Musings from a Startup

Less than a few months ago, I expired from a startup and wanted to document some of my experience and remind myself to get more comfortable with these issues before taking on a startup role again. While I have no regrets, others may choose to be more selective based on the responses to these points:

What is the track record of the management team successfully launching a company? While academic qualifications, prior work record and general banter given to you by the executive management team may sound impressive, remember to gauge whether this is a on-the-job training for the CEO or based on previous successful outcomes. It is best for new employees to have a good feeling about the CEO/CFO positions and their combined ability to take this startup to the next level. What are their funding requirements? Have they raised money before? Who is in their capital formation network?

If you are receiving employee options, what is the number of fully-diluted outstanding shares? Options should be granted or committed to on joining the startup. Typically, option grants are a key component of compensation in a start-up and are often promoted as such. But the details surrounding stock options are often complex and confusing for non financially-oriented individuals. It is best for employees to understand as much as possible about their option grants, but the first place to start is to ask how many outstanding shares there are. From that point, one can calculate the percentage of the company an employee will own and a better gauge of the magnitude of this compensation component. It surprises me how many startup employees I know who are excited to have received a grant of x number of options, but never bothered to ask what relative percentage of the company that translates into.

Has there ever been a down round, a flat round, or a CEO change? Any of these three events are an indicator that the startup has faced some difficulties in the past and may not be on track moving forward. If one of them has occurred, prospective employees should seek out as much information as they can the context of the situation. After all, there are exceptions to blind the assumption that these are a black mark (e.g. a founding CEO stepping aside to make room for professional management could be an indicator of successful growth). However, if any of these issues have arisen, it is a signal to dig deeper into the health of the business.

What is the burn rate and how much cash is in the bank now? Even if a start-up is successfully executing, it could still face a cash crunch if it is not yet profitable. Employees should ask to find out how much longer the company will ride without the infusion of another round capital. While the actual answer to this question won’t necessarily provide a definitive answer about the ability for the company to access both cash and capital, it will open up a discussion about it.

What is the plan for exit strategy and its timeframe? The answer to this question is a soft one with many factors, and can always change depending on circumstances. However, it is best to find out management’s view of a possible exit strategy. Is the company pieced together for a quick flip, building for multi-year significant value creation, or plan on holding for the long term as an eventual cash cow (for founder/investors)? These expectations will affect not only how long employees may be working for the company as it exists today, but more importantly, the resulting surrounding corporate culture.

Could you meet the CEO, the founder(s), and those on the management team? Start-ups are all about the people involved. And there are a small number of people who are largely going to affect the organization. Even if an entry-level employee is going to work in engineering, I think it makes sense for him/her to meet the VP Sales; likewise, a marketing manager should meet the CTO. Yet it might not happen unless the prospective employee requests it. The handful at the top are going to have a profound affect on the future of the company as a whole and the position (regardless of function), and therefore it is best to meet as many people possible in the company possible before joining.

Are there plans in the next six months to hire anyone along the chain-in-command between your position and the CEO? Start-ups often have key vacant positions open as the companies expand and grow quickly. I recommend explicitly asking if there is an anticipated change in the reporting structure in the foreseeable future, as any modifications or additions (even those a few rungs up in the ladder) could significantly affect employees’ roles and responsibilities.

How many employees did/does/will the company have six month ago, now, six months from now, a year from now? Employee count is a strong (but not a perfect) proxy for management’s and investors’ outlook on the business. Start-ups hire ahead of growth (or at least predicted growth), which translate into a viable company, a healthy work environment, and future internal opportunities. Financial figures and projections are helpful indicators, certainly, but are often a distortion of the full picture (especially early on in a company’s cycle). The growth in employee count (or lack of) directly signals how much work needs to be done and how rosy the expectations are.

Tagged Data Adoption

Technology adoption does follow a predictable curve, and the leap across the chasm from early adopters to mass adoption is also quite predictable. Tagged data still has an issue with demonstrating an immediate benefit, consequently inspite of huge marketing dollars spent on education and training by some of the leading vendors, adoption still waits for a carrot or a stick. It appears now that at least for public company filings in XBRL, the stick will drive the next surge. Without clear and strict and relevant guidelines by the SEC on compliance and QA, it is quite likely that we will continue to see tagged data that may be of less value than the current data sources unless vendors step up their QA efforts.

It should be noted, however that some companies like Microsoft, and some providers like Business Wire have successfully generated correct, flawless tagged data so either self correction is required by the other vendors or better compliance penalties by the SEC in allowing the miscreants to get away with shoddy work. In the end, the message to new adopters is to look very carefully at past performance of XBRL providers and do their due diligence before entering this brave new world.

Since Bowne & Co. and RR Donnelly each filed their first XBRL-related documents with the EDGAR system on April 4, 2005, (up to November 27, 2006), there were a total ninety-three VFP filings representing thirty-one companies.

A study published last month showed that of the ninety-three XBRL filings, fifty-two or almost 56% were not compliant with the latest XBRL specifications and that these incorrect filings had calculation errors. The highest number of errors found in one single filing reached 68.

