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TWITTER CEO

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“BROADCASTERS HAVE COME TO UNDERSTAND

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contents — octoBeR 28, 2013 VoLUMe 192 nUMBeR 6

70 | king of The Second ScreenIt’s prime time for Twitter CEO Dick Costolo.

cover PhoTograPh by eric MilleTTe for forbeS

15 | FACT & COmmEnT by STeve forbeS

Senators: Don’t be easy on the next Fed head.

LEADERBOARD

20 | THE STATE OF BAnkinGPay is the only thing that grows in

good times and bad.

23 | SCORECARD

Zuckerberg wins again; Hayne unravels.

26 | CASH AnD CARRIELess blood is better for Stephen King movies.

Plus: FORBES Makeover

28 | EvERyTHinG’S JUST FinEBanks rationalize their bad behavior.

Plus: Up-and-Comers

32 | ACTivE COnvERSATiOnBad-boy billionaire Stewart Rahr and the 399 other

members of The Forbes 400.

108 | STarTuP SchoolAn M.B.A. program for budding entrepreneurs, not I-bankers.

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8 | FORBES OCTOBER 28, 2013

82 | SurvivorS—and ThriverSThree distant memories from the 1990s bubble light up our list of America’s Best Small Companies.

contents — octoBeR 28, 2013

92 | Say cheeSeAnnie’s has the right ingredients for organic growth.

98 | Who needS The iPhone?Even without Apple, InvenSense’s gyroscope business is pointing straight up.

26 | Murder doeSn’T PayThe Stephen King Rule: fewer bodies, more money.

42 | deMoliTion Man

A home builder turns to the

wrecking ball.

THOUGHT LEADERS

34 | CURREnT EvEnTS by Paul johnSon

Obama versus Putin: Can Obama muster the right stuf?

36 | CApiTAL FLOwSby naThan leWiS

A stable dollar delivers economic stimulus.

40 | innOvATiOn RULESby rich karlgaard

Tara’s lesson: Smart leaders copy.

STRATEGiES

42 | DETROiT’S HAppy

HOmE wRECkERThe Pulte family made billions building homes.

Now Bill Pulte is tearing them down.by joann Muller

46 | THE ApOTHECARyThree key questions for ObamaCare’s rollout.

by avik roy

TECHnOLOGy

48 | A piCTURE’S wORTH

A BiLLiOn DOLLARSJon Oringer turned a side project

into a $2.5 billion photo phenomenon.by STeven berToni

54 | CHinA’S BLACk BOxThe Chinese answer to Apple TV

is full of pirated content. by SiMon MonTlake

56 | OnE ADDRESS BOOk

TO RULE THEm ALLPrivacy experts are a little freaked out

about a startup’s self-updating contact book.

by adaM Tanner

invESTinG

60 | DAy TRADinG GABELLiETFs may soon be emerging from

their index fund ghetto.by ari i. Weinberg

64 | pORTFOLiO STRATEGyby ken fiSher

Betting against Bernanke.

66 | SmALL STOCkSby jiM oberWeiS

America’s best small stocks.

68 | yEAR-EnD CHECkUpby WilliaM baldWin

A Roth conversion formula.

10 | FORBES OCTOBER 28, 2013

contents — octoBeR 28, 2013

48 | caMera ManOh, snap! Shutterstock’s Jon Oringer is Gotham’s frst tech billionaire.

60 | deSigner fundSETFs from your favorite

mutual fund stars.

122 | The good earThKistler Vineyards stars in a private equity prince’s second act.

BEST SmALL COmpAniES

82 | DARwin’S DiGiTAL DARLinGSSome Web dinosaurs have surged back onto our list

of America’s Best Small Companies.by naTalie robehMed

92 | miLD inDiGESTiOnAnnie’s has discovered the double-edged

phenom of innovation: new products fuel growth and nasty competition.

by Meghan caSSerly

98 | THE CHipS ARE UpA year after a management shakeup InvenSense is

out for a piece of Apple’s business. by karSTen STrauSS

FEATURES

70 | CAn TwiTTER SAvE Tv? (AnD CAn

Tv SAvE TwiTTER?)On the eve of its fervently hyped IPO, the

micromessaging service has a radical plan to nab the ad dollars it needs to thrive: help TV networks

survive the digital media revolution.by jeff bercovici

102 | THAT SinkinG FEELinGCarnival has brought a new CEO on board, but

investors are headed for the lifeboats. by caleb Melby

BEST BUSinESS SCHOOLS

108 | EnTREpREnEUR BOOT CAmp

Austin’s tiny Acton School has one goal: turning battle-ready graduates into startup successes.

by Michael noer

Plus: The 25 Best Business Schools

116 | TAkEOvER UnivERSiTyA wildly popular Stanford class encourages M.B.A.s

to take control of a real business. by george anderS

LiFE

122 | THE vinEyARD COLLECTORTPG cofounder Bill Price has a plan:

produce wine you can’t buy. by richard nalley

128 | THOUGHTSOn entrepreneurs.

102 | S.o.S.Carnival’s new skipper may be on a

cruise to nowhere.

BrandVoice

by SaMSung elecTronicS aMerica

Transforming STEm Education One Community at a Time. 111

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CHIEF PRODUCT OFFICERLewis D’Vorkin

FORbEs MagazInE

EDITORRandall Lane

ExECUTIvE EDITORMichael Noer

aRT & DEsIgn DIRECTORRobert Mansfeld

FORbEs DIgITal

vP, InvEsTIng EDITORMatt Schifrin

ManagIng EDITORsDan Bigman – Business, Tom Post – Entrepreneurs, Bruce Upbin – Technology and Wealth

sEnIOR vP, PRODUCT DEvElOPMEnT anD vIDEOAndrea Spiegel

ExECUTIvE DIRECTOR, DIgITal PROgRaMMIng sTRaTEgyCoates Bateman

ExECUTIvE PRODUCERFrederick E. Allen – Leadership

Tim W. Ferguson FORbEs asIa

Kerry A. Dolan, Connie Guglielmo, Kashmir Hill sIlICOn vallEy

Janet Novack WasHIngTOn

Michael K. Ozanian sPORTsMOnEy

Mark Decker, John Dobosz, Luisa Kroll, Deborah Markson-Katz DEPaRTMEnT HEaDs

John Tamny OPInIOns

Kai Falkenberg EDITORIal COUnsEl

bUsInEss

Mark Howard CHIEF REvEnUE OFFICER

Tom Davis CHIEF MaRkETIng OFFICER

Charles Yardley PUblIsHER & ManagIng DIRECTOR FORbEs EUROPE

Nina La France sEnIOR vP, COnsUMER MaRkETIng & bUsInEss DEvElOPMEnT

Miguel Forbes PREsIDEnT, WORlDWIDE DEvElOPMEnT

Jack Laschever PREsIDEnT, FORbEs COnFEREnCEs

Michael Dugan CHIEF TECHnOlOgy OFFICER

Elaine Fry sEnIOR vP, M&D, COnTInUUM

FORbEs MEDIa

Michael S. Perlis PREsIDEnT & CEO

Michael Federle CHIEF OPERaTIng OFFICER

Tom Callahan CHIEF FInanCIal OFFICER

Will Adamopoulos CEO/asIa FORbEs MEDIa

PREsIDEnT & PUblIsHER FORbEs asIa

Rich Karlgaard PUblIsHER

Moira Forbes PREsIDEnT, FORbEsWOMan

MariaRosa Cartolano gEnERal COUnsEl

Margy Loftus sEnIOR vP, HUMan REsOURCEs

Mia Carbonell sEnIOR vP, CORPORaTE COMMUnICaTIOns

FOUnDED In 1917B.C. Forbes, Editor-in-Chief (1917-54)

Malcolm S. Forbes, Editor-in-Chief (1954-90)James W. Michaels, Editor (1961-99)William Baldwin, Editor (1999-2010)

12 | FORBES OCTOBER 28, 2013

FORBES

IN BRIEFEDITOR-In-CHIEF

Steve Forbes

FORbEs (ISSN 0015 6914) is published biweekly, except monthly in February, April, July, August and October, by Forbes LLC, 60 Fifth Ave., New York, NY 10011. Periodicals postage paid at New York, NY and at additional mailing ofces. Canadian Agreement No. 40036469. Return undeliverable Canadian addresses to APC Postal Logistics, LLC, 140 E. Union Ave, East Rutherford, NJ 07073. Canada GST# 12576 9513 RT. POSTMASTER: Send address changes to Forbes Subscriber Service, P.O. Box 5471, Harlan, IA 51593-0971.

COnTaCT InFORMaTIOnFor subscriptions: visit www.forbesmagazine.com; write Forbes Subscriber Service, P.O. Box 5471, Harlan, IA 51593-0971; or call 1-515-284-0693. Prices: U.S.A., one year $59.95. Canada, one year C$89.95 (includes GST). We may make a portion of our mailing list available to reputable frms. If you prefer that we not include your name, please write Forbes Subscriber Service. For back Issues: visit www.forbesmagazine.com; email getbackissues@forbes.com; or call 1-212-367-4141.For article Reprints or Permission to use Forbes content including text, photos, illustrations, logos, and video: visit www.forbesreprints.com; call PARS International at 1-212-221-9595; email http://www.forbes.com/reprints; or email permissions@forbes.com. Permission to copy or republish articles can also be obtained through the Copyright Clearance Center at www.copyright.com. Use of Forbes content without the express permission of Forbes or the copyright owner is expressly prohibited. Copyright © 2013 Forbes LLC. All rights reserved. Title is protected through a trademark registered with the U.S. Patent & Trademark Ofce. Printed in the U.S.A.

