Archive for the ‘News’ Category
10 Mistakes That Start-Up Entrepreneurs Make
When it comes to starting a successful business there’s no surefire playbook……..
that contains the winning game plan. On the other hand, there are about as many mistakes to be made as there are entrepreneurs to make them.
Recently, after a work-out at the gym with my trainer—an attractive young woman who’s also a dancer/actor—she told me about a web series that she’s producing and starring in together with a few friends. While the series has gained a large following online, she and her friends have not yet incorporated their venture, drafted an operating agreement, trademarked the show’s name or done any of the other things that businesses typically do to protect their intellectual property and divvy up the owners’ share of the company. While none of this may be a problem now, I told her, just wait until the show hits it big and everybody hires a lawyer.
Here, in my experience, are the top 10 mistakes that entrepreneurs make when starting a company:
1. Going it alone. It’s difficult to build a scalable business if you’re the only person involved. True, a solo public relations, web design or consulting firm may require little capital to start, and the price of hiring even one administrative assistant, sales representative or entry-level employee can eat up a big chunk of your profits. The solution: Make sure there’s enough margin in your pricing to enable you to bring in other people. Clients generally don’t mind outsourcing as long as they can still get face time with you, the skilled professional who’s managing the project. Silicon Valley entrepreneurs and venture capitalists often churn out how-to business books and fancy themselves as management gurus, but few see their methodologies adopted. Eric Ries is experiencing something different. He speaks with WSJ’s Pui-Wing Tam.
2. Asking too many people for advice. It’s always good to get input from experts, especially experienced entrepreneurs who’ve built and sold successful companies in your industry. But getting too many people’s opinions can delay your decision so long that your company never gets out of the starting gate. The answer: Assemble a solid advisory board that you can tap on a regular basis but run the day-to-day yourself. Says Elyissia Wassung, chief executive of 2 Chicks With Chocolate Inc., a Matawan, N.J., chocolate company, “Pull in your [advisory] team for bi-weekly or, at the very least, monthly conference calls. You’ll wish you did it sooner!”
3. Spending too much time on product development, not enough on sales. While it’s hard to build a great company without a great product, entrepreneurs who spend too much time tinkering may lose customers to a competitor with a stronger sales organization. “I call [this misstep] the ‘Field of Dreams’ of entrepreneurship. If you build it, they will buy it,” says Sanjyot Dunung, CEO of Atma Global, Inc., a New York software publisher, who has made this mistake in her own business. “If you don’t keep one eye firmly focused on sales, you’ll likely run out of money and energy before you can successfully get your product to market.”
4. Targeting too small a market. It’s tempting to try to corner a niche, but your company’s growth will quickly hit a wall if the market you’re targeting is too tiny. Think about all the high school basketball stars who dream of playing in the NBA. Because there are only 30 teams and each team employs only a handful of players, the chances that your son will become the next Michael Jordan are pretty slim. The solution: Pick a bigger market that gives you the chance to grab a slice of the pie even if your company remains a smaller player.
6. Overpaying for customers. Spending big on advertising may bring in lots of customers, but it’s a money-losing strategy if your company can’t turn those dollars into life-time customer value. A magazine or web site that spends $500 worth of advertising to acquire a customer who pays $20 a month and cancels his or her subscription at the end of the year is simply pouring money down the drain. The solution: Test, measure, then test again. Once you’ve done enough testing to figure out how to make more money selling products and services to your customers than you spend acquiring those customers in the first place, roll out a major marketing campaign. (See related article, “On a Tight Budget? How to Land a Client.”)
7. Raising too little capital. Many start-ups assume that all they need is enough money to rent space, buy equipment, stock inventory and drive customers through the door. What they often forget is that they also need capital to pay for salaries, utilities, insurance and other overhead expenses until their company starts turning a profit. Unless you’re running the kind of business where everybody’s working for sweat equity and deferring compensation, you’ll need to raise enough money to tide you over until your revenues can cover your expenses and generate positive cash flow. The solution: Calculate your start-up costs before you open your doors, not afterwards.
8. Raising too much capital. Believe it or not, raising too much money can be a problem, too. Over-funded companies tend to get big and bloated, hiring too many people too soon and wasting valuable resources on trade show booths, parties, image ads and other frills. When the money runs out and investors lose patience (which is what happened 10 years ago when the dot-com market melted down), start-ups that frittered away their cash will have to close their doors. No matter how much money you raise at the outset, remember to bank some for a rainy day.
9. Not having a business plan. While not every company needs a formal business plan, a start-up that requires significant capital to grow and more than a year to turn a profit should map out how much time and money it’s going to take to get to its destination. This means thinking through the key metrics that make your business tick and building a model to spin off three years of sales, profits and cash-flow projections. “I wasted 10 years [fooling around] thinking like an artist and not a business person,” says Louis Piscione, president of Avanti Media Group, a New Jersey company that produces videos for corporate and private events. “I learned that you have to put some of your creative genius toward a business plan that forecasts and sets goals for growth and success.” (See related article, “Are Business Plans a Waste of Time?”)
10. Over-thinking your business plan. While many entrepreneurs I’ve met engage in seat-of-the-pants decision-making and fail to do their homework, other entrepreneurs are afraid to pull the trigger until they’re 100% certain that their plan will succeed. One lawyer I worked with several years ago was so skittish about leaving his six-figure job to launch his business that he never met with a single bank or investor who might have funded his company. The truth is that a business plan is not a crystal ball that can predict the future. At a certain point, you have to close your eyes and take the leap of faith.
Despite the many books and articles that have been written about entrepreneurship, it’s just not possible to start a company without making a few mistakes along the way. Just try to avoid making any mistake so large that your company can’t get back on its feet to fight another day.
About the Author
Rosalind Resnick is the founder and CEO and Axxess Business Consulting Inc., a New York consulting firm that develops business plans and financial projections for start-ups and early-stage companies. She is also the author of “The Vest Pocket Consultant’s Secrets of Small Business Success.”
Bing vs. Google: The Battle for Your Advertising Dollars
By Richard Stokes of Entrepreneur.com
If pay-per-click advertising makes sense for your business (and it does for most), then you’re probably already using Google AdWords. But chances are you’ve only dabbled with Yahoo! and Bing advertising. If that’s the case, it may be time to take a closer look at your options. The partnership between Yahoo! and Bing — announced last July — is about to become a reality this fall in the form of a combined pay-per-click platform that will give small-business advertisers an alternative to Google.