R. Corey Booth, the CIO of the SEC, has said, ". the preparation of XBRL statements is still perceived to be difficult. The preparer him-or-herself needs to be comfortable with both the technological aspects and the accounting aspects of the standard. And that this kind of subject matter expertise isn't as easy to find as we would like."

The study went on to say that Edgar Online, one of the front runners in XBRL filing, has filed all six of its VFP filings inconsistently under the study assessment, and, that the number of errors is increasing as time goes on.

Here are highlights of the study findings:

EDGAR Online:

• 2005/04/25: inconsistent, 12 calculation errors.
• 2005/09/26 (for first quarter): inconsistent, 15 calculation errors.
• 2005/09/26 (for first half): inconsistent, 22 calculation errors.
• 2006/04/20: inconsistent, 32 calculation errors.
• 2006/08/16: inconsistent, 32 calculation errors.
• 2006/11/16: inconsistent, 36 calculation errors.
  

Interesting to note how the errors are actually increasing with time.

Three companies have filings with numbers of errors more than 50:

Xerox:

• 2006/04/11: inconsistent, 57 calculation errors.
• 2006/09/08: inconsistent, 66 calculation errors.
• 2006/11/09: inconsistent, 65 calculation errors.

RR Donnelley:

• 2006/04/25: inconsistent, 68 calculation errors.
• Second filing had the highest number of errors in all VFP filings

Radyne:

• 2006/08/28: inconsistent, 52 calculation errors
• 2006/11/08: inconsistent, 56 calculation errors.

A change in tone for Corp.US ?

Corporate Social Responsibility and Social Media - two ends of the marketing spectrum

More and more large caps appear to be taking a serious look at corporate social responsibility reporting. Momentum is building in Europe and appears to be rolling in and catching interest on the US mainland. Some examples are listed:

Office Depot talks about Sustainability Reporting
DowChemical Talks about Better Internal Controls
Dow Chemical - a human face
The Audit Committee: Key to Effective Corporate Governance

However, and here's the gotcha, few "Socially Responsible Investing Funds" have shown a better than market index return with very few exceptions such as Neuberger Berman Socially Responsible fund.

Other useful links for SRI investing:

Social Investment Forum
Green Money Journal
Calvert
PAX World Funds
Social Funds

On the other hand, there is a growing interest in using social media for marketing . . here’s a collection of podcasts about marketing from Marketing Voices, a weekly podcast that discusses how social media is affecting marketing strategy and practices, by Jennifer Jones.

1. Seth Godin, marketing expert, author. States that small is the new big. People need to target audiences of 4 not 400. Told marketers he feels they have the biggest opportunity in at least thirty years to make an impact given social media.

2. Robert Scoble, blogger and vice president of media development for PodTech. Talks about how blogging has evolved and why it is important for corporations to blog today.

3. Peter Rojas, co-founder and editor of Engadget, one of the most popular blogs on technology today. Discusses the publication, its strategy and how to best contact editors for the publication.

4. Phillip Bodzenta, director of global communications for Coke. Describes how Coke used bloggers to build audience during the World Cup. Shows pictures of bloggers at the World Cup.

5. Sharon Wienbar, managing director, Scale Venture Partners (formerly BA Venture Partners) on what is hot/ not in social media venture investing.

6. Pete Blackshaw, chief marketing officer of Nielsen Buzzmetrics, talks about how to measure social media.

7. Steve Rubel, senior vice president of Edelman Public Relations. Speaks to how social media is impacting the practice of public relations.

8. Dick Costello, chief executive officer of Feedburner. He speaks about how to get blogging and podcasting content is found and distributed.

9. Bill Kircos, head of consumer and enterprise media for Intel. Describes how Intel implements social media programs, most specifically, podcasting.

10. Kelly Wagman, head of customer relationship marketing for Juniper Networks. Talks about how Juniper used social media to build a community.

11. Ross Mayfield, CEO of Socialtext, a wiki company. Describes wikis and how they are best used in marketing.

The entire collection of Marketing Voices is here.

The holy grail - unveiled

Now, this could actually be quite interesting - Project Nunavut

XBRL Int. Conference -- Philly

Philly was the venue for the 14th International XBRL Conference. Here's a snapshot of companies who have ventured into this brave new world of XBRL so far. .


Chris Cox was the headliner on Day 2.5 and just gave a flawless speech on his heightened intent to see interactive data institutionalized at the SEC. If this was a tech conference, I would imagine CEOs of startups running up to him and kissing him on both cheeks, but I was amongst financial accountants and they gave him a civilized applause and went about their business to the next speaker from Edinburgh -- "Sir Tweedle Dee", someone who had been on the fence about promoting interactive data but now wants to join the global wave. Sir David Tweedie as Chairman, International Accounting Standards Board, has been cited as "the most powerful accountant on the planet." He is charged with overseeing the launch of a new set of international accounting standards (IAS), which will hold sway in as many as 92 countries, from Bahrain to Belgium to Bolivia. "With one core set of standards, any company using them can list on any stock exchange anywhere in the world without having to reconcile their accounts to local standards, as they do now," Tweedie says.