OCTOBER 28, 2013 — vOlumE 192 NumBER 6

Innovations Behind

Our Rising Numbersby lEWIs D’vORkIn

NOV. 2010

BrandVoice

launches with

initial partner,

SAP

JULY 2011

Real-time stats

dashboard for

contributors

launches

NOV. 2011

New mobile site goes live in HTML5,

optimizing Forbes for three screens

JUNE 2012

New home page,

following functionality;

1000 contributors publish

8200 posts/month

JAN. 2013

FORBES

magazine app

launches

SEPT. 2013

Intelligent

scrolling

streams

50

20112010 2012 2013

40

30

20

10

MONTHLY UNIqUE VISITORS (IN MILLIONS)

MAY 2010

Forbes acquires

True/Slant

It’s just a number, but it’s a big one. Last month Forbes.com

hit a record 51 million unique monthly readers as measured

by Omniture, a widely used industry reporting tool. Com-

Score, another measuring service, puts our worldwide audi-

ence at 26 million. By either count the number of monthly

readers has risen more than 200% from three years ago. The

FORBES model for journalism in the digital era disrupts 100

years of traditional media thinking on how to cover the news.

We have a core group of experienced, salaried reporters and

1,200 expert contributors (many part of an incentive-based

program). They’re all building individual brands and com-

munities under the FORBES umbrella brand. Just as unique

is our BrandVoice advertising program. It ofers marketers

the same publishing tools our writers use to create content

and engage with news enthusiasts

in fresh ways. Below are just a few

key product releases that helped

spur the dramatic growth.

citi.com/progress

It isn’t New York or London

or Beijing. It’s not Lagos or

São Paulo or Dubai. Today,

it’s wherever you are.

Wherever you bring your

ideas, drive, passion and

a hope that someone will

believe in you. What if a bank

made that its job? Wherever

people come together to

create or build something,

we’re there to help make

it real. For over 200 years.

Around the world.

THEWORLD’SCITI. IT’S WHEREVER YOU ARE.

© 2

013

Citig

rou

p In

c. C

iti an

d C

iti with

Arc

Desig

n a

re re

giste

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serv

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s of C

itigro

up

Inc. T

he W

orld

’s Citi is a

serv

ice m

ark

of C

itigro

up

Inc.

When President Obama

takes time out from stonewalling

congressional Republicans over

the continuing budget resolution

and raising the debt ceiling to pick

a nominee for the next Federal

Reserve chairman, the U.S. Senate

should be prepared to ask that can-

didate hard, critical questions and

to reject the person if satisfactory

answers aren’t forthcoming.

To “stimulate” the economy our

central bank, at the direction of Ben Bernanke,

has undertaken unprecedented actions that

have immensely harmed credit markets, thereby

retarding recovery. They have the potential to

infict even greater damage on us and the world

than the 2008–09 crisis. Without congressional

authority the Fed has assumed enormous eco-

nomic powers. Even worse, despite the Fed’s

manifest failures before and after the economic

crisis, Congress has granted it other powers that

threaten our economic future. The Fed houses

the Consumer Financial Protection Bureau,

which wields almost unbridled authority over

banks and fnance companies regarding mort-

gages, credit cards and other lending activi-

ties, and gives it whatever funds it wants. The

bureau has no real accountability to Congress,

which is why it can hire like crazy at a time of

supposed federal budget tightness and lay out a

reported $95 million in “ofce renovations.”

Senators, whose job it is to confrm or reject

the President’s nominee, will be highly reluctant

to do anything other than go through the motions

in the aftermath of the current circus. Republi-

cans in particular won’t want to be accused of

“playing politics” with such a critical, sensitive

post. But this is the time for statesmanship.

OCTOBER 28, 2013 FORBES | 15

FACT & COMMENT — STEVE FORBES

FORBES

SEnaTORS: dOn’T BE EaSyOn ThE nExT FEd hEad

BY STEVE FORBES, EDITOR-IN-CHIEF

“With all thy getting, get understanding”

Monetary policy is that peculiar

subject that intimidates most people.

It’s not because of its complexity; the

basics are simple. And, though it may

be impossible to believe these days,

there are plenty of people in Con-

gress who can master arcane, difcult

matters. But, strangely, the psychol-

ogy of monetary policy strikes anxiety

and trepidation into the hearts of

most. However, given the crucial

importance of the Fed right now, this

fear must be overcome for the sake of the country.

The nominee must be grilled hard regarding

how he/she plans to unwind the Fed’s promis-

cuous bond buying. The central bank’s recent

botched attempt at “tapering” demonstrates

how difcult this will be. Much of Wall Street is

addicted to the process, as stock and bond gyra-

tions during the “tapering” fasco attest. When it

comes to bond prices, unwinding is going to be

rough. Markets try to anticipate the future, and if

traders and investors think more normal interest

rates are coming down the road, they will mark

the value of bonds down now, not gradually.

Never before in history has an important

central bank done what ours has done: loaded up

on long-term government bonds and mortgages

by borrowing short-term money from banks.

Bernanke & Co. have bought hundreds of billions

of Treasury bonds at premiums from par. That is,

they are paying, say, $1,200 for a bond that was is-

sued at $1,000—which is what happens when you

suppress long-term interest rates. Noted econo-

mist and FORBES columnist David Malpass calcu-

lates that these premiums now exceed $200 billion

and should be added to our nation’s debt.

This raises other obvious questions for Obama’s

pick: Why shouldn’t these excesses be part of the

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ADDING

BUTTONS

ISN'T

INNOVATION,

REMOVING

THEM

IS

to 1970s-style infation?

In 2008 the Fed was given permis-

sion to pay interest on reserves. Did

this help block the fow of credit to

smaller businesses? Has the Fed con-

ducted any studies regarding this? If

not, why not?

What real-world evidence is there

that quantitative easing here and

elsewhere has actually stimulated

economic growth? Never before in

U.S. history has there been such a

punk recovery after a sharp down-

turn—and that includes the Great

Depression. A severe contraction

has always been followed by a sharp

upturn. The question then becomes

whether the upswing can be sus-

tained. In the 1930s it could not.

When the Fed tapers again what’s

to prevent a repeat of the 1997–98 Asia

crisis? We got a taste of what could

happen with the brief tapering this

year. The anticipation of higher rates in

the U.S. led to an outfow of funds from

such emerging and middle-income

countries as Brazil, India and Indonesia

and to attacks on their currencies.

This is a vitally important issue.

Too often central banks don’t know

how to defend their currencies. The

frst thing a government must do is

announce unequivocally that it will

defend its money. Next it must raise

interest rates to underscore that

intent. Then it must aggressively buy

its currency in foreign exchange mar-

kets with its reserves, usually dollars

(other currencies, such as the euro

debt, and who gave the Fed the author-

ity to add to the national debt without

congressional approval? The debt

ceiling was exceeded before our Trea-

sury Department acknowledged it.

Quantitative easing upended

American credit markets, just as

rent control does with local housing

markets. QE limited the availability

of credit for nonfavored borrowers.

Under QE the federal government

fnances defcits without tears.

Washington pays barely any interest

on its new borrowings, and, thanks

to the Fed, it can borrow as much

as it wants until the debt limit is

reached—at which point Congress

always raises the ceiling.

Big companies also have easy ac-

cess to credit, one reason that their

balance sheets have never been stron-

ger. The housing market has benefted

from massive, ongoing purchases

of hundreds of billions of dollars

in mortgage-backed securities. But

smaller, job-creating businesses have

sufered because of limited access to

credit. Only recently has there been

a better fow of credit to this crucial

part of our economy, thanks, in part,

to a wonderful American characteris-

tic—when something is blocked,

entrepreneurs fnd ways to get around

it. Numerous nonbank sources for

credit to smaller businesses, including

equity funds, are starting to fll the gap.

Who gave the Federal Reserve the

authority to allocate credit?

Another important question: Why

has one-third of the Fed’s bond-buying

since the downturn remained at the

Fed instead of being put to work in

the economy? This strange pattern

has been evident for several years.

Why hasn’t the central bank ad-

dressed this matter? One big factor is

that regulators pressured banks not

to lend except to the federal gov-

ernment. This was done to improve

bank balance sheets. But this caution

clearly went too far.

Now that we have this massive

overhang, what’s to prevent a return

18 | FORBES OCTOBER 28, 2013

FORBES

FACT & COMMENT — STEVE FORBES

An

dr

ew

HA

rr

er

/Blo

om

Be

rg

Vice Chairwoman of the Federal reserve

Janet Yellen, who likes an ultraweak dollar, is

favored to succeed Ben Bernanke.

and yen, as well as gold, make up the

rest of a country’s reserves). Done

right, this last step will decisively end

any assault on the integrity of the

currency. However, where a central

bank too often falters is in reducing

the size of its monetary base, which

is made up of the currency in circula-

tion and domestic bank reserves.

