact now has gathered 300 million
names in its database, claiming a 60% match
rate and 90% accuracy. Some frms providing data-appending services report a higher
match rate. Rapleaf, for example, says it can
match 80% of U.S. consumer e-mails.
In the coming weeks FullContact plans to
go live with its consumer service, which will
be free up to a set number of contacts and
then $99 a year beyond that.
Lorang sells access to his database to marketers, but privacy advocates who have parsed
FullContacts data-use policy dont like the
way that Lorang is merging publicly available
data with the contacts it picks up from user
activity. Sarah Downey, a senior strategist at
privacy company Abine, in Boston, says there
is cause for concern: FullContact can store
your information forever, use it to improve its
core database and license use of it in perpetuity. This goes for any of their partners and
third parties to whom the partners wish to
resell. To my knowledge, this level of data enhancement and third-party reselling has never
been done before.
David Abrams, a lawyer and engineer
who is an expert on privacy issues, assessed
its privacy policy. I get the impression they
dont want to be just another general data
broker but that they want to use the correlations to provide sophisticated links that
would elude general data collection.
Lorang stresses that he will sell only publicly available data and considers phone numbers of-limits. Public details that we append
to contact records are fair game, but private
contact data is private contact data, period,
he said. If anyone is uncomfortable with FullContacts use of their data, Lorang says, they
can always opt out. He also has this advice:
One, check out your social network privacy
settings. Two, use companies that give you
control of what you appear in. F
Jamie KripKe for forbes
TECHNOLOGY
THE
CLOSING
THE DEAL
CLOUD
In the cloud built for business, you dont have to force your
sales team to use the tools that get the job done.
Learn more about SAP Cloud for Sales at sap.com/cloud
RUN BETTER.
Promotion // logistics
Unleashing Sustainable
Supply Chain Value
By Michael Roney
upply chain sustainability

and business value are not
mutually exclusive. In fact,
sustainable supply chains
are becoming a vital strategy through which companies can not
only meet regulatory requirements and
burnish their reputations, but also better manage risks, reduce costs, increase
productivity and optimize strategic supplier relationships.
Most businesses are not implementing sustainable supply chain initiatives
just for the sake of reducing their carbon
footprint, says Robert Sanchez, Chairman and CEO, Ryder System, Inc. Thats
why everything we do at Ryder, from
optimizing logistics networks to deploying alternative fuel vehicles in feets, is
about making our customers supply
chain operations more effcient. When
we demonstrate the return for a sustainable investment, we see our customers
adopting more environmentally friendly
technologies and logistics strategies.
The Sustainability Advantage

We know that a more effcient supply
chain is a greener supply chain because
higher effciency means better use of
resources, and that translates into lower
energy consumption, Sanchez says,
noting that Ryders transportation and
logistics solutions drive value in every
major category:
Lower Costs: Fuel-effcient vehicles,
optimized supply chain networks, preventive maintenance and driver training
enhance performance and safety, while
Ryder leads the commercial transportation industry by operating more than 300
natural gas vehicles across the country.
Businesses can realize cost savings on
day one when operating a natural gas
vehicle based on the price differential of
natural gas versus diesel, Sanchez says.
Reduced Risk: Risk is a topic that

has moved from the warehouse foor
to the boardroom as companies have
realized the value of supply chains that
can respond quickly to disruptions. A
regional or near-sourced distribution
center network can help reduce transportation miles and carbon emissions,
but also reduces the risk of a global
supply chain disruption, while alternative energy solutions like natural gas will
function even in the event of power loss
or fuel supply disruption.
Better Intelligence: We track and
report sustainability performance with
transparent metrics that enable our
customers to understand the environmental impacts of their operations,
explains Sanchez. Additionally, we are
able to give customers carbon footprint
data on the parts of their supply chain
operations that we manage as a supplement to the standard transportation
data we provide.
Tight Execution: Execution is
everything, Sanchez states, so our
warehousing and transportation experts

help knit customer supply chains
together more tightly for both economic
and environmental benefts.
A Formula for Success

Early on, Ryder recognized the business value that comes from operating
sustainable logistics and transportation
networks, and weve made the investments required for success at our company and with our customers, Sanchez
says. When customers trust us to
operate critical functions of their supply chains, they can focus on their core
business while leveraging our scale,
infrastructure, expert people, capacity
and new technologies.
For more information, visit ryder.com.
InvestIng
funds
Day Trading Gabelli

Thanks to little-known Precidian Investments, ETFs may soon be emerging
from their index fund ghetto.
by Ari i. Weinberg
of indexing, actively managed stock-picking

funds still dominate the mutual fund business.
Firms like Fidelity, Franklin Templeton, American Funds and Dodge & Cox, and stock pickers
like Mario Gabelli, Will Danof and Ron Baron,
have yet to be invited to the ETF party.
What Precidian has figured out (and patented
as ActiveShares) is a process that keeps most of the
low-cost and tax-efficient benefits of an ETF while
disclosing holdings only quarterly, as active managers now do. If ActiveShares nontransparent ETF
structure is SEC-approved, you may soon be able
to log on to your e-broker any time of day to trade
into and out of the portfolios of great managers like
Donald Yacktman and Bruce Berkowitz.
Its clear that funds are ready to leap into
the next generation of products, says Precidian
Precidian Chief Daniel

McCabe wants to deliver
old-school mutual funds
to the eTF party.
Ian LondIn For Forbes
he next big thing in the $1.5 trillion

exchange-traded funds business is
being cooked up in a small ofce
sharing an entrance with a beauty
salon in the bucolic town of Bedminster, N.J. There, in a loftlike space outftted with whiteboards, comfy chairs and a pool
table, the four principals of Precidian Investments run what amounts to a lab for designing
and patenting new forms of ETFs. Few investors have heard of them, but to mutual fund
frms like Fidelity and American Funds, Precidian may well be the messiah of new growth.
Precidian has devised a new structure that
would essentially enable old-school mutual fund
companies to ofer ETF versions of their existing actively managed funds. Despite the growth
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InvestIng funds
CEO Daniel J. McCabe. Several of the worlds
largest asset managers have already embraced
our structure. McCabe isnt saying who, but
SEC flings indicate he is most likely talking
about BlackRock and State Street.
Precidians ActiveShares brings several innovations to the ETF world that could attract
stock-picking funds. The most important is the
publication of intraday indicative values every 15
seconds, a standard for all ETFs but a hurdle for
traditional active mutual funds, which publish
prices only once a day, after the market closes.
Those values, matched with a funds benchmark, should give ETF marketmakers enough
information to hedge their trading throughout
the day in the futures market, a key to keeping the
ETF price in line with its net asset value (NAV)
and giving all investors the opportunity to buy the
fund at a fair price. But portfolio managers would
not be required to disclose their holdings daily as
most other ETFs are required to do by the SEC.
Another Precidian innovation involves tax efficiency. Its new structure establishes blind trusts for
authorized participants, who act as a filter to bring
cash into the ETF or receive and liquidate securities
on redemption. The tax consequences of this trading are borne by the blind trust, not the investor.
Cracking the code on actively managed ETFs
is a big deal because the $6.8 trillion market for
managed stock mutual funds dwarfs the index
ETF business, whose growth has slowed. SEC
approval of nontransparent ETFs could open
the ETF world to dozens of fund families.
It could also create a big payday for the
founders of Precidian, which earns small license
fees based on fund expense ratios. Currently
most of its revenue comes from the fees it earns
on Guggenheims nine CurrencyShares ETFs
($1.5 billion in assets) and its own $130 million
ETF, the Maxis Nikkei 225 Index Fund.
McCabe, 49, and partners Stuart Thomas,
Paul Kuhnle and Mark Criscitello are veterans of
Wall Street trading oors and back ofces who
specialized in structured products and derivatives
operations. All but one is a college dropout. But
what they lack in book learning they make up for
with deep Wall Street connections, trading experience and, most important, market savvy.
McCabe, who is fond of wearing Prada loafers sans socks in the ofce, headed up NYSE and
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#contradictions
tRendIng
What the 51 million

Forbes.com users
are talking about.
For a deeper dive go to
FOrbeS.COM/inVeSTing
PERSON
WiLLiAM rUPreCHT
sothebys head is under
re from hedgie dan Loeb
(the auction houses largest
shareholder) for big pay,
small returns, lack of skin in
the game.
IDEA
MOrTgAge MeDDLing
Will seemingly endless
congressional debt-service
wrangling and other scal
disputes lock the door on the
nascent housing recovery?
COMPANY
bLACKberry
Floundering smartphone pioneer
is trying to nd a savior. Is there an
activist investor willing to take a
chance on the hidden value in the
battered company?
Amex trading frm Bear Hunter Structured Products, a subsidiary of specialist frm Bear Wagner,
which was owned by Bear Stearns. Kuhnle, 50,
studied quantitative analysis at Penn State before
dropping out, later landing a Wall Street IT job.
He worked with McCabe at Bear Hunter, as did
Criscitello, 52, Precidians fnance ofcer.
The three met Thomas, 47, formerly in equity
sales at Morgan Stanley, when he was helping
the World Gold Council create the U.S. entity
that would become State Streets SPDR Gold
Trust, the worlds largest gold ETF, with
$38 billion in bullion. Most investors know the
bersuccessful ETF by its ticker symbol, GLD.
Launching the frm in 2006 was a midlife
gamble for the group. At a time when other Wall
Streeters tried to cash in on the ETF boom by
launching their own funds, Precidians partners
stuck to product design, in a model similar to
that of microchip IP frm ARM Holdings.
Thinking creatively about building products
with protected intellectual property has a diferent return profle than launching me-too ETFs,
says Michael Brown, general partner of Waltham,
Mass. Battery Ventures, which took a stake in Pre-
cidian in 2007. The me-too ETF business, he adds

dismissively, has simply been a race to the bottom.
Not surprisingly, Precidian isnt the only one
trying to create a viable ETF structure for active
mutual funds. Eaton Vance, Guggenheim and T.
Rowe Price have fled their own SEC applications. Vanguard already has a process for creating ETF share classes of its passive index funds.
As they await an SEC ruling on ActiveShares, the
Precidian crew is floating another ETF innovation
aimed at the ravenous market for income. According to SEC filings, Precidian is the brains behind a
proposed WisdomTree S&P 500 Managed Distribution ETF. Like an annuity, the fund promises a
fixed 6% annual payout in all markets, despite the
fact the underlying S&P 500 offers only a 2% dividend yield. Precidians patented formula incorporates the possibility of returning capital as part of the
annual payout. Given the recent boom in indexed
annuity sales its likely to be a winner, if approved.
Precidian brings a level of expertise that
provides for their ideas to advance, says William Belden, Guggenheim Funds head of product development. Theyre not just throwing
things against the wall. F
Finished at charm school.

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INVESTINg
KEN FISHER PORTFOLIO STRATEgY
BETTING AGAINST
BERNANKE
Australia & New Zealand Banking,

Banco Santander, China Construction
Bank, HSBC, JPMorgan Chase, Royal
Bank of Canada and Wells Fargo.
I also have a few new favorites:
Sweden has one of the most narrow
yield-curve spreads among developed nationshence an opportunity when it widens. Buy SWEDBANK
(SWDBY, 24). Theres great potential in
eastern European growth, particularly in Estonia, Latvia and Lithuania. It trades at ten times my 2014
earnings estimate.
I love South Korea for what John

Wayne would call true grit, for its
unending determination and focus!
SHINHAN FINANCIAL GROUP (SHG, 41) is its
best pure-play bank. The street expects 2014 earnings to fall fully 15%.
Hence it trades at 1.8 times trailing
revenue, 80% of book value and eight
times my 2014 earnings estimate. As
earnings drop the stock and growth
prospects should rise.
Of 38% this year with the much
publicized Indian fear-fest comes Indias second-largest and best bank, ICICI
BANK (IBN, 32). The panic widened yield
spreads, but with fear comes opportunity. Its cheap, since proftability is low.
Expect improvement. Its at 2.4 times
revenue and ten times my March 2015
earnings estimate. It yields 2.1%.
Thailand has fairly fat banking
margins now. KASIKORNBANK (KPCPY, 23), its
fourth largest, is fast-growing, diversifed, well managed and on a roll. Yet its
of 9.6% in 2013 due to general emerging market and Asian fears. Its only 2.7
times revenue and ten times my 2014
BANK oN IMPRoVED PRoFITS FRoM

wIDENED INTEREST RATE SPREADS
Some emerging markets banks
should beneft doubly from widening
global yield curves and relatively high
domestic growth rateslike Santiagobased BANCO DE CHILE (BCH, 93), that countrys second biggest (with over 430 fullservice branches and a roughly 20%
national market share) and, in my view,
its best (and surely better than its 29%
owner, Citigroup). Its of 2% this year,
trading at 13 times my 2014 earnings
estimate, with a 4.8% dividend yield.
earnings estimate.
Finally, if you can stomach recent
Mideast risk (spelled S-y-r-i-a), which
comes and goes, buy Turkeys AKBANK
(AKBTY, 7.8). Its of 26% since May. But
its great, growing and generous at
three times trailing revenue and six
times my 2014 earnings estimate (and,
similar to Banco de Chile, minorityowned by Citigroup). Like the rest, this
is the literal version of the proverbial
money-in-the-bank play. F
MONEY MANAGER KEN FISHERS LAtESt BOOK IS MARKETS NEVER FORGET (BUT PEOPLE DO) (JOHN WILEY, 2011). VISIt HIS HOME PAGE At WWW.FORBES.COM/FISHER.
Long before foLks fretted the

demise of quantitative easing, I fretted
its existence. It proved the reverse of its
image, an antistimulus, and weve done
okay not because of it but despite it.
With its demise forthcoming, Im bullish on banks, relative to the market.
Why? Bankings core business is
simple: Take in short-term deposits,
make long-term loans. The spread
between short- and long-term interest
rates pretty well refects future gross
operating proft margins on new loans
(efectively cost versus revenue). The
bigger the spread, the more proftable
future loans will be, all else being equal.
Ending so-called QE steepens that
spread by defnition, since it stops the
Federal Reserves buying of long-term
debt (thus lowering future long-term
debt prices and pushing rates higher).
As the spread rises, so will bank proftability on new loans, and banks eagerness to lendalong with overall loan
revenuewill rise in lockstep.
Since long-term rates correlate
highly between developed and lessdeveloped nations, countries where
the spread is smallest will now likely
see the most relative improvement.
Take Chile, for example. Its spread is
basically zero. As long-term rates rise,
its spread should rise relative to, say,
Brazils, where the 90-day to 10-year
spread is already high at 3%-plus.
Hence, Im more prone to buy Chiles
banks than Brazils.
Then, too, bigger banks tend to do
well later in bull markets. And weve
kicked the bankers sociologically so
long that someday soon well tire and
seek new dogs to kick.
I remain content with the seven
banks I recommended earlier this year:
Leading The Next

Industrial Revolution
March 26, 27 & 28, 2014 Chicago, Illinois
Driven by technological advances, innovative manufacturing techniques, the biggest domestic energy
boom in a century and a new generation of pragmatic, tested leaders in industry, education and
government, the nations industrial core is rebounding.
Employment in manufacturing hubs is rising. Foreign companies from Toyota to Airbus to Fiat are basing their most advanced facilities in the U.S. The biggest, boldest American companies from Caterpillar,
Boeing and GE, to John Deere, GM and Ford are showing the world that the heartland is every bit as
much a high-technology hotbed as either coast. Together with thousands of small companies spread
across the nation, they are truly Reinventing America and redening its role in the Global Economy.
Join Forbes as we convene a rst-of-its-kind summit of the industrial executives, entrepreneurs,
academics and elected ofcials leading this revolution.
For more information on how to participate visit forbes.com/conferences
PARTNER
INVESTING
JIM OBERWEIS SMALL STOCKS
americas Best
Small StockS
trades at 35 times my 2014 EPS estimate of 30 cents.