XBRL-US - the non-profit consortium officially turned a new leaf by hiring a CEO and re-launching itself as a for-profit organization. Here are his credentials: Mark Bolgiano, was Vice President and Chief Information Officer, Council on Foundations. He supported the Council's mission as the executive responsible for IT infrastructure, online services, digital media, and knowledge management. He has twenty years of experience in non-profit information technology and operations management. As president and founding partner of Radicle LLC, he provided consulting and applications development services to non-profit institutions with a focus on data-driven web applications and knowledge management systems. A winner of the annual American Society of Association Executives Award of Excellence in Information Systems, Mark founded, and for 17 years has moderated, the Non-Profit Technology Best Practices Study Group, a colloquium of chief technologists at non-profit institutions dedicated to the improvement of the discipline through the sharing of knowledge and experiences.

Interestingly Oracle Chief Architect gave a very poorly delivered talk on Oracle's strategy for integrating XBRL into their stack. It was profoundly unimaginative and so very Oracle.

I dropped into one of the Development workshops to get inside the fabric of how the standards for taxonomy extensions were coming along, and also to see the self proclaimed "father of XBRL." With enough seating space for 50 people the room was mobbed with almost double the number and Charlie Hoffman was totally blabergasted -- so much so that 15 minutes into his talk, he hesitated and stopped and asked a question "why are you all here ?" It was not a rhetorical question.

The level of interest has suddenly spiked and interactive data appears (on the surface, at least) to be on a tear to be deployed in various ways.

The following web-article by Institutional Risk Analytics better captures the overall status . .

XBRL and Sarbanes Oxley: The Content is King
December 7, 2006

The 14th annual XBRL International conference was held in Philadelphia this week, bringing together some of the leading figures in the government, accounting, financial services, and technology sectors to laud the development and prospective adoption of eXtensible Business Reporting Language or XBRL in the US.

SEC Chairman Christopher Cox led a parade of notables to the podium, all confirming that the XBRL standard has support from some of the most powerful agencies in the US government. The SEC has thrown its financial support behind the XBRL standard and is preparing to finalize contracts with XBRL US and the Financial Accounting Standards Board to complete the accounting taxonomies which are, in theory, needed to truly begin the adoption process.

Of note, to accomplish this task, the SEC is relying upon two entities with little commercial or technical contracting experience, XBRL US and the FASB, to complete the construction of the XBRL GAAP taxonomies that will be integrated into the EDGAR system. This choice creates considerable technical, legal and political risks for the SEC, for Chairman Cox personally and for the adoption prospects of XBRL.

As Chairman Cox noted in his remarks, an optimist is someone who, when told that things can't get any worse replies: "Yes they can." On those terms, we're optimistic about XBRL. Stay tuned.

Besides the immediate technical obstacles facing the SEC in preparing XBRL for broad adoption by public companies, there is a more fundamental issue, a flaw in the grand design that may ultimately doom XBRL in the US, namely the fact that the community of corporations and other filers of SEC documents remain largely indifferent to and ignorant of this process. Fewer than 40 companies have joined the SEC's voluntary filer program over the past two years. Downstream users of financial data are even less aware.

As a representative of one of the largest SEC filings vendors in the US told The IRA this week: "We hear almost nothing from our clients regarding XBRL. Most don't understand the benefits of the technology or participating in the SEC's voluntary filer program. Those few corporates which do have an understanding of XBRL seem content to wait for the SEC to mandate the technology and do nothing until then."

Over the past month, we have interviewed members of the XBRL consortium about the pluses and minuses of the XBRL effort to date. Almost universally, we hear our colleagues describe the challenge facing the SEC effort in technical terms; as being to rationalize a "document centric" view with the need to gather financial statement data in a way that is structured and machine readable. Most believe that if the XBRL US/FASB team complete the GAAP taxonomies needed to structure SEC filings, adoption will follow. Like the film Field of Dreams: "If you build it, they will come."

We respectfully disagree. Part of the reason for the failure of the XBRL effort in the US to catch the imagination of public companies is the assumption that the technology of XBRL, which combines the transport capabilities of XML with accounting definitions, will somehow define and control the process of disclosure by public companies.

Nope. Repeat after us: the content is king, the content is king, the content is king.

Fact is that financial reporting is an ever evolving process; a process that balances the legal requirement of disclosure with the business cases needs of companies to manage their public image before investors and markets; that is, to be opaque and thereby maximize market value. Trying to make the content fit into a pre-conceived technology framework strikes us as both arrogant in technical terms and unworkable in political terms.

IRA's independent explorations outside the Beltway reveal some very rational questions about the business case value of XBRL. Compliance specialists note to us that XBRL still deals with too narrow a range of reporting items that must be delivered to regulators. They have little choice, at the moment, but to concentrate their infrastructure investments elsewhere; more precisely, on tools that facilitate delivering broader spans of reporting and compliance obligations.

Technologists in the EDP and ERM words tell us that the true landscape of information interoperability starts at the transaction layer and that the real drivers of systems development priorities remain setting up least cost automation to, for example, confirming Sarbanes-Oxley internal controls. Further, the pressing financial interoperability challenge lies more in the area of exchanging data using least cost means between disparate legacy systems.