Here’s what happens. A central

bank buys its currency with dollars—

which is good—but it then promptly

puts that money back into its domes-

tic economy by, most likely, buying its

government debt. What the central

bank took away with one hand has

been given back with the other; the

monetary base remains unchanged.

All that’s happened is that the central

bank has reduced its reserves—and

done it for nothing. Economists call

the process “sterilization.”

This self-defeating exercise hap-

pens time and time again. Look at

Thailand in 1997, when the economic

crisis in Asia began. Bangkok had

ample reserves, almost $40 billion. At

the time its currency, the baht, was

fxed to the dollar at roughly 25 bahts

to the dollar. When the baht began to

weaken, the Bank of Thailand should

have reduced its monetary base by

using dollars to buy bahts in foreign

exchange markets. Thailand had

enough dollars to buy its entire mon-

etary base twice over. Instead it en-

gaged in sterilization. It ran down its

reserves and then let the baht “foat,”

which sent it into a free fall.

One country that didn’t fall into

the sterilization trap during the

fnancial crisis of 2008–09 was Rus-

sia. When the ruble came under

assault the Bank of Russia initially

responded the conventional steriliza-

tion way. Then in early 2009, after an

op-ed piece by monetary expert and

FORBES columnist Nathan Lewis

appeared in Pravda, Russia reversed

course, reducing its monetary base.

Result: The ruble strengthened, the

speculators were routed and the crisis

ended with the ruble triumphant. F

RealBusiness.com

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$60,883 SALARY/EMPLOYEE

2.046 MIL EMPLOYEES

2.097 M

$60,724

$65,608

2.150 M

1.41

ROAA%

1.33

1.3

2003 2004 2005 2006

2

4

6

8

10

$12 Trillion

20

40

60

80

100%

Loans (left scale)

Deposits (left scale)

Loans/deposits (right scale)

SNL U.S. BANK ANDTHRIFT INDEXTOTAL RETURNGROWTH OF LOANS

AND DEPOSITS INU.S. BANKS AND THRIFTS

20032003 ’05’05 ’07’07 ’09 ’11 ’13 ’09 ’11 ’13

200

400

600

800

1,000

1,200%

20 | FORBES OCTOBER 28, 2013

LEADERBOARDKEEPING SCORE ON WEALTH & POWER

THE STATE

OF BANKINGTHANKS TO the government, U.S. banks are

back on a solid footing. Return-on-average-

assets, shown in the center of each bubble,

and stock prices have rebounded impressively

since the depth of the fi nancial crisis. But tril-

lions in stimulus spending has done little to

revive banks’ core mission—lending money—

with the ratio of loans to deposits still falling.

The only thing that has consistently grown, in

good times and bad, is bankers’ pay, represent-

ed by the ever-expanding colored circles.

INDUSTRY ATLAS

SOURCE: SNL FINANCIAL.

1.5

1.2

0.9

0.6

0.3

0

$68,987

$72,282

$80,971

$84,217

$87,893

$91,694

$72,434

$79,767

COMPENSATION PERBANK EMPLOYEE

+90K

2.205 M

2.213 M

2.150 M

2.089 M

2.108 M

2.061 M

1.37

.94

.13

-.10

.65

.91

1.02

1.11

2.108 M

2.097 M

2007 2008

2009

2010 2011 2012 2013

80–90K

70–80K

60–70K

OCTOBER 28, 2013 FORBES | 21

RealBusiness.com

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october 28, 2013 ForbeS | 23

LEADERBOARD

Mark Zuckerberg

+$4.7 billion

Net worth:

$23.5 billioN

As wall Street’s infatuation

with Facebook continues

and the stock keeps rising,

Zuckerberg makes his

fourth straight appearance

as a big gainer.

Phil Knight

+$1.3 billion

Net worth:

$17.7 billioN

Nike’s stock soars after

the company posts

impressive quarterly

earnings and is made

part of the Dow Jones

industrial average.

Jef Bezos

+$2.6 billion

Net worth:

$29.8 billioN

Amazon trades at an

alltime high as it introduces

three new Kindle Fire

models, while its founder

ofcially takes control of

the Washington Post.

Micky Arison

–$560 million

Net worth:

$5.3 billioN

his holdings in Carnival,

the world’s largest cruise

company, tank with lower

quarterly earnings and

weak bookings—see “that

Sinking Feeling,” p. 102.

Richard Hayne

–$180 million

Net worth:

$1.6 billioN

Urban outftters, which

he cofounded in 1970,

falls 10% in a day after the

company reports weak

sales and fails to meet

analysts’ forecasts.

Ty Warner

Guilty

Net worth:

$2.7 billioN

the beanie babies founder

faces up to fve years in

prison after pleading guilty

to federal tax evasion for

hiding millions of dollars in

a Swiss bank account.

WINNERS

LOSERS

SCoRECARD

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SourceS: InteractIve Data vIa FactSet reSearch SyStemS; ForbeS.

$53 MILLION The civil penalty Ty Warner must pay

in his federal tax-evasion case.

nEW billionAiRE

INSYS’ JOHN KAPOORstock of his pharmaceutical company,

Insys Therapeutics, has quintupled since

its May IPO, catapulting him to billionaire-

ship at 70. Insys produces drugs to alleviate

cancer patients’ symptoms; he’s its founder

and executive chairman, and his stake is

now worth more than $600 million. He also

owns more than $400 million of drugmaker

Akorn. The frst member of his family to go

to college, he arrived in America from India

in 1964. His career took of when he joined

LyphoMed, a struggling pharma company, in

1978, worked his way up to general manager,

turned the business around and sold his

share of it in 1990 to net $100 million. He has

been a serial entrepreneur ever since. “This

is the country you can do it in. Nowhere

else,” he tells FORBES.

Most executives (76%) also gave their company high marks for

acknowledging the importance of aligning risk management

with its growth strategy. Almost as many (68%) said that they

believe their company was indeed aligning the two. The con-

struction industry had the smallest gap between talking align-

ment and walking it: 72% of its executives said their company

prized the alignment of strategy and risk management, and

70% said it did, in fact, align the two.

Executives weren’t that confdent of how ready their com-

pany was to meet catastrophic emergencies. For example, only

29% thought it was well or extremely well prepared for cyber

terrorism of the kind that has recently played havoc with the

computer systems of several large corporations.

The survey illustrated

a puzzling conundrum

when executives were

asked to rate themselves—

the percentage of those

who said they were even aware of the risks their company faced

was relatively low across all four industries. Those in real estate

seemed to be the best informed, but even then only 65% of them

claimed to be risk-aware. The least risk-aware were healthcare

executives, with only 41% describing themselves as aware.

On the whole, respondents seemed to underestimate a num-

ber of particular risks, including hostile social media. An ether

onslaught by a disgruntled customer that goes viral can leave a

company’s reputation badly battered.

The executives were better able to get their arms around

more easily defned emergencies, like food damage, and

showed some confdence that their company had plans in place

to recover. For example, 49% said they were very or totally

satisfed that their company had planned to build or replace

damaged infrastructure, and 43% felt the same about their com-

pany’s plans to build or replace damaged homes, commercial

property or factories. Some 47% said they were very or totally

satisfed that their company had planned how to fnance any

of the above. Almost as many (46%) thought there’d be no or

little signifcant delay if an emergency forced their company to

relocate ofces or manufacturing facilities within the U.S., and

38% thought that would be the case abroad. Those percentages,

of course, still show that more than half of those surveyed have

reservations about their company’s preparedness.

Conundrum: What exeCutives

think of their Company’s risk

management skills

Zurich neither endorses nor rejects the recommendations of the discussion presented. Further, the comments contained in this briefing are for general distribution and

cannot apply to any single set of specific circumstances. If you have a legal issue to which you believe this article relates, we urge you to consult your own legal counsel.

*The complete study is available at www.forbes.com/forbesinsights/Zurich_Risk

At least half of the more than 400 executives in a Forbes Insights/Zurich in North

America survey rated their company’s overall risk-management skills as very

good or outstanding in a number of areas. Among them: how it managed fnancial

risk, corporate responsibility/sustainability risk, strategic risk, operational risk,

regulatory/compliance risk and reputational risk. The respondents represented

four industries—banking and fnancial services, construction, healthcare and real

estate—and worked for companies with annual revenues between $25 million

and $750 million.

Executives who were aware of the risks

in their company’s growth strategy

Banking/financial services

Construction

Healthcare

Real estate

59%

57%

42%

60%

LEADERBOARD

26 | FORBES OCTOBER 28, 2013

$18.3 BILLIONDiference in FordÕs net income between 2006,

when Alan Mulally was hired (–$12.6 billion),

and 2012 ($5.7 billion).  

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forbes makeover

fOrd’s aLaN muLaLLyOur fashion pros trade in the auto exec’s look for a newer model.

JOsEPh AbbOuD: the award-winning designer and

entrepreneur got his start at louis boston before serving

as director of menswear design for ralph lauren.

he launched his namesake brand in 1987 and is currently

the chief creative director for men’s wearhouse.

