Net Neutrality Friday

This week there were a number of folks who comment on the pending merger between Comcast and Time Warner Cable, particularly Netflix. Netflix was quite negative and I thought I might say a few things here on the merger.

The first thing is that there is more difficulty in stopping this than most realize. The two companies don’t actually compete for customers. Both are Multi-System Operators or MSO’s in the cable business. Each System within the MSO operate independently and as incumbent operators in a locality. Consumers don’t have a choice between the two companies. Either Time Warner operates in a location or Comcast does. So, the merger of these two companies doesn’t actually eliminate competition. Under the strict rules of the Department of Justice part of the equation, there is no reason to stop the combination.

The FCC might have some other views. One thing that we all need to be clear about is that it has been a very long time since the FCC stopped a large scale merger like this formally. The FCC generally imposes merger conditions on the new entity. It did so in the case of SBC buying Ameritech and also when it bought BellSouth. In the former case, SBC had to create “Project Pronto”. In the latter case, there were some concessions around many topics. One of the most forgotten was a promise for 100% Broadband deployment.

AFC was one of two DLC vendors “selected” for Project Pronto. As the CTO of AFC at the time, I can tell you that we knew that this was true when we read it in the Press Release. AFC had been an approved vendor at one time in both Ameritech and PacBell. But we were doing very little business with SBC at the time of Pronto. It took us several years to get full approval and Tellabs finally got 22 State approval for the AFC product (to include the former BellSouth States) in the last 2 years. By the time any real Pronto activity might have happened, the CLECs had collapsed and Pronto was not at the top of mind. SBC had to maintain the concept and this pretty much halted a lot of rural broadband in their properties. The cost to implement Pronto in a small office was just too high.

The 100% Broadband Deployment may have slipped your mind, but I believe that SBC counted people that could get Satellite Broadband as having Broadband available. I think it is quite clear that not 100% of folks in SBC territories can get DSL even today.

Given this, I would say that merger conditions are more bark than bite. If the FCC is unhappy with the proposed merger, then it needs to say no to it outright. The only reason to do so is that the combined company will have a large footprint of Broadband Users. This gives the company some amount of market power, but I am not sure that this will cause the FCC to stop the merger. As for myself, I am more concerned that Comcast owns Content. If I were making a merger condition, I would force a spin-off of NBC-Universal.

Have a nice weekend and a great Labor Day!

Jim Sackman
Focal Point Business Coaching
Change Your Business – Change Your Life!
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis

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Sonoma County: News and Notes

Thanks to everyone who has listened to my Webinar titled “Goals: The Foundation for Success”. A link to the Youtube version of it can be found HERE. In September, I will be doing a Workshop in Partnership with N2 Publishing and Fuze (the gents behind Fuze Viewer). This workshop will be at Stout Brothers on September 24th @ 5:30PM. I will be speaking about “Integrated Marketing Plans: Your Roadmap to Attracting Customers”. N2 and Fuze will be speaking as well, followed by some informal networking. Attendance is limited, so contact me @ jsackman@focalpointcoaching.com about attending.

I have gotten some feedback asking me questions about what I say in my Quarterly Reviews of the 3 Tech Companies that I chat about. Since this News is based on Sonoma County, I am trying to stay focused on Companies Headquartered in the North Bay. Those 3 companies (Cyan, Calix, and Enphase) employ many of my friends and former co-workers. I want to see how they are doing. I would be happy to add in reviews of any public company that the audience wants. Just contact me and let me know.

But that is not the concern that folks have. They are focused on what is being perceived as negative comments. I guarantee that what I say is greatly negative compared to what is said on the Quarterly Conference Calls. Remember Quarterly Calls as Sales Calls. The Company is putting out information in a way that is intended to sell stock to investors. These calls have a language and a rhythm to them that can be understood if one listens to calls. If you are going to invest in a company, then it is important that you listen to the calls and hear what is being said.

But the reality is that the information requires interpretation and examination of the financials as they are released. That is what Analysts are supposed to do. BUT (and this is a big BUT) the folks on the call are generally what is known as “Sell Side Analysts”. They are not doing deep work on any company. They do short papers on a dozen or more companies a quarter. The specific analysis is published in less than a single page. Much of it is repeated verbage from the calls. They have their role, but they are not going deep into long term investment potential for any stock.