An uncertain economy is good for
temporary stafng frm BARRETT BUSINESS SERVICES (BBSI, 66), which focuses on
telecom needs of small and mediumsize businesses mostly in the western
U.S. As its customers expand, theyre
more likely to prefer the fexibility of temps and outsource noncore
functions like human resources. The
employer mandate of the Afordable
Care Act may push many cost-con-
gyro/accelerometer platform across

Android phones, while contending
with ferce rivalry and falling prices.
Though the company failed to get a
design win in Apples iPhone 5S and
5C, it has a shot with the new iPad
later this year. I expect revenue to
grow at 30% in the next 12 months.
Shares trade for 23 times my 2014
EPS estimate of 85 cents.
IPG PHOTONICS (IPGP, 60) produces fber
lasers whose high output and energy efciency is well suited to such
industrial applications as materials
processing and automotive welding.
Nearly seven in ten fber lasers are
made by IPG. China is a big buyer,
accounting for about 35% of its sales;
as its factories start whirring again,
IPG is getting the updraft. Shares
trade for 17 times my 2014 estimate
of $3.50, with a 15% growth.
STAMPS.COM (STMP, 43) provides a
service for purchasing and printing
postage over the Internet (see p. 82)
and aims one day to cancel the old
valuationS are no longer at bargain

levelS but thereS Still room For Fun
scious companies to part-time help.
Shares trade at 25 times my 2014
earnings estimate of $2.80, for expected EPS growth of 37%.
INVENSENSE (INVN, 20) is riding the
Samsung boom. Its motion-tracking
devices, such as gyroscopes (see p.
98), originally used in game systems like the Nintendo Wii, are now
becoming standard in smartphones.
InvenSense recently ramped its
market-leading six-axis single-chip
Pitney Bowes meters. Its customer

list of individuals and small businesses grew 12% last quarter, year over
year, and their postage use jumped
60%. Stamps.com has tremendous
leverage, as seen by a 600-basispoint operating margin expansion
last quarter. I expect the company
will increase revenues at a 15% clip
and earnings at an even faster rate.
Shares trade at 17 times my 2014 EPS
estimate of $2.65. F
JIM OBERwEIS iS pRESidEnt OF OBERwEiS ASSEt MAnAgEMEnt And EditOR OF the Oberweis
repOrt. FOR MORE inFORMAtiOn viSit www.fORBES.COM/OBERwEIS.
Few were surprised when

small-cap stocks fell hard during the
fnancial crisis. They are generally
considered the riskiest group in the
equity markets. In fact, during 2008
and early 2009 valuations for highgrowth small caps dropped to their
lowest levels in 30 years.
But as the market rebounded and
our economy grew stronger from
2009 to 2012, investor appetite for
riskarguably more important than
individual stock fundamentals during some periodshelped kick prices
back up to more normal valuations.
These days a diferent dynamic
is in play. With valuations no longer
at bargain-basement levels, earnings
growth will be the driver for high
returns. For companies under $1
billion in market capitalization and
with annualized growth rates of 30%
or more, the average forward priceto-earnings multiple is now 16.1a
shade above the 15.6 times earnings
for the S&P 500. But youre paying
for faster growth, and its actually an
unusually small premium to those
large-cap stocks.
I think theres still room for more
fun. Here are my picks from the list
of Americas Best Small Companies,
starting on page 82. Ive recommended some of these stocks in previous
columns. I still like them and own
them in my asset management frm.
8x8 (EGHT, 10) is disrupting the telecom market for small businesses
with cloud-based solutions for
hosted PBX telephony, unifed communications and videoconferencing.
I expect revenues to grow 20% in the
next year, while improving margins
lead to an even stronger 43% earnings growth. The stock currently
INVESTINg
wIllIam baldwIN YEar-ENd ChECkup
A Roth
Conversion Formula
GO TO forbes.com/sites/baldwin fOr my 21-parT

series, payinG fOr cOlleGe.
68 | fOrBes OcTOBer 28, 2013
Outside your tax shelter, it gets

whacked every year for taxes and
compounds slowly. Youll be lucky if
it grows to $60,000. Aftertax spending money for the nonconverter:
$180,000, or $20,000 less.
The usual advice on Rothifying
goes like this: If your tax bracket at
retirement will be the same or higher,
go ahead and convert, but if your tax
bracket is likely to be lower, dont do it.
Say your stocks make 7% a year,

you pay a 20% tax on dividends and
capital gains, and the money will stay
put for 18 years. Then the question is
whether your tax bracket for ordinary income is going to fall by the
fraction 7% times 20% times 18, or a
fourth.
This RTN shortcut overstates
the case for Rothifying a bit, so give
yourself a margin of safety. Convert
only if your bracket is likely to fall
by a lot less than that RTN fraction,
and convert only a portion of your
account. If youre 52 and can stay
invested for 18 years, and if your
bracket is likely to fall only a little
(say, from 40% to 35%), snatch the
Roth bait.
Its scary to prepay taxes, and,
yes, there is some chance that
Congress will spring the trap, taxing Roth account holders. But this
would instantly end the flow of
When should you prepay taxes on

your retirement aCCount?
I think that advice is too timid. In
this case the Roth choice wouldnt
hurt even if your tax rate falls by a
fourth, to 30%.
You can, in fact, calculate how
far your tax rate has to fall before
the conversion becomes a loser. My
rough rule of thumb: Rothifying is
a bad idea if your tax bracket falls
in retirement by the fraction RTN,
where R is your annual portfolio return, T is the tax rate on your portfolio, and N is the number of years until
youre going to be pulling money out
of the IRA.
accelerated revenue from conversions, to which the government is

now addicted. So I think the risk
is low. More likely are rising tax
rates, with the result that your
conversion pays off better than you
expected.
Leave some savings unconverted,
so that you or a surviving spouse can
do a strategic Roth conversion later.
You might want it to ofset a large
deduction, such as for nursing home
expenses. F
GO TO forbes.com/investorcheckup
thomas kuhlenbeck for forbes
Congress has plaCed some

of your money on a bait pedal. Can
you deftly remove it without getting
trapped? I think you can.
The bait is something called a
Roth conversion, wherein you
pay taxes on retirement savings
now in return for a permanent
tax shield on the portfolio. Its a
scary business, since you could be
injured by future tax law changes.
But this is an occasion to take a
calculated risk.
Ill assume that you have both
assets in a tax-deferred IRA or
401(k) and some spare cash outside that account. Say you have a
$50,000 slice of your retirement
pot that you might convert, you
are in a 40% tax bracket (federal
and state combined) and you have
$20,000 sitting around. If you do
the conversion, $50,000 gets added
to your taxable income this year
and you hand over the 20 grand to
grateful tax collectors.
Lets suppose that you wont be
spending this retirement money for
a few decades, and that it will have
quadrupled by then. The transaction
leaves you with $200,000 free and
clear at the back end.
What if you dont convert? The
$50,000 still turns into $200,000
inside the account, but to get it out
you have to pay tax. If your bracket
remains the same, the retirement
account will be worth only $120,000
to you.
By choosing not to convert, you
would also have the $20,000 to invest. But this sum wont quadruple.
Simply open and fund

your IRA in minutes
with Merrill Edge.
You can open a no-minimum-balance Merrill Edge IRA quickly

and fund it instantly online from your Bank of America bank
account. Rolling over a 401(k)? A Merrill Edge specialist can
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merrilledge.com/streamlined
Bank with Bank of America.

Invest with Merrill Edge.
Certain banking and brokerage accounts may be ineligible for real-time money movement, including but not limited to transfers to/from bank IRAs (CD, Money Market), 529s and Credit Cards and
transfers from IRAs, Loans (HELOC, LOC, Mortgage) and accounts held in the military bank. Merrill Edge is available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), and consists of
the Merrill Edge Advisory Center (investment guidance) and self-directed online investing. MLPF&S is a registered broker-dealer, Member SIPC and a wholly owned subsidiary of Bank of America Corporation.
Banking products are provided by Bank of America, N.A. and afliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.
Investment products:
Are Not FDIC Insured
Are Not Bank Guaranteed May Lose Value
2013 Bank of America Corporation. All rights reserved.
ARQ853KR/11ES45
Can
TwiTTer
Save
Tv?
On the eve of its
fervently hyped IPO, the
micromessaging service
has a radical plan for
nabbing the ad dollars it
needs to thrive: helping
TV networks survive the
digital media revolution.
By Jeff Bercovici
CEO Dick Costolo must

convince investors that
Twitter can get wildly
proftableand stay
that way.
eric Millette for forBes
(And Can TV
Save Twitter?)
FORBES
twitter
TS EMMyS nIgHT AT
the nokia Theatre in

Los Angeles, and as
showtime approaches, a mosh pit of bluechip television stars jostles backstage.
Conan OBrien and Robin Williams,
Alyson Hannigan and Jim Parsons,
Jon Hamm and Sarah Silvermanall
spifed up and squeezing past one another and a few score of other celebrities in the narrow corridor between
the producers station and the green
room. This cant be fre safe, grumbles Hamm, the Mad Men heartthrob,
as he shoulders through the throng.
Maybe not, but a team from Twitter faces a more immediate problem. They spent months negotiating with CBS and Emmy executives
coMPany, eMPloyees,
otHer investors
stake: 44%
Value: $4.4 Bil
for access that resulted in a Twitter

Mirror set up just outside the green
room entrance, steps from the stage.
A tricked-out looking glass with an
iPad embedded in its surface, it lets
honorees and presenters coming ofstage snap and broadcast casual selfportraitsselfesto the 246,000
followers of the @CBS and @PrimetimeEmmys accounts.
Its supposed to, anyway. With 15
minutes left before the 5 p.m. Pacific start time, a full house of iPhonetoting actors and producers has overloaded the Wi-Fi network. Andrew
Adashek, the boyish 36-year-old
ex-TV producer who manages Twitters television partnerships, speedwalks through the crowd, trying to
fnd a solution. Do you know a guy
evan WilliaMs (cofounder)

stake: 12%
Value: $1.2 Bil
named Kevin? Curly hair, tattoos?

he asks one stagehand, who doesnt.
Just as its looking hopeless, one
of Adasheks lieutenants scrounges
a portable wireless hot spot. Bingo.
Moments later, the Deschanel sistersNew Girl star Zooey and Bones
star Emilywander through, fresh
from the red carpet. Hey, lets take
a picture in the Twitter mirror!
Zooey says.
Time check: 4:59 PST.
To its 200 million-plus active
users, Twitter is many things: a social
network, a short-form messaging service, a newswire, a tool for self-expressioneven, some believe, a force
for global political change. But the
company itself seems far more keen
to position itself among its users
Planned PuBlic
sHares (iPo)
stake: 10% (forBes est.)
Value: $1 Bil
Who
Owns
Twitter?
BencHMark caPital sPark caPital

Partners
stake: 5%
stake: 6.7%
Value: $500 Mil
Value: $670 Mil
union square
ventures
stake: 5%
Value: $500 Mil
dick costolo (ceo)

stake: 1.6%
Value: $160 Mil
dst GloBal (yuri Milner)
stake: 5%
Value: $500 Mil
rizvi traverse
stake: 5%
Value: $500 Mil
Jack dorsey (cofounder)
stake: 4.9%
Value: $490 Mil
Gsv caPital
stake: 0.4%
Value: $40 Mil
adaM Bain
(President of
GloBal revenue)
stake: 0.4%
Value: $40 Mil
Williams: Brad Barket/Getty imaGes, costelo: eric millette for forBes,

milner: simon daWson/BloomBerG, dorsey: Jeff koWalsky/BloomBerG, Bain: realtime report
BasED On a
COnsErvaTivE $10
BilliOn pOsT-ipO
valuaTiOn, hErEs
Our EsTiMaTE OF
whO sTanDs TO
havE whaT.
FORBES
twitter
and, even better, potential usersas a
TV companion, an indispensable tool
to keep up with, discuss and even infuence the outcomes of shows and
live events like sporting contests and
political debates. This second-screen
experience turns TV into a participatory activity, allowing Twitter users
to broadcast wisecracks, critiques and
theories in real time; the networks,
in turn, share the behind-the-scenes
worlds of writers rooms and dressing
rooms, 140 characters at a time.
As weve grown, its become
more and more clear to us that the
characteristics that make up Twitterpublic, real-time and conversationalmake it a perfect complement to television, says CEO Dick
Costolo. TV has always been social and conversation-driven. Its
just that in the past, the reach of
that conversation was limited by the
number of people in a room or who
you could talk to on the phone or the
next day at the watercooler. Broadcasters have come to understand that
Twitter is a force multiplier for the
media theyve created.
And a force multiplier is exactly
what Twitter itself needs. While its
recent S-1 fling contains the rapid
revenue growth analysts were expecting, it appears to be nearing a
wall. The average price of an ad has
been plummeting, down 46% in the
most recent quarter. To ofset that,
Twitter needs more eyeballs, but in
the U.S., where it makes the vast majority of its money, user acquisition
has stalled out, with only a 2% gain
in the last quarter. Americans now
make up just one-fourth of Twitters
participants. People have a popular
awareness of Twitter, but they dont
always know how to use it, says
eMarketer analyst Debra Aho Williamson. Its a very difcult language
to learn for the average user.
As revenues threaten to plateau,
red ink pools. numerous reports that
Twitter was already proftable proved
to be of base. Wildly. net losses, driv74 | FORBES OCTOBER 28, 2013
en by heavy capital expenditures and

R&D costs, totaled nearly $70 million
in the frst half of the year. Facebook,
by contrast, was clocking annual profits of $1 billion when it went public
in 2012. For moneylosing Twitter to
sell itself to the public at a $10 billionplus valuation, as it intends, it needs
to sell a new business model. TV is
Twitters panacea.
HE FIRST SCREEn IS
a more-than-willing
partner in pushing the
second-screen experience. yes, Americans
still watch unholy amounts of TV
programmingabout fve hours a day
per person, according to nielsen
but as the what, when and how
changes rapidly, the model is coming
apart at the seams.
In many ways television shouldnt
even be called television anymore.
Video would be more apt. More
than a third of TV viewers watch
programming each day on laptops,
smartphones and tablets, according to
Frank n. Magid Associates. And live
the digital video recorder empowers

those watching on their own schedule
to skip the commercialsa DVR sold
by Dish network, the nations thirdlargest TV provider, even lets users
skip past commercials in prime-time
shows automatically.
Over all this looms the specter of
so-called cord-cuttingthe practice
of canceling cable or satellite service
and relying entirely on the Internet
for your video needs. For now its a
marginal phenomenon, representing
less than 5% of the market, according
to studies by Magid and the Convergence Consulting group. But its prevalent enoughan over-the-Internet
service called Aereo lets users without a pay TV subscription, or even
a TV set, record network television
shows and stream them to a variety of
devicesthat the number of pay-TV
households nationwide has shrunk
for the frst time in the modern media
era. With cord-cutting dramatically
more common among under-30 consumers, the trend will accelerate.
It gets worse: Internet services
like netfix, Hulu and Amazon are
The characteristics
that make up Twitter ...
make it a perfect
complement to television.
TV? not in an age of on demand.
Its taken as a given by all parties
that viewers ought to be able to access
their favorite TV shows however they
prefer. But that makes ratings hard
to measure and has prompted a turf
war (digital streaming rights were a
bone of contention in this summers
standof between Time Warner Cable
and CBS, which resulted in the network being blacked out in millions of
homes for weeks). More ominously,
producing original premium content that holds up against anything

