Archive for the ‘Chicago GSB’ Category
Obama and Chicago economics
Filed under: Chicago GSB, University of Chicago Law School, economics, politics |
Leave a Comment The WSJ ran a short but interesting piece this weekend which focused on how Obama is perceived among Chicago School economists given his background with the University of Chicago. The piece focuses on the thoughts of Richard Thaler, one of the leaders in the school of behavioral economics which has largely examined the efficient markets theorized by the old Chicago School crowd and identified scenarios in which actors systemically fail to make efficient decisions. This line of study is an interesting glimpse into human behavior and is very important in the context of efficient market arguments which all assume decision makers behave in efficient ways (e.g. a person will take $2 in exchange for $1). Read more »
Fake Steve on Business School
Hilarious post by Fake Steve on business school:
Some dude in B school wants to “shadow” me
I think this must be the scariest blog in the world. Or the saddest. Much love to Rob for sending in the link. See here. Some kid from London Business School wants to “shadow” me as part of some B school assignment. He really believes that if he just keeps writing this blog and leaning on any connections he can find that eventually I’ll be shamed into letting him follow me around so he can learn how I operate. Groan. First of all, kid, I have no shame. Second, you’ve already made the biggest mistake you ever could have made. No, not attempting to correspond with the Great and Powerful Jobs without official permission, though that indeed is a very grave offense. No, your biggest mistake is simply this: You’re in fucking business school.
Good God, man. Could there be anything less creative, less imaginative, less valuable than going to business school? Is there any surer way to become an absolute conformist frigtard than to spend two years being coddled and pampered and fed worthless pablum by failed businesspeople? The mind reels. And don’t think you’re all super cool and extra special just because you’re in a “programme” instead of a program. My theory is that education in general only serves to clog your creativity and shut down your brain. I imagine the brain is like this giant honeycomb, with all these open cells, but every class you take just fills some of those holes and seals them shut. Getting an MBA is like going back and double-sealing those doors with cement.
Business school dude, listen up. Forget shadowing me. You’ll never be like me, because I’m one of a kind. I came out and they broke the mold. But if you want to learn how I operate, do the following. Quit business school. Go work at some shitty electronics company and learn how to source components. Travel to India and seek enlightenment. Grow your hair down to your ass. Take LSD. Smoke pot. Live on a commune. Sell your van and start a company. Put yourself in danger. Create a situation where if you fail you’ll be unable to pay your rent and you’ll be out on the street. Struggle to make payroll. Get screwed by suppliers. Learn to screw them back. Bounce checks. Run out of money. Go hungry. Be scared.
Ready? Good. Start today.
Braintree Payment Solutions
Braintree Payment Solutions, winner of this year’s New Venture Challenge at the Chicago GSB, has bravely entered what is, as far as I can surmise, one of the murkiest, confusing, and frustrating industries out there: credit card processing.
I spoke with Bryan Johnson, CEO of Braintree, early on in my search for a web based credit card processor but decided to grind it out and investigate all of my options. I was pretty thorough in my research. I spoke to five or six of the most legitimate providers I could find, including the major national bank I use for personal and business banking. Before I even started looking into the product and service differences of the various providers, what I found over and over again was convoluted rate structures, hidden charges, and mysterious fees. Bryan tipped me in our early discussions that all processors face the same interchange fees from the backbone of the credit card processing system, so when a processor offers you a deal that is too good to be true, it almost certainly is. Specifically, processors quote you attractive “flat” rates and hope you base your decisions on them alone. But since all processors face the same charges from the underlying interchange, these processors have to either be hiding costs or losing money on your contract…and you can bet the chances of that are slim to none.
One of the most common tricks I saw is processors quoting you a flat rate without giving you any additional details. Well, if you investigate and ask them if that the ONLY rate I will pay, you’ll find that the rate is generally only for “qualified cards”. Then most folks that are selling legitimate products who get this far then think “Great! My average consumers have jobs and pay their bills on time. They must be ‘qualified’, so I’ll get this rate.” Wrong. Many, many commonly used cards, like corporate cards and rewards/mileage cards are actually “non-qualified” and face much higher rates, which are never mentioned unless you specifically ask about non-qualified rates. Even then, sales reps will try to brush off non-qualified cards, hoping that you have no idea that the majority of the cards you’ll be processing, and even the cards you use yourself, are actually non-qualified. In the end, I figured I’d be better off with a company that didn’t try to mislead me from the get go.
