JustinIdea - Justin Ricaurte's Personal Blog

The Next Four Years

It's great to see a barrier fall in America by Barack Obama being elected the first black President in our nation's history.  Although, many people have what will turn-out to be unrealistically high expectations of what will happen over the next four years, no matter how good their reasons are - the Law of Unintended Consequences still lives.  While Obama is great in some areas he falters in others, and just because an issue wasn't across every news screen during the election season doesn't mean that it isn't important.  I wish him the best as President of the United States and making the best decisions possible considering the circumstances our country is in.  The issues:

Very Excited About

• Obama's energy policy.  I'm hoping he picks Al Gore as Energy Secretary and has T. Boone Pickens head a panel of industry advisors.  Energy determines our foreign policy, so making a smart pick here will be his most important decision.
• A cap-and-trade carbon market where all carbon credits must be bought by private industry.  Allocating them among participants for free would create loads of corruption.  Also, if Democrats want to make sure our company's aren't at a competitive disadvantage to those in nation's with more lax environmental standards, they can make any company that produces or sells products in the United States buy carbon credits.
• The closing of Guantanamo Bay prison and hopefully all the other secret prisons the U.S. has.  We should not deny any person on earth their right against cruel and unusual punishment and to a fair and speedy trial by jury of the peers, not to mention access to a lawyer.
• The ending of the war in Iraq.  We shouldn't have been there in the first place.
• Hopefully the end of most rhetoric from the White House being about terrorism.
• America's world image being repaired as we stop Bush's use of "Cowboy Diplomacy"
• Stem Cell research using federal funds being legalized.  It's about time we started taking the lead further in this very important field of research.
• Federal investment in basic research increasing, so that the pace of innovation in our country picks up again.
• Intelligent Design not being given the same standing as Evolution in schools, because it is not a sound scientific theory.

Excited About

• The ability for Obama to make the R&D tax credit permanent.
• Greater potential investment in education.

Lukewarm About

• Obama's ability to hold government programs accountable.  With rock-solid majorities in the House and Senate, he won't be under as much pressure to find what should be given more money and what should be cut.  This was the one good thing Bush started, while he was in office: The President's Management Agenda.
• Ability of the Supreme Court to contain the Democrats with their majorities to overextending the government's role in the economy as long as Obama doesn't turn into a tyrant like FDR, when he tried to pack the Supreme Court.  Currently the Supreme Court is leaning slightly conservative with a 4-1-4 break-down, so any attempt at overstepping their bounds should hopefully be struck down.
• The Democrats being able to re-privatize the banking system in short order.  The government has no place running the banking system and further destroying the balance between risk-and-reward in the financial marketplace.

Concerned About

• Corporate taxes.  If Obama closes the tax loop holes and does not lower the corporate income tax rate, businesses will be forced to lay-off workers or raise prices in order to stay profitable, especially given the current circumstances.
• Health care.  Moving towards a single payer system will not make our health care better.  If you think government-run health care will work well, how well does government-run infrastructure work?  Oh yeah, that's why our government has underfunded our infrastructure by $2 trillion, which is why our infrastructure is degrading to the point of being a developing nation.  The only way to cut costs dramatically is to cut access.  If you want to check out the future of health care, check out Qliance 
• Personal income taxes.  Raising taxes never helps the country as government is less-efficient than the private sector at using the money it has, which is also why government workers are paid less.  Not only that, but Obama wants to raise taxes on those citizens that make more than $250,000.  At a time when the United States desperately needs investment in the country in order to create jobs and get out of the financial crisis, Obama wants to tax the group of people that invest most of their money back into the economy.  If you want to pay more taxes, you should voluntarily mail the extra amount of tax burden you would like to take to the Department of Treasury as a gift.  Here's the mailing address, so it is easier for you to increase your own tax burden. 