HBO or PBS is putting out. netfixs
House of Cards, nominated for this
years Emmy Award for best dramatic series, was a game changer. The
seal has been broken, says Larry
Tanz, CEO of Vuguru, an Internet
video studio owned by former Disney
chief Michael Eisner. Its the frst
time the fact of what network it was
on doesnt matter to people. If net-
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*In determining the funds on the MONEY 70, the staff of MONEY Magazine based its decision on each funds fees, stewardship, experienced managers, and performance. The ending
date for performance was 12/10/12. Note: The 11 T. Rowe Price target-date retirement funds are counted as one fund on this list. (The T. Rowe Price Retirement Income Fund is not
considered a target-date retirement fund.) From MONEY Magazine, January/February 2013 2013 Time Inc. MONEY and MONEY 70 are registered trademarks of Time Inc. and are used under
license. MONEY and Time Inc. are not afliated with, and do not endorse products or services of, T. Rowe Price. **The same nine funds made MONEY Magazines 2012 MONEY 70 list, with the
exception of the Diversied Mid-Cap Growth Fund; last year, the International Bond Fund was included on the list.
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MON081930
FORBES
twitter
fix were a channel, the 87 minutes
per day that the average subscriber
spends streaming the service would
make it one of the most-watched
cable networks.
google, Microsoft, Facebook,
yahoo and AOL all smell blood. The
money here remains massive: While
Americans now spend more time
on the Internet than they do watching television, advertisers still spend
the fattest chunk of their budgets
on TVby far. Television currently
captures 39% of all U.S. ad spending,
some $66.4 billion, according to research frm eMarketer, versus $42.3
billion for digital media.
So google has spent more than
$100 million in the last two years
seeding its youTube with premium
series and channels, many of which
can compete for quality with network
fare but are far more targeted. yahoo
and AOL have also made big investments in video series and, like youTube, now hold annual newfronts
that compete with the traditional networks presentations to advertisers.
Facebook is even more direct: Drawing on a nielsen survey which found
that more 18- to 24-year-olds access
Facebook during evening prime-time
hours than watch ABC, CBS, nBC
and Fox combined, it will soon start
selling video adsi.e., commercials
priced at up to $2.5 million per day.
Twitters message to the networks
is diferent, and it is well short of 140
characters: We come in peace; lets
make money together. Lots of tweeting when a show frst airs transforms
TV into what it used to be: an event
that others scramble to join live. Live,
of course, means viewers cant skip
the commercials (which separately
explains the soaring prices of sportsprogramming rights). And when the
commercial is followed up by an ad on
Twitter, the company says, the viewer proves more likely to buy whats
being advertised. We help marketers
win the moment, says Adam Bain,
Twitters head of revenue.
TVs Top Ten Twitter Stars

whEThEr ThEyrE prOMOTing ThEir shOws Or jusT ThEMsElvEs, MOrE Than 150 MilliOn FOllOwErs arE lisTEning.
Jennifer lopez @Jlo
ellen deGeneres @theellenshow
Followers: 24.3 million
recent tweet: i know its
been a long wait, but

#astepaway is coming
soon to @mynuvotv!!
cant wait for you to get
to know @jlodancers! #BestintheBiz
recent tweet: im excited

to watch american
Horror story tonight. i
know its gonna scare the
pants of me. Which is
why im wearing two pairs of pants.
oprah Winfrey @oprah
kim kardashian @kimkardashian
recent tweet: so many
recent tweet: obsessed
people do that hold

their feelings inside.
and the truth is
vulnerability is where
your true power lies. #fixmylife
with my quick
fx essential! the
#kardashiansunkissed
instant sunless spray
is everything!!!
ashton kutcher @aplusk
ryan seacrest @ryanseacrest
recent tweet: yesterday
was todays author and

today will be tomorrows
but we each hold our
own pen.
recent tweet: orange is
the new black is the new

gluten free diet
tyra Banks @tyrabanks
ashley tisdale @ashleytisdale
recent tweet: so you
know when youre

soothed by the sound
of a fountain but then
are like, that kinda
sounds like a toilet
recent tweet: Guys that
play guitars r hot
Jimmy fallon @jimmyfallon
charlie sheen @charliesheen
recent tweet: thank
you, crocs, for being

a terrifying animal
and an even more
terrifying shoe.
#thankyounotefriday
recent tweet: think my
twitter acct was hacked

dog and Beth do what?
who efn cares! weve
seen the fake hair and
the utility belts! (its me again) btw c
FORBES
twitter
WITTER, BORn In 2006,
has followed the classic hockey-stick trajectory. Its original

creator, programmer
Jack Dorsey, developed it as a way of
broadcasting SMS text messages of
up to 140 characters to groups via the
Web. At the time, Dorsey was working with google veterans Evan Williams and Biz Stone at Odeo, a podcasting company. As the new service
started to gather users, the three
bought the assets of Odeo from their
investors and launched Twitter as
its own company. Early investors included Marc Andreessen, Ron Conway and Union Square Ventures.
It took more than two years
for the service to register its frst
billion tweets; 11 months later the
5 billionth was sent. As the platform
grew, its users came up with innovations that its engineers turned into
core features, including the retweet,
a way of resharing another users
message to ones own followers, and
the hashtag, a label that makes messages searchable.
In 2010 Twitter fipped the revenue switch, allowing marketers to
pay to have their tweets promoted in
users streams. Before long they could
also buy promotion for their accounts
and placement in the sites list of
trending terms. But as the company
was getting its business legs under it,
it was also undergoing turmoil at the
top: that October Williams stepped
down as CEO, and Costolo, who as
COO had spearheaded the monetization push, replaced him.
Within a few months Williams
and Stone left the company; Dorsey
remains involved as executive chairman but splits time with his new
startup, the mobile-payments service
Square, which quickly encompassed
a larger part of his paper fortune.
The revenue-focused Costolo is now
the companys driving force.
As the S-1 makes clear, his original promotion-buying model has its
fnancial limits. The downward pressure on ad rates, along with fat U.S.
growth, in theory requires throttling
more promotions into each users
streamsundermining the experience that drew people to Twitter in
the frst place. Enter television. Bain,
Twitters revenue chief, chides his
new media rivals for their wrongheaded adversarial posturing. Adds
Costolo: Technology companies
have traditionally looked at other
forms of media as something to be
disrupted or disintermediated.
ATCHIng TV WITH A
computer, smartphone
or tablet in hand is
rapidly becoming
mainstream behavior; 55% of respondents in a study
by PricewaterhouseCoopers reported doing so at least some of the time.
Dozens of companies have sprung
up to give these multiscreen viewers
a way to talk about and delve deeper
into the shows they love and discover
new ones. They have names like getglue, Fanhattan, BuddyTV and Zeebox. But TV programmers dont have
much use for most of them. Television, being a national medium, needs
a national companion to be viable,
says J.B. Perrette, chief digital ofcer
Its the
frst time
the fact of
what network it was
on doesnt
matter to
people.
of Discovery Communications, and

theres not many that have that.
Enter Twitter, whose users, unlike
Facebooks, see one anothers posts
in real time, which allows for spontaneous public conversations. Those
conversations frequently center on
television: In one study of users in
the U.K. a full 40% of tweets mentioned TV shows. In 2012, 32 million Americans tweeted about TV,
according to nielsen. When enough
people are interested in talking about
the same show at once, the results
can be impressive.
In June about 3 million people tuned in to Discovery to watch
acrobat nik Wallendas tightrope
walk across an Arizona gorge. As he
crossed, the rate of activity on Twitter rocketed, peaking at 40,000 messages per second as the walk neared
its conclusion. By the end the event
drew an audience of 13 million viewers and generated 1 million tweets.
While its impossible to determine
how many viewers tuned in after seeing tweets about it, Discoverys Perrette attributes at least some of the
spike to not having to wait until tomorrow to be part of the watercooler
conversation. The network fed the
fre by posting celebrity tweets on the
broadcast during Wallendas walk.
Discovery is one of more than 40
networks that Twitters TV team,
led by Fred graver, meets with at
least quarterly. A former programming executive at MTV networks, he
holds regular boot camps to teach
producers and writers about the
platform, coaches actors and hosts
on using it to build their personal
brand, suggests social media integrationswhether featuring viewers
tweets on air or letting them vote by
tweetand helps remove any technological obstacles to implementing
them. Its a little bit of a brave new
world, graver says. Weve never all
gone camping together before.
The purest expression of Twitters
lets-proft-together philosophy: Am-
FORBES
twitter
plify, a program used by more than
35 networks and other broadcasting
partners to distribute short videoclips. Each clip is preceded by a short
ad, which Twitter and the partner
sell jointly.
Heres how it works: Say Detroit
Lions receiver Calvin Johnson scores
a spectacular touchdown during a
Thursday night game on the nFL network. The league, an Amplify partner,
tweets out a clip to its 5.1 million followers with a six-second commercial
for Pepsi and pays to have it promoted. The league and Twitter both make
moneytheyve already booked more
than $10 million in commitments
and the nFL network gets the beneft
of added viewership from users who
see the tweet and opt to tune in.
Essentially, the league has turned
its own promo into inventory it can
monetize. Meanwhile, Twitter gets to
serve its users premium video content it didnt have to buy. Its a great
consumer experience, says Bain, the
revenue chief. Tweets help drive
sumably encouraging ad buyers to

carve out a chunk of their budgets for
social media follow-ups.
you might have 500,000 people
watching a specifc episode of Breaking Bad, but you have millions of people participating in a conversation
around it, says Bonin Bough, head of
global media and consumer engagement at the packaged-goods giant
Mondelez International, whose company has seen efectiveness for TV
spots double when accompanied by a
social media push.
Mondelez scored one of the great
spontaneous marketing coups of recent years following this philosophy. When the lights went out at the
Super Bowl this past February, Mondelezs Oreo brand, a Super Bowl advertiser, pushed out a tweetPower
out? no problem. you can still dunk
in the darkthat instantly went
viral, retweeted more than 14,000
times. We efectively won the largest advertising platform in the United
States, says Bough. Thats a mas-
Twitters TV strategy is
probably the best revenue
story theyve got right now.
ratings, and interesting content helps
drive tweets. Its a self-propelling
ecosystem.
In February, though, Twitter
moved aggressively past just promoting content, paying $67 million for
Bluefn Labs, a startup that used semantic analysis to tie social media
chatter to television (Bluefn cofounder Deb Roy became Twitters
chief media scientist). This technology allows marketers to push ads
to Twitter users who have recently
watched television commercials for
the same products, reinforcing the
message while its freshand pre80 | FORBES OCTOBER 28, 2013
sively concrete win for us.

Companies like Mondelez will
soon be able to measure the efect.
nielsen bought another analytical
startup, Socialguide, last year, and
will shortly unveil the nielsen Twitter
Television Rating. Developed in concert with Twitter, it purports to weigh
the social engagement around TV
content. Bain will now try to sell marketers on a Moneyball opportunity:
buying shows with lower traditional
ratings but with more interaction
with the balance of their ad budgets
coming over to Twitter. Broadcasters will presumably begin garner-
ing higher rates for shows previously

considered just beloved runts.
HE POST-IPO TWITTER will look dif-
ferentliterally. For its

new television era the
company has been testing out diferent designs, include a TV
trending box that appears in users
timelines to highlight popular shows
and a stream that allows users to
view only TV-related discussions.
Such moves will be necessary to justify a valuation akin to that of a hot
Internet stock, despite an S-1 that
confrms domestic growth has slowed
to a crawl. About 14 million people
signed up last quarter13 million of
them were from overseas, where each
user proves only about one-seventh as
lucrative.
According to Brian Blau, a technology analyst at gartner, Twitters
TV strategy is probably the best revenue story theyve got right now,
and it could solve their audience
issue, too. If all of these shows start
to advertise Twitter as part of their
marketing and branding, it could
drive users, because they have a lot
more viewers than it has users, he
says. How much money does Blau
think is at stake for a company that
next year will take in $950 million,
according to eMarketers projection?
Could it be a billion-dollar business
for them? Thats hard to imagine in
the near term, but the skys the limit.
That seems to be the forecast for
its IPO price as well, which explains
why Twitter will grab every watt of
borrowed star power it can get. Back
at the Emmys, theres plenty on hand.
Breaking Bads Bryan Cranston stops
by the Twitter Mirror for a quick
snap. So do Claire Danes, Stephen
Colbert, Kerry Washington and even
Bob newhart. When someone asks
Conan OBrien to pose, he quips, Social media? That stuf is never going
to catch on. Then, like everyone else,
he steps up and mugs for his selfe. F
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FORBES
If we hadnt pivoted,
wed be out of business today:
Shutterfy cEo Jefrey Housenbold.
82 | FORBES
OCTOBER 28, 2013
THE LIST: page 86
EnTrEprEnEurS cLInIc: page 90
credit here
50 Best small COmpanies
mILd IndIgESTIonAnnIES: page 92
THE cHIpS ArE upInvEnSEnSE: page 98
Darwins
Digital Darlings
Some dinosaurs from Web 1.0 that you probably thought were
long dead have surged back onto our annual list of Americas
Best Small Companies. Heres how they survivedand thrived.
eric Millette For Forbes
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50 Best small COmpanies stAMps.cOM, shutterfly, j2 glObAl
wo weeks into his new job,

Stamps.coms CFO Ken McBride
started slashing the frst of 485
workers87% of the staf. It was
October 2000, six months after
the initial popping sounds of the dot-com implosion, and the electronic-postage company
was spurting gobs of red ink. Just a year earlier
Stamps.com had gone public, raising a staggering $450 million in two oferings.
Back then investors didnt seem to care that
the company had lost $56 million on revenue
of $358,000 in 1999; they bid up the share price
to $88. But within a year the price had fallen to
$2.25. Almost the entire senior management had
quit. Hundreds of Aeron chairs sat empty in the
companys 90,000-square-foot headquarters in
Santa Monica, Calif. Stamps.com fnished out
2000 losing $213 million on $15 million in revenue. It was not a fun time, says McBride, 45,
who has been CEO since 2001.
The succeeding years havent always been
amusing, either. But today, after years of refocusing, Stamps.com has determinedly pulled out
of a death spiral, netting $33 million on revenue
of $123 million over the most recent 12 months.
So, too, have a couple of other members of our
annual list of Americas Best Small Companies
online photo printer Shutterfy and j2 Global,
the messaging and communications company.
All three were conceived during Web 1.0.
And like many of their dot-bomb brethren and
sisters, they raised obscene amounts of private or public money on the strength of a story,
rather than a business plan, much less a real
product or service. All nearly perished during
the meltdownand by the laws of reason probably shouldnt exist at all today. But the best
entrepreneurial companies have always lived
by their witsoften the diference between life
and deathand can sometimes outlive their
founders. By pivoting, refocusing and acquiring other key companies, Stamps.com (No. 32
on our list), Shutterfy (31) and j2 Global (39)
have all found ways to reinvent themselves, to
surviveand thrive.
Revisiting the 19972000 tech boom is a
cringe-provoking history lesson. In those days
the world was lorded over by the likes of Microsoft, IBM, Cisco and Hewlett-Packard. AOL and
Yahoo were in rapid ascendance. Google was an
idea barely out of a Menlo Park garage. Amazon
and eBay went public then. So did dozens and
dozens of other startups that had no business
86 | FORBES
OCTOBER 28, 2013
coming to life, much less taking investor money. 50 Best

small COmpanies
At the height of the frenzy on Mar. 10, 2000,
in ameriCa
when the Nasdaq closed at 5048.62, just under
400 Internet companies had a total market
1 QuEsTcOR
PHARMAcEuTIcALs
capitalization of $1.3 trillion. By Oct. 9, 2002 the
anaheiM hills, ca
tech-heavy index had scraped 1114.11.
pHArmAcEuTIcALS
Helping to pull it down were some hideous
$621
51%
41%
kEY
ideas and paragons of
REvENuEs IN MILLIONs
sALEs GROwTH 5-YEAR AvERAGE
miserable execution.
EPs 5-YEAR AvERAGE
2 GRAND cANYON
Among them:
EDucATION
Pets.com raised $83 million in a February
phoenix, aZ
2000 IPO and spent millions in TV commercials
HIgHEr EducATIon
fronted by its sock puppet. It didnt sell much in
$558 39% 104%
the way of dog food and kitty litter, though, and
3 PROTO LABs
had to liquidate that November.
Maple plain, Mn
Backed by gold-plated venture capital frms,
cuSTom pArTS mAkEr
online grocery business Webvan went public in
$143 30%
51%
March 2000, raising $375 million, but expanded
4 INvENsENsE
far too quickly and went bankrupt in July 2001.
san Jose, ca
SEmIconducTorS
Jef Bezos resurrected it in 2007 as Amazon$225 86% 205%
Fresh.
Founded in 1994 as Beverly Hills Internet,
5 sTuRM, RuGER & cO.
GeoCities grew into the third-most-popular
southport, ct
gunS
website (as a way for users to group content)
$595
24%
54%
when Yahoo bought it for $3.6 billion in January
1999. It died slowly over a decade.
6 EPAM sYsTEMs
newtown, pa
But out of the wreckage there also emerged
InformATIon TEcHnoLogy
some notable public and private survivors, bat$493 30%
39%
tle-hardened for their struggles. Priceline.com,
Pandora, eHarmony and Angies List were all
7 cIRRus LOGIc
austin, tx
created in those frothy
SEmIconducTorS
times and adapted re$866 36%
124%
peatedly to stay alive.
8 u.s. sILIcA
Shutterfy of
Frederick, Md
Redwood City, Calif.
InduSTrIAL mInErALS
learned to reboot the
$487 14%
61%
hard way. Founded
9 FLEETcOR
in 1999, it sold and
TEcHNOLOGIEs
mailed prints of digital
cLOsE uP:
norcross, ga
CeO Jason rhode
photos back when an
BuSInESS SErvIcES
has 19 patents in mixedOlympus C-2500L,
$804 20%
20%
signal technologies.
with an astonishing 2.5
Makes audio chips
10 ANNIEs
used in smartphones,
megapixels, sold for
berkeley, ca
camcorders, tablets and
food producTS
just under $2,500. The
media players.
$175
17% 204%
startup had pedigreed
Over the next four
years the audio market
backers who included
11 NIc
is expected nearly to
Netscape billionaire
olathe, ks
triple in size.
compuTEr SErvIcES
Jim Clark and Silicon
Apple represented
$238
20%
19%
82% of sales in the
Graphics George
companys
latest
fscal
Zachary, who led ven12 AMERIcAN PuBLIc
year.
EDucATION
ture rounds eventually
charles town, wV
totaling almost $90
onLInE EducATIon
million.
$328 35%
31%
The tech crash was damaging but not fatal.
It was not a fun time: Stamps.com cEo ken