Microsoft hopes the partnership will lead to increased search volume, which in turn will attract advertisers to its ad platform. “You need a lot of advertisers to provide the most relevant advertising experience. You don’t want to show an ad for ‘Tacoma plumber’ when a visitor is searching for a plumber in Seattle. The only way to create a market to attract more advertisers is to have a product with a high volume of searchers using it,” says Matt Lydon, general manager of Microsoft advertising.
Will Bing and Yahoo! succeed? That’s anyone’s guess. But in the meantime, here are seven compelling reasons to give advertising on Bing a shot:
- Bid prices are lower.
Google has been around far longer and has a more robust advertising marketplace. The result is a saturated marketplace. For any given keyword, there can be dozens — sometimes even hundreds — of companies bidding for placement on the first page of search results. Currently, that line is shorter on Bing, and as a result advertisers can expect to pay less for placement on most keywords.
- Conversion rates are better (sometimes).
Google and Bing reach different audiences. Google is the default search engine for most people, so your Google ads are going to appear to a wider demographic. While you can expect your Google campaigns to get plenty of traffic, it typically takes a lot of work to bring conversion rates up to an acceptable level. You won’t get nearly as much traffic from Bing, but you’ll get access to the MSN audience. This can translate into higher sales for certain types of businesses. Compared to Google users, MSN users are older (the bulk are in the 25-54 age range, as opposed to Google’s audience, which ranges from 13-34) and primarily female (57% vs. 50%).These are the customers of choice for most B2C marketers.In addition, you can use AdCenter to target specific MSN properties to reach specific markets. For instance, MSN’s celebrity gossip portal reaches affluent females between the ages 35-49 — customers of choice for many B2C businesses. (For a breakdown of MSN user demographics see the AdCenter Lab.) - Better customer support for small accounts.
Google advertisers who spend more than $500,000 per year have a dedicated account representative who can help with the various technical and billing problems that pop up from time to time. The rest of us have to settle for offshore support which can be, ahem, a less-than-satisfying experience.Bing is attempting to woo the little guy with a higher level of customer support for small advertisers. Aside from being able to talk to an account rep, small advertisers can take advantage of the Quick Launch program, a service that provides you with free advertising consulting. The only requirement is that you spend at least $500 per month — a figure most of us can easily meet. - Search traffic is about to grow. According to Comscore, Google’s search share in May was around 64% compared with Bing’s paltry 12%. If you’ve advertised on Bing already, you’ve probably seen the effects of this when looking at your campaign reports.However, the new partnership will bring Yahoo!’s and Bing’s combined traffic to more than 30% — nearly half of AdWords. This kind of traffic can provide a serious bump to anyone’s PPC campaign.
- Advertisers who prepare their campaigns ahead of the partnership will have an advantage over those who wait.
Both Google and Bing require advertisers to establish an account history before their ads will show to a wide audience. On Google, this process can take a few weeks to six months (or longer, depending on how established your competitors are). The same will ultimately be true on Bing.Right now, however, there are relatively few advertisers, so account history is easy to establish. Once the Yahoo! migration is complete (tentatively planned for this fall), it will be much more difficult. So get your campaigns ready now. - You can import your Google campaigns directly into Bing.
Google and Yahoo! have some annoying differences that make it impossible to simply copy-and-paste a campaign between the two. For instance, Yahoo! has a 40-character title limit while Google’s is 25. Yahoo!’s minimum bid is a penny, while Google’s is a nickel.Bing is eliminating these legacy features and standardizing based on Google’s ad formats, match types and minimum prices. This means you’ll be able to import your Google AdWords campaigns into Bing and Yahoo! almost verbatim. - It’s just plain smart to diversify.
If you’ve been advertising on AdWords for some time, you may have been hit with the dreaded “Google slap.” If Google determines that your website is of poor quality, that your ad is a bad match for a particular keyword, or even that your landing page loads too slowly, the company may make changes to your account or even shut it down entirely. Sometimes these slaps are subtle, and other times Google runs amok and shuts down thousands of advertisers at once. (The company banned more than 30,000 accounts during the December ’09 wave, and even more were affected by the July ’07 quality score update.)This unpredictability is, hands down, the single biggest complaint advertisers have with AdWords. More than a few companies have gone out of business because they relied solely on Google for web traffic. This is a critical mistake — one that is difficult to recover from once it happens. Adding a second PPC source to the mix diversifies your traffic and reduces the chance that you’ll wake up one day to find your website has become a ghost town.
Microsoft is betting big on its future in search advertising and investing heavily in a combined platform that is starting to look like a compelling choice over AdWords. If you’ve been sitting on the fence, now might the time to take a chance on something new . . . before your competitors do.
Richard Stokes is the CEO of AdGooroo , the world’s first Search Engine Intelligence company and the author of two books on search marketing, including the bestseller The Ultimate Guide to Pay-Per-Click Advertising: Join the Top 3% Capturing Sales from Search Advertising — and Outsmart 97% of the Competition (Entrepreneur Press, May 2010), available online at Amazon and Borders .
For bios of and stories by Entrepreneur.com columnists, please click here. For more information about Entrepreneur.com click here.
Small Businesses Fear Hit From Rise in Tax Rates
By MARTIN VAUGHAN and COREY BOLES
Karen Port of St. Louis fears that President Barack Obama’s plan to let tax rates rise for top earners will be a double whammy for her hot-tub dealership.
Not only would the company—which takes in between $1 million and $3 million annually in gross sales—pay taxes at a higher rate, but the tax increases could leave less money for customers to spend on her high-end products, said Ms. Port, co-owner of Mirage Spa & Recreation, Inc.
“It has a deep impact on us,” said Ms. Port. “People are going to be stepping back and not wanting to purchase luxury items.”
Port is among a dozen small-business owners around the country interviewed by Dow Jones Newswires who said the increase in personal tax rates could hurt their ability to make new investments or hire workers.
Tax cuts enacted under President George W. Bush are slated to expire at the end of this year. Obama has proposed extending the tax cuts for married couples with income of less than $250,000, or single taxpayers with income of less than $200,000. But rates on income higher than that would rise to 36% and 39.6%, respectively, from current levels of 33% and 35%.
The stage is set for a September Senate debate over whether to extend all the Bush-era tax cuts temporarily, or let rates rise for the wealthiest.
Because most small firms are structured so that they pay individual rather than corporate income taxes, some would be caught by an increase in personal tax rates.
But Democrats and Republicans are miles apart when it comes to estimating how large that impact would be.
Treasury Secretary Tim Geithner in a Washington speech this month said the notion that Obama’s proposals would hurt small business was a “myth” spread by the GOP. House Minority Leader John Boehner (R., Ohio) says letting top rates rise would amount to a “job-killing tax hike” on small firms.