  Gifts to the United States

  U.S. Department of the Treasury  

  Credit Accounting Branch

  3700 East-West Highway, Room 622D

  Hyattsville, MD 20782

• Fannie Mae and Freddie Mac.  The Democrats will want to keep these institutions alive, but no company in America should be given an unfair, government-endowed advantage in the marketplace.  They helped to create the problem we're in today by creating excess liquidity in the financial markets due to their implicit government-guarantee, and now we're paying for it.
• Excessive Regulation.  Regulation in its current form is unnecessary.  We have already bestowed police powers on the Federal government, so it can prosecute companies and their officers for fraud and other crimes.  The Democrats will be tempted to over- regulate the markets, especially the financial ones, but hopefully they can't add too much regulation, or innovation will slow.
• The Government bailing out the auto industry.  The Democrats will be tempted to help the voters in Detroit that helped put them in power, but government intervention in industry only delays the inevitable.  If the companies are not able to quickly adapt to the market, they should be allowed to die, so that they stop draining resources from the economy.  If they want to invest in job re-training for these voters, then they should invest in job re-training instead of bailouts.

Very Concerned About

• America's future trade policy.  It doesn't matter if the economists voted Democrat or Republic, 95% support free trade.  Why?  Because, free trade brings prosperity to all parties involved and has created more jobs than it has destroyed.  Yes, we should hold other countries to our environmental standards, but the best way to bring about this would be to make companies that produce or sell products in the United States to join our future cap-and-trade system and by permits.
• The deficit.  Government spending needs to be kept in check, and it should stop mortgaging the future for the present.  No amount of stimulus will help revive the economy, because consumers and the federal government are over-leveraged and need to cut back on spending.  Democrats being able to control spending?  I don't think this has ever happened, and the Republicans haven't done much better.  They need to get Keynes's influence out of there.
• Monetary policy.  The government has put $5 trillion into the monetary system in the last two months, which is completely unsustainable and will most likely over time as it has time to sit create massive amounts of inflation.  Again, they need to get Keynes's influence out of there.
• Entitlement Programs.  The Democrats will want to raise taxes to cover these, but no matter what they try, they are sitting on a demographic time-bomb.  Entitlements will eat-up our economy if the system isn't reformed.

Making Executive Compensation Reward Long-Term Performance

Now, I'd just like to say I don't know the intricate details of most executive compensation packages, but I'd like to pose this as an idea on how to align pay and the long-term performance of the company. One thing I think people get too hung up on is what the change is in 12 months of pay and stock prices. Why should chief executives have their pay based-on just 12 months of information? If you want a firm to last for the long-term, wouldn't you want to compensate them based-on long-term performance, such as improvement over the last 2, 3, 5, or 10 years? Then there's also the question of how much impact did the chief executive actually have on a firm. If an oil companies profits go up 4x because the price of oil went up 4x, there is no reason a chief executive should receive higher pay. But if profits go up 6x while oil prices go up 4x, then it would make sense for the chief executive to receive higher pay, so long as their competitors and peers saw lower profit growth.

So if you're on a compensation committee and want to create a compensation package that is good for both the chief executive and the shareholders, you should make sure to do a couple things:

1) Benchmark the performance of the firm
2) Reward the executive for long-term performance by staggering their stock options.

Point 1: Benchmarking
With benchmarking, it would be good to benchmark the firm against its competitors. If the company competes against many businesses across multiple products, it might get a little difficult, but would still be a good idea to ensure the benchmarks are done well. Other benchmarks that could be used would be new product offerings and how much growth they have generated, the productivity of the firm, the inputs or outputs of the firm (such as oil prices), and other performance measures that align with the firm's mission.

Point 2: Rewarding for long-term performance
You could also stagger the reward of the chief executive's stock options. For example:
In year 1: The chief executive receives 2 million stock options for performance. 20% of those begin on a vesting schedule starting with the day of compensation, the other options begin vesting after years 2, 3, 4, and 5, if their future performance targets are hit. For the options that begin vesting in the future years, the compensation committee will review the performance target again in each of those years over the entire time period of 2-5 years and will decide then on whether the stock options should begin to vest. If the performance targets are not achieved, the stock options will be destroyed.