mcBride has been through the lows and the highs.
Shutterfy lost $18.5 million on sales of $7.5

million in 2001, cut 25% of its workforce and
recovered enough to post its frst annual proft
in 2003. A far greater threat came from much
larger competitors: HPs Snapfsh, Kodaks
Ofoto and Sonys ImageStation, which started
price wars as early as 2000, forcing Shutterfy
to give away 85% of the 4-by-6-inch prints for
which it otherwise charged 49 cents. By 2005,
when Jefrey Housenbold, 44, became Shutterfys fourth CEO, 58% of the companys sales
came from prints, the 4-by-6s now down to 19
cents an image. Our margins were shrinking,
and we had to diversify, Housenbold recalls.
He had to do it quickly, too, since investors
were nudging Shutterfy to go public. The frst
day on the job I had a 30-minute introduction to
the company, and I spent the rest of the day interviewing banks. A closer look at the fnances
revealed the obvious: The photo print business
was rapidly approaching a vanishing point.
Housenbold, an eBay and AltaVista veteran,
had the stature to sway investors and rethink
the company. Shutterfy had recently launched,
but not pushed, a $29.99 photo book. Why not
also ofer an array of high-margin personalized productscalendars, greeting cards, slide
shows, apparel and photo-based items? If we
hadnt pivoted, says Housenbold, wed be out
of business today.
Peddling new products via advertising and
diferent combinations of direct and integrated
marketing, Shutterfy also made strategic ac88 | FORBES
OCTOBER 28, 2013
quisitionsseven of them in the last two years.

50 Best
small COmpanies
There must have been some survivors glee in
in ameriCa
snapping up Kodak Gallery (formerly Ofoto),
Fujis SeeHere and Sonys ImageStation. Its most 13 BOsTON BEER
boston, Ma
critical buy may have been the $333 million it
ALcoHoLIc BEvErAgES
spent in 2011 for Tiny Prints, which makes cards
$637
11%
42%
kEY
for weddings and births.
REvENuEs IN MILLIONs
sALEs GROwTH 5-YEAR AvERAGE
In the frst seven months
EPs 5-YEAR AvERAGE
1 million customers spent
14 cLEARFIELD
plyMouth, Mn
$93 million. Turns out that Tiny Prints also
communIcATIonS EquIp.
feeds new revenue for photo books and other
$45
15%
42%
products.
15 sOLARwINDs
The recent purchase of Penguin Digital, a
austin, tx
mobile-app-development company, and ThisSofTwArE
Life, a cloud-based photo-sharing and storage
$296 33%
34%
service, is nudging Shutterfy in promising new
directions. The company is investing $35 million 16 MEDIFAsT
owings Mills, Md
or so in new smartphone and tablet services.
wEIgHT-LoSS progrAmS
And to level out seasonal bumpsmore than
$367 36%
43%
half its revenue comes in the fourth quarter and 17 LuMBER LIQuIDATORs
30% between Thanksgiving and Christmas
toano, Va
rETAIL
Shutterfy is now earmarking production in of$902 14%
21%
peak months for so-called enterprise printing:
direct mail for the likes of Dell, AT&T and the
18 PORTFOLIO REcOvERY
AssOcIATEs
Gap. While this segment has recently doubled, it
norFolk, Va
still makes up only 5%
BuSInESS SErvIcES
of its $700 million in
$657 22%
22%
sales and, we estimate,
19 sYNAPTIcs
a negligible share of
san Jose, ca
its $18 million in net
compuTEr HArdwArE
profts.
$664
11%
25%
J2 Global has also
20 sYNTEL
been buying its way
troy, Mi
InformATIon TEcHnoLogy
cLOsE uP:
into higher-margin
CeO steve Fredrickson
$766
17%
20%
businesses. Founded in
cofounded the
1995 as a way to deliver
21 wINMARk
company in 1996.
Minneapolis, Mn
buys pools of
faxes through e-mail,
rETAIL
defaulted consumer
the company began as
receivables.
$55
11%
57%
a cheaper alternative
spent $200 million in
22 cOMMvAuLT sYsTEMs
the second quarter on
to owning and operatoceanport, nJ
portfolios with a face
ing a fax machine.
SofTwArE
value of $3.2 billion.
Today, incredibly, it
has acquired 33
$519 20%
23%
million accounts since
still processes more
23 8x8
its launch.
than 1 billion faxes a
san Jose, ca
year for lawyers, docTELEcom SErvIcES
tors and others who rely on delivery confrma$112
11%
272%
tion and phone records.
24 IPG PHOTONIcs
During its yeasty days everyone was readoxFord, Ma
fIBEr opTIcS
ing every day about everybody making millions
$611
26%
45%
online, recalls Hemi Zucker, j2s CEO, who
joined in 1996. Cofounded a year earlier by Jaye 25 TYLER TEcHNOLOGIEs
dallas, tx
Muller, a musician who kept missing his faxes
EnTErprISE SofTwArE
and voicemails while on tour, JFax (as it was
$388
9%
21%
then known) began in a one-room ofce in Man-
robert gallagher For Forbes (leFt)
50 Best small COmpanies stAMps.cOM, shutterfly, j2 glObAl
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hattans SoHo. After receiving $25 million

in private rounds of funding, the company
moved to Los Angeles and went public in
July 1999, raising $74 million.
The good times didnt last. J2 racked
up losses as its stock price plunged 97% to
28 cents. Under threat of being delisted by
Nasdaq, the company did a 4-for-1 reverse
split of its shares in February 2001. To stay
alive, j2 acquired its chief rival, eFax, in
late 2000 and jacked up prices on eFaxs
100,000 customers. Zucker also halved his
$8.7 million ad budget, equivalent to 62%
of its revenue. I was almost fred because
I started to fght the idea of paying $1 million a quarter each to Yahoo and AOL, he
recalls. Profts came in 2002.
Cost-cutting carried j2 only so far. EFax
added branded products to a mix of e-mail,
fax and voice messages over the Internet.
Zucker has bought 40 or so companies
since, taking j2 into document management, e-mail hosting and marketing services, conference calls, business cloud services, even digital media (the company now
owns publisher Zif Davis). Everybody
says fax is not sexy, but it makes a ton of
cash, says Zucker, 66. That ancient mode
of communication still accounts for 58% of
j2s $446 million in annual sales and more
than 50% of its $121 million in net income.
Like j2, Stamps.com rediscovered its
greatest strength in a core business, though
it took much longer to fnd its way. Between 2000 and 2006 Stamps.com went
on very expensive detours into a shipping
company, an outft to print tickets and
vouchers, a venture in Dutch postage and,
most notoriously, personalized PhotoStamps (which it still sells). Focused on
small and home businesses, Stamps.com
now ofers lots of services around postage,
including printers, toner, scales, labels and
insurance.
Just one little problem, of course: the
companys total reliance on the U.S. Postal
Service, which lost $15.9 billion in the latest fscal yearand just defaulted again on
the $5.6 billion it owes its health care fund
for retirees. Its a challenge, concedes
McBride, the CEO. But having hopped from
crisis to crisis for more than a decade, hell
probably fgure something out. F
90 | FORBES
OCTOBER 28, 2013
entrepreneurs CliniC
fifer
How do you charge up your

employees? Here are top
motivational secrets from
C-suite stars on our list.
mike FiFer, sturm, ruger & CO.
(nO. 5) the most important incentive is
proft-sharing for all our employees and

contractors. We allocate 15% of pretax
profts every quarter. the frst year it
averaged less than 5% of pay. Now its
more than 30%, and everyone is pulling
together in the same direction.
Bryan shinn, u.s. siliCa hOlDings
Shinn
(nO. 8) recognize the small things. you
dont have to wait until someone has a

major accomplishment. Dont be afraid
to challenge the rules or do something
unconventional around reward and
recognition. just calling somebody up
to say, thank you, or fnding out what
they like to do in their spare time and
rewarding them with itthat really goes
a long way and can be tremendously
motivational for a team.
koch
Beranek
Jim kOCh, BOstOn Beer COmpany

(nO. 13) the best way to motivate is
to lead by example and encourage

creativity. I call it the string theory.
In the middle of graduate school I became an instructor with Outward bound. At
the beginning of each four-week course I gave everyone a supply of Alpine cord (a
kind of string for lashing gear, pitching tarps, etc.). consistently, if I gave my group
plenty of string, they would run out and need more. but if I gave them less and told
them they had only two-thirds of what they really needed, they would get incredibly
creative and make that cord last. I learned that culture and values can substitute for
money and resources. since we were on a tight budget in the early days, we used
every piece of string we had, and that created a corporate culture of innovation
and creativity. Ive found that this motivates people to do the best and achieve terrifc results with what they are given.
Cheri Beranek, ClearFielD (nO. 14) In the early days we didnt have many suc-
cesses, so we hung a ships bell that we ran with every $10,000 order. later, as
we grew, we hung a $100,000 bell. When we got our frst million-dollar order, we
didnt yet have the $1,000,000 bell. but today, all three hang on our sales foor to
remind us where weve beenand where we need to go. the culture of celebration
builds upon our philosophy that while we may feel like a family, we choose to operate our business as a small town, with each individual motivated
to make active choices to continue to belong to the groupnot
feeling any level of entitlement.
to read more ENTREPRENEuRs cLINIcs scan the code here or visit
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50 Best small COmpanies AnnIES, nuMBER 10
mild indigestion
This natural foods maker has discovered the double-edged phenom of

innovation: New products fuel growthand nasty competition.
BY MEGHAN CASSERLY
ERIC MILLETTE FOR FORBES
I live in a state of paranoia,

says Annies CEO John Foraker.
Were watching our fanks.
IF THE NUMBERS
HAD A VOTE,
THEYD
MOVE HERE.
Numbers dont lie. Iowa has one of the nations lowest costs of
doing business. Were a right-to-work state with a cost of living
thats below the national average. Ours is an environment built
for businesses to prosper. Its why our advanced manufacturing
exports are up 179%. Why the growth of our bioscience
companies has far outpaced the nation. Why were home to over
94,000 of the nations most savvy finance and insurance pros.
Why our diverse economy is third in the nation in job growth.
Dig more into the numbers at iowaeconomicdevelopment.com.
With numbers like these, no wonder were Iowa Nice.
iowaeconomicdevelopment.com
iowaeconomicdevelopment
businessiowa
50 Best small COmpanies AnnIES
hen CEO John Foraker

describes his 14-year
stewardship of Annies,
he sounds like hes losing his mind. I live in
a state of paranoia, he says of competitors
that nibble like piranhas at his healthy
food products. Im as obsessed with the big
CPG companies as I am with the up-andcoming brandsKraft Foods on one side,
smaller consumer packaged goods like Back
to Nature Foods on the other. As they say
in Catch-22, Just because youre paranoid
doesnt mean they arent after you.
A little maladjustment goes a long way in
this business. Over the last fve years sales
have steadily grown at a 17% average annual
clip. In the latest 12 months Annies earned
$11 million on $175 million selling nearly 150
healthier alternatives to junk food. (While its
meals, snacks and dressings claim zero artifcial favors, preservatives or GMO products, its
signature mac-and-cheese mix loses to Kraft on
calorie count and fats, saturated and otherwise.)
As more Americans grab organic foods,
Annies continued success seems probable. So
does Forakers recurring nightmare: that the
better he executes and the faster he expands,
the more competition he creates. To stay
ahead, weve got to constantly move forward
and put as many points of diferentiation between us and them as possible, he says.
Annies wasnt originally conceived as an usversus-them proposition. Back in 1989 Annie
Withey and then husband, Andrew Martin, had
just sold Smartfood, a white cheddar popcorn,
to Frito-Lay for $15 million or so. An experiment using Kraft macaroni and Smartfoods
powdered cheddar yielded a tasty dinner for
the coupleand a new business, as Withey and
Martin peddled their wares at festivals and
food co-ops along the East Coast.
In 1995 Annies Homegrown completed a
direct public ofering, a little-used means of
raising money from customers. Advertised
with fyers in boxes of mac and cheese, the
DPO raised $1.3 million. Three years later, with
sales approaching $6 million, the company
came to the attention of Foraker, a recent University of California, Berkeley M.B.A. grad who,
with friends, had built Homegrown Natural
Foods, a $10 million (sales) company ofering
favored olive oils and mustards. Foraker was
looking for a new brand.
Annies, meanwhile, was in a jam. As a pub- 50 Best

small COmpanies
lic, but not publicly traded, company, it was
in ameriCa
having trouble raising capital, critical to jumpstarting fat sales. In 1999 Foraker and Home26 FoRtiNEt
SunnyvALE, CA
grown invested $2 million, with an agreement
NEtWOrk sECurIty
over time to buy out shares held by Withey and
$571
28%
49%
Martin and take Annies
kEY
REvENuES iN MiLLioNS
SALES GRowtH 5-YEAR AvERAGE
private. Within months
EpS 5-YEAR AvERAGE
Martin was out and
27 GLoBuS MEdiCAL
AuduBOn, PA
Withey relegated to the title of inspirational
MEdICAl dEvICEs
president. The company began distributing
$407
25%
63%
to chains like Costco, Kroger and Safeway. So
began the Paranoid Era.
28 SS&C tECHNoLoGiES
WIndSOR, CT
By 2002, a lousy year for IPOs and equities,
FINANCIAl sOFtWArE
Foraker needed expansion capital. In stepped
$688 15%
37%
Molly Ashby, whose Solera Capital invested $23
million for a majority stake, folding in Forakers 29 opENtABLE
SAn FRAnCISCO, CA
other foodstufs and moving the company from
ONlINE rEsErvAtIONs
Boston to Berkeley.
$174
33%
11%
Three years later
30 ALLiANCE FiBER
Ashby and Foraker
optiC pRoduCtS
led a buyout of AnSunnyvALE, CA
nies Naturals, organic
FIbEr OptICs
salad dressings and
$56
7%
21%
condiments made by a
31 SHuttERFLY
CLoSE up:
diferent eponymous
REdWOOd CITy, CA
CeO sig anderman
INtErNEt rEtAIl
cofounder, Annie
has created four
$700 28%
21%
companies, this one
Christopher of North
launched in 1997.
Calais, Vt. (Its been
32 StAMpS.CoM
Originates 20% of the
a so-so acquisition:
LOS AngELES, CA
nations new mortgages
INtErNEt sErvICEs
every year.
Those categories still
Its stock is up 400%
$123
6%
38%
drive just 14% of total
since its initial ofering
sales.)
33 Bio-REFERENCE
in 2011.
LABoRAtoRiES
According to a recent
Came the food
ELMWOOd PARk, nJ
report, the company
wars. Pushing new
lAb tEstINg sErvICEs
hired Morgan Stanley to
products, Annies hired
put itself up for sale.
$699 22%
26%
Bob Kaake, a former
34 ELLiE MAE
executive at PowerPLEASAnTOn, CA
Bar and Nestljust
MOrtgAgE sOFtWArE
in time to deal with
$122 20%
89%
Krafts 2006 launch of its organic mac-and35 CoMputER pRoGRAMS
cheese dinner, almost instantly becoming the
& SYStEMS
industry leader. When the food giant quickly inMOBILE, AL
HEAltH CArE sOFtWArE
troduced single-serving Easy Mac Cups, Annies
$196
12%
18%
decided to one-up Kraft by developing a version
with natural ingredients. Not so easy.
36 ECHo GLoBAL
We just couldnt fgure it outwed work
LoGiStiCS
ChICAgO, IL
on it and shelve it and take it back out when
lOgIstICs
new products became available, recalls Kaake.
$832 50%
39%
It was a portion of the market that was expe37 dAtALiNk
riencing serious growth, and we couldnt play.
EdEn PRAIRIE, Mn
It was incredibly frustrating. After seven years
COMputEr sErvICEs
of tinkering with formulationsas Kraft sped
$534 24%
38%
further aheadAnnies landed in 15,000 stores
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A passion for natural foods inspired the companys

eponymous cofounder, Annie Withey, back in 1989.
this past July.