Both sides have data to back up their claims. Congress’s Joint Committee on Taxation said in a July analysis that only 3% of taxpayers with business income in 2011 would see their tax rates increased under Obama’s plan.
But Republicans point to data from the same JCT study showing that half of the $1 trillion in income projected to be earned by pass-through entities such as partnerships and S corporations in 2011 would be taxed at the higher rates.
That suggests that even though the majority of small businesses wouldn’t see higher tax rates, the most successful of these businesses would. Democrats dismiss that statistic, saying it is mostly accounted for by hedge funds and law firms, not mom-and-pop storefronts.
Democrats say the tax cuts for the wealthiest must be allowed to expire in order to begin to reduce the federal budget deficit, expected to top $1 trillion next year.
But some business owners—and even some Democratic politicians like Sen. Kent Conrad of North Dakota—are questioning the wisdom of doing so when unemployment remains at a discouraging 9.5%.
“I am the guy who is supposed to be responsible for creating the jobs,” said Ryan Robinson, co-owner of Irving, Texas-based Signal Metal Industries Inc., a maker of heavy machinery for the steel and mining industries.
“When the economy is teetering, and you’re worried about having a double dip [recession], is it really smart to not renew those tax cuts?” said Mr. Robinson.
Mike Ferletic, owner of Irvine, Calif.-based Enterey Life Sciences Consulting, estimated his taxes could rise by as much as $15,000 as a result of the higher rates.
But like St. Louis hot-tub dealer Port, Mr. Ferletic said he worries as much about the impact of the tax increases on his customers.
“There’s kind of a domino effect,” said Mr. Ferletic. Enterey’s eight-person staff provides business consulting services to biotech and pharmaceutical firms.
Some firm owners just want Congress to make up its mind. “It’s August, and we still have so much uncertainty. How can I plan on what I want to invest next year?” said Ron Bullock, owner of St. Charles, Ill.-based Bison Gear & Engineering Corp.
The firm makes gears for machinery used by fast food restaurants and manufacturers of exercise and medical equipment.
Write to Martin Vaughan at martin.vaughan@dowjones.com and Corey Boles at corey.boles@dowjones.com
The Wall Street JournalCapital Alternatives in Today’s Changing Market
The Current Environment Found in Today’s Capital Markets |
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| By Greg Palmer
The purpose of this article is to frame the current environment found in today’s capital markets and to use this information to make the most informed financial decisions for you and your business. The vitality of any business is access to the capital that allows you to fuel your growth and survival. Staffing and recruiting firms have relatively modest capital requirements, but there is a steady need for capital to fund workers compensation collateral, payroll funding, capital expenditures, general expansion and M&A. In my role as an advisor to large and small staffing firms, I am constantly approached regarding various sources of capital. I need to confess that I am neither a commercial nor investment banker, I am a former CEO of a public staffing firm. I find myself most often positioned as an advisor to CEOs and boards. Therefore, it is from this perspective that I would like to discuss the markets. Today’s capital markets are presenting a set of unique challenges. It is no secret that most sources of credit are generally tighter than ever before and increasingly more expensive. M&A transactions are more difficult to complete due to this current conservative mood. Working capital for many firms is today’s number one constraint for both survival and growth. There is also a lot of confusion as to the best sources of capital and what sources fit best for what situations. Let us now take a look at the most common financial alternatives staffing executives have at their disposal. M&A Capital It is important to discuss capital that is used to facilitate M&A transactions because M&A has typically used capital in large quantities to fuel growth and consolidation. It is essential to understand where we have been in the past in order to understand where we are in the present. After 9/11 and the dot-com bubble, the government artificially created a period of rapid growth through easy monetary policy. In addition to significant growth in real estate, equities and GDP, the M&A market experienced a period of unprecedented expansion. During this period of financial growth, financial buyers began to consistently outbid strategic buyers for the first time in history. Transaction multiples also reached all-time highs driven by artificially low interest rates, ample access to transaction capital, increased leverage multiples and the corresponding reduction in equity capital. In addition, financial buyers were “;flipping”; companies; i.e., the same company was repeatedly being sold, each time at higher transaction and leverage multiples. The period was affectionately known as the “;Financial Engineered Era”; of expansion. As rates began to return to normal levels, real estate was the first to suffer, due to sub-prime loans and ARM resets. In October 2008 banks completely retrenched from the market in an attempt to shore up their own balance sheets. Between 2003 and 2007 total debt multiples increased by nearly two full turns of leverage. The increase was driven by low interest rates and a new source of debt capital, second lien debt. Second lien debt ultimately proved to be an unstable source of capital that has significantly reduced its lending efforts. In addition to low interest rates, increased leverage multiples and new forms of capital, the period between 2003 and 2007 experienced a dramatic increase in the availability of private equity capital in the market. The IPO market provided additional liquidity options for private investors to “;exit”; their investments at attractive valuations. With the severe market correction in 2008, the IPO market has been largely unavailable, creating another barrier for private investors to exit their investments. The extended investment holding periods for private investors is also delaying new fund investments. Current M&A Market While all sectors of the M&A market have experienced a significant pullback, the leveraged buyout market has been the most affected. The U.S. leveraged buyout transaction value is down 36% from its peak in 2008. Strategic buyers have pulled back but remain acquisitive. Private equity groups have shifted their focus to minority investments, with less leverage, in growth-oriented companies. The M&A market has seen steep declines in activity, primarily driven by the lack of capital-to-finance transactions. Most deals were financed with a combination of equity and debt. With the cost of capital being more expensive and debt to equity ratio’s having increased significantly the capital to complete these deals have substantially decreased for the foreseeable future. Due to the capital markets shifting to a much more conservative gear, in recent quarters it appears to be either large (Comsys — Manpower and Modis — Adecco) deals or small, often times distressed transactions that have successfully been closing. In terms of the smaller transactions, they are often partially or wholly owner-financed without the help of outside funding. If M&A is part of your strategy, a well-thought-out plan taking into account today’s unique capital environment is warranted. Working Capital Sources for capital come in many flavors, with primary uses including funding temp payroll, workers compensation collateral, capital expenditures and expansion. The primary sources and their corresponding benefits are compared below. When comparing the sources, pay particular attention to terms, fees, covenants and consequences of unforeseen events. Additionally, not only will you want to shop for the best “;deal,”; but also you will want to look for a funding source that shares your business’ vision and allows for open and clear communication and reporting. There is nothing more uncomfortable than having a capital partner you are at odds with concerning direction and other strategic matters of importance. It is impossible to predict just when the traditional markets will be more open and receptive. Some