Some other things Braintree had going for them is that they have products and services for everything we were doing. I needed a merchant account for credit card processing, electronic check processing (ACH & EFT), a payment gateway, virtual terminal, and an easy and flexible API to integrate everything. With some of the other providers I had to piecemeal a solution together myself. I like the fact that I have one company doing all of this for me. The other thing that I thought was significant was that Bryan made me aware of the industry security standard: PCI Compliance. Businesses that process credit cards must meet the 12 security requirements to securely protect credit card information. If businesses get breached, they can face some pretty significant fines. Bryan has some nice write-ups on this for large and small businesses on the Braintree Blog. To help us with that security threat, Braintree has tokenization technology that allows us to remotely store all credit card information so we have nothing onsite that we need to worry about. We simply submit the cardholder information once and receive a token in return that we can then use to remotely initiate transactions. In short, we are able to let our customers create accounts, provide their credit card information once, and never have to do it again. It makes things easier for them, which makes our business a better one.
Braintree was not only clear and above board with their pricing and fees, but have also been incredibly responsive to our technological needs, providing nearly instant support and solutions for all of our problems every step of the way. If you’re like me you’ll spend a couple weeks pulling your hair out trying to figure out all the terminology and tricks of the industry. I recommend talking to Bryan at Braintree before you begin. He’ll fill you in on what to look out for, and then when you find mysterious things along the way or deals that seem great, ask him what’s really going on. Then, after you’ve lost a couple of years off your life, you’ll end up back at Braintree and I’m guessing you’ll be very happy with their honesty, flexibility, technology and price.
LinkedIn IPO?
Looks like LinkedIn is lining up an IPO exec team…hoping to hit $100m in revs this year. LinkedIn replaced CEO Reid Hoffman earlier this year as well. Very interesting.
This concept of an IPO team reminds me of Steven Kaplan‘s research on the importance of the horse (technology, idea, etc.) or the jockey (management) in VC investment context. The slides linked here are pretty thick, but in short Kaplan cites CEO turnover at start-ups that IPO as an indicator that human capital is less important than non-human capital. What he fails to address is the fact that in many cases a very, very good start-up CEO who grows a company from $0 to $Ms (Reid Hoffman) is a completely different animal than an IPO/publicly traded company CEO who grows a company from $Ms to $MMMs (Dan Nye).
School’s out…time to crank!
After four years and ~5o exams, this past weekend I received my degrees from the University of Chicago Law School and the University of Chicago Graduate School of Business. It feels great to finally have the diplomas in hand, and I’m extremely excited to now be able to focus 100% of my time in directions that I choose. I highly recommend both schools to anyone seeking a rigorous graduate school experience. The value that these institutions place on ideas, debate and intellectual curiosity is truly unmatched.
CEO Hiring, Firing and Compensation in a Post-SOX Private Equity Boom
Filed under: CEO compensation, Chicago GSB, University of Chicago Law School, regulation |
Comments (1) I had the opportunity to moderate a panel discussion this afternoon, hosted by my school’s JD/MBA association, entitled “CEO Hiring, Firing and Compensation in a Post-SOX Private Equity Boom.” The panelists were Professor Steven Kaplan (GSB), who testified to Congress about CEO compensation and HR 1257 in March of this year, Professor Douglas Baird (Law), the global authority in the academic world on bankruptcy and reorgs who has written on the importance of CEO hiring and firing vs. compensation structure, and Professor Todd Henderson (Law), who is delivering the annual Chicago’s Best Ideas lecture tomorrow and will argue that CEOs are actually underpaid in today’s marketplace.
The discussion was extremely interesting and focused on why CEO has reached the levels it has today, whether it is deserved, and whether it is societally beneficial for it to continue to increase. In short, Kaplan thinks in large part that CEO pay is not overinflated and bases much of his argumenton the fact that the market for top managerial talent has gotten more expensive thanks to hedge, private equity, and VC fund payouts. Henderson’s beliefs that CEOs of public companies are underpaid are in part based on the fact that SOX has increased CEO liability and scrutiny, and that their payscale has not adjusted accordingly. Baird generally believes that too much time is spent on compensation package structure and not enough on picking the right person to do the job.