Sometimes getting out in front of a trend is
just a matter of hustle. In 2010 we knew that
whole grain was getting more attention, and so
we updated our cookie products to include 8
grams of whole grain per serving, says Kaake.
Snack sales have since more than doubled to $67
million.
While Foraker and Kaake boast about Annies R&D budget of $2.8 million (1.6% of sales)
its laughable next to Krafts $178 million spend.
They talk less about small but useful ideas provided by Annies little army of suppliers who
make all their products. Pasta guys are coming
to them saying, Ive got a gluten-free, quinoa,
faxseed whatever, and Annies food scientists
are sitting back going, Okay, lets tweak this,
explains Mitchell Pinheiro, an analyst with
Imperial Capital and a fan of the company. In a
way, theyve outsourced their R&D for free because their suppliers want their business.
Brand extensions in this business arent
exactly seismic breakthroughs. Theyre not
doing a lot of actual product innovation, says
Laurie Demeritt, CEO of consumer research
frm the Hartman Group. Theyre looking to
their right and their left on the shelf and doing
it better or cleaner. Annies skillet dinnersa
packet of organic pasta, spices and cheese to be
cooked with ground meatare simply taking
a page out of the Hamburger Helper playbook,
she says. But its paying of.
So, too, is the recent strategy to age up, to
keep Annies products in households once kids 50 Best

small COmpanies
outgrow nursery school foods. To supplement
in ameriCa
bunny-shaped graham crackers and cheddar snacks, the company has introduced more
38 GEoSpACE
tECHNoLoGiES
grown-up-looking square-shaped incarnations.
hOuSTOn, TX
Frozen pizzas and family-size frozen meals
sCIENtIFIC INstruMENts
like lasagna and a butternut-squash-tinged
$269
8%
22%
kEY
REvENuES iN MiLLioNS
macaroni and cheese are
SALES GRowtH 5-YEAR AvERAGE
EpS 5-YEAR AvERAGE
appearing in 1,700 Target
39j2 GLoBAL
stores this fall. The frozen-food aisle opens up
LOS AngELES, CA
a sliver of a $28.4 billion market.
COMMuNICAtIONs svCs.
$446
11%
15%
New opportunities sometimes lead to minor
mishaps. In January Annies issued a recall of
40 MASiMo
frozen pizzas after its contract manufacturer
IRvInE, CA
MEdICAl EquIpMENt
of crusts discovered metal fragments from a
$525
14%
24%
third-party four mill. The company started
replacement shipments with a new supplier
41 iNvENtuRE FoodS
PhOEnIX, AZ
the following month, but distribution hasnt yet
FOOd prOduCts
reached pre-recall levels. According to com$192
15%
20%
pany flings, the event
42 kEY tRoNiC
whacked $1.4 million
SPOkAnE vALLEy, WA
from its bottom line
COMputEr HArdWArE
this year.
$361
15%
34%
Annies has done
43 doRMAN pRoduCtS
most things right. In
COLMAR, PA
AutOMOtIvE prOduCts
March 2012 Solera
$608 13%
34%
CLoSE up:
Capital took the com CeO Julie smolyansky
pany public again,
44 MANitEx iNtERNAtioNAL
became the youngest
BRIdgEvIEW, IL
raising $109 million.
female head of a
INdustrIAl EquIpMENt
publicly held frm when,
Investors cheered and
$232
14%
18%
at
27,
she
took
over
her
have bid up the stock
fathers kefr business
45 MESA LABoRAtoRiES
159% since. Dealogic
after he died in 2002.
LAkEWOOd, CO
Russian immigrant
called it the single
sCIENtIFIC INstruMENts
Michael
Smolyansky
best IPO in over a
$47
21%
13%
started making kefr
yearthe hottest since
in his Chicago-area
46 RF iNduStRiES
basement in 1986.
LinkedIn went public
SAn dIEgO, CA
Ofers
the
worlds
in May 2011. Solera
tElECOM EquIpMENt
largest selection of
did very well, indeed:
$40
12%
8%
kefr, a probiotic dairy
beverage.
On the day of the of47 ACi woRLdwidE
Sponsors such major
fering it recouped
nAPLES, FL
festivals as Sundance
FINANCIAl sOFtWArE
$77 million of its $80
Film, SXSW and South
$747
10%
44%
Beach Wine & Food.
million invested over
ten years; subsequent
48 LiFEwAY FoodS
MORTOn gROvE, IL
oferings netted an adFOOd prOduCts
ditional $275 million;
$89
16%
12%
its remaining 15% stake is worth $126 million.
Soleras Ashby credits Foraker. He took this 49 MYRiAd GENEtiCS
SALT LAkE CITy, uT
company through exceptional growth and tranbIOtECHNOlOgy
sitioned himself from entrepreneur at a private
$613 2O%
10%
company to public-company CEO. Foraker appreciates the compliment. But, as youd expect, 50 CoLLECtoRS uNivERSE
SAnTA AnA, CA
success is only feeding his fears: The big food
busINEss sErvICEs
companies are full of really smart people, he
$49
6%
77%
says. Were watching our fanks. F
TOM hERdE / ThE BOSTOn gLOBE vIA gETTy IMAgES (LEFT)
50 Best small COmpanies AnnIES
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FORBES
50 BesT smAll COmpAnies
invEnsEnsE, nuMbEr 4
You will see a
marked diference
in the company:
InvenSense CEO
Behrooz Abdi.
The
Chips
Are Up
A year after a management

shakeup this microsensor
company is chugging ahead.
Now, if it could only get
some of Apples business.
en-year-old InvenSense rarely causes a

ripple on anyones radar. But on Sept. 20, as
Apples iPhone 5s hit retail shelves, industry
players speculated that the San Jose, Calif.
components maker had hit pay dirt, muscling out larger rival STMicroelectronics. Weeks before
the release, anticipating that long-awaited debut, investors bid up the stock 15%.
InvenSense plays in the $9 billion niche of the

semiconductor market called microelectromechanical
systems (MEMS), sensors with moving parts so small
they can be seen only through a microscope. The
components tell your smartphone or tablet if its being
tilted, twisted, shaken, turned left or right and how
fast; compass sensors indicate which way is north and
help power onboard GPS.
Eric MillEttE for forbEs
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Financial Inc.
invensense
Some board members wanted to infuence the direction of the

company; I disagreed: ousted InvenSense founder Steve Nasiri.
As tech bloggers ripped open the latest iPhone to anatomize its guts, a ritual known as a teardown, you could
sense defation. Inside: an STMicro gyroscope, a compass
made by Asahi Kasei Microdevices and a Bosch Sensortec
accelerometer. InvenSense shares opened 3% lower. No
matter. The stock more than recovered within a week
its up 60% this yearas investors recovered their senses.
The company has shipped 120 million or so units this year
to Samsung, Motorola, BlackBerry, HTC, Acer, LG and
the Nintendo Wii70% of multi-motion-sensor Android
phones and 80% of sensing tablets. Over the most recent 12
months it netted $54 million on revenue of $208 million.
Another tumultuous, if little noticed, week in the life
of InvenSense. Hardly anyone seemed to register the seismic change last October, either, when the board ousted
founder and CEO Steve Nasiri and replaced him with
tech veteran Behrooz Abdi. It was a classic entrepreneurial putsch: Get rid of the visionary, do-it-all-yourself guy
and bring on the management expert who can scale the
companyan event that long predates John Sculleys upending Steve Jobs.
Some board members wanted to infuence day-today direction of the company, says Nasiri, 58, who now
consults to startups. I disagreed. Abdi, 51, who did time
at NetLogic Microsystems, RMI Corp. and Qualcomm,
sees it diferently. As we get bigger, it really gets more
complex, he says. People felt it needed a new phase of
leadership. Abdi consults with nine vice presidents before making most decisions.
For a long time InvenSense was Nasiri. The Iranianborn engineer started it with $500,000 of his own in
2003, developing an ingenious MEMS fabrication process that bonded all chip components into one package,
simplifying manufacture and improving quality. Rivals
were making bulky, high-cost products, mainly for carmakers. I looked at that and said, Ah, I can do that better and keep it under $5, Nasiri recalls.
He also bet early on the consumer end, persuading
Artiman Ventures and Partech International to kick in
$8 million. In 2006 Nasiri started shipping gyroscopic
image-stabilization components to Sanyo, Minolta and
Fujitsu for their digital cameras. Two years later its gyroscope sensors were embraced by the Nintendo Wii game
console, adding $50 million to the top line.
Nasiri also had his eye on mobile devices. The arrival of the iPhone, which had an accelerometer sensor,
opened up a market for MEMS chips, but Nasiri found it
hard to strike deals with handsetmakers. They werent
willing to take any bets on any new functions unless
Apple had embraced it, he says. That happened in 2010,
when the iPhone 4 included an STMicro gyroscope. By
then every smartphone producer had to have one, and
Nasiri found work among Android devicemakers.
A 2011 IPO, raising $75 million or so, gave a payout to
VCs and employees, who then owned 37% of the company, and a booster shot to R&D and the sales force.
InvenSense then controlled 10% of the consumer MEMS
market; today its nearly 40%, according to Abdi. And
drawing excellent reviews. Their device is superior,
says Andrew Uerkwitz, an analyst at Oppenheimer.
Whats next? Expansion. Steve brought the company
from the kitchen table to a billion-dollar valuation, says
Joe Seeger, director of MEMS development and an early
hire. Rapidly growing along with worldwide smartphone
sales, sensors should account for almost half of the $12
billion in MEMS chips by 2017.
Over the past year InvenSense has doubled capacity
and added 42 engineers. Its investing heavily in software
that sits on a miniprocessor attached to sensors that handle simple computations that otherwise fall to a phones
or tablets main processor. The sensor should be smart
enough to do at least some lower-level activities and save
the battery, says Abdi.
Sensor technology will push into new areas, like air
pressure and accelerometer devices that augment GPS
and indoor navigation, pedometers that serve as activity
monitors, and image stabilizers for cameras in smartphones. The cloud is getting smarter, says Abdi. Its
going to sense where you are, what youre doing and how
youre doing. Its easy to see how sensors could play a
role monitoring the elderly, along with other health care
applications.
You will see a very marked diference in the future
of the company, he says. Maybe even in the next teardown of an Apple device. F
The venue that

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The stadium activated backstage access
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And the band pushed a gift track to all
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ed
unlocking new business
Battered by p.r. disasters

and shrinking margins,
Micky Arison, the
billionaire chairman
of Carnival, brought
in an agricultural
executive to right the
ship. Now investors are
headed for the lifeboats.
BY CALEB MELBY
THAT
JaSon MyerS For ForBeS
ate on Valentines Day

Micky Arison, Carnival
Corp.s billionaire chairman and CEO, fnally lost
his grip on his company.
Three tugboats were dragging the Carnival Triumph into Mobile, Ala. to unload 3,143 exhausted passengers after a
fre destroyed the ships power and propulsion systems, leaving them stranded at sea for fve days. Raw sewage
leaked from toilets. The air-conditioning stopped working. Passengers moved
their mattresses into hallways, away
from the smell and the still heat of their
rooms. Signs on the deck, painted on
sheets and robes, sent desperate messages via the voracious media: We R
Not OK, R.I.P. Triumph and one particularly apt pun, Ship Happens.
Yet Arison, who inherited the cruise
industrys juggernaut and expanded it by buying up smaller rivals, was
nowhere to be seen. The Miami Heat
owner was on Twitter, blithely reminding fans on Feb. 11 that standingroom-only tickets were available for
an upcoming game against Portland. It
wasnt his frst lackluster performance
during a corporate disaster. When the
Carnival-owned Costa Concordia ran
aground in Italy a year earlier, killing 32 people, Arison was a media noshow, too.
Ive always been a behind-thescenes CEO, Arison told FORBES by
phone from one of his two 200-foot
superyachts, cruising of the coast of
Monaco in August. Ive let the brand
CEOs and the marketing guys be the
The captain
is denitely
courageous:
New CEO Arnold
Donald faces a
daunting list of
to-dos at Carnival.
sinkinG FEELinG
FORBES
on the move carnival corp.
possible to our guests. Others had a

diferent take: Once again, Morgan
Stanley analyst Jamie Rollo wrote, investors need to look at least two years
out to make the shares look cheap,
[and] assume a perfect recovery.
A
Micky Arison
Net Worth:
$5.9 Billion (September 2013)
Age: 64
resideNce: Bal Harbour, Fla.
educAtioN: Dropout, University of Miami
MAritAl stAtus: Married
childreN: 2
oN Forbes lists: no. 70 on Forbes 400
(no. 68 in 2012); no. 211 worldwide
ing. A month later Donald remained

irrepressibly on message during an
interview with FORBES at Carnivals gleaming glass headquarters in
Miami. We need to get back to what
this is about, he says. This is vacation. This is fun!
Some vacation. Donald has to cut
costs, rationalize a hodgepodge of
brands, make Carnivals huge feet
more fuel-efcient and draw recession-weary vacationers back aboard.
Underscoring the degree of difculty, in late September Carnival announced a 30% earnings drop in its
third-quarter results and forecast
fourth-quarter income below analyst
estimates. Donald kept a brave face
in a note to FORBES after the results,
saying long term fundamentals are
sound and our opportunities numerous. This bodes well for enhancing
shareholder value as we stay focused
on delivering the best vacation value
perfect recovery
would be a tall order
for anyone, and Donald
seems as unlikely a savior as imaginable. He
spent the bulk of his career at Monsanto (he joined the Carnival board
in 2001), moving from marketing up
through the ranks of management.
Under his charge the lawn-and-garden division saw revenues jump from
$40 million to $200 million between
1988 and 1992, crushing rival Ortho
a division of Chevronin the process. A year later he was promoted
to president of the entire agribusiness division, which accounted for
half of the companys $4 billion in
revenues. After that he and a friend
bought the Equal sweetener brand
from his former company. Donald
ran the company through 2003 before retiring as chairman two years
later. (It subsequently went bankrupt
and was sold of in 2010.) But while
those who knew him at Monsanto
say hes formidable (he has a golden
touch, says former Monsanto CEO
Dick Mahoney), the fact remains
that he has no hands-on experience
running a vacation or transportation companylet alone the biggest
one in the world. [Donald] is an unknown quantity, says Josh Herrity,
senior leisure analyst at Telsey Advisory Group.
Donald shrugs of such doubts,
maintaining that he has a clear plan
for Carnival. Heres what success
looks like, he says, leaning into a
conference table in his temporary
digs while Arisons old ofce is being
cleared out down the hall. Our employees feel very confdent in the future of the company. They legitimately feel like winners. For that to hap-
alice + cHriS pHotograpHy
more upfront focus of the company.