of the most traditional sources, money center and regional banks, have increasingly dried up as sources of funds. It has been reported repeatedly in the media that the banks are not lending regardless of the aggressive tactics the government has taken to stimulate the economy. This even occurs when the borrower has an excellent credit history. The proof is in the 177 bank closures since early 2009 and the 700 additional banks of the current FDIC’s “;problem”; bank watch list. The TARP and related programs have not made their way to Main Street yet. The banks fear that many of the borrowers (including staffing firms) are simply not credit worthy enough. The fears are even more prevalent amongst local and regional banks that were previously focused on commercial real estate lending and have since seen major declines in these assets (about a third of the bank’s assets). These declines leave little room on the bank’s balance sheet to get back to traditional lending, at least for the time being. Finally, there has been a lot written recently about the disconnect between what the Obama administration is saying, “;lend more,”; and what regulators are allowing. The regulators are downgrading the bank’s assets because of the decline in residential and commercial real estate. When this occurs, funds that were available to lend never get in the market. The funds are instead used to shore up the balance sheets and keep them within the acceptable regulators’ ratios. This problem is a double whammy for staffing firms because the area where jobs are created in the economy is being choked out due to tight lending at clients’ sites. This current trend, combined with the staffing firms own inability to access capital for their own purposes, makes some of the alternative sources mentioned above more appealing and financially sound. Operational Steps You Can Take to Preserve Cash While considering your capital options, pay particular attention to practices that preserve cash. Take a closer look at your receivables (DSOs) — a good target is 30 days; 45 days in most instances is too long. Consider cutting deals with clients to encourage quick payments, but if a client is pushing 60-day terms, get tough quick and/or add finance charges to their invoices. It’s also time to consider renegotiating everything you can — beginning with job boards, leases and all suppliers. In addition, I would recommend that you review all of your clients and be sure they are profitable or at the profit level you are comfortable with. It is critically important to know that some larger lower-priced accounts could be taking up precious working capital. It is amazing what new conclusions you may come to when you evaluate the contribution of certain accounts and measure their relevance versus your strained cash position. Where to Turn to Secure the Most Appropriate Sources CPAs, law firms, a board of advisors (if your company has one), other staffing firms who have gone through this treasure hunt, Staffing Industry Analysts and ASA can all direct you towards investment bankers and advisors with experience in staffing who have proven track records and good reputations. A good investment banker, for example, can advise you regarding the various capital sources available, the pros and cons, as well as the costs associated with each type of capital. I would not advise you to take this journey alone. I strongly suggest you find someone who can help you navigate the confusing sea of options available today. Conclusion There is an old saying: “When you run out of cash, you run out of options.” Many businesses globally faced this harsh new reality, including many in the staffing industry over the last two years. With traditional banks still being conservative in their lending practices, it is important to know that there are alternative sources of capital available beyond the traditional.
Greg Palmer is the former CEO of Remedy Temp Inc and founder of GPalmer and Associates, www.GPalmerandassociates.com, a management consulting firm focused on the staffing industry. You can find the recently published GPalmer temp labor forecasts and related material on the GPalmer Website. |
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Investors Gain New Clout
SEC Votes to Boost Power Over Boards; GOP Member Calls Move ‘Fatally Flawed’
By JESSICA HOLZ And DENNIS BERMAN
WASHINGTON—Shareholders won greater clout to place directors on corporate boards Wednesday, marking the latest victory for the “shareholder rights” movement that has gradually chipped away power from top executives running U.S. corporations.
Bloomberg NewsSEC Chairman Mary Schapiro said the rule is a victory for shareholders seeking more control.
But a party-line split vote at the Securities and Exchange Commission, and a denunciation of the new rule by a Republican commissioner who suggested it is illegal, points to new skirmishes ahead. Public companies, including some of the country’s largest, also hope to strike down the rule, which they say will be used to distract management and advance special-interest agendas.
For now, shareholders will have greater sway over who is eligible for election to a corporate board. Those powers mean that investors, including hedge funds, pension funds and unions, could eventually have greater influence over the strategic and financial choices of U.S. companies.
In a decision years in the making, the SEC voted 3-2 in favor of the “proxy access” rule, which requires companies to include the names of all board nominees, even those not backed by the company, directly on the standard corporate ballots distributed before shareholder annual meetings. To win the right to nominate, an investor or group of investors must own at least 3% of a company’s stock and have held the shares for a minimum of three years.
Currently, shareholders who want to oust board members must foot the bill for mailing separate ballots, as well as wage a separate campaign to woo shareholder support. Both are too costly and time-consuming for most. Now, the targeted companies will essentially be footing the bill for the dissidents, including them in the official proxy materials. The new rule will be in place in time for the 2011 annual meeting season next spring.
Bloomberg NewsRepublican SEC commissioner Kathleen Casey opposed the measure.
SEC Chairman Mary Schapiro, who won on an issue that had dogged two of her predecessors, said the rule is a victory for shareholders seeking more control over how their companies are run. It will “enhance investor confidence in the integrity of our system of corporate governance,” she said.
Hedge funds, pension funds and labor unions have pushed for the rule for years, contending that corporate boards have little incentive to be responsive to shareholder concerns because they rarely face contested elections. After all, they argue, shareholders own the company, and should have sway over its direction. Management—even the chief executive—are hired help.
For the SEC’s two Republican commissioners, the rule violates what they view as a delicate, but effective, understanding between shareholders and company management. For critics of Ms. Schapiro, the rule will create an unruly clash of competing interests that could bog down corporate decision making.
The two SEC opponents were Republican commissioners Kathleen Casey and Troy Paredes. Ms. Casey, a lawyer and former Capitol Hill staffer who has served at the SEC since 2006, sought to lay the groundwork for a legal challenge, calling the rule “fundamentally and fatally flawed.”
Ms. Casey argued the SEC fell short in its due diligence to show the benefits of proxy access outweigh the costs. “The policy objectives underlying the rule are unsupported by serious analytical rigor,” she said, warning of “significant harm to our economy.”
Ms. Schapiro rejected the notion that the SEC acted hastily without making the case that the public needs the new rule. She cited the hundreds of comments reviewed by the SEC—among the most it has received for a proposed rule—and the “long and careful consideration” by the agency.
Alaska’s Ben Creasy, who works at the state’s insurance department, wrote a letter in support of proxy access to the SEC. “Who watches the watchman,” Mr. Creasy wrote July 1. “[I]n a society like ours, the watcher of the watchers is the people at large, and if the people are crippled in their power, the management will take advantage of the freedom.”