Interoperability is still a game of CSV, vanilla XML and SQL interconnections; a game that is driven very much by internal business process integration needs of enterprises seeking to remain competitive. Many view the complex overlay of XBRL transmission as potentially adding to as opposed to managing down their project risks and financial burden. One has to admit that such concerns do have "to the bottom line" poignancy -- just like the objections to Section 404 of Sarbanes-Oxley.

Advocates of adoption of XBRL in the US need remember that the customer here is not the SEC, but the US economy. The public good objective is to craft a technology that is such a clear improvement over the current text-based standard used for meeting the requirements of the Securities Act of 1933 as to be self-evident. More, to avoid being thrown into the "bad" Sarbanes-Oxley 404 bucket, XBRL must demonstrate that it provides cost savings and other efficiencies.

In our view, the biggest obstacle facing the SEC as the champion of adoption of XBRL in the US is to craft a compromise that helps rather than threatens filers, not just corporate filers, but the funds and other entities which use the dozens of forms currently filed with the SEC. If the tool that results from the development effort supports the evolving conversation between filers and investors, then the XBRL standard will be adopted and enjoy success.

If XBRL fails this test, then the SEC and Christopher Cox will be in the same position as is the Bush Administration is in Iraq: looking for a face-saving way out. Indeed, the failure of the XBRL adoption effort in the US could be a considerable blow to Chairman Cox's rising political star. The operative timeframe here is the next six months.

The SEC already is fighting a rear-guard action with respect to rolling-back Sarbanes-Oxley, which both parties in the Congress look ready to eviscerate in 2007. We have some ideas on how the SEC might combine the need to drive greater awareness and adoption of interactive data (but not necessarily XBRL) with the impending reform of Section 404 of SOX, but we ain't talking till somebody makes it worth our while.

Conferencing in NYC

So I spent Thursday at the Financial Executives International Conference in NYC hoping to get a feel for how corporate controllers feel about the latest accounting issues as well as lending my support to the XBRL-US group advertising the roar of "interactive data" adoption as Chairman Cox increasingly morphs to a Steve Jobs look a like in public. I surmized it was the wrong crowd. That controllers have too many other anxieties filling up their diaries.

So I reneged on the second day of the FEI conference and wandered down to NYU and caught a good glimpse of the Future of Television Conference - fascinating. In complete contrast to the financial practitioners, the media industry seemed to be in total and complete acknowledgement that their industry was being massively disrupted by the onslaught of new technologies and previously untouched business models lasting 50 years were being shredded by user generated content and other innovations driven by the end users.

Blogging, splogging and then . .

"...Growth in the numbers of personal blogs tracked by Technorati continues to grow briskly as well as corporate blogs. While the doubling of the blogosphere has slowed a bit (every 236 days or so), interest in blogging remains considerable. About 55% of all blogs are active, which means that they have been updated at least once in the last 3 months."

The integration of blogs and traditional media sites on the web continues. Technorati has put together the top 100 sites that make up "The short head" (as opposed to "the long tail"), which is still predominantly made up of traditional media sites, like The New York Times, Yahoo! News, CNN, and MSNBC.

By the time you reach the top 5000, blogs have essentially taken over, with very few well-funded mainstream media sites listed." For the full monty of graphics and analysis, check out the full report.

So far, there is no tracking of splogs that portent the death of blogs as a reliable source of information.

However the real "raw data" comes from the Sun MicroSystems blog. I've taken the liberty to capture the commenst against the post - which are often as interesting in their POV often representing "old media."

Monday Oct 02, 2006

One Small Step for the Blogosphere...

I've been an officer of a public company for a while, and I've had access to confidential information for a good while longer. And I'm used to holding my tongue on issues that'd be deemed material to Sun's financial performance. Like a pending acquisition or big sale, or data related to how our quarter's going. In a public company, there are very strict laws surrounding how information's disclosed.

So a couple years ago, when I first started blogging, I and our illustrious general counsel were far less worried about what I was saying, than where I was saying it. For example, I couldn't use my blog to announce our quarterly performance, or disclose a material transaction. I had to use a press release, or a conference call (with a telephone operator, no less!).

Why?

A regulation known as "Reg FD," or Regulation Fair Disclosure - which attempts to ensure no one audience gets preferential access to material non-public information. It's a great concept, designed to prevent selective disclosure, or actions that might advantage one investor over another.

Unfortunately, Reg FD doesn't recognize the internet, or a blog, as the exclusive vehicle through which the public can be fairly informed. In order to be deemed compliant, if we have material news to disclose, we have to hold an anachronistic telephonic conference call, or issue an equivalently anachronistic press release, so that the (not so anachronistic) Wall Street Journal can disseminate the news. I would argue that none of those routes are as accessible to the general public as a this blog, or Sun's web site. Our blogs don't require a subscription, or even registration, and are available to anyone, across the globe, with an internet connection. Simultaneously.

Now we happen to have a like-minded Chairman at the United States Securities and Exchange Commission (the 'SEC'), Christopher Cox. So Mike and I sent along a rather formal note last week, requesting a clarification to Reg FD, one that would permit our (and everyone else) using the internet (eg, a company blog or web site) to release material information. Without a press release or operator assisted conference call. We are, after all, the primary source of such material information - there's no point in going through an intermediary if what we're after is fair disclosure and full transparency. Let the light shine in, don't buy a flashlight.