We were limited to an hour and did 15 minutes of Q&A so we were really only to brush the surface of the issues. I was hoping to be able to hear their thoughts on the “upward spiral” theories (aka: the Lake Wobegon effect) of CEO compensation which posit that since all major CEO hires involve compensation consultants, and every company hiring wants their CEOs to be compensated in the top 1/4 or 1/3 among their peers, the comp packages are blindly increasing as every new hire raises the bar…I guess we’ll have to get to that next time.
Human Computation, Game Design, and Behavioral Economics
Filed under: Chicago GSB, LinkedIn, Mechanical Turk, University of Chicago Law School, cool presentation, markets |
Comments (1) The philosophies generally associated with the University of Chicago usually orbit around free markets, rational actors, and economic efficiencies. These were generally borne out of the Friedman & Stigler cohort and the Chicago School of Economics which reached its peak during the mid-80′s still is a dominant force in economics, politics, and law today.
An interesting spin-off of the classic Chicago school of thinking here has been the Behavioral Finance movement piloted by Richard Thaler in the GSB and by Cass Sunstein in the School of Law. The behavioralists generally think that free markets are all well and good, but that people simply don’t always act in perfectly rational ways. They try to and categorize ways in which people generally deviate from rational behavior so that modeling and predictive techniques can be formed around how people DO act, as opposed to how they SHOULD act. One of the classic models that has emerged from this school of thinking is the Prospect Theory, which models the fact that humans are generally more adverse to losses than they are to gains, i.e., a normal person would feel more pain from loosing $100 than joy they would feel from gaining $100, while a perfectly rational actor would give the same slope coefficient to losses as they would to gains.
Another interesting model that has come from this school of thought is the impact the framing of a question or situation has on the response it generates. For example, people are likely to not be neutral between a 25% chance to win $50 and a 50% chance to win $25, even though the expected payouts are the same ($12.50). Similarly, studies have shown that people tend to anchor expectations to numbers they have recently heard or seen. Smart attorneys attempt to use this heuristic in their closing arguments by referencing numbers near where they would like the jury award to fall, e.g. a attorney who wants a hundred million dollar reward in a pharmaceutical trial would be smart to talk about the hundreds of millions of people who could have been potentially hurt by a drug, thus anchoring the jurors’ minds around numbers of that size.
Anyways, what got me thinking about this whole subject was a reference to the Mechanical Turk on Guy Kawasaki’s blog. Now Guy was a little late to the Mechanical Turk party, as the comments to his post point out, but one thing I noticed in the comments were several references to the Mechanical Turk being a failure. I hadn’t given it much thought before I watched the video below. The classic Mechanical Turk task is paying users $0.005 to tag , or describe, a photo with text. Until a photo has been tagged, a computers currently have no way of telling if the picture is of a boy, a dog, or a airplane. There are some people that will tag photos for pennies, but it isn’t terribly rewarding and it’s not a great way to make any money. But, as you’ll hear in the video, if you frame the same task in the context of a game, you end up having to cut people’s playing time off after fifteen hours because they like it so much.
The video is long, but basically this guy Luis Von Ahn designed the ESP Game and Peekaboom which tagged more photos for free than the Mechanical Turk will ever even come close to seeing. Some recent posts on the Lightspeed Ventures blog have also piqued my interest about game design and its place in social networking and web applications in general. One of the posts is about Yelp harnessing game design to get users to do what they want them too (create listings, contribute reviews, etc.). I think LinkedIn has done a fabulous job of this as well. I still love making connections on LinkedIn but never once have I really gotten any real benefit from it…I just like watching my counter go up. Yahoo! Answers and Amazon’s Askeville are also great examples of game design getting people to do things. Every day on thee sites thousands of people answer questions posed by complete strangers to accrue millions of points that have no more value than a video game score. Nutty.
Edit: Thanks to Jeremy Liew at Lightspeed for the shout out about this post.
