Category Archives: Business

Why is Health Care So Expensive?

According to Steven Brill, whose 26,000 word article in Time is getting all kinds of attention, one big factor is price negotiation. An uninsured patient can’t negotiate at all, so they get charged $1.50 for a single Tylenol in a hospital. Insurance companies negotiate on their customers’ behalf, so they get charged less. And Medicare, which is the biggest player of all, negotiates hard — volume discounts and all, just like any big customer anywhere in the world — and thus pays the least for the same products and procedures.

Interestingly, Brill steps away from one obvious solution — have Medicare cover everyone — because he says it will leave doctors underpaid. Felix Salmon takes him to task for this, pointing out that Brill never states what “underpaid” is. Since my greedy doctor post remains my most read and commented of all time, I feel a certain obligation to chime in here. I have never seen any analysis that tries to show what doctors might get paid in an all-Medicare system. Maybe it would be pretty low; if GPs maxed out at $50,000 per year, they probably wouldn’t spend all that money and time at medical school. But maybe doctors would still get paid what they do now, and it would be hospital administrators (whose multi-million dollar salaries are the true villains in Brill’s piece) getting a pay cut. Or maybe it will be CEOs of drug companies getting paid less; who would complain about fewer $78 million severance packages being paid to CEOs?

You can read more commentary regarding Brill’s article here and here.

Bad Driving, Google Edition

My series of posts about double parking gets to intersect today with a trend getting some recent publicity: tech companies using private buses to drive their employees from San Francisco down to Silicon Valley.

You can read more about these buses here, here and here. There is a little controversy around these buses: on the one hand, they are clearly more environmentally friendly than having everyone drive their own cars. On the other hand, they are pretty freaking big, and often drive on city streets that aren’t designed for vehicles that large. Moreover, they use stops that are designated for city buses, and then the city buses don’t have room to stop.

Moreover, and this is my pet peeve, they don’t even pull all the way over into those stops. The photo below is of a private bus on Lombard Street, clearly not pulling into its stop and clearly blocking a lane of traffic. I don’t actually know which company’s bus this is; they tend to hide their affiliations, except for the Genentech buses, which are festooned with Genenetech logos, and which often do exactly what is pictured here, in the same exact spot.

Google bus blocking traffic

Google bus blocking traffic

In addition to their clogging up of city streets, I am a little torn on the private buses. I appreciate their greenness, but I wonder if the buses didn’t exist, then maybe a lot of these people would move out of the city and to Silicon Valley, closer to their work. Should we really enable people to live far away, rather than supporting a denser work-home nexus?

Spending Too Much on Brand Names; BMW, Coach, etc.

Interesting that it’s a car webzine (thetruthaboutcars.com) that has written the best commentary I’ve seen on the trend of the past few years in which young people have been spending well beyond their means on brand-name cars, purses, clothes and other consumer products. There was a time when buying a BMW, or an Armani suit, or $1,000 purses and shoes, was something done by people in their 40’s and 50’s, who had been well paid for decades. Now 25 year olds PR account executives making $40,000 are buying Jimmy Choos and putting them on their credit cards. Or as the article says, a few years ago “the idea of spending four figures on a handbag when one worked at an entry-level white collar job would have been seen as irresponsible and reckless at worst, crass at best.” The pre-financial crisis debt binge wasn’t just about mortgages. People were overspending on all kinds of goods, and they still are.

Overseas Cash and Justin Bieber

As tax reform is discussed in preparation for our upcoming leap off the fiscal cliff, among the topics has been corporate tax reform, in particular how American companies are taxed on their overseas income. As the system currently works, as long as US companies keep their cash offshore, they don’t have to pay US taxes. Once they bring that money back, it’s a flat 35% tax rate. So, not surprisingly, US companies with multinational operations have a lot of cash stashed overseas. Read all about it here, here, here and here.

The thing is, some of these companies have so much cash overseas, and so little here in the US, that they’re borrowing money to fund their operations here, or to fund dividends and stock buybacks. But they (the companies and the reporters covering this topic) are making it seem like the companies CAN’T bring the money back to America. Let’s be very clear: they CAN bring the money back, it will just cost them 35%.

For example, here is how the WSJ described it:

Each of these companies is grappling with a growing problem that comes from keeping Uncle Sam away from their foreign income: How to round up enough cash in the U.S. to cover items like dividends, share repurchases, debt repayments and pension contributions.

And here is how a CFO described it in the WSJ:

“You end up with the really peculiar result where you are borrowing money in the U.S. while you show cash on the balance sheet that is trapped overseas,” said Bruce Nolop, former chief financial officer of Pitney Bowes and E-Trade Financial and now a director at Marsh & McLennan. “It is a totally inefficient capital structure.”