KAthy iRElAnD: the supermodel turned supermogul

is the chief executive and chief designer of kathy ireland

worldwide, a design and marketing frm she launched

in 1993. Women’s Wear Daily has named her one of the

50 most infuential people in fashion.

thE VERDiCt

JA: driving people to a new

product, you need to look a little

more forward. this does that.

Ki: now he’s the epitome of power

dressing, rather than letting an

overpowering outft wear him.

Before After

tiE

Ki: the four-in-hand knot is too

tight for this wide-collared shirt.

shOEs

Ki: the wingtip oxfords enrich the

overall statement, and their slight

heel improves his posture.

tiE

Ki: the wider windsor knot flls the

space between his collars and gives

him a more relaxed, confdent look.

PAnts

JA: much too baggy and much too

full. they’re just too 1980s.

shiRt

JA: the deep blue is much better

than the white, with his complexion.

suit

JA: more of a custom look, with its

slanted pocket and the coat a little

shorter. the clothes are much better

proportioned to his body.

the “aFter” image iS a Simulated image oF what alan mulally would look like iF he had actually ParticiPated in the ForbeS makeover, which he did not. nor doeS he endorSe any ProductS Pictured here.

trendline

Make no bones about it: The fewer killings a

Stephen King movie has, the better it grosses. The one

big exception: Carrie (1976), a good sign for the remake

creeping into theaters this month.

cash aNd carrIe

JACKEt

JA: the navy and the brass buttons

feel a little nautical or military. he’s

not Javert in Les Mis.

Ki: the ft isn’t worthy of him. it’s

lumpy, frumpy and bumpy, more an

edsel than a mustang.

0

50

100

150

200

1 10 100 1,000+

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B BB B

BBB

Body count1ToTal domesTic box office

adjusTed for inflaTion.

Bo

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ice

($

Mil

)1

thE gREEn MilE

Killed: Prison inmates

thE shining

Killed: Father, head chef

MisERy

Killed: Sherif,

crazed fan

PEt sEMAtARy

Killed: Son, mother,

father, friendly

neighbor, cat

CARRiE

Killed: Mother,

daughter, most of

class at prom

FiREstARtER

Killed: Father,

mother, entire

secret army base

ChilDREn OF

thE CORn

Killed: Every

adult in a

Nebraska town

thE Mist

Killed: Most of

a Maine town

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The new Premium Economy Class

LEADERBOARD

28 | FORBES OctOBER 28, 2013

$50,597Amount raised via CrowdTilt and Facebook to replace

the damaged boat Dzhokhar Tsarnaev was found in.

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penalty box ask 50 billionaires

SafetyfirSt?How manybodyguards does your family employ?

1

15.9%

Zero

61.4%

More than 5

11.4%

2 to 5

11.4%

responses to an anonyMous poll oF 50 MeMBers oF

the ForBes WorlD’s Billionaires list.

James Beshara and Khaled Hussein CroWDtilt

the two founded their y combinator-backed startup last year. in august they updated

its crowdhoster platform—the “Wordpress of crowdfunding”—with a mobile app that

provides the frst tool for fnding investors on the go. they’ve raised $14 million from

backers including sean parker, and charge a 2.5% fee on every investment.

Stephan Vermut prosper

chris larsen cofounded prosper in 2005 as the frst peer-to-peer lending marketplace.

Vermut, founder of Merlin securities, took over as ceo this year. the company has raised

$126 million ($25 million in september alone) from sequoia capital, accel partners and

Benchmark capital. it facilitates personal loans of from $2,000 to $35,000.

Naval Ravikant anGellist

in september ravikant’s angellist, a matchmaking site for entrepreneurs and would-be

investors, raised $24 million and launched angellist syndicates, where accredited investors

can create and lead fundraising rounds for individual startups. 4-hour guru tim Ferriss

raised $250,000 in under an hour to invest in startup shyp. angellist takes a cut.

online money men

Up-anD-CoMers

As the Jobs Act opens up crowdfunding, these entrepreneurs stand ready with fast-growing networks for raising cash.

everything’S juSt fine

$11.82 bil bank of america, 2012 (14% of revenue) “… extends our ongoing commitment to help

homeowners who are struggling to make their mortgage payments.”

$5.35 bil Wells fargo, 2012 (6.2% of revenue) “Wells Fargo’s adherence to responsible lending and

servicing principles has resulted in delinquency and foreclosure rates below industry averages.”

$5.29 bil Jpmorgan, 2012 (5.5% of revenue) “… will help keep customers in their homes, forestall

foreclosures and stabilize communities around the country.”

$2.9 bil bank of america, 2013 (3.4% of 2012 revenue) “… a signifcant step in resolving our

remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses …”

$2.2 bil citigroup, 2012 (3.1% of 2012 revenue) “… citi has worked hard to help families avoid foreclosure

and stay in their homes [and] self-identifed opportunities to improve its foreclosure processes ...”

$1.97 bil Wells fargo, 2013 (2.3% of 2012 revenue) “… allows us to move forward and continue our

focus on doing all we can do to provide relief to our customers and restore stability to housing markets …”

$1.95 bil Jpmorgan, 2013 (2% of 2012 revenue) “We worked very hard … fulflling our obligations under

the independent Foreclosure review and are pleased to have it now behind us.”

If the JustIce Department succeeds in getting JPMorgan to pay $11 billion for

alleged misconduct in the housing market collapse, it will be just one of eight billion-

dollar mortgage-related settlements regulators have struck with the four biggest U.S.

banks in the past two years. The others all involved charges of widespread mortgage

and foreclosure abuses or robo-signing. Of course, the banks portrayed them as alto-

gether great news.

© 2013 Mercedes-Benz USA, LLC

*Excludes all options, taxes, title, registration, transportation charge and dealer prep fee.

1 No system, regardless of how advanced, can overcome the laws of physics or correct careless driving. Please always wear your seat belt. Performance is limited by available traction, which snow, ice and other conditions can affect. Always drive carefully, consistent with conditions. Best performance in snow is obtained with winter tires. 2 Lane Keeping Assist may be insufficient to alert a fatigued or distracted driver of lane drift and cannot be relied on to avoid an accident or serious injury. 3 Blind Spot Assist may not be sufficient to avoid all accidents involving vehicles in your blind spot and does not estimate the speed of approaching vehicles. It should not be used as a sole substitute for driver awareness and checking of surrounding traffic conditions. 4 COLLISION PREVENTION ASSIST may not be sufficient to avoid an accident. It does not react to certain stationary objects, nor recognize or predict the curvature and/or lane layout of the road or every movement of vehicles ahead. It is the driver’s responsibility at all times to be attentive to traffic and road conditions, and to provide the steering, braking and other driving inputs necessary to retain control of the vehicle. Drivers are cautioned not to wait for the system’s alerts before braking, as that may not afford sufficient time and distance to brake safely. Options shown. Not all options are available in the U.S.

Ever since we invented the van, Mercedes-Benz has been the leader in safety innovations

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Safety should never be a luxury.

“Staying in front of food industry

trends is a constant challenge,” says

Susan Santiago, vice president of

food and beverage for Hyatt Hotels

& Resor ts. “We have to discern

which trends represent substantive

changes, so we connected with our

guests to learn what’s really important

to them and what wi l l make a

difference in their travel experience.”

N e a r l y a y e a r ’s w o r t h o f

conve r sa t ions w i th cus tomer s

shaped Hyat t ’s new phi losophy,

which focuses on healthy people,

healthy communities and a healthy

planet: Food. Thoughtfully Sourced,

Careful ly Served. “We asked al l

of our chefs to adopt the new

philosophy, and they have embraced

it,” says Santiago.

Hyat t ’s hote l res tau rant and

banquet service menus emphasize

portion control, calorie counts, food

nutrition and natural ingredients, all

based directly on guest feedback.

Company-wide, Hyatt has mandated

that at least five ingredients on each

menu ref lect local vendors and

ingredients, and Santiago’s team

continues to enlist vendors who use

sustainable practices. Hyatt chefs

and their associates even take field

tr ips to local farms to gain f irst-

hand knowledge of the locally and

susta inably sourced ingredients

featured on their menus.

T he expe c ta t i ons o f wome n

travelers were a top consideration

for Hyat t ’s food and beverage

innovation. “We see more female

travelers staying with us, and women

are more apt to be vocal about their

needs, especially around dining,”

says Santiago. “They told us they

want healthy food available while

they’re on the road.”

In response to customer feedback,

Hyatt now has a rotation of vegetarian

i tems on i t s banque t menus .

Hyatt’s new offerings in-room and

in its restaurants include a “perfectly

portioned” menu with items of 500

calories or less and a “create your

own” menu option with choices of

d i f fe rent prote ins and cook ing

techniques. “We launched these

menus based on the feedback we

got f rom women, but an equal

number of men and women order from

them,” Santiago says. “Since guests

do not have to make a special request

or feel out of place when they order

a meal, it makes for a better overall

travel experience.”