That doesnt wash in a crisis,
though, and his invisible performance was the fnal straw for many
investors. Over the past decade, since
Carnivals last big acquisition, P&O
Princess, the $15.4 billion (revenue)
company has proven largely incapable of organic growth. Carnivals
proft margins plunged by two-thirds
over that period, a negative trend line
accelerated by soaring fuel costs. The
stock for the past ten years has been
fat, versus a 25% gain for its nearest competitor, Royal Caribbean, and
a 60% rise for the S&P 500. Investors
pounded shares down 15% amid the
failure of Triumph.
Its been a huge comedown for the
largest vacation company in the world,
created in a daring string of massive acquisitions that made Carnival
a household name and turned Arison
into a multibillionaire and a darling of
the business press in the late 1990s. I
dont have the conviction in the name
that would justify the valuation, says
Sandy Villere, a New Orleans-based
investment manager who sold his
frms entire Carnival stake, formerly one of its top ten holdings, in September. Im glad were out of it. The
crises at the companyone after the
other after the other. Wheres the last
shoe going to drop?
In June that shoe was Arison himself. After 34 years running the company, the 64-year-old, who has a net
worth of $5.9 billion (buttressed recently by the companys fat dividends),
announced he would be handing over
the CEO reins to Arnold Donald, a former senior vice president of agriculture and chemical titan Monsanto.
A pesticide guy running a cruise
company? Arison, who remains
chairman, handpicked Donald, a
Carnival board member who hasnt
actively worked at a company in a
decade. He does, however, know how
to talk. The day after Arisons announcement, Donald was chatting
up Charlie Rose on CBS This Morn-
If youre in the pizza and pasta business, so are we.

We may be in shipping, but your business is our business. From Europe, Asia, Canada, Mexico,
Alaska, Hawaii and beyond, our LCL/FCL services and global logistics experience ensure your
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HELPING THE WORLD

KEEP PROMISES.
Old Dominion Freight Line, the Old Dominion logo and Helping The World Keep Promises are service marks or registered service marks of Old Dominion Freight Line, Inc.
All other trademarks and service marks identied herein are the intellectual property of their respective owners. 2013 Old Dominion Freight Line, Inc., Thomasville, N.C. All rights reserved.
FORBES
on the move carnival corp.

pen, we have to consistently exceed
guest expectations; we would then
have to show dramatic increase on
return on invested capital, free cash
fow and earnings. Which means
our stock price would be up and our
shareholders would be happy.
If that sounds like little more than
a fnance textbook primer, it also
misses a key point: Its not enough to
exceed customer expectations if you
dont have enough customers.
The fnancial crisis crushed Carnivals ticket sales, and the Concordia
and Triumph disasters did a similar
number on the companys reputation.
Carnivals research shows that these
disasters dont afect repeat customers decisions to go on another cruise
but scare of would-be new cruisers.
Harris polling both before and after
Triumph shows that American consumers trust, perceptions of quality
and purchase intent decreased across
the cruise industry following news
of the ships breakdown. Carnival
Cruise Lines scores in these catego-
ries dropped an average of 25%, sending it to the bottom of the industry.

Triumph really hit home here in
the U.S., says Telseys Herrity. It was
in our backyard, and it really made for
some quick, grabbing headlines over
a four-to-fve-day period. It became
even more top of mind for U.S. consumers than Concordia. It could take
two years for the Carnival brand to
recover from the incident, he says.
hat brand took decades

to create. Micky Arison
was practically born on
a cruise ship. His father,
Ted, cofounded Norwegian Caribbean Line (now Norwegian Cruise Line) with one ship in
1966, and when he was forced out six
years later, he promptly started Carnival, again with a single ship, christened Mardi Gras, which ran aground
on its frst voyage. Arison joined the
company as a sales rep in Florida.
Selling wasnt his natural personality, like his dad, says Bob Dickinson,
who worked with Ted since Carnivals earliest days. Hes a bit on the
shy side, but he was a quick study.
Teds big innovation was downgrading the cruising experience, thus
making it afordable for the middle class. The company posted its
frst proft in 1975. Ted named Micky
president of Carnival in 1979. While
Dad retained title of chairman, it was
Mickys ship to helm.
Father and son took the company public in 1987, taking $400 million of the table while keeping 80%
of the companys voting rights. They
then bought back stock cheap during
the ensuing market crash, leaving the
company fush with cash and hungry
for acquisitions. After failing to take
over Royal Caribbean in 1988, Carnival acquired Holland America for
$625 million the following year.
Pretty soon Carnival boasted the
nickname Carnivore Cruise Lines,
gobbling Britains Cunard and Seattles luxurious Seabourn in 1998,
followed by Italys Costa Crociere
All Aboard?
LOADED WITH TECHNOLOGY

AND CHRISTENED BY KATE
MIDDLETON, CARNIVALS
141,000-TON, $750 MILLION
ROYAL PRINCESS LAUNCHED IN
JUNE. UNFORTUNATELY,
A SEPTEMBER CRUISE
FEATURED A
BLACKOUT, TOO.
PROPELLER
AND HULL
STREAMLINED
TO SIP FUEL AS
EFFICIENTLY
AS SMALLER
CARNIVAL
SHIPS DO.
NEW BACKUP
GENERATOR
KEEPS SERVICES GOING IN
EMERGENCIES.
SEAWALK
PLATFORM
DANGLES
GUESTS 16
DECKS ABOVE
THE WATER,
FOR SOARING VIEWS
(AND SOME
THRILLS).
PRINCESS LIVE!
TELEVISION
STUDIO FEATURES AUDIENCE SEATING
AND AUDIENCE
PARTICIPATION.
FOUNTAIN ON
POOL DECK
DOES VEGASLIKE WATERAND-LIGHT
SHOW AT NIGHT.
WITH 1,780 ROOMS, IT

CAN ACCOMMODATE
3,650 PASSENGERS.
PRINCESS@SEA MOBILE INTRANET KEEPS CRUISERS
UP-TO-DATE ON EVENTS, WEATHER AND PORT NEWS.
in 2000. Then came the $5.4 billion

P&O Princess purchase, engineered
to block an announced merger with
Royal Caribbean (the British press
dubbed it gunboat diplomacy).
Ive always said I really could
care less about market share, says
Arison. When I say that, now having 50% of the world market share,
it doesnt sound quite as genuine as
when we were the smallest player.
ll this dealmaking created one of the most

complex transportation companies in the
world, moving 10 million passengers a year20% more
than the population of New York
City. Under Arison each of Carnivals ten brands maintained wide
freedom. Each has its own CEO, and
many keep their ofces in the same
geographical locations as their operations. In some cases, like P&O, where
shareholders were especially proud
of the brand, this freedom was part
and parcel of the acquisition deal.
(Were brand builders, not brand destroyers! Arison pleaded to P&Os investors at a special meeting in 2002.)
Despite this belief in separate corporate cultures, Arison inched toward centralization in his last years
as CEO. He merged two Alaskan
tour companies as well as Carnivals operations in Australia and various back ofces. Donald promises to
move more quickly. This business
was correctly built on the independence of the brands, he says. When
there were a few ships that made a
ton of sense. When it was a feet it
made good sense. Now its an armada. We have 102 ships. The industry
has grown around us. Theres a need
for much more coordination than
occurred historically in the business. He has promised to continue
fuel conservation eforts and consider further back ofce mergers, and
hopes to centralize training for the
companys 90,000 employees.
In the wake of the Triumph fasco

Carnival Cruise Lines also began installing backup engines on its ships,
at a cost of $300 million, with more
backup-capability improvements on
the way. To save money the company is building only one or two ships
a year right nowat an average cost
of $700 million eachdown from as
many as four. The new ships rotating into Carnivals feet are bigger
(allowing for more passengers and
higher profts) and more fuel-efcient (fuel accounts for 20% of operating costs).
Carnival is also turning to Chinas budding middle class to restore growth. With proft margins
for Asian cruises outpacing those of
American ones, two Costa ships have
been outftted with menus and decor
designed for Chinese tastes, and two
Princess ships have been redeployed
to Japan. We think Asia is the next
great growth area for this business,
says Carnivals vice chairman and
COO, Howard Frank.
Donald acknowledges, politely,
that Arison isnt comfortable with
all the changes. Does he love the
idea of fguring out what areas need
to be centralized? Donald asks. He
doesnt necessarily particularly enjoy
that. Thats my job.
But its still Arisons company
he remains Carnivals largest shareholder with 29.3%. Will he meddle?
There is potential for that, says Steven Wieczynski, a managing director at Stifel Capital Markets. This
wasnt open market. [Donald] was
handpicked, and Micky will still basically control the company.
Arison waves of those fears.
Theres going to be a difcult period for me to adjust to it, but it works
well with my management style, he
says. I have no problem turning over
the reins to somebody. I dont think
Arnold would have taken the job if
he didnt think that was the case.
Or maybe he just didnt know how
rough the seas might get. F
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FORBES
BEST BUSINESS SCHOOLS REINvENTINg AmERICA: EdUCATION
ENTREPRENEUR
BOOT CAMP
Austins tiny Acton School features business-hardened teachers, real-world

challenges and a murderous study schedule, all aligned to turning battleready graduates into startup successes.
By michael noer
t 27 Calvin Hunt fnally stumbled across his

frst great opportunity. The Atlanta native
and lifelong fshing fanatic had graduated
from Florida State in 2008 directly into
the teeth of the Great Recession. A shot at
a dream job in the corporate headquarters of Hatteras
Yachts in North Carolina vaporized as the tanking economy swiftly decimated the luxury-boat business. Instead,
for nearly four years Hunt toiled at a Hatteras dealer
in Orange Beach, Ala. servicing old boats, struggling to
sell new ones (I think I sold three the entire time I was
there). By the summer of 2012, his interest in the marine
business efectively scuttled, Hunt had relocated to Aus108 | FORBES OCTOBER 28, 2013
tin, Tex. to attend an unusual one-year M.B.A. program

focused on entrepreneurship at the Acton School of Business. The goal was not to earn an M.B.A., he recalls. It
was to learn to start and run a business.
Thats when his big break appeared. A month before
beginning business school Hunt ran into a friend interested in hydraulic fracking. The technique can require
transporting massive amounts of water across miles of
open desert, and Hunt and his new partner soon discovered that long, fexible hoses would be superior to the
industry-standard 40-foot-long sections of stif aluminum
piping. The problem? Almost no one made hoses with
large enough diameters to be useful for the frackers.
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FORBES

Sensing an opening, Hunt swung
voted to teaching. The current roster
into action, frst locating a manuof ten professors boasts an alphafacturer of fre hoses in Erie, Pa.
bet soup of advanced degrees from
and then busting his tail to line up
elite institutions (Harvard, Chicago,
enough presales to convince the
Texas M.B.A.s; a Stanford Ph.D.; Rice,
manufacturer it was worthwhile to
Purdue M.S.s; a Columbia J.D.), but
retool its factory to produce bigger
they publish no research, and Acton
hoses. By November he had secured
grants no tenure. Instead, borrowan exclusive North American distriing a page from Jack Welchs famous
bution deal, and by April, when the
rank-and-yank system, the lowestfrst hoses shipped, his Austin-based
rated teacher (as judged by student
Frontline Fluid Solutions had four
evaluations) is asked not to return
employees, was proftable and was on the following year. (About 8% of the
track to reach an estimated $4 milstudents also fail to complete their
lion in sales its frst year.
degree, a much higher percentage
What he hadnt done in those
than most top M.B.A. programs).
crammed and chaotic nine months:
I have found that teachers who
drop out of business school. Incredhave either ongoing business experiibly, Hunt had chosen
to give cheap equity to
his business partner so
he could devote himself
THE STORY OF
full-time to fnishing his
ACTON CAN BE
M.B.A. at the tiny 24-student, ten-year-old Acton
READ AS AN
School. The education,
ELABORATE TALE
he says, was worth the
OF REVENGE AND
dilution. I felt like I
AN EXTENDED
needed to fnish the program to run the business
PROOF OF
efectively, he says.
CONCEPT.
Acton inspires
this sort of loyalty
because of its relentless focus on a single goal: educating aspiring entrepreneurs. The
curriculum discards the traditional
M.B.A. silos of fnance, accounting
and marketing to revolve around
the entrepreneurial cycle of creating, growing and selling a business.
Courses actually sport names like
Opportunity, Raising Money,
Customers and Harvest, and they
are taught exclusively by highly successful entrepreneurs rather than by
traditional academics (according to
one oft-trumpeted fact, Acton professors have built businesses with $4.5
billion in assets and counting).
These volunteersnone takes a
meaningful salaryare entirely de110 | FORBES OCTOBER 28, 2013
ence or prior business experience

and who focus on teaching, not
researchare intensely more valuable to students. Research is valuable to institutions and to society, but
teaching is teaching, says Jef Serra,
a longtime Acton professor and serial
entrepreneur. After serving as CEO
of oil refner Philbro Energy prior to
its 1997 sale to Valero, Serra founded
a renewable energy company that
he sold for $125 million, an Austinbased technology investment fund
and most recentlyand most creepily
Vida Capital, which is in the business of buying life insurance policies
from the elderly for their value after
those people die.
Inside the classroom Acton adopts

the same case-study technique used
by many of the best business schools,
particularly Harvard Business
School, where much of the material
was developed. Where Acton difers
dramatically from Harvard is in the
amount of time its students spend inside that classroom5 months compared with 18and its cost, $49,500
compared with $127,000.
Thats because Acton students
spend their frst four months studying
online. During this prematriculation
period the budding entrepreneurs are
familiarized with the case method
and learn basic fnancial skills like
reading a balance sheet and discount-
ing cash fows. The time commitment

during pre-Mat is only 20 to 25
hours a week, allowing many students
to keep full-time jobsand further
reducing the opportunity cost of the
degree.
The students pay for that relative
life of leisure during the second half
of the program, which runs from January to May. Study groupsassigned
by the faculty and carefully designed
to mix personality types, academic
strengths and prior work experiencesmeet daily at 6 a.m. sharp at
Actons brick headquarters just south
of the Colorado River. The students
review cases until classes start at 8,
when a rapid-fre discussion careens
fOrbES
BrandVoice BY SamSung
around the room from teacher to
student to student and back again. In
keeping with the Socratic method,
only questions are asked, no answers
are given. After classes end at around
noon, the prospective M.B.A.s disperse to individually grind away at
the next days caseload, typically
until about midnight. One-hundredhour weeks are the norm.
Its much harder sledding than
usual for M.B.A. programs, which
detractors often dismiss as two-year
vacations or two-year job searches. And all of that is before the more
unusual challengessuch as going
door-to-door in Austin selling highly
marked-up childrens books or negotiating an 80% discount for a (noton-sale) item from a department
storethat Acton students must
complete or face dismissal.
Im just kind of in survival mode
here, says Abianne Miller, class of
13, during the fnal days of her spring
semester. This isnt my life. Im
doing my relationship long-distance.
Ive put everything on holdthis is
what Im doing now.
it is periodicAlly fashionable
to question the value of an M.B.A.
degree, especially as the number
awarded has rocketed. According
to the Department of Education,
American universities produced
more than 115,500 M.B.A.s in 2011,
up dramatically from a decade earlier, and a recently published analysis
of PayScale.com data concluded that
starting pay for new grads has either
stalled or fallen slightly since 2008.
About 13,000 institutions worldwide confer M.B.A. degrees, but only
557 of those are accredited by the
Association to Advance Collegiate
Schools of Business, an internationally recognized standard setter
that dates to 1916. An even smaller
subsetmaybe 150are considered
of high enough quality to be ranked
by one organization or another, and
only a handful of thoseperhaps 60
Transforming
STEM
Education One
Community
at a Time
DaviD Steel
executive vice PreSiDent
SamSung electronicS america
Question: What does the Gowanus
Canal have in common with a wild hog
population in Alabama and a spruce
bark beetle infestation in the forests
of the Alaskan Peninsula?
A n swe r : e a c h r e p r e s e n t s an
environmental problem affecting
communitiesin Brooklyn, New York,
in Moulton, Alabama, and in the tiny
bush village of Kokhanok, Alaska.
Moreover, each is a challenge that
has global ramications. Pollution in
the Gowanus Canal is a microcosm
of global water treatment problems.
Feral hogs and spruce bark beetles are
examples of invasive species that are
laying waste around the globe, sometimes as a result of climate change.
But perhaps the most impressive thing
about these challenges are the practical, hands-on solutions that have been
proposed for them by students and
their teachers, based on the application of STEMscience, technology,
engineering and math.
Its all part of Solve For Tomorrow,
a national program initiated by Samsung in 2010 in which middle and high
school students come up with solutions for local problems using skills in
STEM subjects and then make a video
of their efforts.
One of the biggest challenges in
STEM education is making it fun and
relevant, says David Steel, executive
vice president at Samsung. This