The new rules are part of a broader, years-long reconsideration of who holds power in a public company. Prior to the corporate raiders of the 1980s, chief executives largely ruled without fear of rebuke. More recently, hedge funds, calling themselves “shareholder activists,” have upped the ante, repeatedly attacking management pay, perks and strategic direction.
Slowly, both custom and law have moved in the activists’ favor. Worried about shareholder dissent, boards have gotten more aggressive about the performance of top executives. And they have been less willing to overlook indiscretions, as recently happened when Hewlett-Packard Co. ousted CEO Mark Hurd. Both executives and boards have also relented more easily to takeover offers, at the urging of shareholders.
Congress’s financial-regulation law, passed in July, gives the SEC clear authority to make rules on proxy access, likely blocking one line of attack. But opponents could argue that the SEC didn’t follow the right procedure in making its rules.
Ms. Casey’s comments “will certainly energize the business community to take a look at mounting a legal challenge,” said John Olson, a lawyer at Gibson, Dunn & Crutcher LLP, who advises several corporate boards.
The final rule addressed some business concerns. Smaller companies will be exempt from complying with it for three years. Investors won’t be able to borrow stock to meet the 3% threshold, and they won’t be able to use the new power to seek a change of control at a company. And they can nominate directors for no more than a quarter of a company’s board.
The rule nonetheless sets up a divide between large and small companies, with the smaller ones more vulnerable to proxy-access attacks, given the economics at play. It would take an investment of $2.4 billion to pass the 3% threshold for a company the size of Verizon Communications Inc., a sum few hedge funds can produce. But for a smaller company, say the size of Leap Wireless International Inc., the sum required would be only around $28 million.
Some veteran corporate leaders think boards with poor governance practices will be the initial targets of proxy-access contests next year. The new rule “provides a bigger club for activists to deal with those companies,” said James M. Kilts, former CEO of Gillette Inc. and a founding partner of Centerview Partners, a private equity firm. “The only thing you can do is try to resolve the issues so disgruntled shareholders are happy,” he said.
Robert S. “Steve” Miller, chairman of American International Group Inc., fears “people with narrow-interest agendas will seek board seats” despite the laudable objectives of proxy access. As a result, public-company boards may become more cautious and bureaucratic, he said, “eroding their competitiveness with privately held companies and with foreign-domiciled companies.”
—Fawn Johnson and Joann S. Lublin contributed to this article.
Write to Dennis Berman at dennis.berman@wsj.com
Leadership – Build or Buy?
A company’s ability to build and thrive in the future rests on many factors.
One key factor is the ability to have the right leadership in place, at all levels, to be the guiding hands of success. The corollary to this is the ability to anticipate the need for new leadership roles and have a source of future leaders, i.e. companies either have to develop and promote leaders internally (build) or hire leaders externally (buy).
Companies often favor one strategy (“build” or “buy”) over the other. Each has its advantages and disadvantages. There are also reasons why one strategy may be a better choice at any given time, depending upon the business circumstances. To fill leadership roles the most forward-thinking companies employ both strategies in the unique balance that their business necessitates. This permits them to capitalize on the most positive aspects each strategy affords. Understanding the reasons and situations where each strategy provides its advantages can help companies deploy them successfully.
“Build” – “Building” internal leadership for the future requires the development of a detailed plan for identifying future leaders, building and providing training programs, and tracking open positions for placement of rising leaders. It’s a longer term proposition that will not yield immediate results. However, I don’t believe you can ever go wrong developing employee capabilities, and the benefits accrue not only to the employee but to the company as well. Developing employees to eventually be placed in future leader roles is most effective when companies:
- - Take a long-term view of corporate planning
- - Are in an industry where external leadership resources are limited (e.g. aerospace)
- - Are in an industry that is growing rapidly and available resources with industry experience have been outstripped by demand (think health care)
- - Promote the development programs available to their employees and encourage participation.
Developing leadership internally benefits companies by reducing recruitment costs to fill leadership roles and providing continuity of corporate knowledge enabling the new leadership placement to become productive sooner. Building internal leadership, however, takes time and it may require two or more years to develop employees to the point where they can be promoted to a leadership role. A long-term resource planning view needs to be taken with external hiring until internal capability exists. A company’s commitment to training and promoting internal candidates through leadership development programs can enhance its ability to attract potential employees as these candidates see the possibilities of career advancement. This is a great reputation for any company to cultivate.
“Buy” – “Buying” leadership, through external recruiting of people to fill leadership roles, is an effective method of adding leadership quickly or bringing on leadership with specialty skills not found within your company. Companies tend to utilize the “buy” method of leadership acquisition if they:
- - Are growing fast (again, think health care)
- - Have not yet established leadership development programs
- - Recognize that the need for new leaders outstrips available internal candidates
- - Are moving in a new strategic direction and are seeking a new top executive to drive the change
- - Have made a strategic decision to not provide leadership development programs or promote leadership from within.
Recruiting external leadership can be an expensive proposition with costs increasing appreciably as the level of leadership sought rises (Director and Executive levels). Externally recruited leadership will also require some period of indoctrination to the company, perhaps up to six months, before they reach full productivity even if they have industry experience. Not having an internal leadership development program may also harm the company’s ability to attract candidates, both leaders and non-leaders. Companies that become known for not providing advancement opportunities or developing employees for leadership roles may find their pool of candidates for open job postings becomes shallow – word gets out.
Companies should not expect that their leadership requirements will be satisfied by a single leadership acquisition strategy. Each strategy – build and buy – has a role to play in filling leadership needs at all levels. The real skill is in defining the balance between the two and determining which roles and under what circumstances each strategy will be utilized as the method of filling the leadership ranks.
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The top 10 risks for business
In today’s business environment, conditions remain challenging for many, and risk retains its position high on every organization’s agenda.
Businesses themselves are changing, which brings new risk horizons and, at the same time, they are grappling with the changes brought about by a post-downturn economy. The ability to anticipate threats, respond and continually adapt is as critical a part of the risk management process as it ever has been.
Our Business Risk 2010 report is part of an ongoing conversation about business risk — a conversation that has been taking place for several years, asking the question:
How frequently are companies scanning their horizons and with what scope?
The top 10 risks for business
Ranking from 2009 is shown in parentheses.
- Regulation and compliance (2)
- Access to credit (1)
- Slow recovery or double-dip recession (No change)
- Managing talent (7)
- Emerging markets (12)
- Cost cutting (No change)
- Non-traditional entrants (5)
- Radical greening (4)
- Social acceptance risk and corporate social responsibility (New)
- Executing alliances and transactions (8)
The 10 risks we highlight and those that fall just under the radar were selected based on how frequently our sector groups and analysts identified them.