So, I listen to the calls and read the financials. I try to provide what I think is a straight forward analysis based on those financials. I await evidence in the numbers that some initiative is doing what Management says on the call. I want to focus on balancing away from the Sales Pitch and hope to provide folks with some more grounded thoughts about the numbers. I am a Value Investor and that is what I base my thoughts on. I am not looking at whether the Stock Price is good. I want to know if the business is good. Good Business leads to a rising Stock Price in the long term. That is what I am looking for.

If you have read this far, I have one more ask. I would like to present interviews of different North Bay Businesses here when I can. If you have a business here in the North Bay or know someone who does (and they want some free PR), just send me a message. You can do that through the email at the top or through my website.

Have a great week!

Jim Sackman
Focal Point Business Coaching
Change Your Business – Change Your Life!
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis

Planning a New Business: Funding Sources

We have gotten our new business in good shape from a planning standpoint over the last few weeks. We know what we do and stand for. We have a plan to sell and market our product. We know what the numbers look like. There are some steps left to do. Formally create the business and get it started. But the one crucial step is to look where we get the money to start it from.

As we talked about last time, you need to plan to get enough money to cover that worst case in the funding that you have from your financial plan. I have also put to you that you need to have a buffer as it is likely that you have missed some things and will need some money beyond that.

You might have enough cash to fund the gap out of your own cash. If so, go forth and make your business happen. But for most people to fund this gap, there are 2 choices: Equity and Debt. Equity is the process of selling a portion of your business to investors. Debt is a loan that needs to be repaid.

Most people look to Debt first. Why is that? With a couple of exceptions, most new businesses do not fit the profile that investors want to buy a part of. The exceptions are Friend and Family, Social Investors and VC backed startups. I will cover Friends and Family later as it is possible that they are a source of Debt as well. Beyond that, you need to have a company that meets a need of the investor. VC backed startups are ones that will get at least a 10x valuation after 3 years (rule of thumb). They are generally going to be product companies that are addressing a state of the art need in a market. Retail or Professional Services generally don’t meet the outcome requirements of these kind of investors. Social Investors look at things in terms of the societal value of the outcome. Their reason for investing will not be purely financial and some kinds of startups might get funding there.

But most people have Debt in their future. I want to be quite clear right now. You are not going to walk into a Bank and get an unsecured loan for a startup business. It is just not going to happen. You may want that, but you can stop right now if that is your plan. What can happen is a secured loan. That means you have to have some form of asset to borrow against. Home Equity, 401K plans or IRAs are very typical assets used in this regard.

But many Businesses will be formed in conjunction with Friends and Family. This means you go to the folks you know and get them to give you money. This can be in the form of either Debt or Equity. But you should set up a formal agreement around this if you want your relationship to survive the business. A business failure that loses the money of the people you care about will cause a huge strain on the relationship. Taking care to have a good business plan and having a formal agreement around the financing will help greatly.

I deliberately avoided Crowdfunding here and I will talk about that and some thoughts about it next week.

Jim Sackman
Focal Point Business Coaching
Change Your Business – Change Your Life!
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis

 

Net Neutrality Friday

Been a quiet week out there in the world of Telecom. So, I wanted to circle back to the whole “Fast Lane” Conversation and talk about a couple of the challenges that I see. As you know, I think that trying to do this is not a bad policy decision for the FCC. I think that it is a bad product choice by an Internet Service Provider.

I think one of the things that people forget is the world of the SaaS company or Content Provider. I worked at Red Condor/Edgewave for a couple of years, so I think I have a bit of perspective here. If a “Fast Lane” was offered to me, I might choose it for the connection from our Headquarters to the Ashburn Data Center. We had an Ethernet over SONET connection from Rohnert Park to San Jose. But our connections to Ashburn were over a pure Layer 3 VPN. If I had the option of buying a higher quality connection to Ashburn I would definitely consider it.

That would lead me to my first question. Would I actually get a higher quality connection? Well, depends on who offered me the service. Would they be able to provide a complete end to end route from Ashburn to Rohnert Park? What would the Service Level Agreement be? How would I measure the quality of the connection? What is the recourse if I didn’t get the quality of connection that I was paying for?

So, let me step back to why this connection was important to me. The connection from HQ to the Data Centers was very important in our ability to provide our Service 24/7/365. I didn’t have any particular issue with the setup we had, but would be happy to hear about any improvements in service reliability that could be had at little to no cost.