We've had enough interaction with the Chairman (and read enough of his writings) to know he understands the utility of the internet to inform investors - but until we see a formal revision or clarification to FD, we'll still be limiting what we disclose via blogs and the internet. And consuming trees with press releases. Which can't, in the long run, be all that desirable.

But we'll take it one step at a time...

I've attached the letter below (and yes, before you ask, we did fax it, and send by overnight mail).

-------------------------------------------------------------------------------

Via Fax and Federal Express

September 25, 2006

The Honorable Christopher Cox
Chairman
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549

Dear Chairman Cox:

You have been a leader in the drive toward bringing greater transparency and access to information for individual investors. Indeed, you recently challenged us to the capitalize on the full potential of the Internet for the benefit of the American investor: "So the question for us today is how do we put the current communications technology to the service of the American investor. How do we harness the Internet which is serving so many customers in so many other ways to deliver the maximum benefit to those in our regulated capital markets." (Chairman Cox Remarks to Interactive Data Roundtable, June, 12, 2006).

Sun Microsystems fully supports and applauds your recognition that the Internet is a "great instrument of national and international communication... [and] also a critical engine of American productivity." (Id.) We have been on the same side of the issue from a technology perspective - from the evolution of open standards for document interchange (such as the Open Document Format), identity interchange (Project Liberty) to the drive toward open source (OpenSolaris and OpenOffice). Our view is that now is the time to fully exploit the innovation that only the Internet can yield in creating the most transparent environment possible for keeping all investors promptly and equivalently informed.

As adopted, Regulation Fair Disclosure's requirement of widespread dissemination can be met through the filing of a Form 8-K or "through another method (or combination of methods) of disclosure that is reasonably designed to provide broad, non-exclusionary distribution of the information to the public." (17 C.F.R Sec. 243.101(e)(2)) To date, the SEC has not taken the position that the Regulation's "widespread dissemination" requirement can be satisfied through disclosure through the web-postings alone. While that may have been a pragmatic approach in 2000, we believe that the proliferation of the Internet supports a new policy that online communications fully satisfy Regulation FD’s broad distribution requirement.

Our corporate website (www.sun.com) currently receives on average of nearly a million hits per day. This website includes a blog that I write as CEO of Sun Microsystems (www.blogs.sun.com/jonathan), as well as the blogs of over 4,000 of our other employees. My blog is syndicated across the Internet by use of RSS technology; thus, its content is "pushed" to subscribers. This website is a tremendous vehicle for the broad delivery of timely and robust information about our company. It is our view that proprietary news outlets are insufficiently accessible to the broad majority of Internet users and individual shareholders. It is certainly the case that the Internet represents a broader user base than those able to afford subscriptions to traditional forms of media and thus usage of this or any other freely available company blog or web site should be considered sufficient in satisfying the objectives of Regulation Fair Disclosure.

In 2001, upon the one year anniversary of the effective date of Regulation FD, Commissioner Unger requested a study designed to assess the implementation of the regulation. (“Special Study, Regulation Fair Disclosure Revisited,” U.S. Securities and Exchange Commission, December 2001, modified November 29, 2003.) Even then, the roundtable group recommended that “the Commission should embrace technology to expand opportunities for issuers to disseminate information online. The Commission should make clear that options such as adequately noticed website postings, fully accessible webcasts and electronic mail alerts would satisfy Regulation FD.” (Id.) The evolution of the Internet makes these recommendations even more compelling today.

We truly believe in the utility of the Internet - as a means of driving transparency throughout all governmental and corporate processes, as well as greater accessibility of health care, education and social services. Indeed, it is a principle on which Sun Microsystems was founded. We encourage you to look to the Internet to achieve the Commission's objectives of greater investor access to information and would welcome the opportunity to further discuss with you our views in this area.

Sincerely,

Jonathan Schwartz
Chief Executive Officer
Sun Microystems, Inc.

cc. Michael Dillon, General Counsel, Sun Microsystems, Inc

Email addresses - a new standard

So what's with some people suddenly starting to be "super cool" or "super cautious" by writing their email addresses as name (at) domainname (dot) com . . (Good grief!!) - Ok, perhaps it does mitigate the obvious spider-ing through websites by malicious (are they any other type) spammers but, . . on business cards!

Yes, it's even beginning to crop up on business cards (yikes!).

What's worse are those uber geeks who are including web syntax to make some kind of point, such as those angle brackets to envelope their names . . (Good grief!)

It's just a name/address, and we already have a standard. It's called "simple English."

Next time I address a letter through the regular mail, perhaps I'll write . .

{capital}M {small}r {period}Joe Schmo[comma}

I wonder if it'll get through the poor postal service or more likely get shredded by the mail man.

Please don't try to be too cute.

Here's where the the paranoi stems from . . an Oxford University professor, Jonathan Zittrain, and a Purdue University assistant professor, Laura Frieder, recently studied spamming schemes and reached a suprising conclusion: they work. Spammers often make a 5 to 6 percent return in just days. The suckers who buy the stock - and some inevitably do - lose 7 percent of their investment.