Hyatt also reworked its children’s

menu with input from a team of young

people led by 12-year-old Arizona

chef Haile Thomas, host of the online

show “Kids Can Cook.” Fried chicken

nuggets and mac and cheese are

absent from the For Kids, By Kids

menu, replaced by mahi-mahi and

an all-natural steak—which ended

up as the summer’s number-one

seller among kids. “I was surprised

at how discerning and sophisticated

our young guests’ palates are,” says

Santiago. “The fact that they wanted

tofu on the menu just blew me away.

“The changes we have made are

examples of the lengths that we go

to on the food and beverage side

for all our guests,” says Santiago.

“When we set out to serve up a more

satisfying experience, we wanted it

to be exactly what our customers

are asking us to do.”

Promotion

Innovation InsightsCustomer Conversations Provide Food for Thought

When Hyatt invited guests to the table to share their

expectations about hotel restaurant and banquet food,

some surprising and healthy ideas emerged.

“When we set out to serve up a more satisfying

experience, we wanted it to be exactly what our

customers are asking us to do.”

—Susan Santiago, Vice President of Food & Beverage, Hyatt Hotels & Resorts

Haile’s Salmon Teriyaki on

the For Kids, By Kids menu

FUNNY HOW A GUEST

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34 | FORBES OCTOBER 28, 2013

thought leaders

Paul JohNsoN — CurreNt eVeNts

No loNg-term solutioN to

the problem of international terror-

ism is likely until Russia and China

join the U.S. and other Western pow-

ers in devising one.

China is not unwilling. Its leaders

have many powerful motives to come

in from the cold and become respect-

able members of society. What’s

required is time, patience and the kind

of diplomatic intelligence once so plen-

tifully supplied by Henry Kissinger.

The difculty is Russia and, in par-

ticular, its entrenched leader, Vladimir

Putin. He rose through the ranks of the

KGB and since worming his way into

power has become the most difcult,

dangerous and unassailable master

of Russia since Joseph Stalin. Is he as

evil? Many think so. Other things being

equal, he’s a natural ally of terrorism.

Putin’s character is seen in the way

he treats those whom he regards as

personal enemies, including two young

women, members of the feminist punk

rock protest group Pussy Riot, who

were sentenced to penal servitude for

participating in a “punk prayer” demon-

stration at a Moscow cathedral in 2012.

The prayer included a 30-second ap-

peal to the Virgin Mary to drive Putin

from power—the kind of outrageous

gesture Westerners would dismiss as

mere childishness. But for this ofense

the women were each sentenced to

two-year terms in prison colonies no-

torious for their appalling conditions.

One of the two, Nadezhda Tolo-

konnikova, contrived to get a message

outside. In it she says she and other in-

mates work 16 to 17 hours a day sewing

police uniforms and are allowed only

4 hours of sleep a night and one day

of every six weeks. “Your hands are

pierced with needle marks,” she writes,

“and covered in scratches. But you keep

sewing [because] if you fail to deliver

your whole unit will be punished.”

Beatings are common, and last year

one woman “was beaten to death.”

She goes on to say that disobedience

is punished by being sent outside into

the intense cold. One woman was kept

outside for an entire day and had such

bad frostbite that “they had to ampu-

tate her fngers and one of her feet.”

Ms. Tolokonnikova went on a nine-

day hunger strike Sept. 23 to protest

these conditions. She ended it two

days after being taken to a prison hos-

pital. Putin takes a close professional

interest in Russia’s penal system and

is fully aware of what’s happening to

these women. An earlier hunger strike

by the other prisoner, Maria Alyokh-

ina, ended when concessions were

made, quite possibly because Putin’s

advisors persuaded him to intervene.

The fact that Putin isn’t totally

beyond the reach of outside infuence

is something on which the West can

build. He has a weakness—money—

and by demanding and getting payofs

he is believed to have become one of

the richest men on Earth. The more

Putin can ingratiate himself with rep-

utable members of the international

elite, the more he can live the life of an

“ordinary” billionaire. But to succeed

in this he needs a change in friends.

Hitherto, Putin hasn’t found being

the chief upholder of Syrian dictator

Bashar al-Assad too restrictive. But

Assad’s identifcation with the use of

chemical weapons has now made him

an outcast. Putin’s shift regarding these

weapons indicates he feels his own po-

sition is in need of moral strengthening.

EvEnts can makE thE man

There are signs that world opinion is

changing fundamentally over the is-

sues raised by terrorism and its links

to Islam. The recent attack at a Nairo-

bi shopping mall—itself an ofshoot of

piracy in Somalia and regional eforts

to deal with it—has introduced a new

phase. The question is whether Wash-

ington will be able to take advantage

of these changes to create the global

front required to overcome terrorism.

A great deal depends on Barack

Obama. Taking on a devious and evil-

minded operator like Putin requires a

rare combination of subtlety and per-

sonal strength. However, events can

help Presidents grow. The 9/11 terrorist

attacks made George W. Bush a difer-

ent man, and he fnished his two terms

as a formidable fgure. It may be that

Syria’s use of chemical weapons and the

outrages in Nairobi will have a stimulat-

ing efect on Obama’s presidency, giving

him the decisive impetus he’ll need in

a personal confrontation with Putin

that now seems increasingly likely.

Obama versus putin

can obama muster the right stuff?

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36 | FORBES OCTOBER 28, 2013

thought leaders

NathaN lewis — CaPital Flows

For 182 years, from 1789 to

1971, the United States embraced

the principle of stable money—in

practice, a gold standard system.

During that time it rose from a

not-very-promising experiment in

government to a global superpow-

er. The U.S. was the most success-

ful country of the 19th and 20th

centuries.

The last two decades of the gold

standard era, the 1950s and 1960s,

were especially prosperous. The

middle class achieved an unprec-

edented level of material afflu-

ence. Over the 42 years leading to

the end of the Bretton Woods gold

standard system in 1971—even be-

ginning in the rather inauspicious

year of 1929—per capita GDP, as

measured in ounces of gold, rose

by 223%.

What about the 42 years since

1971? In 2012 per capita GDP, as

measured in ounces of gold (the tra-

ditional way of measuring monetary

value for most of U.S. history), had

fallen by 78%.

Even the U.S. government’s own

rosy-hued statistics tell a similar

story. The median male full-time

income, as adjusted by the ofcial

Consumer Price Index, has been

stagnant since 1972. It was $50,336

in 2011. In 1972 it was $50,665, mea-

sured in 2011 dollars.

During that time the CPI

underwent numerous alterations

in the way it was constructed, each

time making the result look bet-

ter. The economist John Williams

has recalculated the CPI without

any changes in methodology—an

apples-to-apples comparison.

Williams’ statistics show a decline

in the real median wage by 71%

between 1971 and 2011.

What about the pre-1914 era?

GDP statistics from before 1940 are

highly dubious, so let’s take another

measure of prosperity: industrial

production. For a 42-year period,

1870–1912, industrial production

grew by 682%.

During the 42 years of foating

currencies since 1971, industrial

production has grown by 159%.

Big diference.

Even that mediocre result refects

some good times between 1982 and

2000, when U.S. monetary policy

most resembled a stable money

approach. If you take the times

when the Fed most enthusiastically

embraced “easy money,” it doesn’t

look so good. From 1970 to 1982 U.S.

industrial production rose a meager

21%. Yes, 21% in 12 years.

From 2000 to the present it rose

by 7%. Not 7% per year—7% total.

From 1870 to 1913 industrial

production rose by a compound

annual growth rate of 5%. During

the prosperous 1950s and 1960s it

grew by 4.8%.

By this measure the gold stan-

dard years before 1914 were even

more prosperous than the 1950s

and 1960s.

On-the-ground data tell a similar

story. Between 1870 and 1912 an

index of crop production rose 247%.

The acreage planted with the ten

major crops rose 160%.

This was the great era of rail-

road building. With little more than

physical labor and hand tools, the

U.S. added an average of 4,800 miles

of railroad track every year during

this period.

Yes, nearly 5,000 miles of new

railroad, every year, for more than

40 years. In the peak year of 1887

more than 13,000 miles of new rail-

road was opened.

Today we believe that “easy

money” will solve all our problems.

There is little evidence that this will

work. Our own experience over the

past two generations shows that it

will not.

Eventually people will figure

this out. For nearly two centuries

the United States rose to global

superiority with a strategy of

stable money. Perhaps the U.S. will

do so again.

If not, the secret will no doubt be

discovered by some other govern-

ment, which will put it to use and

get the same result.

A StAble DollAr DeliverS

Economic StimuluS

NathaN Lewis’ laTEST BOOk, Gold: the Monetary Polaris (CanyOn maplE puBliShing), waS puBliShEd in auguST 2013.

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roSE to global

SupEriority with

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40 | FORBES OCTOBER 28, 2013

thought leaders

rICh Karlgaard — INNoVatIoN rules

coach Knight didn’t use the words

“fouled up,” though these were close.

Knight’s infamous profanity would

have embarrassed a drill sergeant.

“Just because Indiana University

Coach Bobby Knight, that mellow-

ing maniac, has not punched a player,

strangled a referee, pistol-whipped

a writer or howled at the moon in

the last few minutes, is no reason to

ignore his team,” Sports Illustrated’s

Curry Kirkpatrick wrote in a 1975

story. Knight confded to Kirkpatrick

that he’d tried his best to put a lid on

his profanity—for a while—but doing

so wasn’t worth the efort. “I’m not get-

ting any more bleeping mellow, you son

of a bleep-bleep,” he fnally conceded.