In each additional year, the chief executive would also receive additional options that would follow under the same schedule and adjusted for their date of issue. This way the firm's incentives for the chief executive are aligned to create long-term value, instead of just short-term gains.

Inspiration: A Brighter Spotlight, Yet the Pay Rises (NYTimes.com)

ALPFA National Convention

I got back to Seattle from a trip to the ALPFA National Convention last night and must say the convention was awesome!  Having 2400+ Latinos from the business world at Disney World in Orlando made for awesome networking, friends, dancing, and after parties! :)

The convention started off Friday night with a Salsa Competition that I took part in with my friend Nerelys.  The first time we had danced together was last Wednesday, and it showed a bit on the dance floor by the judges comments, haha.  Saturday was pretty slow until the reception that night with salsa dancing following immediately afterwards. 

Sunday was a lot of fun.  I was on the University of Washington KPMG Case Competition team, and we gave our presentation on a fictitious company called InfoMemo that needed to raise $15 million from investors to do the marketing and sales for a hybrid pda/laptop it had developed.  I worked on applying what I've learned from reading Logic+Emotion and Presentation Zen.  The part I presented was the Financial Analysis section, and I received a lot of compliments for the two, colorful tables I had (the case competition was mostly for accounting students, so lots of text and big quotations tended to be the norm). [link to  slideshow]

One thing I learned during the presentation was that you can use your nervousness right before you present to your advantage.  People will tell you that if you sense your heart rate increasing that you should take a couple of deep breaths to settle down, although I've noticed this tends to decrease your energy level during the presentation and make you less animated.  I've given quite a few presentations, but right before it was handed-off to me, my heart rate doubled and I became pretty nervous.  I took one deep breath, noticed it didn't do anything, said "screw it", and gave my presentation.  By not trying to calm myself down, I believe my presentation was much more animated than it would have been, due to the combination of adrenaline and extra oxygen in my body. 

Sadly, we didn't end up making the finals for competition, but this did allow us to go out and dance the night away, without worrying about waking-up at 6am (3am Seattle time, my usual bedtime).  Monday night, we went to Epcot for the case reception, mingled with the other college students, and were able to watch the fireworks display outside on a private boardwalk.  The one thing I wish they would've added was a dance after the reception, because it was a perfect time for all the students to get to know each other, and good quarter or half of them were under 21 and not able to take advantage of the club scene at Pleasure Island.

Tuesday was the grand finale with a career fair in the morning and a gala at Epcot at night.  I was surprised at how quickly many of the recruiters asked you what kind of position you wanted with them, instead of getting to learn about you more.  About half of them asked me within the first two sentences they spoke to me.  Not being interested in getting a job, I instead told them about how I'm working on Mavenry.  For a couple of the companies, I was genuinely interested in learning more about their products and services, and I was further surprised that none of them pitched me about their services after I told them I was working at a start-up.  You would think they'd like the idea of someone paying them, instead of them paying someone else, *shrug*.

The gala that night was a blast!  The program went a little longer but it was a lot of fun being able to meet a table of people from E+Y and Silicon Valley.  Towards the end, we were able to go out and watch the fireworks display again on a private deck.  This time it seemed we were much closer and the fireworks aimed more directly at us.  I get excited when I see well orchestrated fireworks displays and felt a bit giddy inside at the sight of it.  Once inside, we saw a couple more awards handed out, some prizes given away, and then it was time to dance the night away (for my fourth time, haha). 

I can't wait until I'm able to travel more and attend conventions and conferences like this more frequently.  It's awesome when you're able to meet so many smart, determined, fun loving people in one place.

Stanford Prison Experiment and Swarm Intelligence

Guy Kawaski recently conducted an interview with Dr. Philip Zimbardo, the person who created the Stanford Prison Experiment.  I've been fascinated with this experiment, because of how the situational factors of it could turn good college students into sadistic guardsmen.  Dr. Zimbardo recounts it in the interview and also in his recently published book, The Lucifer Effect: Understanding How Good People Turn Evil.