Switching to the other side of the coin. I would not have been interested in that service as it faced our customers. What a NIGHTMARE that would have been. The number of Internet Service Providers involved would have been staggering. Keeping track of who paid for improved service and who didn’t is one problem. How to manage outages and service interruptions if there would be a headache. And what do I do with customers who DON’T pay for improved connections or CAN’T get an improved connection that meets my needs?

Now imagine this is Netflix. They will have to have peer to peer connections with every ISP. Then they will have to have a similar service offering from every ISP. Then they will have to mandate what happens if you have a tablet and are streaming in a Hotel Room.

Right now the simplicity of not having to know about all of that makes the job of a Content Owner simpler. They build the service to a Lowest Common Denominator. I played a lot of MMORPG online games like World of Warcraft. They built those games to work over dial-up. They weren’t great over dial-up, but they could work. They wanted to keep the network out of the equation as a problem for game performance. That is why gaming is almost never mentioned in these conversations.

Right now I stream Netflix and have no problems on my TV using our PS/4 or on my Desktop or on my Tablet. I haven’t really used my phone yet, but I am sure it would work there as well. The only outstanding question is around the latest TV technologies. The jury is still out if this is going to be a major consumer thing. Remember when 3DTV was going to take over the world?

So remember when if people start providing “Fast Lanes” that the service has to meet a need for a Content Owner. Consumers are concerned that the Content Owners who don’t have higher end service will be put out of business. I will address that next week.

Have a great weekend!

Jim Sackman
Focal Point Business Coaching
http://www.jimsackman.com/
Change Your Business – Change Your Life!
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis

Sonoma County: News and Notes

This month on August 26th at 9AM, I will be hosting a Webinar titled “Goals: The Foundation of Success”. You can register for this Webinar HERE. I posted a story about Goals in the past. You can take a look at the whole thing HERE. Goal Setting is why AFC was able to build a big DSL business and eventually win the FTTP Business with Verizon. That took the company from about $350M in Revenue to over $1B in Revenue in 5 years. These techniques work for businesses large and small. They also work in careers and lives. So, join me for a 1 hour kick-off to Success!

This week I am reading out on the results at Enphase. The company reported results on August 6th. Now, you may ask why I wait to blog about them. The reality is that I have an editorial calendar and get to them when they are scheduled. The other part of this is that I am a value investor. I want investors to analyze fundamentals. The next time there will be numbers will be next quarter, so their is no rush.

On top of that, there was an event that won’t affect shareholders in the long term. It might affect shareholders in the short term. This is the 8K and other documents filed around the selling of shares by major shareholders. The right way to look at this is that it is a non-event in the long term. People get concerned when Insiders sell. My guess is that this was an option taken to allow those major shareholders to diversify their investments in a way that would be considered non-disruptive to the company and other shareholders.

Part of the reason why to do it now from a company standpoint is that Enphase announced record Revenue in
Q2. Any way you look at the top line the company is doing well. Growth everywhere and some penetration outside the US. The challenge that Enphase has is the bottom line. The Alternative Energy business is “margin challenged” at all levels. This means that the Gross Margin of these type of products is low compared to similar businesses. In this case, Enphase had a Gross Margin of 33%. Calix, if you recall, was pushing closer to 50%. That means that Enphase can spend less money to Design, Market and Sell new products before it loses
money.

Right now, Enphase is riding a fine line where it hires and grows just to fill its Revenue growth. The actions
imply that Enphase is trying to grow and will get “Leverage” later. Leverage is the profit that comes from natural growth without having to hire new employees to support the business. This is the ongoing question for
Enphase. Can they demonstrate Leverage in the business in the long term. So keep an eye on the expenses for the future!

Have a great day!
Jim Sackman
Focal Point Business Coaching
http://www.jimsackman.com/
Change Your Business – Change Your Life!
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis

Planning a New Business – Funding

 

Over the past two weeks we have created a Financial Plan for a new business. At this point, you should be happy with the outcome out in the future. Remember our goal here is to create a Future.

If you have done a credible job, you are going to find that a new business is not instantaneously profitable. That means that we need some funds to close the gap. There are two challenges here. The first is to discover the magnitude of the gap and second to actually cover the gap.