“I’m only getting bleeping smarter.”

Of course, he didn’t say “bleep.”

Along with Knight’s players, as-

sistant coaches and trainers, there is

only one other person—a female stu-

dent—who saw it all. She was studying

Knight, for good and bad, at every In-

diana University home game and every

Hoosier home practice during those

greatest of college basketball seasons.

Her name is Tara VanDerveer. Her

notes about Knight’s practices were

copious. Soon after her studies VanDer-

veer became a coach herself, and within

ten years embarked on one of the most

successful coaching careers in the his-

tory of NCAA women’s basketball.

secret: Hang around

In November VanDerveer begins her

29th season as Stanford University’s

women’s basketball coach. At Stan-

ford she has won two NCAA titles.

Her lifetime winning percentage is

82%. She also coached the U.S. wom-

en’s team to an Olympic gold medal

in 1996. She is, by any standard, one

of the best CEOs you will fnd.

I visited VanDerveer recently to

learn what secrets, if any, had pro-

pelled her to the top of her profession.

Her answer was disarmingly simple:

She hung around. At Indiana she

hung around and watched coach

Knight. When starting her career at

Stanford, she hung around a former

college and Olympic team men’s

coach named Pete Newell, thought to

be the best centers’ coach in basket-

ball. The two spent hours working

and talking, with VanDerveer taking

notes. Many lunches later she had a

fle cabinet full of notes she’d taken

from her meetings with Newell.

In the 1990s, when football legend

Bill Walsh returned to coach at Stan-

ford, VanDerveer always sat next to him

during athletic department meetings.

Learn from the best. That’s

VanDerveer’s simple secret. But don’t

get so close you become a nuisance.

“During Indiana practices in 1975,”

she recalls, “I always sat a few rows

up. When coach Knight lost it, I

didn’t want to be in his eyesight.”

Tara’s Lesson:

Smart leaderS copy

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F

In 2012 CBS SportS ranked the top

college basketball teams of all time.

Heading the list, ahead of the leg-

endary 1968 and 1972 UCLA Bruins

and the 1996 University of Kentucky

Wildcats, were the 1975–76 Indiana

University Hoosiers. Coached by Bob

Knight, the Hoosiers went 32-0 and

crushed the University of Michigan in

the 1976 NCAA championship game.

Many insiders, including those win-

ning Hoosier players, believe Indiana’s

1974–75 team was even better. That

year the Hoosiers went 31-1. They

lost an NCAA tournament regional-

fnal game while playing largely

without their star player, Scott May.

He had broken his arm and could

play only seven minutes.

By the mid-1970s—and after the

retirement of UCLA’s John Wooden

following the 1975 season—Bob

Knight had become the best-known

active college basketball coach in the

country. Knight was famous for his

stern, winning ways. He commanded

with an iron discipline, tolerating no

dissent. Players were not allowed to

speak during practice. His condition-

ing workouts were legendary. “Our

freshmen couldn’t believe it,” said a

senior center, describing the intensity.

“When we began last year, I almost

went into shock.” And if a player

skipped class or got a bad grade

Knight made him run up and down

the stairs of Indiana University’s As-

sembly Hall arena. Not surprisingly,

there were no repeat ofenders.

Knight insisted on his players

going to class and graduating. “If a

kid comes to Indiana and all we teach

him is basketball, then we’ve really

fouled up,” Knight told a sportswriter

in 1973. Fouled up? It’s almost certain

Memory metal

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that always

returns to its

original

shape.

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lexo

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ufac

ture

d an

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strib

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ely

by M

arch

on E

yewe

ar, I

nc. S

tyle

: Ale

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42 | FORBES OCTOBER 28, 2013

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than 600,000 homes in 28 states, and its

stock is worth some $6.5 billion. Bill’s father

owns Boca Raton-based Mark Timothy,

which builds $50 million mansions.

But here in the Brightmoor section of

Detroit the 25-year-old family scion isn’t

building houses. He’s razing them, clearing

out blighted neighborhoods with an efcien-

cy that has astonished this bankrupt city.

“Y’all have done an awesome job!” resi-

dent Judy Jones calls out to Pulte, now a fa-

miliar face in the neighborhood. She used to

live in Brightmoor, and her grown children

still do. “People thought this was a dumping

ground. They didn’t care. They gave up,” she

Bill Pulte bounded into the middle

of the street, grinning as he sur-

veyed the unfnished neighbor-

hood around him. Like so many

subdivisions built over the years

by Pulte Group, the 500-lot area was thrum-

ming with contractors, trucks and earth-

moving machines. If there’s one thing Pulte

Group has mastered over 60 years, it’s build-

ing homes efciently.

Indeed, the Pulte name has been synony-

mous with home building since 1950, when

Bill’s grandfather, also named Bill, construct-

ed his frst bungalow on Detroit’s east side.

Since then Pulte Group has delivered more

urban renewal

Detroit’s Happy Home Wrecker

By Joann Muller

The Pulte family made billions building houses across the U.S. Now Bill Pulte is tearing them down to save the nation’s most blighted city .

urban renewer: Pulte

is restoring Detroit

neighborhoods by

demolishing their

abandoned homes with

industrial efciency.

STraTeGIeS

western University and running an invest-

ment group called Pulte Capital Partners,

didn’t give up. He eventually got his grand-

father on board, arguing that the city’s crisis

and changing political climate made it the

right time to try something big. He then ap-

proached Bing, who jumped at the idea. Pulte

created a nonprof t called the Detroit Blight

Authority, which raised about $750,000, in-

cluding $100,000 from the Pulte family.

Using the same economies of scale that

apply when erecting houses, Pulte f gures, the

Blight Authority can demolish homes for less

than $5,000 each—even less if Detroit would

reform its cumbersome regulations. Instead

of hiring a single contractor to tear down one

house, the Blight Authority brings in an army

of specialized laborers and equipment to rid

an entire neighborhood of its empty houses,

haul away the debris, clear out overgrown

brush and regrade the property.

In its f rst project the Blight Authori-

ty cleared ten blocks in ten days, at a cost of

$200,000. Eight structures were demolished,

including two churches. Prostitution and drug

activity in the area have vanished since. The

second project, in Brightmoor, is much larg-

er, involving over 500 lots. Workers spent a

couple of weeks, and about $500,000, clear-

ing the land, uncovering 300 tires, a couple of

boats and the body of a 22-year-old woman.

But demolition of blighted homes in Bright-

moor will have to wait until more funding

arrives. The U.S. Treasury has approved $100

million for blight removal in Michigan under

the Troubled Asset Relief Pro-

gram’s Hardest Hit Fund, de-

signed to help states hit hardest

by the housing crisis. The city of De-

troit will get half the money, and Pulte

hopes the lion’s share will go to his orga-

nization for mass demolition. “We have a

proven model,” he says.

Detroit Emergency Manager Kevyn Orr

has proposed spending $500 million by 2020

to conquer the city’s blight problem. But that

expenditure, like anything the city does now,

has to go before a bankruptcy judge. And that

means delays.

Pulte, meanwhile, is trying to remain patient.

“I think we’re on the precipice of something re-

ally big,” he says. “We’ve got the knowledge. We

just need the government to give us the clear-

ance, and we can take it everywhere.”

says. Just navigating around the mounds of

trash and overgrown brush on her street was

like four-wheeling through the jungle. Now

the area is transformed into green space.

“That’s the kind of entrepreneurial spirit we

need,” says Michigan Governor Rick Snyder,

heavily involved in Detroit’s aff airs since ap-

pointing an emergency manager last spring.

Yet there’s something bittersweet about

the Pulte family’s eff ort to revitalize neighbor-

hoods in Detroit, which has lost a quarter of its

population in the past decade and is forecast to

keep shrinking until 2040. In May Pulte Group

announced it, too, is leaving. The company, in

which the family is no longer involved (other

than as a 10% shareholder), is moving its head-

quarters from Bloomf eld Hills, near Detroit,

to Atlanta, citing better opportunities. “Just

because your name’s on the building doesn’t

mean you have control over anything,” says

Pulte, who said his family had no prior knowl-

edge of the move and was disappointed by it.

Still, he has plenty to distract him. There

are at least 78,000 abandoned and blighted

structures in Detroit, nearly half of which are

considered “dangerous” because of f re dam-

age or criminal activity. Another 66,000 lots

are vacant or strewn with trash.

Detroit has sporadically tried, but failed,

to keep up with the problem. In 2010 May-

or Dave Bing launched a program to demol-

ish 10,000 vacant structures in three years.

So far about 5,000 have been torn down, one

at a time, at a cost of some $72 million. But

the city says it is still $40 million short of the

money needed to f nish the job.

Pulte got interested after reading a news-

paper article about how children were afraid

to walk to school in their blighted neighbor-

hoods. He approached his grandfather, now

retired in Florida, about applying his exper-

tise in building homes to demolishing them

instead. “My granddad said, ‘I wouldn’t touch

that with a 10-foot pole!’ ”

The red tape and expense are enough to

discourage anyone. First, you must prove

ownership or that the owner has agreed to

the demolition. Hiring a contractor is $5,000.