program gets the kids out of the classroom and into the community.
The team from Peter Rouget Middle
School in Brooklyn, for example, identied the impervious surfaces that
cover our city as a key factor in how
runoff overwhelms the citys water
treatment facilities and pollutes local
waterways. Their solution? To install a
green roof on top of their school. Lawrence County High School in Moulton
developed innovative methods for
tracking feral hogs. And students in
the village of Kokhanok, population
160, found a use for the estimated 7
million trees around their community
that had been infected by the spruce
beetle. The village is harvesting the
dead trees to fuel a high-efficiency
furnace that provides it with electricity.
In 2014, schools in 50 states and the
District of Columbia will be awarded
prizes and ve national winning teams
will receive $140,000 each and an invitation to a national awards celebration
in Washington, D.C. The contest, says
Steel, helps kids see the impact
locally of what theyve been learning.
Colter Barnes, Kokhanok Schools
principal, agrees. Part of the schools
winnings were applied to a new ber
optic network for the village. As a
result, says Barnes, we gain local
knowledge and global understanding.
This program gets the kids out of the

classroom and into the community.
DaviD Steel
executive vice PreSiDent
SamSung
electronicS america
FORBES

schoolsare selective, admitting 50%
or fewer of applicants.
The bottom tier of this market is
just total schlock, says John Byrne,
a longtime B-school chronicler who
now runs Poets and Quants, a popular blog for prospective and current
M.B.A. students.
But its equally clear that the highend schoolsand their graduates
are thriving. Five years after graduation the average salary of alumni
of the 25 top schools on FORBES
ranking of the best U.S. M.B.A. programs is $159,000versus $62,000
when they entered school. (Because
we evaluate only two-year degrees,
Acton is not ranked.)
People tend to look at the average. Well, we arent working with
average, says Paul Danos, dean
of the Tuck School of Business at
Dartmouth. You cant average everything out. People sometimes say
high schools in America are terrible
on average. Its not true. There is no
average. There are some terrible high
schools, but we also have some of the
best high schools in the world.
Danos says that 95% of Tuck graduates fnd jobs within three months
of graduation, and some 60% typically go directly into high-prestige-andpay jobs in private equity, investment
banking or management consulting.
A little more than 5% immediately
take the entrepreneurial route.
Those are fgures that Acton is
striving to invert. One of the reasons we started this place was we
saw our best and brightest students
going into consulting, investment
banking, private equity and they
would come back fve years later
making a lot of money and hating
their lives, says Jef Sandefer, who
founded Acton after teaching at the
University of Texas M.B.A. program
for 12 years.
It seems to be working. Two
months after graduation 25% of
Actons class of 2013 were either running their own businesses or in the
Acton founder Jef Sandefer
process of starting one. Over a longer

time horizon the numbers are even
more impressive: A full 50% of all
Acton alumni describe themselves as
entrepreneurs and another 23% say
they will be running their own company someday soon.
in mAny wAys the story of Acton
can be read as an elaborate tale of
revenge and an extended proof of
concept. After studying petroleum
engineering at UT, Austin, Sandefer
got an M.B.A. from Harvard Business School in 1986 (he would go on
to serve on various HBS boards for
more than 20 years) and then embarked on a lucrative entrepreneurial
career developing and leasing oil and
gas properties in the Gulf of Mexico
before running an energy-investment
fund from Austin. By 1989 he had
banked hundreds of millions and
wanted to go and teach for a year to
clear his head.
At the University of Texas business school Sandefer helped create a
course on entrepreneurship, introducing the case studies and Socratic
method he was familiar with from
Harvard. As the entrepreneurship
program expandedand Sandefers

one-year gig stretched to 12he
began recruiting local businesspeople to teach. It was a popular decision. By Sandefers account his eight
part-time entrepreneur-professors
eventually taught 25% of UTs elective hours. At the time the school had
140 full-time faculty members.
A clash and a quickie divorce,
which came in 2001, were probably
inevitable. We had built a nationally
ranked, great program, and whenever
you do that in academiaand there is
money involvedunderstandably the
faculty wants to get back in the game,
Sandefer says. It was almost like, You
amateurs have done a good job. Now
its time for the pros to take over.
Since Texas ofered a two-year degree, Sandefer felt he had stranded
about half the kids that had come to
UT for our program. So just out of
good conscience he decided to ofer
a single, not-for-credit, 25-hours-aweek murderous class the following year. He thought that 10 students
would show up130 did.
The following year 27 students
convened in a classroom that Sandefer borrowed from a local Catholic
2013 Samsung Electronics America, Inc. Samsung and Samsung Solve for Tomorrow are trademarks/service marks of Samsung Electronics Co Ltd.
West Salem High School,

2011 Samsung Solve
for Tomorrow Winners
Nurturing tomorrows
innovators starts today.
As a technology leader, we look constantly towards the future. Through
the products and solutions we create, we are dedicated to helping the next
generation discover a world of possibilities.
Thats why we created Samsung Solve for Tomorrow, a nationwide initiative
to promote science, technology, engineering, and math (STEM) education
among students in grades 6-12. A successful STEM program creates critical
thinkers, increases science literacy, and empowers tomorrows innovators.
To learn more, please visit
samsung.com/solve
FORBES

school, each paying $37,500 for the
privilege. The Acton School of Businessnamed for no discernible reason
after Lord Acton, the 19th-century
British politician famous for his bon
mot absolute power corrupts absolutelywas born.
Or nearly so. Sandefers enemies
werent quite done with him. We
didnt know we needed to be accredited, he says, Never did. Then we
got a phone call one dayand that
might have been triggered by someone at our former employer.
Fortunately for Acton, Sandefers
great-grandfather had been the president of Hardin-Simmons University, a small, Baptist school in West
Texas, for 31 years. Sandefer jumped

on a plane to Abilene, Tex. and told
the current presidentwhom he had
never met beforeI need an accreditation within 24 hours or I am
out of business. He got it. To this day
Acton operates under the auspices of
Hardin-Simmons.
We are in a big battle between increasingly hollow prestige that costs
a lot a money, says Sandefer, and
performance.
Going forward, the biggest challenge for Acton is scaling the experience. Roughly 900 people from
around the world have paid $300 to
go through the schools online oferingthe awkwardly named myEJ.com
(for my entrepreneurial journey).

There is a sister school in Guatemala,
and Acton licenses portions of its curriculum for a nominal charge. But the
schools secret sauceits hyperexperienced and ultradedicated facultyis
tough to replicate.
You cant franchise it, says
Miller, who now works full-time at
her startup, Cat Spring Tea, which
sells loose tea made from yaupon, the
only cafeinated plant native to North
America. But there is enough here
that if you can get other people who
really do want to share this mission,
then yes, they will do a lot to make
that happen, to help them get over
the frst hurdles. F
the 25 BeSt BuSineSS SChoolS
an M.B.a. iS a MaSSive inveStMent at a leading SChool liKe Stanford, Where it CoStS, on average, nearly $300,000 in
tuition and forgone Salary. But the degree iS Still Worth itat leaSt for a toP PrograM, WhiCh We ranKed BaSed on
return on inveStMent for the ClaSS of 2008. the average PayBaCK Period WaS 3.7 yearS verSuS 2.7 yearS a deCade ago.
rank sChool / loCation
Class of 2008
5-year M.B.a. Gain
years
salary
total1
as % of
to
Pre-M.B.a.
2012
($thou) exPenses2 PayBaCk ($thou) ($thou)
$100
Class of 2014
tuition3
($thou)
GMat
sCore
Stanford / Palo alto, Ca
42%
4.1
$80
$221
$118
740
ChiCago (Booth) / ChiCago, il
93
42
3.7
76
200
117
720
harvard / BoSton, Ma
80
34
4.0
80
205
127
730
PennSylvania (Wharton) / PhiladelPhia, Pa
74
32
4.0
80
205
117
720
northWeStern (Kellogg) / evanSton, il
73
34
3.8
73
176
116
710
dartMouth (tuCK) / hanover, nh
71
33
3.9
72
189
121
720
715
ColuMBia / neW yorK, ny
70
31
3.9
74
192
124
duKe (fuqua) / durhaM, nC
70
36
3.7
63
152
112
695
Cornell (JohnSon) / ithaCa, ny
68
35
3.8
59
155
118
700
10
MiChigan (roSS) / ann arBor, Mi
68
35
3.7
61
153
113
710
11
unC (Kenan-flagler) / ChaPel hill, nC
67
39
3.7
60
141
106
700
12
Mit (Sloan) / CaMBridge, Ma
67
30
4.0
70
185
120
710
13
uCla (anderSon) / loS angeleS, Ca
66
37
3.8
65
165
112
710
715
14
uC BerKeley (haaS) / BerKeley, Ca
65
35
4.0
71
175
108
15
virginia (darden) / CharlotteSville, va
65
33
3.8
67
158
113
710
16
Carnegie Mellon (tePPer) / PittSBurgh, Pa
64
35
3.7
60
135
112
700
17
BrighaM young (Marriott) / Provo, ut
64
56
3.2
50
109
44
670
18
yale / neW haven, Ct
62
32
3.8
54
144
116
720
19
indiana (Kelley) / BlooMington, in
62
44
3.4
50
120
91
680
20
ioWa (tiPPie) / ioWa City, ia
61
51
3.4
46
118
73
660
21
texaS-auStin (MCCoMBS) / auStin, tx
61
33
3.8
65
150
98
700
22
MiChigan State (Broad) / eaSt lanSing, Mi
60
51
3.3
45
105
85
645
710
23
nyu (Stern) / neW yorK, ny
59
30
3.9
60
165
115
24
eMory (goizueta) / atlanta, ga
58
37
3.7
60
140
92
670
25
MinneSota (CarlSon) / MinneaPoliS, Mn
57
39
3.4
52
121
98
690
Five-year total compensation aFter graduation, minus the sum oF tuition, Fees and Forgone compensation. Figures are beFore taxes and adjusted For the time value oF money. 2m.b.a. proFits divided by sum oF tuition,
Fees and Forgone compensation. 3total tuition and Fees For out-oF-state students.
A different
degree of
experience
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FORBES
BEST BUSINESS SCHOOLS HUMAN CAPITAL
TAKEOVER
UNIVERSITY
A wildly popular class at Stanford
encourages M.B.A.s to take
control of a real business.
alfway through business school, Rob

Cherun thought he was destined to work
at McKinsey & Co. The elite consulting
frm spent thousands to underwrite his
tuition at Stanford a few years ago, certain that the wavy-haired Canadian would join right after
graduation. But Cherun changed his mind. Even though
a consulting career seemed safe and prestigious, he declared: I wanted more volatility in my life.
Today Cherun is holed up in a gritty industrial suburb
of Toronto, running UCIT Online Security. Its a small
but fast-growing construction-surveillance company that
Cherun bought soon after earning his M.B.A. If McKinsey
stopped by, its consultants might snicker at the peeling
paint in UCITs ofces, the industrial-grade Coke machine
in the hallway or the mud-splattered GMC Terrain in the
parking lot. Cherun has jettisoned his old espresso-sipping
habits, his Prada shoes and his convertible BMW. Hes
now a salt-of-the-earth operator who Rob Cherun (right) and

favors Timberland boots, denim and Erik Mikkelsen became
a two-man KKR on the
a round of beers with the guys. But
outskirts of Toronto.
UCIT is growing fast. If its 32-yearold boss stays on track, his stake in
the company could be worth $5 million or more in a few
yearsa target that young consultants cant reach.
Cheruns inspiration was a little-known but increasingly popular course at Stanford called Strategy 543: Entrepreneurial Acquisition. This second-year elective is
a fast-paced, two-week primer on how to become a oneperson version of KKR or Blackstone Group, carrying out
your own tiny takeover and installing yourself as chief
executive ofcer. This is the business-school equivalent
of Teach for America: a daring way to parachute into
high-authority jobs in unpredictable locales. TFA is for
idealists, S-543 for capitalists.
Every year second-year Stanford students like Che-
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understand health
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FORBES

run stampede into S-543 to
learn the essentials of raising money, fnding an acquisition target and closing
the deal. Instructors Peter
Kelly and David Dodson
two longtime entrepreneurs
and investors themselves
take only 40 students per
session, and that doesnt
come close to satisfying demand. Months before this
autumns class began, every
slot was claimed, and another 26 students hovered
on the waiting list. Frustrated aspirants will get a
second shot in the spring,
thanks to a new scheduling
expansion.
For 80% or more of
enrollees, the notion of
asking strangers across the
continent, Can I buy your
An alum of Stanford business school, Abhijit
Phanse honed his sales talents on the job as
company? ends up being
CEo of data-center company United Layer.
too freaky for their tastes.
Some students treat the
class as a means to surface
gered much longer. After three years
investment targets, for others its
Mansour barely recouped the original
armchair tourism. Thats fne, says
money his investors had put in. There
Kelly. The world that he and Dodwerent any profts to speak of.
son describe is full of risks. Its not
Mansour returns regularly to
for the faint-hearted. Every lecture
Stanford to share his woes. No matter
or panel discussion is packed with
how challenging a picture he paints,
warnings about failed searches, hidsome students are undeterred. Peoeous operational snarls or companies ple say: Thats not going to happen
that go bust.
to me, he explains. Theyre optiListen to Nick Mansour, who in
mists. Everyone has to be thinking
the late 1990s thought he could get
that theyre going to be successful.
rich by taking control of Clear Creek
Otherwise, why would you do this?
Environmental, a liquid-waste-serMansour keeps chasing acquisitions
vicing company in Annapolis, Md.
and thinks his latest deal, taking over
Determined to learn the business at
a health-related trade school in Ariits most basic level, Mansour early
zona, has great promise.
on decided to accompany a cleanAmong the new optimists is
up crew on a days errands. We had
Alex Stavros, a 2011 Stanford busia large truck, a bunch of hoses and
ness school graduate who now runs
some septic tanks to empty, ManCALO, a teen treatment center in
sour recalls. How hard could this be? Lake Ozark, Mo. Its the middle of
Well, I pushed a lever the wrong way.
nowhere, Stavros cheerfully conI got a bathall across my overalls.
cedes. But he grew up as the son of
He couldnt change clothes until the
missionaries in Peru and likes the
end of the day. The investment linidea of running a business with a big
element of social service. Besides, he

fgures his general management skills
can help the facility expand and be
more efcient.
You learn to hustle, adds Abhijit Phanse, a 2008 Stanford business
school graduate who now runs United
Layer, a data-center company nestled
into a onetime Macys warehouse on
the edge of San Francisco. Phanse
came into the job with plenty of engineering and fnance expertise. But he
learned that he could add even more
value to the company by mastering
the art of sales, landing contracts
with customers such as the city of San
Francisco. They dont teach that at
business school, he says.
Business schools own data show
how goodor badthe deal-hunters
destinies can be. Failure is common, according to an analysis of 150
alumni of Stanford and other leading
M.B.A. programs going back as far as
1983, well before S-543 began. Slightly more than half the time, graduates
either cant fnd a deal or end up with
a loss on what they do acquire. But a
few dazzlingly successful dealswith
100-to-1 payofs or biggercreate
not just overall proftability but also
an average annual return of 34%.
Among the epic successes: Asurion, which provides lost-cellphone
insurance to millions of customers,
and ServiceSource, which handles
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with the lunches had wiggled his way
into a few sessions.
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FORBES