Although the interview talks a lot about Abu Ghraib, I thought it would be interesting to apply the experiment to corporate cultures.  In the experiment, the night watchmen were given nearly complete authority over what they did, with little oversight and a management team that does not care about the lapses.  Each little lapse will compound over time, until the entire system is enveloped in unethical behavior.  In corporate America, how do you get rid of ethical lapses when people are given much more autonomy?  Some argue you need rigorous internal controls and a great degree of oversight over the employees.  By creating the controls, you can get rid of the behavior quickly.

There is just one problem with having lots of controls...they inhibit system performance.  Swarm Intelligence deals with this area, describing systems of behavior where there a couple of general rules followed by everyone involved.  Researchers found that when you run a simulation with dumb robots and they have a plethora of rules, the dumb robots will collectively act in a simple, dumb manner.  Although if you keep the number of rules to no more than four or five simple ones, the dumb robots as a collective will exhibit complex, intelligent behavior.  Given human beings are an intelligent complex species by nature, giving us a lot of rules to live by will probably make us take simple, dumb actions for fear of breaking one of the rules.

There was on example in the pdf linked to, but what other ways could you implement this to make sure that everyone acted in an ethical and efficient manner?

HBR - Globalization and Summit Syndrome

I've been trying to catch up on the stack of magazines I've accumulated recently.  Here are summaries for two of the articles I enjoyed from March's Harvard Business Review. 

The first was on "Managing Difference: The Central Challenge of Global Strategy".  Ghemawat proposed the AAA Triangle framework to tackle global challenges: adaptation, aggregation, and arbitrage.  With adaptation, companies seek to boost revenues and market share by maximizing local relevance.  With aggregation, they focus on building economies of scale by creating regional/global operations.  And with arbitrage, they exploit differences in national or regional markets by locating different parts of their supply chain in different places.  Although all companies use all three A's to some extent, the A's can be used to create further global differentiation and to exploit competitor weaknesses. 

The second was on the crises gifted performers have at each peak of their success.  This article resonated with me, because I thrive on encountering new challenges and get bored when I no longer seemed to be challenged as much.  Summit syndrome, when gifted performers become dissatisfied at the peak of their success, has three phases.  In the approach phase, the person puts in a lot more effort with marginal gains in improvement, trying to recreate the adrenaline rush of the climb.  Plateauing then occurs when virtually all of the challenges have been conquered.  These individuals continue to produce stellar results but become much more dissatisfied with the work they're doing.  The final phase is descent.  In this phase, performance will slip noticeably and sometimes wrecks havoc on relationships and personal morale. 

To be able to keep this syndrome at bay, it needs to be recognized early on, which can be difficult to do for both an on-looker and the individual.  When it is recognized though, these four steps can be taken to dispel the confusion and set the stage for the next stage of productive growth:

1. Understand your "winning formula" and the vital part it plays in feeling stale or losing your edge.
2. Reconnect with your core purpose in life.
3. Recast your current, or future, job to better align your internal aspirations with external requirements.
4. Create a developmental path by honing a handful of core leadership competencies.

I'm going to keep this in mind the next time I start to feel bored over an extended period of time. :)

2-Day Trip to the Bay Area

I went to the bay area the last two days, and it was a blast!  On Thursday, I met everyone from NUSEA (National University of Singapore Entrepreneurs Association) at their Rainmakers Live! event.  Shao Rong and Eugene were great hosts and introduced me to everyone there.  The challenge Mint put on was a bit intense.  We had 30 minutes to solve a hypothetical problem for the company.  The thirty minutes flew by.  I'm used to 5-hour meetings and 42-hour case competitions, haha.  At the end of the night I was finally able to meet Noah and Aaron of Mint.  They're a couple of great guys and love what they do.  I can't wait until they allow members of the public to try their service!