There is, of course, a simple, foolproof way to protect yourself. Delete the spam. Do not buy the stock. But for those who still don’t understand or simply can’t resist, even stronger warnings are on the way. Most of the companies promoted in spam (including Voxbox) are traded on the Pink Sheets, a New York-based electronic exchange that doesn’t require companies to file financial reports with the Securities and Exchange Commission. The Pink Sheets chief executive, Cromwell Coulson, said the exchange will create a new tier of companies in March 2007 that do file disclosures. Firms that do not will be flagged with a skull and crossbones if they are promoted in spam, he said. In the meantime, Mr. Coulson offered some simple, age-old financial wisdom: "A free stock tip is worth what you paid for it."

The battle for the last mile

Oct 26, I attended the NYSSA conference woed by the attendance of senior SEC representative talking about how they were taking steps to making corporate reporting more relevant.

. , more later

This IS rocket science . . .

So I sat down with an old friend who was literally the equivalent of a rocket scientist at a major F20 materials company for over a decade or two - now retired to run a predictive trading hedge fund. We talked about tagging and how it could play out in his trading tool. I took careful notes, and, this is in essense what he was driving at in terms of his approach to a trading strategy.

His forecasting model, like most others, is designed to increase in accuracy with the magnitude of market swings. The ability to predict accurately both "fat tails" of the return distribution is critical for developing profitable trading systems. Many current forecasting methods use total forecasting accuracy over the entire return range of the distribution.

Simple trading functions (or those that will fail consistently, such as Always Up or Always Down models) will predict one side of the return distribution perfectly, but be completely wrong for the other side. These stiff functions can be used as the basis for building adaptive, regime switching tradinig systems that are used in several trend following methods. Clever switching strategies can result in significant cumulative returns, at the expense of high volatility due to the stiffness of the function. In contrast, his approach is to develop soft trading functions that are more balanced in their ability to predict tha fat tailson both sides of the return distribution. He uses proprietary methods based on information theory and genetic algorithms to discover these functions.

In order to discover underlying market structure, he constructs a large set of features that broadly span (financial factors, time, statistical metric) space. He thinks tagging financial information will help make this intial data capture step much more reliable and robust since errors caught in this first steps can lead to signals that could be 100% off.

Not Camelot, . . still a round table

I listened to the trailing 30 minutes of this roundtable discussion and highly recommend tuning in . . .While it's clear there are a growing number of firms vying for the attention of the SEC as they seduce the marketplace into adopting interactive data, Cox spoke very succinctly and clearly for perhaps the very first time when asked the pointed questions "what is the timetable for transitioning to interactive data."

So, it's now public news that a top exec from Morgan Stanley has left to head up MSN Money, presumably to take his learnings in information mining and tagging from the big time insitutional investors to the big time retail investors via the Microsoft portal. Hmm.

The software vendor community was represented by the usual suspects: Lipper, Enumerate Solutions, Sun MicroSystems, NASDAQ, EdgarOnline, Hitachi, SavaNet, and Rivet talking about their tools and strategy for each of their organizations. While the talk was fluid, it lacked the big commercial drivers for market adoption. . . a compelling+immediate+benefit. Methinks, this motley bunch of evangelists will change hats (or disappear) at least a few times before one or two major players enter the market (such as GOOG, AMZN or EBAY).

Cox clearly wants the interactive data train to be well on its way as a legacy he leaves behind and his lasting fingerprint on the regulation of the capital markets before moving onto greener pastures as he remarked that the SEC has now committed funding to the program to be implemented and, once the taxonomy development work is complete, the SEC will be in a much better position to weigh the issuer implementation options (staged or selective by industry) against the burden of existing reporting.

I think he's finally caught the attention and imagination of the software vendor community and by reflecting on the report by a F500 CEO complementing the smooth transition to XBRL he may even have caught the attention of issuers watching nervously on the sidelines.

In the beginning, there was . . XML

2006 was the 15th anniversary of the web . . so it seemed appropriate to look forward to the next big thing on the internet after Extensible Markup Language (XML) . . , and ask Tim Bray, one of the founders of XML

According to Tim's technology standards mantra "simple beats complex" XBRL is still in early evolution stages with mostly "complex beating simple". He, amongst others, have argued for taming the beast to enable broader and deeper adoption in the mass market - such as an analyst tool for retail investors. Done right, the impact of XBRL could dwarf that of RSS and Atom put together. I’m on board, and anyone who believes “truthful business” isn’t necessarily an oxymoron should be too."

It's not quite clear what tools even relatively savvy retail investors will use, let alone pay for - the trick continues to be finding a fee paying model that's scalable. With the SEC funding $500,000 for these analytical tools and stipulating they must be built as open source products, it leaves a question mark about the commercial viability of building these tools. There are others that argue XBRL will be one of many threads in a sea of financial information that needs to be sifted in a manner that investors' tools can rapidly assimilate and act upon.