Regulation and compliance tops the list
Our research suggests that the most important business risks for 2010 are concentrated in the areas of regulation and compliance.
Many of these threats are related to the aftermath of the global financial crisis. Asset management, banking, and to a lesser extent, insurance, are facing a political backlash and regulatory overhaul following the global financial crisis.
Oil and gas, real estate and mining and metals are contending with efforts by cash-strapped governments to gain revenues.
And public sector organizations must cope with knee-jerk decisions made by political leaders under pressure.
We hope the list will trigger a debate, which we would like to explore further.
- Are the risks on the list similar to those you are monitoring?
- Are they your top risks?
- Have our panelists missed anything critical?
Risks on the radar
Our risk radar presents a snapshot of the top 10 business risks across the 14 industry sectors we covered.
The risks at the center of the radar are those that the executives we interviewed thought would pose the greatest challenge to industry-leading global businesses in the years ahead.
- Compliance threats originate in politics, law, regulation or corporate governance.
- Financial threats stem from volatility in markets and the real economy.
- Strategic threats are related to customers, competitors, and investors.
- Operational threats affect the processes, systems, people and overall value chain of a business.
In each sector, we asked our interviewees to identify not only the top 10 risks, but also the risks sitting just below the radar, which may emerge to top the risk lists in years to come.
Top 5 “below the radar” risks: the next 5 risks
- 11. Inability to innovate
- Inability to innovate rose from the 18th risk on our 2009 list to Number 11 in 2010 (the first below-the-radar threat).
- In other sectors the issue of innovation has risen as technology has become more important in products and business models. “The rapid development of science areas relevant to consumer products — biotechnology, genomics, neuroscience, nanotechnology, information technology — has opened up tremendous opportunities for new product development,” noted a former chief economist of a global consumer goods company.
- In life sciences, the end of the blockbuster drug model has created significant uncertainty about the best innovation strategies. Expected payoffs from improved R&D methods may take years to emerge, meaning that it may be unknown for some years whether new innovation strategies have been successful.
- In addition, untested innovation models are being put in place: “There is an increasing trend towards open innovation and R&D in a noncompetitive or collaborative way, using non-traditional alliances,” noted an Ernst & Young life sciences sector executive.
- Other life sciences executives worried that an increasing reliance on outsourced research may leave life sciences companies ill-equipped to evaluate risk/benefit issues for new products.
- In other sectors, a number of innovation-related themes emerged. One of the most popular themes was the internationalization of R&D activity, especially to emerging markets.
- As global companies seek to capitalize on the growth of these markets and to draw on a truly international pool of ideas and talent, the ability to nurture a culture of innovation in diverse geographies will become increasingly important.
- 12. Maintaining infrastructure
- The second below-the-radar risk has also risen significantly from 2009, from 20th to 12th on our list. This is somewhat surprising — as an automotive sector CEO we interviewed pointed out, changes to infrastructure happen slowly, which ought to give companies time to react.
- However, the number of infrastructure-dependent sectors participating in our global survey is significant, and in these sectors, higher costs of capital and the dire state of public finances are sources of concern. This held true for power and utilities, oil and gas, automotive, telecoms, and real estate, as well as, of course, the public sector.
- In many of these sectors, tremendous infrastructure upgrades are needed to meet environmental or technological challenges, and failing infrastructure may result in sharp declines in the value of current and future investments.
- It is unclear where the capital needed for infrastructure upgrades will come from.
- Several analysts, including Daniel Malachuk, an independent consultant and former executive at CB Richard Ellis, reminded us that numerous sectors now depend on optimized global supply chains. Infrastructure failures could threaten the sourcing networks, in which numerous companies have invested heavily.
- 13. Emerging technologies
- Placed fourth below the radar in 2009, emerging technology risk is now at Number 3. Many panelists cited this as a notable risk and it was certainly a common theme across many sectors.
- Variations on this theme ranged from risks posed by high-frequency trading in the financial sector to managing social media effectively in consumer products, and from developing low-carbon technologies and alternative propulsion systems in the automotive sector to biotechnology and “e-healthcare” in life sciences.
- New technologies such as digitization and social media will increasingly affect sectors such as life sciences, consumer products and government.
- These advances create new strategic risks. For example, because the data are owned by many different market participants, data monitoring and security are increasingly important (indeed, data privacy features on the risk list for the first time this year, although still just below the top 25).
- For other sectors, such as media and entertainment and technology, digital media is now an established part of the strategic landscape, although the viability of revenue streams from digital content remains unclear and companies must strike a balance between traditional and digital media.
- It is rare that disruptive innovation does not make an appearance in a sector risk commentary. In power and utilities, for instance, low-carbon technologies are booming, smart grids are much anticipated, and the impact of electric car adoption is much studied.
- However, each of these new technologies creates uncertainty, and many require further investment to make them more effective and economically feasible.
- 14. Taxation risk
- The threat of substantial increases in taxation in coming years poses a new risk for 2010. Several sectors mentioned this as a cause for concern, including the government sector but also the financial and oil and gas sectors.
- The size of public sector cuts required is unlikely to be achievable without cuts in major “front-line” services.
- More than one government sector interviewee argued that governments will need to “come clean” about this as early as possible to retain the public’s trust.
- As countries try to reduce their budget deficits and debt, few sectors will be immune from the possibility of increased levels of taxation over the next 5 to 10 years. Businesses will face a host of challenges as a result. If sector profits are good, the sector may become a tempting target for increased taxation.
- Increased company rates have a number of clear implications for firms, not only by reducing profits, but also by damaging companies’ ability to invest for the long term. Further, reduced public services through diminished infrastructure investment (see BTR Number 2) and fewer university graduates (see Number 4) also could have indirect implications for companies.
- 15. Pricing pressures
- At fifth in our below-the-radar risk list is a new risk for 2010: pricing pressures.
- These pricing pressures are in large part a consequence of several challenges higher up on the risk list:
– the rise of low-cost emerging markets competitors
– the growing importance of price-sensitive emerging markets consumers
– the penny-pinching behavior that has accompanied a global recession - These trends, coupled with rising commodity prices, put pressure on many firms to reduce costs (Number 6) and to optimize their pricing strategies to gain every last morsel of value.
For instance, “competition for market share in a low-inflation environment makes raising prices very hard to achieve, even when input prices are rising,” as one consumer products executive put it. - Other pricing pressures come from cash-strapped and increasingly unpopular governments facing public protests.