Yesterday morning, I went back to up to Berkeley and met Yuki from the Lunar Society for bubble tea.  He's also really passionate about being able to make flying to space (and especially the moon) more economical.  Its awesome to meet people that are really passionate about what they do.  Yuki and I are now working on putting together a national team to find a way to make going to space more economical.  If you're interested, shoot me an email at justin [at] justinricaurte.com.  We need both engineers and business people.

After meeting with Yuki, my friend Brenda showed me around Berkeley.  They have some great architecture there.  My favorite building by far was the Haas School of Business building.  It's beautiful!  I forgot to take my camera, but here are a couple pictures I found online, here and here.  There is also a great view from the big C behind the campus, photo found here (San Francisco is in the distance and the Golden Gate bridge is to the right). 

That was my trip in a nutshell.  I didn't want to make you read a novel. :)

The World is Round?

Valeria Maltoni wrote about a very interesting article she ran across by Pankaj Ghemawat in Foreign Policy about why the world isn't flat (a free pdf can be found here), contrary to the thesis put forward by Thomas Friedman in The World is Flat.  One of the most interesting statistics Ghemawat showed was that when looking at cross-border transactions, a best estimate can be that only 10% of everything, from cash flows to immigration to trade, crosses national borders.  Only 10% of telephone revenue comes from cross-national calls, and 20% of trade and only 3% of migration crosses borders.  Another interesting point comes from the fact the previous peak of international integration was in the early 20th century.  It was only in the last 10 years that we passed the peak, and in some cases, we still haven't.

By viewing a localized world as a problem that needs to be solved, there are three areas that can potentially make a lot of money.  Finding a way for people, capital, and products to move relatively freely between countries are gold mines for entrepreneurs to go after.  With respect to people and products, some of the problem stems from government protectionism, but finding a way to transport people and goods at 10% of the current cost could radically change the global playing field.  What if a ticket to fly to Shanghai or London cost only $100?  How many more people would jump at the opportunity to travel?  I'm guessing the price of a ticket to California would drop to $15 and to New York to $20 each way. I would definitetly be traveling more at these kinds of prices. :D

Thought Experiment - Would a 90% decrease in travel costs further push a greater adoption of English around the world as the lingua franca?  Or would Mandarin start to edge it out as more middle-class Chinese were able to travel longer distances?

Democratized Design

David Armano found an awesome article by Bruce Nussbaum of BusinessWeek asking the question - Are Designers The Enemy Of Design?  It looks long, but is a very fast read and has a lot of great content.

I think Bruce nailed it on the head when he talked about how design is being and will continue to be democratized. I believe everything will eventually go this way, and the profits will then being to help other people with what they need done, through continued conversations as both David and Bruce mentioned.  To get an even closer look at the democratization in business movement, check out this article from The Economist a year ago titled "The New Organization" [*note* it now requires a subscription], and also this article on self-replicating 3D printers for the future of democratized manufacturing.

For example even though its easy to argue that the vast majority of Myspace pages and websites are ugly, more people can put information online in a easier-to-read format, because they have been given simple design tools.  Would as many websites have sprung up if it required a Bachelors in Fine Arts to design a webpage?  Probably not.  The tools that grease the democratization process will further continue to upend the design industry.  And it would be even better if those tools helped the average person create good (if not great) design!  This is a great tool I have been using at Adobe Labs when trying to come up with color schemes for websites or other materials.

Another piece I really enjoyed Bruce touching on was the sustainable industry movement.  There is so much money to be saved (and made!) from cutting pollution and waste from the manufacturing process and in turn making all of our products more environmentally friendly, it's almost mind boggling.

As a last note, I thought one of the lines David bolded from the essay "We live a life in beta" is something people (who haven't) should take to heart.  You shouldn't be done learning or improving yourself after some set milestone, such as graduating from high school, technical school, or college.  You should strive for continuous improvement in what you do and who you are.  Constantly work on improving your relationships, business, health, and life.  Often improving one will help to improve all.