As the market shows interest in alternative reporting standards such as Ceres, Enhanced Business Reporting, company blogs and RSS, it's clear there's no silver bullet to this dynamically mutating challenge. Now, we're hearing of Web 3.0? basically the Semantic Web with technologies like RDF, Microformats, GRDDL and ContentLabels being just a few of the newer technologies that will form part of the vocabulary which we will all be rattling off in 2007, just like RSS, tagging and UGC were newer terms that entered the mainstream conversation in 2006. Notice how new VCs and their investments are now showing their faces in this new wave of metadata formation, discovery and more. Aggregate Knowledge Attensa and TouchStone are all new startups focused on getting users attention with metadata and reusing it's value either for advertising or discovery of new information.

Tim was invited to speak at the SEC discussion on Oct 3, and made some interesting observations about the potential behind interactive data (increasingly aliased from XBRL).

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Back to Interactive Data · Anyhow, here’s the dream: right now, if you know the name of a company, you can be pretty sure that by visiting www.company-name.com you can find the basics: where the offices are, who the CEO and Directors are, and so on. ¶
I imagine a future in which you can go to xbrl.company-name.com and be pretty sure of finding authoritative machine-readable financial data. And in this picture, Metcalfe’s Law applies in more than one way: not only does the value of the financial data increase as a strong function of how many companies are providing it, but the pressure to join in does too, on those companies who aren’t providing it.

XBRL ain’t perfect; they made no particular effort to hit any 80/20 points, so it’s big and sprawling and taxonomist-ridden and it tries to Solve the Whole Problem. In this particular case, I claim that the information is so valuable that it’s worth fighting through all this and finding a way to make it work.

In this vision, it‘s a whole lot harder for a management team gone bad to turn a decent company into a den of thieves.

Done right, the impact of XBRL oops Interactive Data could dwarf that of RSS and Atom put together. I’m on board, and anyone who believes “truthful business” isn’t necessarily an oxymoron should be too.

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Tim was the only person on the illustrious XBRL "experts" panel to admit we're at a starting point and we still have a long way to go to make XBRL part of the "financial plumbing" and efforts to sell XBRL into the pain within organizations in terms of legacy system integration (the holy grail or the holy grave) was a whole different ball game.

OK, back to Tim and his belief that we are now playing with a green field moving from HTML to SGML to XML to, more recently, blogging, ATOM, GData (new RSS), EC2 and GRID. Stay tuned to the adoption of these standards.

Other trends: dynamic languages versus scripted languages . . Overall, he appears to put his bet on the emerging acceptance of ATOM as the next big thing -- "ATOM has the potential to have the same impact as XML," Bray

The Innovators Dilemma

The Innovators Dilemma and The Innovators Solution are two great books to read . . As we approach the precipice to adoption of XBRL, it's worth listening to a scholar on the gotchas to innovation and why the road to success is paved with market boobytraps. The podcast is a little dated . . .March 2004, but simply timeless and one I like to listen to once in a while to remind myself that building a new business is more than just good ideas. wwww.innosight.com is a legacy to his work at HBS.

Nuts and Bolts of Electronic Trading

Simply a great link to trends in capital markets. .

What's next . . "stay hungry, stay foolish!"

Change may come in the form of a database, applications or integration solutions. Is this the time for the next wave of Enterprise Application Integration solutions aka EAI 2.0? Some people in the business reporting world claim we are ripe for a breakthrough as big as Visicalc. while other people predict a somewhat daunting future depending on your POV, see googlezon

The humble spreadsheet harnessed the power of the microprocessor to millions of PC users. It was and remains the only significant programming tool used by millions of people who know nothing of simple programming such as compiling, scripting, or even simple looping. It provides a simple method of assembling data sources to create a custom "application". The application is really part of a business process, most often a financial process. A "smart spreadsheet" loaded by tagged data for business processes would be a powerful way to unlock collaboration and process knowledge and mitigate the ever growing costs of regulatory reporting and compliance. Sarbox costs -- be gone!

Here's the raw data . . 2006 will see the number of personal blogs exceed 60 million. The number of new blogs created daily will rise to over 100,000 a day or more than one per second. Howver, many analysts are saying that the relevance, average quality and value of each blog will decline pointing to the stat. that over half of all blogs cease to be active within three months of their creation, and only 13 percent of all blogs are updated more than once a week. However, although some say it will be increasingly difficult to find quality blogs, they miss the point. This is the best spot for CEO blogs that I've been able to find.

"...Growth in the numbers of blogs tracked by Technorati continues to grow briskly. While the doubling of the blogosphere has slowed a bit (every 236 days or so), interest in blogging remains considerable. About 55% of all blogs are active, which means that they have been updated at least once in the last 3 months."

"The integration of blogs and traditional media sites on the web continues. Technorati has put together the top 100 sites that make up "The short head" (as opposed to "the long tail"), which is still predominantly made up of traditional media sites, like The New York Times, Yahoo! News, CNN, and MSNBC."

"By the time you reach the top 5000, blogs have essentially taken over, with very few well-funded mainstream media sites listed." For the full monty of graphics and analysis, check out the full report.

Information disssemination is becoming more fluid and a new form of intermediary will likely emerge: the blog (or ideally somethings that includes the larger world of semantic data) aggregator will emerge, most likely funded by advertising, and specilaized in identifying the best quality content . . segway to a coffee meeting I had with the leaders of Monitor110 (I think that's read Monitor One One Zero, but I could be mistaken) and their recent $11 million financing . . where the FT reported on a seemingly innovative search/news aggregation idea aimed at the financial trading community aka ‘hedge funds.’ Basically it is touted as a revolution in information gathering, digging out the nuggets that exist below the radar screen of the conventional or mainstream press.