Surveying and asbestos abatement is another

$1,500. Then you must show documentation

that utilities are disconnected—another $1,300.

Administrative costs? $750. Add it up and you’re

talking $8,500 to $10,000 to tear down a house.

But Pulte, just a few years out of North-

44 | FORBES OCTOBER 28, 2013

urban renewalSTraTeGIeS

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STRATEGIES

AVIK Roy — ThE ApoThEcARy

President Obama’s signature

health law achieved a major mile-

stone on Oct. 1, when its subsidized

insurance exchanges went online. But

ObamaCare is already reshaping the

health insurance landscape. If you

want to track how well the law is work-

ing, keep an eye on three aspects of it:

is it driving up the cost of insur-

ance? According to the Congressional

Budget Ofce, 25 million Americans

today shop for health coverage on their

own. That fgure could hit 46 million

by 2017, as ObamaCare’s exchanges get

under way.

But a critical problem is emerging

with the exchanges. The health law

imposes a battery of new regulations,

mandates, taxes and fees upon the

individual-insurance market. According

to research conducted by my colleagues

and me at the Manhattan Institute and

published at Forbes.com, many will see

their rates double or even triple under

the law. Healthier and younger indi-

viduals will face the steepest hikes.

The White House argues that subsi-

dies will protect most people from these

rate increases. But our interactive map

(Google “What will ObamaCare cost

you”) shows that, on average, one’s in-

come must be 40% below the median in

order to save money on premiums.

In addition, many of the law’s taxes

and regulations apply to people with

employer-sponsored health insurance.

In June Delta Air Lines wrote a letter to

the Obama Administration complaining

that its health care costs would increase

by nearly $100 million in 2014 when

adjusted for infation. In September the

AFL-CIO passed a resolution grous-

ing that the law “will drive the costs of

… union administered plans, and other

plans that cover unionized workers, to

unsupportable levels.”

are young and healthy people

signing up? A key contention of the

Obama Administration is that, despite

the fact that health insurance will cost

more under the law, the quality of that

insurance is higher because it contains

consumer protections, such as ensur-

ing that no one can be denied coverage

because of a preexisting condition.

But if you’re healthy and/or young

today, you don’t have a preexisting

condition. So doubling the cost of your

insurance might not seem like such a

great deal. And the success of the ex-

changes depends on the willingness of

these healthier individuals to pay more

for coverage in order to reduce the costs

of other people who are sick.

We’ll know how this has all played

out by the end of March, when the

exchanges’ initial open enrollment

period ends. The CBO has predicted

that 7 million Americans will sign up

for coverage on the exchanges by then.

If the actual fgure ends up being lower,

or comprises a sicker population, ex-

change premiums will increase further,

making it even harder for some healthy

individuals to gain coverage.

are employers dropping coverage

and moving workers into the aCa ex-

changes? In 2011 Shubham Singhal and

his colleagues at McKinsey published a

survey indicating that “30% of employ-

ers will defnitely or probably stop

ofering [employer-sponsored insur-

ance] in the years after 2014,” because

the subsidized exchanges ofer workers

and employers a better option.

Large employers don’t appear to be

dropping coverage. Instead companies

like Walgreen are using outside vendors

to set up private insurance exchanges,

in which workers are given a defned

contribution—say, $5,000 per year—to

shop for coverage from a number of

company-sponsored options.

What we do know is that it ap-

pears small employers with close to 50

full-time employees are shifting many

of their workers to part-time status in

order to avoid being forced by Obama-

Care to pay for their health coverage.

In the near-term, for most people

the Afordable Care Act is likely to

make health insurance less aford-

able, not more. But the law could also

encourage more Americans to shop

for their own coverage and care. If

that happens, the law could end up

seeding a consumer-driven health

care revolution.

Three Key QuesTions For obamacare’s rollout

F

AVIK ROY iS A SEniOR FEllOw AT ThE MAnhATTAn inSTiTuTE FOR POliCy RESEARCh And A FORMER hEAlTh CARE

POliCy AdviSOR TO MiTT ROMnEy. TO REAd MORE OF hiS wORk, viSiT fORbes.cOm/sItes/theApOthecARY.

doubling the cost oF your insurance

may not seem like such a great deal

Th

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hle

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It’s not called a sickcare system.

So let’s stop using it only when we’re sick.

The way we see it, health care should be about people living healthier lives.

So we’re empowering them

to take an active role in their

health with easy-to-use health

and wellness resources.

For instance, the CarePass®

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2013140

48 | FORBES OCTOBER 28, 2013

da

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tributors in more than 100 nations.

“We’re moving faster and faster. Right

now we sell two images per second,” Orin­

ger says in his small, sparse ofce in Shut­

terstock’s current Wall Street location. His

communications head interrupts to say that

it’s now three photos. “That’s the new pub­

lic number? Awesome,” Oringer says with a

wide grin. “Three per second—that’s the frst

time I’ve ever said that.”

Thanks to this breakneck usage Shutter­

stock is on pace for $230 million in revenue

this year (according to Jeferies), a 35% jump

from 2012. Ebitda should be $49 million, up

39% from last year. Stock photography will

be a $6 billion market, and Oringer is betting

he can snag $1 billion of it. “If I wanted to do

something else I wouldn’t have gone public.”

Programming always came naturally to

Oringer, who grew up in Scarsdale, N.Y. and

started coding in elementary school. Soon

he was using his Apple IIe to make simple

Jon Oringer marches along the gut­

ted 21st foor of the Empire State

Building and ducks out a window

onto a deck to pose for a magazine

shoot, snapping his own photos

as the photographer snaps photos of him.

Starting this winter, the entire foor (and

an identical one below it) will play home to

Shutterstock, Oringer’s 295­person photo

website whose shares have more than tri­

pled to a $2.5 billion market value since their

debut on the NYSE last October.

It’s an appropriate headquarters for New

York’s frst tech billionaire ($1.3 billion, to be

exact) as he looks to ride the proliferation of

screens, smartphones and bandwidth to turn

Shutterstock into the world’s largest market­

place for buying and selling images. Right now

that title belongs to the Carlyle Group­owned

Getty Images, but over the last few months

Oringer, 39, has inked a deal with Facebook

for its advertisers, launched oferings of high­

end photography and raised $276 million in

a secondary ofering—all while expanding

and simplifying his library of 25 million im­

ages and a million videos searchable in 20 lan­

guages. What began ten years ago with one

$1,000 Canon Rebel and a 600­square­foot

ofce has exploded into a platform that adds

20,000 new photos a day from 40,000 con­

TECHNOLOGY

iNTErNET

A Picture’s Worth A Billion Dollars

By steven Bertoni

Jon Oringer turned a side project into a $2.5 billion photo phenomenon. Shutterstock is out to become the world’s biggest image broker.

shutterstock founder

and Ceo Jon oringer

snapping away on

his new empire state

Building roof deck.

“With the E-M1’s new Dual AF System,

I get the stopping power and agility

I need for rock solid performance. ”

-John Sterling Ruth, Professional Photographer and Olympus Visionary. Image shot with the E-M1 and Zuiko Digital ED 35-100mm f2.0 Lens.

I N T R O D U C I N G

A C A M E R A A S

F A S T

A S Y O U A R E .

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50 | FORBES OCTOBER 28, 2013

load them, so he hired contributors to in­

crease his supply.

The emergence of microstock—the low­

priced, generic images that customers don’t

want to shoot themselves—knocked the

photo industry on its heels. Shutterstock and

a competitor, iStockphoto, were selling im­

ages that once cost $500 for $1. Incumbent

Getty Images ended up acquiring iStockpho­

to for $50 million in 2006 and then took itself

private in 2008 at a 65% discount to its pre­

credit­crisis high. “All the trends line up with

what Jon’s doing today, but he saw it when

others didn’t—he saw it ten years ago,” says

Jef Lieberman of Insight Venture Partners,

which invested in Shutterstock in 2007.

That year Shutterstock grew to 30 em­

ployees, who handled Web development, cus­

tomer service and billing. Oringer was strug­

gling to run the place. “I had never worked

for a company before, so I spent a lot of time

bringing on operational help,” he says. In

2010 he hired a chief operating of cer, Thilo

Semmelbauer, who’d done stints at Weight

Watchers and jobs site TheLadders.com.

Oringer also ignored the West Coast hype

and habit of raising funds from big venture

capital f rms. He didn’t need the cash; Shut­

terstock made money from its very beginning.

That discipline paid of when Shutterstock

went public in 2012 with Oringer still own­

ing about 50% of the company. (He took some

chips of the table in September, selling $145

million in shares in the secondary.) For Orin­

ger, going public wasn’t an easy decision, but

in the end he decided an IPO would strength­

en the balance sheet, give Shutterstock more

exposure and add legitimacy when dealing

with large corporate clients.

But going public put pressure on Shutter­

stock to keep hitting its big revenue targets.

Oringer is looking to expand Shutterstock’s

foreign business, with an of ce now in the

U.K. and one soon to come in Berlin.

He is also betting that video will be as

ubiquitous in advertising and media as pho­

tos are now. When it is, he’ll have millions of

cheap, high­quality clips ready for download.