- These governments have attempted to cut or regulate prices paid for life sciences products, or threatened intervention in power and utilities tariffs or energy markets.
- With many developed country governments facing huge deficits, and a public backlash escalating, such political pressures on pricing may rise further on the risk list in years ahead.
Additional “below the radar” risks identified:
- 16. Resource scarcity
- 17. Consumer demand shifts
- 18. Global (re)alignment
- 19. Reputation risks
- 20. Energy shocks
- 21. Supply chain and “extraprise”
- 22. Managing new business models
- 23. Capital allocation
- 24. Intermediary power
- 25. Shifting demographics
Tags: double dip recession, public sector organizations, political backlash, risk 2010, downturn, horizons, emerging markets, social acceptance, business risk, alliances, business risks, oil and gas, risk management, corporate and social responsibility, asset management
Ernst & Young: www.ey.com, global ey.com team
Tips to Turn Off Geo-Tagging on Your Cell Phone
Keeping tabs on your favorite celebrities might be easier than you think — and much easier than they want. But they likely have no one to blame but themselves. Phone and camera pictures can show where they were taken.
According to two teams of computer scientists, Hollywood stars could be unintentionally giving up the exact locations of their homes and private whereabouts through pictures uploaded to the Internet, leaving them wide open to attacks by tech-savvy thieves (not to mention unwanted visits by starstruck fans).
CLICK HERE to get some tips for disabling geotagging.
Most cameras and video recorders don’t instantly attach location data (or geographic coordinates) to photos and videos. But some smartphones, such as the iPhone, automatically embed the user’s latitude and longitude in each photo’s metadata. It’s possible to disable the function, but the researchers said many people don’t even realize that they might need to.
The scientists say geotag data embedded in photos and videos that are uploaded to Twitter and other online sites often reveals location information that stars — as well as the rest of us — probably don’t want to share.
“Many people are not aware of the fact that there are geotags in photos and videos,” said Gerald Friedland, a computer scientist at the International Computer Science Institute in Berkeley, Calif. “If they are, they’re most probably not aware of the consequences.”
Using simple technology available online, Friedland said he and his colleague Robin Sommer were able to find the private home addresses of a Playboy playmate, a couple of TV hosts and a handful of other television personalities. Out of respect for their privacy, he declined to name the stars.
William Shatner, Hammer Among Celebs Who Tweet Geotagged Pictures
Ben Jackson and Larry Pesce, computer security experts in Massachusetts, said they were able to uncover location information in photos uploaded by William Shatner, M.C. Hammer, Weird Al Yankovic, Arnold Schwarzenegger and others.
“We have no problem with people posting this data online,” said Jackson. “[But] most people don’t even understand that they are posting this information online.”
ICanStalkU.com Scans Twitter for Pictures That Reveal Location
In May, Jackson and Pesce launched the website ICanStalkU.com to raise awareness of just how much information people share when they post a simple picture to Twitter.
The site’s software scans Twitter for images that contain location data and then translates those geographic coordinates into an actual street address or place name. The site then displays a real-time stream of all the tweets broadcasting the precise locations of Twitter users.
“When we initially started setting [this up]… people were shocked that we were grabbing this information,” said Jackson, security analyst for Mayhemic Labs in Boston.
For Hollywood stars or lesser known wealthy Twitter users, the consequences can be damaging, he said.
For example, do celebrities really want to leave behind a real-time digital trail for paparazzi to follow? Do they intend to disclose the specific street addresses of their multi-million dollar homes?
And do average people really want to let potential thieves know that they’re on vacation, leaving their homes vacant, or where they grab coffee or take an evening run?
Jackson said some people might be perfectly comfortable disclosing their location history, but if they’re not, they should be aware so that they can disable the features that make it possible.
Pesce, a security analyst for NWN Corporation, an IT firm in Waltham, Mass., said geotagged photos also pose corporate threats.
Let’s say an employee with valuable corporate information stored on a home computer or laptop posts geotagged pictures to Facebook and Twitter. A hacker could use the photos to monitor the person’s location history and figure out a good time to make a move, he said.
“Thinking about that from a computer security perspective has some interesting implications as to how someone could gain access to corporate IT data,” Pesce said.
These security issues aren’t just limited to social media. Online classified sites such as Craigslist can also pose problems.
Craigslist Users Reveal Location Through Pictures
Friedland said some Craigslist users who otherwise make a point to protect their identities online are disclosing the exact locations of their homes through the pictures they post on the site.
People selling couches, desks and other items online might think that they are posting anonymously, but through the photos uploaded to the site, Friedland said, they were able to locate to users within one meter accuracy.
“We found quite a lot of postings where the photos contained geolocation information, some were even anonymized,” he said.
Friedland and Sommer will present their findings to the technology community next month at a security conference in Washington, D.C. But Friedland said that there’s a takeaway for the non-technical too.
Location-based services, such as Foursquare which can people locate friends and programs that auto-cluster pictures by location, can be helpful and positive, he said. But he emphasized that people need to be careful about what they disclose.
“I think people have to be made aware of the geotagging issue before something really bad happens,” Friedland said. “In reality, this is really nice technology. You just have to be aware of it.”
Web Extra Tips:
People can tag their friends location on Facebook. Follow the following steps to opt out of this feature:
Go to your Facebook account.
Click “Account” in the top right corner.
Click “Privacy Settings.”.
In the “Sharing on Facebook” section, click “Customize settings.”
Scroll down to “Things others share” and make the option next to “Friends can check me into Places” read “Disabled.”
The Web site ICanStalkU.com provides step-by-step instructions for disabling the photo geotagging function on iPhone, BlackBerry, Android and Palm devices. Click HERE to visit the website.
A Field Guide to Using Facebook Places
Tips for Using Facebook’s New Location-Based Feature
Facebook has just announced Places, the long-awaited feature that brings location-based functionality to the most popular social network in the world.
(http://www.facebook.com/places)
Whether you’re a developer with a great app idea, a business with an interesting location marketing plan or just a regular Facebook user who wants to get involved with Places, there are a few details to note before you start using Places. The feature is fascinating, but it still has its limitations. And our guide isn’t without caveats, especially for users.
If you’re ready to start playing, here’s what you’ll need to know about Places.
How to Use Places
First of all, you or a Facebook friend in your group will need a smartphone. If you don’t have an iPhone, you’ll have to use the Facebook touch mobile site on a browser that supports both HTML 5 and geolocation.
The company does plan to roll out Android and BlackBerry versions of Places, but they haven’t released any specific dates for those releases yet.