tions was easy, Cherun found. Four
Stanford instructorsincluding
Joel Peterson, chairman of JetBlue
Airwaysvolunteered to back him.
That helped attract specialty investors such as Search Fund Partners
in Menlo Park, Calif., which backs
dozens of business school graduates
in their deal quests. With Canadian
connections rounding out the roster,
Cherun and a buddy, Erik Mikkelsen,
raised more than $500,000 to cover
two years of acquisition hunting. The
young searchers also won assurances
that they could tap the same investor
group for millions more to fnance an
actual purchase.
Deciding what to buy was harder.
Stanford teaches students to look
for growing businesses in simple
industries that require little capital
spending. Being able to buy these
outfts at six times Ebitda (earnings
before interest, taxes, depreciation
and amortization) is considered
good, too. But the standard advice is
to be willing to consider any industry anywhere that might pass those
tests. So we were really interested in
fsh farming at frst, Cherun recalls.
He hung out at Chinatown markets
in Oakland, trying to learn about the
sturgeon trade, before realizing that
it could take years to make fsh ponds
pay of. A few weeks later cellphone
kiosks caught his eye. Then, when an
accountant advised that UCIT might
be for sale, Cherun and Mikkelsen realized their quest might be complete.
UCIT provided round-the-clock
camera surveillance of construction
sites, using the Internet to beam images into a control room at the companys headquarters in Mississauga,
Ont. If rogues slipped onto a construction site at 1 a.m. to grab copper
piping, plywood or equipment, signs
of mischief would instantly be visible at UCIT. (The name is a play on
words: You see it. Get it?) Police could
be on the scene in four to ten minutes.
This, Cherun decided, was a business that passed all of Stanfords
tests. It also sounded a lot more

palatable than some of his predecessors picks. As Cherun later put it:
Who really wants to be the septic
king of Canada? Best of all, UCITs
founder and owner, Sidney Sommer,
was ready for a change in control.
Sommer, 35 at the time, had been
running UCIT for eight years. He
knew the business was ready to open
more sales ofces across Canada. But
he had a wife and two toddlers, so
his ability to travel was constricted.
I couldnt do it alland still have a
HE HEAdEd
INTO fIRST clASS.
I HEAdEd INTO
EcONOmY.
I cOUldNT HElp
bUT THINK:
THAT cOUld
HAVE bEEN mE.
successful marriage, Sommer says.
The solution: Let Cherun, Mikkelsen and their investors buy about
90% of the company. Sommer kept
10% of the business, ran the Torontoarea sales team and remained a director. The seller and buyer found their
rhythm early on and struck a deal.
Sommer later joked to the two young
suitors that his frst thought upon
meeting them was: I see the real investors sent their children to see me.
Running a small company, Cherun says, is so real! The hands-on
immediacy of his new job hit home
early when he pointed to a burnt-out
lightbulb in the ceiling and asked:
What are we going to do about it?
The answer: If it bothered Cherun,
he could drive to Home Depot, get a
new bulb and install it himself. So he
did. Some days he stays in the ofce
until 1 a.m., overseeing a team fxing
a software bug that hurts monitor-
ing-room performance. Early on,

Cheruns daily duties included toting
about $15,000 of customers checks
to the bank. Now a stafer shuttles
the moneyand peak days can reach
$275,000.
UCIT is on track this year to
book a bit more than $10 million of
revenue, double the companys size
when he and Mikkelsen took over. A
new ofce in Vancouver is humming
after some early stumbles; a Calgary
rollout has been under way for a year.
Proft margins have shrunk slightly as
UCIT invests for growth, but software
upgrades are boosting human operators ability to monitor many cameras
at once, helping overall efciency.
Thrift has become a way of life.
Cherun cuts down on hotel costs
when he travels, couch surfng at
friends places instead. Mikkelsen
rents beat-up vans on his business
trips for as little as $20 a day, avoiding costlier new cars. We think a lot
about opportunity costs, Mikkelsen
says. If we dont spend $300 on a
trip, thats $300 that can go into a nice
dinner with customers or an extra bit
of marketing at a trade showall of
which can win us new business. And
the value of that new business can be
way more than $300.
Turning his back on the McKinsey
job has carried a short-term cost for
Cherun. He had to repay his tuition
subsidy within 90 days of graduation.
More recently he was about to board
a fight in Vancouver when he noticed a former pal from his McKinsey
days getting on the same plane. We
walked through the entryway together, Cherun recalls, and then he
headed left into frst class. I headed
right into economy. It was hilarious!
I couldnt help but think: That could
have been me.
Cheruns obligations to UCIT may
keep him fying coach for a bit longer.
But he knows that successful entrepreneurs eventually get to buy their
own jetsor airlines. Thats a leap
that consultants rarely make. F
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FORBES LIFE
PURSUITS
TPG cofounder Bill Price has a

plan: produce wine you cant buy.
by RichaRd Nalley
heres a great joy in creating a

product outdoors in one of the
most beautiful places in the
world, says Bill Price, a onetime private equity hawk turned
stealth wine mogul. This morning I was out
in a vineyard to see if we were ready to pick,
and the fog was burning of and the sun was
coming up and the birds were chirping. Pretty great way to spend your workday.
Price, 57, one of the founding partners
of private equity giant Texas Pacifc Group
(TPG)I was the Pacifc part, he says
spent several careers worth of more conventional workdays before following his passion into the California wine business. Today
bill Price with the fruits

of his current labor
Pinot Noir grapes from
his top-notch durell
Vineyard in Sonoma.
eric millette for forbes
The Vineyard
Collector
he controls seven wine brands and fve vineyards, but for a player of his stature he is almost invisible to outsiders. There is no William Price mega-winery on the Route 29 wine
road or anywhere else. And frankly, if you
dont already have a line on his best wines,
like Kistler and Kosta Browne, you will have
to go to some lengths just to taste them.
TPG, which Price left as partner emeritus in 2006, was an exciting ride and afforded him a fne life indeed: He splits his
time between California and Hawaii; his 90foot ketch is docked in San Francisco Bay.
He shares ofce space these days with his
familys private museum of vintage Aston
Martins, Maseratis and Ferraris.
His old company did famous deals: Continental Airlines, Ducati, J. Crew, Petco, Del
Monte. But it was a midlevel score that actually changed Prices life: the $350 million
purchase, in 1996, of Napa Valleys Beringer
Wine Estates from Nestl. (In a package with
some other winery purchases, TPG would in
turn sell Beringer to Fosters in 2000 for a reported $1.5 billion.) Prices exposure to the
wine trade sparked a realization: In the wine
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FORBES LIFE PURSUITS
walks, drains, hose stations and, yes, the basketball hoopis remarkable; the level of investment for a small brand, head-spinning.
And heres the thing: Although the brand
produces and sells 15,000 cases, very few
new customers ever get the wineit sells out
mostly through the winerys mailing list. It
is kind of weird, says winemaker Michael
Browne. We spend hours showing people
around, and they say, Great, so where do I
buy some wine? And we say, There isnt any.
And they do a double takeWait, what?
Yeah, Price chimes in, in mock puzzlement, how does this business model work?
Pretty well, apparently. In a notoriously
low-proft business, Price claims that several
of his brands enjoy margins of 50% or higher.
Call it the Stardust Factor. Labels like Kistler
and Kosta Browne enjoy such an avid fan base
(there is supposedly a 10,000-person waiting
list just to get on Kosta Brownes buyers list)
that they can charge full retail price ($70-$90
in Kistlers case) and cut out the wholesale
tier almost entirely.
As a business model it is a balancing act.
Since nonlist drinkers only rarely bump into
a bottle at a restaurant and those actually enscribed on the winerys Sacred Scroll cant
taste before they buy, the model relies on
word of mouth for fresh customers and repeated leaps of faith by the old. It is an individualized, consumer-by-consumer process,
and wine collectors can be notoriously fckle
hot brands come and go in California.
But Price, the old PE guy, is to all appearances in this for the long haul. High on the
list of mistakes he wont make, he says, is trying to hook a wine label to the latest wave of
consumer fashion. This is a very complicated business where understanding the grapes
from a single piece of property and how a
winemaker wants to use them is a long-term
game, he notes. If you dont stay committed
to your vision you are lost.
The passion for putting his own vision
to the test still burns. Price recently sought
out a 27-year-old Santa Barbara winemaker named Gavin Chanin, whose Pinot Noirs
knocked him out, ofering a balance of lower
extract and alcohol with an intense clarity of
avor not quite like anything else in Prices
portfolio. He and Chanin will launch their
50/50-partnership LUTUM label this month.
Just get your name on the list early. F
TRENDING
What the 51 million
Forbes.com users are talking
about. For a deeper dive
go to FORbeS.cOM/
FORbeSliFe
PERSON
caRlOS GhOSN
renault-Nissan chief made
good on rst electric autos;
now commits to 2020
delivery of driverless cars.
IDEA
hOllyWOOd
PhONeS iT iN
seven of 2013s ten
highest-grossing movies
are sequels, spinos or
franchise reboots. can
the next Police Academy
be far behind?
COMPANY
TReNdnet
flaw in security rms
software enables hackers to
peek in on your baby cam
or into your dressing room.
DimAs ArDiAN / bloomberG
business, everybody is passionate about his

product. In a private equity frm, people are in
it because they like the challenge and want to
make a lot of money. But lets face it, they are
not passionate about spreadsheets.
His own spreadsheet continues to expand,
thanks to deals like last years purchase (for a
reported $100,000-plus an acre) of Sonomas
138-acre Gaps Crown Vineyard. Asked to
estimate the worth of his wine holdings,
Price will only say in the hundreds of millions. His portfolio appears to be something
of a mixed bag at frst glance, a collection of
small- to-medium-size labels and wineries
and a patchwork of vineyards. But you can
see a unifying strategya kind of controlled
carom shotbeginning to emerge.
Most of Prices holdings are in Sonoma
County, which has become one of the New
Worlds cutting-edge regions for planting
Pinot Noir, that wilting belle of a red wine
grape that made Burgundy famous. And,
states Price, I am defnitely a Burgundy man.
He is also a businessman, something of a
rare bird in the wine trade at his level of sophistication. His Big Ideareally two ideasis
to share my business expertise and fnancial
resources with extraordinarily talented winemakers and together create the type of iconic
brands that sell direct to the consumer.
The Price Idea is on full display when we
drive up to leafy Sebastopol to visit Kosta
Browne. Two restaurant workers shoestring
startup in 1997, Kosta Browne was plucked
from obscurity by the raves of critics like the
Wine Advocates Robert Parker. Suddenly an
outft that could barely aford barrels was
beating back customers with a metaphorical
bat. In 2009 a company Price directed bought
a stake valued at $40 million and gained controlling interest.
As we pull into the Barlow, a kind of ofce
park for artisans that also hosts a baker, a distiller and a Tibetan art gallery, Price smiles.
I always say that Ill put money on the inside
of a winery, not on the outside. I made a little
exception for Kosta Browne.
Kosta Brownes bay in the Barlow has
been converted into a VIP hospitality space
worthy of a shelter magazine, with creamy
leather chairs and a gleaming catering kitchen. But the real eye-opener is through the
rear door: the 25,000-square-foot winery. The
winerys level of detailthe placement of cat-
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THOUGHTS
FINAL THOUGHT
Where are most of the millions of new jobs?
An overwhelming percentage has been, and is being,
created in companies with fewer than 100 employees.
mALcOLm FOrbes
ON eNTrepreNeUrs
No one is born a CEO, but no

one tells you that. The magazine
stories make it sound like Mark
Zuckerberg woke up one day and
wanted to redefne how the world
communicates [by creating] a
billion-dollar company. He didnt.
dREw HOUSTON
The essence of success is that it is never

necessary to think of a new idea. It is far better
to wait until somebody else does it, and then to
copy him in every detail except his mistakes.
AUBREy MENEN
There are 100 men seeking

security to one able man who
is willing to risk his fortune.
J. PAUl GETTy
True leadership stems from

individuality that is honestly
and sometimes imperfectly
expressed. Leaders should strive
for authenticity over perfection.
SHERyl SANdBERG
FROM THE NOV. 15, 1975 ISSUE OF FORBES
OTHer THOUGHTs FrOm THAT IssUe:

pOLITIcs OF AUsTerITY
There is a new political rhetoric blowing in the breeze, full of phrases

like drawing the line and fscal responsibility. Conservatives wrote
the speeches frst. But now liberals, too, are mouthing the lines.
LOGO LOVers
Millions of young Americanswho love to parade as antibusiness

snobsare doing their parading dressed in Budweiser hats, Warner
Bros. T-shirts, Olympia beer bikinisand even Jaws underwear. The
phenomenon is called the logo tie-in.
Running a company on market

research is like driving while
looking in the rear-view mirror.
ANITA ROddIck
Innovation is
the specifc
instrument of
entrepreneurship,
the act that
endows resources
with a new
capacity to create
wealth.
I spend 90% of my
time with people who
dont report to me,
which also allows for
serendipity, since Im
walking around the
ofce all the time. You
dont have to schedule
serendipity. It just
happens.
PETER dRUckER
JAck dORSEy
SOURCES: FORBES; GOODREADS.COM; THE LAST WORD ON MAKING MONEY; LEAN IN: WOMEN, WORK
AND THE WILL TO LEAD; THE OXFORD DICTIONARY OF HUMOROUS QUOTATIONS;
SIMPSONS CONTEMPORARY QUOTATIONS.
BloomBerg; matt mcclain / the Washington Post / getty images
There still is backing for really strong ideas, because people

with capital need entrepreneurs and visionaries as badly as
the entrepreneurs and visionaries need them. How do you
think the Rockefellers stay as rich as they do? You get rich
on todays business, you stay rich on tomorrows.
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Breguet, the innovator.

Invention of the Tourbillon, 1801
With the Classique Grande Complication Tourbillon Messidor

wristwatch, Breguet reinvents its most spectacular invention, the
tourbillon, designed to compensate for the effects of gravity. Held
between two sapphire crystals, the tourbillon floats weightless
inside its carriage, while the sapphire dial offers a transparent
vision of the complex proprietary movement and its meticulous
hand finishing. History is still being written
B R E G U E T B O U T I Q U E S N E W Y O R K F I F T H A V E N U E 6 4 6 6 9 2 - 6 4 6 9 N E W Y O R K M A D I S O N A V E N U E 212 2 8 8 - 4 014
B E V E R L Y H I L L S 310 8 6 0 - 9 9 11 B A L H A R B O U R 3 0 5 8 6 6 -10 6 1 L A S V E G A S 7 0 2 73 3 - 74 3 5 T O L L F R E E 8 7 7 - 6 5 8 - 5 2 5 9 W W W. B R E G U E T. C O M

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AMERICAS BEST BUSINESS SCHOOLS SILICON ALLEYS FIRST BILLIONAIRE

OCTOBER 28 2013 EDITION

(AND TV WILL SAVE TWITTER)

What are you

Were thinking about your security.

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contents octoBeR 28, 2013

VoLUMe 192 nUMBeR 6

70 | king of The Second Screen

108 | STarTuP School

15 | FACT & COmmEnT

Senators: Dont be easy on the next Fed head.

26 | CASH AnD CARRIE

Less blood is better for Stephen King movies.

28 | EvERyTHinGS JUST FinE

Bad-boy billionaire Stewart Rahr and the 399 other

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contents octoBeR 28, 2013

Obama versus Putin:

A stable dollar delivers economic stimulus.

Taras lesson: Smart leaders copy.

The Pulte family made billions building homes.

Three key questions for ObamaCares rollout.

98 | Who needS The iPhone?

Jon Oringer turned a side project

54 | CHinAS BLACk BOx

The Chinese answer to Apple TV

56 | OnE ADDRESS BOOk

Privacy experts are a little freaked out

Betting against Bernanke.

Americas best small stocks.

A Roth conversion formula.

8 | FORBES OCTOBER 28, 2013

contents octoBeR 28, 2013

BEST SmALL COmpAniES

82 | DARwinS DiGiTAL DARLinGS

Some Web dinosaurs have surged back onto our list

Annies has discovered the double-edged

98 | THE CHipS ARE Up

A year after a management shakeup InvenSense is

On the eve of its fervently hyped IPO, the

102 | THAT SinkinG FEELinG

Carnival has brought a new CEO on board, but

BEST BUSinESS SCHOOLS

Plus: The 25 Best Business Schools

Transforming STEm Education One

116 | TAkEOvER UnivERSiTy

A wildly popular Stanford class encourages M.B.A.s