They do sound like they have some smart people and decent technology so it may be a useful toy - - however, I suspect the really smart money traders who have known how to search blogs and use RSS readers and tagging and social-bookmarking services etc. will be a bit miffed that any old trader will be (in theory) able to find the same gems of information by paying up for Monitor110’s services. The ground Monitor110 is breaking has been tried before by Clearforest and Relegence and other less known startups for some time now and digital generation traders can mash-up their own intelligent news filters either from scratch or using tools like Netvibes. And beware this space was hyped up by Majestic Research who quickly faultered and fell on their sword.

Edward Hadas over at breakingviews.com (another paywall, but really good analysis site founded by Hugo Dixon) compares it to using the ‘wisdom of crowds’ to trade. ‘Wisdom of crowd’ - mining would be things like Marketocracy and SocialPicks.

Monitor110 is all about finding the needle in the haystack; finding the individual voice or nugget that escapes crowd amplification. Finding the kernel before it becomes a snowball. Beware the paradox of diminishing returns, however: the more people find the needle the more difficult it will be to monetize. Or paraphrasing Dash - ‘if everybody is special, it really just means that nobody is…’ I'm bullish on their assumptions and wish the founders well.

Is it so far fetched to envisage (a future) Google Money and (a future) iPod converging and delivering the killer app, iMoney - - making investing as cool as turning on a music file. Don't rest on your iPod laurels Steve Jobs - we need your brilliance ("stay hungry, stay foolish")! We are indeed in strange times where innovation is being stimulated by government regulators and accountants. Perhaps their time has come - when was the last major shake up in accounting - double-entry bookkeeping? . . a 1,000 years ago.

Regulatory shove - we're doing it, no really!

Mark the date -- Sep 26, 2006 - change to interactive data is now inevitable. The SEC has turned a corner and truly made it clear that talking up XBRL is not enough, it's now time to walk the talk, and they're putting their money where their mouth is . . . this is now a 10-bagger!

COUNT ONE! SEC announced a $54 million investment to update the commission's EDGAR financial statement filing system to XBRL,

COUNT TWO! An announcement of an SEC roundtable on ”interactive data" to be held October 3.

COUNT THREE! The two announcements came on the heels of news that the SEC's small business roundtable slated on September 29, will focus, in part on, interactive data - the new buzz word for XBRL.

This triple whammy from the SEC is a clear signal that companies will HAVE to be XBRL compliant within a year, since Cox said this morning that the SEC's coding, taxonomy, and technology efforts will be done within a year. All current EDGAR filings will be switched over to XBRL inside of a year, and more telling, the SEC website will be peppered with XBRL software tools to help investors and analysts use the data "in interesting ways," says Cox. The chairman even noted this morning that developers should begin to "exploit" XBRL's potential by writing whiz-bang software and tools for companies, investors, and analysts.

Streamline Enterprise Business Reporting with XBRL Jeff Thompson, Institute of Management Accountants

We're doing it . . SEC

Business Wire hosted a webinar on Sep 13 inviting the SEC's Corey Booth and others to answer questions on the adoption of interactive data. . . sounds like business-speak is finally "in" and geek-speak is fashionably out in the world of XBRL "XBRL is such an ugly word," Booth. He finally gets it.

Booth went on to to say that he estimates there were about 40 companies that were part of the SEC interactive data program and he expected many more to join. While it's uncertain where and when the tipping point will be reached for mass adoption of interactive data, Booth did say that the SEC is looking at their options more carefully for moving beyond adoption. . . and alluded to several RFPs that were underway to solicit guidance from vendors to help the SEC in their transition to use XBRL data. While it became more and more clear why the SEC is moving on this -- driven by Congress and coupled with SOX initiatives demanding that the SEC review a higher number of company filings - in the order of 40% over a three year span, the value prop. for the issuer still appeared somewhat illusory as depicted by the panel. Without citing specific quantitative benefits, issuers were left with an unsettling feeling that this is yet another "digital" wave about to blow their way with far reaching consequences and obvious benefits somewhere in the business reporting supply chain (oops, sorry for using that overused phrase, but apparently all good XBRL citizens, heady with the XBRL coolaid, are meant to refer to this term and associated visual to the point where we're all supposed to nod in unison, and mutter "...hmm, aha, eureka, yes. .").

While Booth speaks well for the regulator(s), he leaves the issuer with a nervous feeling about their benefits and the need for immediate action. While the regulators represent institutions to be respected and followed outside the US, the financial shinanigans in the US markets in 2001 followed by SarBox attempt to reign the markets in, have left US issuers more than just a little reticent about following US regulators -- when there is a choice.

Kudos to Business Wire and Michael Becker for moderating an excellent discussion and extracting some valuable insights from the panel in a masterly conversational form that made it a pleasure to listen (and even podcast!) in . Thank you, Michael for asking the tough questions and for making it sound so easy.