To start on the first point, the best way to go is to create a “Cumulative Cash Flow”. This is a summation of all the profit and loss of a business over time. So if we go back to our Spreadsheet, there should be a Net Margin at the bottom of the chart for each month. If you sum the Net Margin for each month with the sum of all the previous months, you get Cumulative Cash Flow. Additionally, there may be some pre-operating expenses. This would include items like Company Formation Legal Costs, Site Acquisition, Website Development and similar expenses. Most of these are one time costs, some of which may have monthly fees to go along with them.

If you look across this line of Cash we have just created, you will note that the number goes more and more negative until you have positive Net Margin. The most negative number is the worst number that you end up with in forming your business. This is (according to your plan) the minimum amount of money that you have to Finance to start your business. It is this number that causes many small businesses to have challenges before they get very far.

Once you are out of cash, you are out of Business. So as you are starting your business, you need to provide that cash ahead of time – or Fund Your Business. We will talk about sources and challenges on that front next
week. But I want to add a note of caution here. You are probably optimistic about how fast you can build your business. So plan for your business to get a lot worse off than your business plan. Think about having around 2x the cash that you have required in your plan.

To sum up:
– Create your Cumulative Cash Flow
– Find the nadir of your Business from a cash standpoint
– Plan for things to be worse than that

Next week we will talk about funding sources!

Jim Sackman
Focal Point Business Coaching
Change Your Business – Change Your Life!
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis

 

Net Neutrality Friday

 

This week I wanted to differentiate the “Fast Lane” discussion from the peering changes that Netflix has been
making with Comcast and now AT&T.

I will start with the peering side. In this case, Netflix distributes its content over its Internet Service Providers –
Cogent and Level 3. These carriers in turn connect to other Internet Service Providers (ISPs) like Comcast (I
have Comcast Internet at my house). The challenge for Comcast was that talking to Cogent began to act a lot
like talking to Netflix directly. The amount of traffic that Comcast got from those connections with Cogent was
by and large Netflix traffic. Well, the agreements that Cogent and Comcast had were for a somewhat different
kind of behavior. What Comcast expected is what it gets from other ISPs – relatively symmetrical traffic. From Comcast’s standpoint, the agreement with Cogent was breached.

Now all of this was due to the high volume and unidirectional nature of Netflix’s business. So, Comcast and Netflix (and now AT&T and Netflix) reached a direct agreement bypassing Netflix’s other vendors. I am not sure that this raised costs for Netflix at all. It surely made Cogent unhappy through a loss of business and Comcast happy because of a gain. I hope you can see that this is a topic unto itself and separate than the “Fast Lane” issue.

So, let’s circle back to “Fast Lanes”. There are lots of words used to describe these but in the Telecom World we use a number of acronyms. The first is QoS or Quality of Service. QoS implies there is some form of Service Level Agreement or SLA between the provider and the customer. Today, you will not find these types of agreements around consumer Internet. Consumer Internet is what is known as a Best Effort Service. In this case, the network tries to deliver traffic but there is no guarantee.

When I was younger, the telephone network used to have “The Mother’s Day Problem”. People would call their Mom’s and the phone network would become congested (just like a road network with too much traffic). The way the phone network works you would get “Busy” or a recorded message if your call could not go through. But if it could get through, you would have a clear connection to your Mom to tell her you loved her.

The Internet works differently when its congested. There is no recorded message sent by the network. The network begins to lose data. Think of a glass becoming filled to the brim. If you keep filling it, is spills over. Now put a small hole at the bottom. If you fill the glass faster than that hole can empty it, then you will still lose some water. Not all of it, but some of it.

This is what we are talking about when the FCC was talking about “Fast Lanes”. Today, if the network is congested generally it tosses away data at random. But networks can be set up to choose to let through certain types of traffic first (think of the Big Rock Analogy). In the Business world this technology is used all the time to prioritize important traffic. The question in front of the FCC is whether they should allow such behavior on the Consumer Internet. Just so we are clear, TODAY it would be legal for ISPs to set up such an arrangement.

There is a whole separate question around what services might be offered and what services might be valuable.

I hope this has been helpful and have a great weekend!

Jim Sackman
Focal Point Business Coaching
Change Your Business – Change Your Life!
Business Coaching, Sales Training, Web Marketing, Behavioral Assessments, Financial Analysis