Now I understand why companies are keeping their cash overseas: it’s their job to minimize taxes. And I can certainly see why they would rather borrow at historically low interest rates (like 5%) than pay a 35%. No complaints from me on either front. But for the companies to act like it’s just impossible for them to bring the cash home annoys me. They choose not to bring the cash home, for good reasons, but if they really wanted to they could. It’s like saying that you can’t get Justin Bieber to play at your daughter’s bat mitzvah. You can, but it’s going to cost you a boatload.

One Reason Startups Fail

Come on, people! At least try to make your apps more than punch lines for blogs like mine. Just days after posting about the shakeout among mediocre consumer technology companies, I see a review of three apps designed to help you split the bill with friends/roommates: Billr, SplitWise and OpnTab. As regular readers know, I think that any company with a name like Billr is destined to fail. When it’s an app that does nothing you can’t do with a calculator (which is built into your phone), then its chances of success are even lower. In addition, despite the savage failure of Blippy, the app that shared with your social graph the details of all your purchases, here we have the launch of Mine, which shares with your social graph the details of all your purchases. Venture-backed technology is at its best when it solves big problems. Three apps that help you divide by seven are not solving problems at all.

Silicon Valley Shakeout: Yes, Many Startups Fail

The press is going crazy here in Silicon Valley with pieces about the coming shakeout in startups. The basic story is that over the past few years, the growth in angel investors led to a lot of mediocre ideas getting seed funding, and now that the froth is off the market, those mediocrities are finding it difficult to raise additional money from venture capitalists.

PandoDaily gives a good summary here. Dan Lyons, a well known tech journalist (and creator of Fake Steve Jobs), has a more savage take here. The following quote kind of summarizes his piece:

For the past few years we’ve had people calling themselves “investors,” who have no experience investing, swanning around the Valley, slinging money at people calling themselves “entrepreneurs” who have never held an actual job, let alone run a company.

My view is that this shouldn’t surprise anyone. The current social/mobile bubble has been obviously following the trajectory of the 1999-2000 dot.com bubble (see my prior posts on this topic here, here, here and here), and any rational observer could see how it was going to end. Just like a decade ago, the promise of quick riches drew hordes of young, aggressive tech wannabes who launched me-too companies, features posing as companies, or simply bad ideas. And just like a decade ago, huge amounts of capital desperate to be put to work meant that bad ideas got funded. But bad ideas become bad companies, and bad companies start to fail, and VCs don’t put more money into failing companies.

Ten years ago, the mantra was “let’s dot.com category X.” Now it’s “let’s take category X social. Or mobile. Or both.” But either way, good ideas with good execution get traction, and bad ideas don’t. PandoDaily looks at the travel space and explores it as a microcosm of everything that’s happening. Bad companies with bad names ( Dopplr, Tripl, Gtrot) are all going away, because they never should have existed.

This is really a standard Silicon Valley cycle; it’s just getting worse. There was once a time when VCs funded one hundred disk drive companies, which also ended poorly. Now it’s that the cycles are stronger and draw more wannabes from further away. More press and more billionaires mean more people coming to enter the lottery. I mean, now we have a reality TV show about good-looking young entrepreneurs (or perhaps I should say “entrepreneurs,” since the folks on that show are exactly the people Dan Lyons savaged). Back in the 1980’s nobody made a reality TV show about 45 year old engineers starting disk drive companies.

Will Enterprise Startups Require Different Entrepreneurs?

VentureBeat ran an interesting article today about how startups are learning that the “Dropbox Effect” is a myth. That is, corporate IT departments will not adopt a consumer-driven solution just because users like it. There are too many issues around security and support for CIOs to be swayed by consumer products, no matter how sexy they are.

In this article, CEOs from very hot Silicon Valley startups are talking about the need to add executives with enterprise experience, from established companies like IBM and EMC. My question is whether, if going after the enterprise requires traditional enterprise approaches — security, support, sales & marketing — does that mean that we’ll see a move away from the 25 year old entrepreneurs who are currently the rage in Silicon Valley? I don’t know; part of the reason young folks can make good entrepreneurs is that they are willing to break the product mold, and that can be just as valuable in the enterprise as in the consumer market. But as the VentureBeat article points out, and as our QWERTY keyboards remind us on a daily basis, the best products don’t always win. If the way to sign enterprise customers is to have an enterprise-ready organization, maybe entrepreneurs will need to have enterprise experience.