To use Places, go to the Places tab on the iPhone application or touch.facebook.com. You’ll first be asked if Facebook is allowed to know your location. Once you click “allow,” you’ll enter the Places interface. From there, you can share your location with friends, find out where your friends are (if they’re using Places), and discover new places near you.
You can add places, check in to places that already exist, and tag people who are with you. If you’re checking in for a group, make sure you tag your friends before you checkin, yourself. For example, I added my house and checked in there. I then opened the Places page for a nearby sushi restaurant, tagged my boyfriend, and checked us both in there.
We’ve noted that it is possible to checkin from other non-smartphone devices in a regular, non-mobile browser, but you will have to use Facebook’s touch site.
You’ll also need to live in the U.S. Facebook’s goal is to launch all over the United States within a few days. International launch dates haven’t been released yet.
Other Services That Will Use Places
Tomorrow, Facebook is opening up certain data that will allow any and all developers to access parts of Places. That means that a lot of applications will start pulling information from Places, scraping it for data about people, locations, groups and more.
For right now, though, only a few apps have been selected to push information back into Places. Initially, Gowalla, Foursquare, Booyah (creators of MyTown and Nightclub City) and Yelp will integrate with Facebook Places.
If you use a Yelp mobile app for checkins, you’ll be able to push those checkins to Facebook Places, as well. Gowalla and Foursquare checkins can also be pushed to Facebook Places.
Booyah plans to launch a location-based social game called InCrowd; it will be built on Facebook Places. The company says it will be “a playful social app based on interacting with people and sharing real-time posts at real-world locations” and will allow players to “socialize, meet new friends and track popularity” in the app. It will be available in the iTunes App Store soon.
What About Privacy?
Facebook CEO Mark Zuckerberg said this feature isn’t about sharing your location with the world; it’s about finding places and sharing them with your friends.
That being said, your checkins will appear by default on your profile, in the news feed and in the activity stream for that place. We’ve also noted that your friends can, by default, check you in without your explicit approval or permission.
If you want to change who can see your checkins, go to your account’s privacy settings. You’ll see that “Places I check in” is by default shared with “Friends Only.” You can change who views your checkins from this area.
If you want to change whether or not others can check you in without your knowledge or permission, you’ll have to click “Customize settings” on your privacy page, then scroll down to the “Things others share” section. You will note that by default, you enable others to check you in. You can disable this setting; there’s no option to allow checkins-by-proxy on individual approval.
Also, another default setting on the “Customize settings” page is “Include me in ‘People Here Now’ after I check in.” When you check in, your location is visible to your friends and also to anyone else nearby. If you’d rather be more private, you’ll have to opt out of this setting.
We’ve written a bit about preliminary concerns voiced by the ACLU over Facebook Places and privacy. With much of the Places-related information being shared by default, it’s clear that most users will want to revisit their privacy settings before jumping wholeheartedly into this new feature.
Places for Businesses and Developers
If you’re a business, you can use Places to give Facebook your business’ location. Once your location has been added to Places, either by you or by another local Facebook user, just go to the Place page from Facebook.com and click the link that says “Is this Place Page your business?”
If you claim the location as your business, it will become a Facebook Page. You can then post updates to people who like the Page, update your business information and more.
Places can only be claimed by official representatives. Verifying a Place claim requires uploading some kind of official document, such as a local business license or Better Business Bureau accreditation.
If you’re a developer and are interested in using one of the Places APIs to use this feature’s technology in your application, you’re in luck. Facebook is launching a Read API tomorrow. This API will scrape checkins from identified users and their friends and will gather public data about Places, as well.
Facebook has also developed a Write and Search API that allows third-party apps to publish checkins and run queries on Places data. That’s currently in private beta; partners include Gowalla and Yelp, among others. We don’t yet have a date for when that API will be opened generally, but we’ll keep you posted.
When Places Go Wrong
In addition to changing your personal privacy settings, you can also report Places that aren’t correct or that infringe on your own rights somehow. Facebook allows users to report Places for incorrect data, abusive behavior, the permanent closure of a business or duplication of other content.
Reported Places are flagged; removal may not occur immediately.
You can immediately remove checkins from your own profile, and you can also untag yourself if someone else has checked you in without your approval. Just click the “remove” button next to the story on your profile or news.
Facebook Places Secret Super Power: Local Business Location-Based Ads
BY Kit EatonToday
For now it’s a slightly complicated affair to get location data into your Page if you’re a business–involving creating a new Places page, and then associating the two together. It even looks like not every business page owner can do this final piece of the puzzle yet, and Facebook seems to be alerting specific people about the system. Quite apart from this foible, the Places feature is pretty powerful, and notionally works much like business-owned pages in Yelp. Essentially you build a PR page, and then try to attract fans who’ll then checkin when they arrive at the site. Fans get to “play” the location game, businesses get to work out who their clients are–for promotional purposes or even (if they can get hold of demographic data) for business planning or targeted marketing reasons.
But Facebook is the engine behind all this, don’t forget–the worlds largest social network, with data on over 500 million users. Stripping the concept of Facebook to its core, one realizes that Facebook’s biggest bankable “value” is the structure of this network (with IDs for each user) and the web of links between friends–everything else about Facebook rests on this core. But with Places, not only does Facebook get to add a potentially money-spinning stream of data to all Places players (namely, your location and location habits, which is data ripe for mining for marketing), but it also gets a new network–the location database of local businesses. Facebook had data in businesses before, but the fact that it’ll now be able to geolocate them means Facebook will likely build up plans for location-sensitive advertising, tied to which particular shop you’re in (imaging a competitors ad popping up when youre checked in, offering lower prices or a promotional discount). It lets Facebook potentially build up a powerful “points of interest” database, should it every feel like leaping into the personal navigation or augmented reality games. It lets Facebook’s app developers come up with creative uses for the data that we haven’t even thought about yet.
Similar databases to these exist inside Foursquare, Gowalla, Yelp and augmented reality services Iike Layar. But they have to be populated by each of these system’s users, and as a result they may never become a complete or even widespread and accurate representation of the local business offerings of a particular city or town. Meanwhile Facebook is huge. Its very bulk creates a compelling reason to add your info to its places system. If Facebook plays this game carefully enough, it could swiftly steal big chunks of the business of Yelp, Layar, and many other location-based system (or just buy them later). All it would take is some clever programming, and a revamp of Facebook’s horribly flat and uninspiring UI to make the different aspects of the location games clearly delineated and more marketing-friendly.
To keep up with this news follow me, Kit Eaton, on Twitter.