Above C-level

When I left American Express at the beginning of this year to join Brilliont, many expressed to me their desires to do something similar – leave the corporate giant and start something of their own. Unfortunately, the majority of people who make such a statement have no serious intention to do so. I know because I was one of those people until recent years. It sounded nice, but why take the risk?

Now with what’s happening in the market, risk has become a relative term. When I graduated Columbia Business School, I went the small company route instead of joining a McKinsey or Goldman Sachs. This is not exactly unheard of for a Columbia MBA, but certainly not the popular option given 1) the MBA price tag and 2) the school’s proximity to high-paying finance jobs. Fast forward a few years: of my four closest friends from business school, two of them have already been laid off, with a third waiting in the wings. Without mentioning company names, my friends’ employers were large financial and real estate institutions with much lower perceived risk profiles than that of my small business employer of choice.

The entrepreneurial life is not for everybody, but the element of risk in one’s decision-making is overrated. The recent downturn drives home that point. If you have an idea, and you can somehow secure adequate seed funding to provide decent runway, your job security is actually better than if you work at a large financial services company. That’s right - it can actually be safer to control your own destiny with the benefit of limitless upside versus the alternative where you simply collect your paycheck and consider yourself lucky to have one.

Although the market is down and many will lose their jobs, I am encouraged by the fact that many talented people will recognize opportunities in self-employment. Funding standards will be more stringent than they have been in recent years (see Benchmark Capital’s memo to startups), but I am cautiously optimistic that this downturn will spur positive innovation.

Entrepreneur wannabes: don’t be a victim of the downturn. If you lose your job, see it as an opportunity to do what you wanted to do for years, but haven’t had the guts to do under the security of a salary. Otherwise you may find yourself repeating this vicious cycle numerous times in the future.

Cloud computing typically refers to the delivery of software applications, data storage or processing power over the internet. In other words, cloud computing enables physical, often burdensome infrastructure surrounding IT to be managed offsite, allowing businesses to better focus their time and resources on core competencies. One simple illustration would be the replacement of a locally installed version of Microsoft Office in favor of Google Docs, which offers web-based word processing, spreadsheet and presentation applications. Currently, Google’s beta version of Docs has no where near the functionality of Microsoft’s software, but you get the idea.

From a small business perspective – an area in which I have plenty of firsthand experience – the advantages of cloud computing are numerous. It’s fast, inexpensive and worry-free. For example, Gmail now offers a corporate e-mail application. For $50 per year per user, a company can experience virtually all the functionality of hosting their own Microsoft Exchange Server without the everyday hassles of upgrading, maintaining and protecting local hardware and software. Each account includes 25 GB of data storage per user, and even the ability to POP messages onto Microsoft Outlook for those who are web-phobic. Furthermore, everything can be up and running in a couple of hours. I’m starting to sound like an advertisement for Google, so I’ll stop short of giving you a link to sign up.

Salesforce.com is another company that has made an entire business out of cloud computing. They offer customer relationship management (CRM) software-as-a-service that competes with the likes of Siebel and many others. With success to the tune of roughly $750 million in revenue in 2008 (51% growth over 2007), it’s easy to claim that cloud computing has arrived in a big way. Salesforce has even been able to leverage their relationships into adjacent service territories including idea management software that was adopted by big name clients, such as Starbucks and Dell. These leaps are made possible by the fact that infrastructure is not a roadblock to expansion.

So if you find yourself wondering why your company still uses Lotus Notes and Microsoft Office, here’s the sobering news. First off, the products are still immature. As I stated earlier, Google Docs is still in beta mode, and trust me – it’s VERY beta. I’m a power user of Excel, and Google’s spreadsheet program hardly scrapes the surface of Excel’s capabilities. Second, companies have concerns around security. My personal belief is that Gmail is probably more secure than any locally hosted mail server. Why? Because just like a car manufacturer makes a business out of making cars, Google makes a business out of securing privacy. The car maker is never going to be better than Google, so why not just let Google (or some other security specialist) handle the tertiary parts of the business? Third, these things don’t happen overnight. To put it lightly, you’ll have to rip existing multi-billion dollar IT infrastructures out of corporations’ cold dead hands before they let you implement something this radical. Take mobile payments for example. This technology is more or less ready to go, and probably has been for some time. However we stay married to the plastic in our wallets simply because the infrastructure at retail stores isn’t changing anytime soon (nor are the credit card companies pushing them to change).

Cloud computing is on its way, and has much to offer. But I wouldn’t be surprised if Office 2015 still resides on my local PC.

What do Whole Foods and Starbucks have in common? They both earned well-deserved reputations as overpriced food & beverage establishments. Not coincidentally, they both experienced massive growth in recent years while the yuppies were bringing home the (organic, free trade) bacon. And now they have both been slammed by the latest economic swoon.

Whole Foods was the latest in a string of companies that target the premium segment to disappoint Wall Street. The company posted quarterly earnings that were down 31% from last year at this time, and announced that they will cut back on store openings and also suspend dividends to their shareholders. Paired with recent store closures by Starbucks, these two companies make for an interesting case study in how once-healthy, innovative companies can become overzealous on the way to their achievements.

Shared characteristics that led to both companies’ rise and fall include:

1. Premium Pricing – Premium pricing is great when you’re the only show in town. Unfortunately for both Starbucks and Whole Foods, this no longer rings true. In the case of Starbucks, even McDonalds offers premium roast coffee (which by the way scored better in taste than Starbucks according to Consumer Reports). And Whole Foods has experience pressure from everyday supermarkets that now dedicate entire sections of their stores specifically to organic goods.
2. Overexpansion – This is truer in the case of Starbucks than Whole Foods. Starbucks expanded their number of stores to the point of cannibalization. The company was no longer broadening the market, but rather sharing the same pool of customers across a larger base of stores.
3. High-Brow Reputation – An off-shoot of premium pricing, a high-brow reputation is hard to shake. Even if these stores start to lower prices or offer coupons, it will be tough for them to rebrand and become known for more than just catering to society’s elite.

In all fairness, I have made more than my fair share of purchases from both establishments, so I am certainly not here to criticize their products or services. Nor can I deny that much of their growth over the past few years has been intelligent growth, capturing and in some instances creating a market that did not previously exist. However, the age old debate of when to curb growth lives on. Both companies felt invincible and in turn became greedy.

Now they are the ones paying the premium price.