Becker on Immigration
I attended a talk today given by Nobel laureate Gary Becker entitled “How to Improve United States Immigration Policy.” Becker is one of the most prominent of the Chicago school of economists and won the Nobel Prize in Economics in 1992 for his work in the field of price theory. He is a outspoken supporter of free markets, worked closely with Milton Friedman and George Stigler (also Chicago school Nobel laureates), and co-authors a blog with Richard Posner of the Seventh Circuit and the University of Chicago Law School.
Not surprisingly, Becker proposed that immigration rights be sold to aliens that wish make the US their permanent residence. He threw out $50K as a potential low-end cost, but noted that there were several ways in which prices could be set optimally. The economic justifications of the idea are quite good. He modeled out the 
net results on countries that lose and gain immigrants and showed that on the whole, immigration maximizes efficiency and benefits the country receiving immigrants in the short term and helps the countries that loose the immigrants in the long run. He showed that selling entrance rights would force self-selection and only those that were truly interested in staying and building a life in the US would be willing to pay. He also argued that the proposal would work for skilled and unskilled workers, and thought that those who did not have the resources to pay could be put on payment plans and showed that even an unskilled workers would be able to pay of a large loan over time due to the increase in income they would get from coming to the US. One area that he failed to address was how these loan payments would be enforced, which I think would be quite difficult.
On the whole, I think the idea is an interesting one. Becker and Posner often discuss immigration on their blog, and I am guessing Posner would in large part support Becker’s proposal, especially considering his support of adoption deregulation (which, over time, has been twisted into his support of “baby-selling” and has probably played a large part in keeping him off the Supreme Court). Apparently Switzerland and Canada have small programs in place that allow people to buy citizenship for extremely large prices. However, while the idea is interesting, given the hot nature of immigration I don’t foresee any politicians championing Becker’s proposal anytime soon…although I’m guessing Mr. Becker isn’t holding his breath either.
The benefits of due diligence
Filed under: Chicago GSB, NVC, Wikipedia, venture capital |
Leave a Comment 
Last night I helped out with the Chicagoland Entrepreneurship Center’s Fast Pitch Competition. The event was co-sponsored by The GSB, Kellogg, and De Paul and a bunch of my GSB classmates entered with hopes of winning the $5,000 prize. Each entrant in the contest had 3 minutes to pitch to a panel of 4 judges. I was the timekeeper in for the Web-Based Technologies group where one of the judges was Matt McCall of DFJ Portage Ventures and author of VC Confidential, a blog that I subscribe to. It was cool to meet him. It was also great to see GSB entry ParkWhiz win the Web-Based group and go on to win the whole competition. ParkWhiz wants to create a marketplace for buyers and sellers of parking spaces in urban areas where parking spaces can be hard to find.
I think the idea behind ParkWhiz has potential. However, ParkWhiz’ victory illuminates the flaws in these quick pitch types of contest, as well as the benefits of due diligence. This idea is not a new one – there is company out of MIT called SpotScout that is trying to tackle the same problem and has a mobile application that has substantial momentum. There is also a group called Spark Parking out of Northwestern that is taking a high tech approach to the same problem. There is likely room for multiple players in this marketplace, especially considering intensely regional nature of their products and services, however if the judges had not known about the other players (and they likely didn’t), the idea behind ParkWhiz probably seemed much more novel than it actually was. This reminded me of the coverage I saw of the CRV Entrepreneur Idol fast pitch contest held at Stanford GSB earlier this year where the winner pitched battery-less LED flashlights, a product that is already mass produced.
I’m not saying that these ideas wouldn’t have won if there was a diligence period, but as the New Venture Challenge is on the horizon here at The GSB, I am starting to realize the macro flaws inherent in business plan competitions, and lack of time for judges to research ideas is definitely one of them.
Red Hat and the Linux Revolution
I just read this case for my Technology Strategy class, and it is by far the best business school case I have come across to date. It gives a great overview of the development of the Linux ecosystem, how Red Hat came out of the mix, and the business challenges that face Red Hat post-IPO and that face all businesses that base their model on open source software. I have no idea if it is accurate and plan to do some diligence on it, but it is really a good read. The ironic thing is that the Harvard Business School Publishing is the antithesis of open source and rules its monopoly of the business school case market with an iron fist, thus, I can’t post the full text of the article here. Granted, there are a few differences between operating systems and publishing I guess. You can download it for $6.50 though. Sort of like i-Tunes for business cases…