“We create marketplaces,” says Oringer. “As

we continue to grow, the question is, how do

you keep the company as innovative as it was

15 employees ago? We’ve been able to do it up

until now and will continue going forward,

but it’s not easy.”

games and plug­ins for bulletin board sys­

tems. “To make a computer do something

that would take a human a long period of

time was always interesting.”

So was making money. While studying

computer science and math at Long Island’s

Stony Brook University, Oringer created one

of the Web’s f rst pop­up blockers and sold

thousands of copies. He graduated in 1996

and enrolled at Columbia for a master’s de­

gree in computer science. “I wasn’t that into

the master’s program,” Oringer says. “I was

trying to create products to complement the

pop­up blocker. All these people were giving

me their credit cards. I f gured I could sell

them something else.”

Sell he did, enough to buy a $450,000

apartment in Gramercy Park in 2002.

Oringer continued to pump out products

marketed through his massive mailing list:

personal f rewalls, accounting software,

cookie blockers, trademark managers. The

e­mails he’d send out always did better with

photos in them, and instead of paying for

expensive stock photos, Oringer bought a

Canon and shot his own. He quickly real­

ized other Web en­

trepreneurs might

need images, too. He

built a site, and in

2003 Shutterstock

was born.

Over the next year

he took 30,000 pic­

tures. “I would shoot

everything I could

f nd—breakfast, lunch

and dinner. I’d shoot

my friends and make

them sign model

releases,” he says. “It

turned out it was really easy to create com­

mercial stock footage.” Eventually he hired a

photo director to organize shoots and hired

models at $100 per day through Craigslist to

f ll boardrooms, hold fake picnics in Central

Park or pose with a newspaper and a mug of

cof ee.

For a subscription of $49 a month cus­

tomers could download as many images as

they wanted. Oringer bought ads on Google

and in person pitched his site to creative

types around the city. Soon images were

being downloaded faster than he could up­

iNTErNETTECHNOLOGY

“I’d shoot everything I could fi nd—breakfast, lunch and dinner. I’d shoot my friends and make them sign releases.”

EXECUTiVE

SUMMArY

WaTCHfUl eyes

Step back, Evgeny Morozov:

The notion of Internet-as-

panacea has a prominent new

critic in literary heavyweight

Dave Eggers. His new novel, The

Circle (Knopf), set in the near

future, chronicles the rise of the

titular corporation, which has

subsumed Facebook, Google

and Amazon to become the one

company tracking everything

we do and buy. Its “TruYou”

account is near-mandatory

for Web use, and its cheap

neck-cams enable millions to

“go transparent.” Eggers isn’t

worried about the NSA; he’s

terrifi ed of the power that

FaceGoogleZon has to dictate

societal norms. Unlike 1984,

this book doesn’t open in

dystopia; instead, we witness

a totalitarian future take shape

with the full acquiescence

of a transparency-obsessed

populace. Broad but shallow

(like the social media Eggers

lampoons), The Circle is dark

comedy for this moment

in history. Will its warnings

persuade readers to quit

Facebook? Good luck with that.

—Kashmir Hill 

F

LH.com

Traveler?Passenger? Guest.

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Promotion // technology

We now live in a world

where we have to

make IT service deci-

sions based on new

ways of delivering

applications and infrastructure. Service

models that leverage public, private

or hybrid clouds do not perform in the

same way as traditional models. Busi-

nesses run on technology, and there is a

real need to separate the hype from the

benefts with these new approaches. But

where should you start?

If applied correctly, a private cloud

provides agility that solves a number of

key business challenges while maintain-

ing proper control. The technology is the

technology, but the business is the busi-

ness. A complete cloud vision enables

these two driving priorities to work very

well together. Combining them is the

hard part, so it’s best to work from the

bottom up to see how we’ve arrived at

a point where cloud technologies are a

realistic option. Josh Kahn, Senior VP of

Solutions Marketing at EMC, puts this

in a context that companies can clearly

understand. “What matters is that appli-

cation teams get nearly instantaneous

access to an infrastructure that’s going

to meet their needs. But on the other

side of that request, IT organizations can

leverage cloud technologies to maintain

control, deliver optimal service levels,

meet requirements and control costs.”

That’s a fundamental point that connects

the technology to the business.

Over time, storage systems and net-

works have gotten smarter. Companies

have already been modernizing the data

center with hypervisor server virtualiza-

tion technologies, accomplishing great

things such as cost savings, deployment

time reductions and greater availability.

Those technology improvements alone

were important, but they do not complete

the cycle to the business in terms of the

applications and infrastructure they need.

There are many ways to arrive at a

point where connecting the business to

the technology can bring a real beneft to

an IT workfow. This is a priority for all of

the big players in the data center today.

According to Kahn, “Not adopting the

right cloud strategy puts IT departments

at risk of being irrelevant.” While tech-

nologies are important, it is the building

of that cloud strategy—around delivering

the infrastructure and applications that

companies need, when they need it and

with the right controls—that will ultimately

create the competitive advantage. Com-

panies must invest in a cloud strategy to

deliver IT as a Service (ITaaS) and more,

but if it is not a fully orchestrated solution,

it’s a wasted investment.

Companies generally invest in new

technologies and equipment separate

from the requirements of the business.

This capital expenditure cycle is comfort-

able and familiar to CTOs and IT decision

makers, but it is an at-risk process going

forward due to the sheer fexibility of cloud

computing technologies. Kahn explains,

“The CIO needs the choice to decide

what goes where, but also the ability to

manage across public, private or hybrid

clouds.” Keeping business requirements

centralized—in a private, public or hybrid

cloud environment that leverages both

on-premise and off-premise resources—

can meet those needs. The business will

beneft from quicker time to market for IT

services, self-service provisioning, and

the ability to respond more quickly to

business needs.

Is this the competitive advantage you

need? The trending of the market sug-

gests that it is. Considered another way,

can you afford not to have every compet-

itive advantage available? Chances are, a

private cloud investment, made correctly,

will give you that advantage.

Cloud Computing You Can’t Afford Not to Embrace a Cloud StrategyBy Rick Vanover

For more information, visit www.emc.com.

EMC2, EMC, and the EMC logo are registered trademarks or trademarks of EMC Corporation in the United States and other countries. © Copyright 2013 EMC Corporation. All rights reserved.

LEADING EDGE IN

CLOUD

54 | FORBES OCTOBER 28, 2013

LE

I JU

N: K

EIT

H B

ED

FO

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/ B

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vestor is Tencent Holdings, China’s largest In-

ternet fi rm, with $9.7 billion in revenue. And

Future’s main hardware partner is Xiaomi

Corp., a midprice-smartphone maker

that outsells Apple’s iPhone in China. A

Xiaomi set-top box costs only $50 and

streams free content, from Chinese costume

dramas to U.S. blockbusters. Xiaomi expects

to sell a million boxes this year in a market

expected to sell 10 million overall. Partners

like these help to explain why Future readily

thumbs its nose at Hollywood.

Ironically, Hollywood’s own lobbying

group, the Motion Picture Association of

America, helped to introduce Future execs to

the studios during a February visit. Once bit-

ten, twice shy: Future canceled its Hollywood

seminar after studios demurred, though its

executives went ahead with their visit. In

anticipation Future took down unauthorized

content, such as Jurassic Park 3D and

Mr. Bean’s Holiday, a Universal title that had

been Xiaomi’s most-played movie.

Despite its name, Future is a throwback.

Many Chinese video sites and cable channels

now pay for popular imported TV shows and

movies, says Kristian Kender, a media con-

sultant in Beijing. Tencent signed a licens-

ing deal in September with Disney to stream

movies on its video-on-demand service.

Kender puts the total market for nontheat-

rical content (everything but box of ce) at

$60 million to $70 million a year, a pittance

compared with what it could be. One

studio said it makes more from home

viewing in Indonesia than it does in

China, whose economy is ten times

the size. Asked about the contra-

diction between its Disney deal and

its investment in Future, a Tencent

spokesman declined comment.

Hollywood is schooled in the

ways of video pirates, from

fi le-sharing sites like the

Pirate Bay to street-corner

DVD sellers. Rarely, though,

do Tinseltown’s targets warmly invite studios

to a “Go to Hollywood” seminar on U.S. soil.

“Future TV is dedicated to innovatively

propelling the growth of the OTT [over-the-

top] ecosystem,” read an invitation sent in

August to six major studios for a seminar in

Los Angeles. “Hollywood, we are coming!”

How do you say “chutzpah” in Chinese?

Future TV is one of seven fi rms licensed

to stream content into Chinese homes via

the Internet to set-top boxes and smart

TVs. (“Over-the-top” refers to video deliv-

ered outside of a cable or satellite service.) It

claims to of er 1.5 million hours of content, of

which half is high-defi nition. But among U.S.

studios it is notorious for uploading hundreds

of copyrighted movies and evading tens of

millions of dollars in licensing fees. Chinese

production houses also say they’re being

cheated. “If you ask anyone in China they’ll

tell you Future TV is a pirate,” says a

U.S. studio executive in Beijing.

Future pitches itself as a fl edgling

that needs Hollywood’s support. Yet its

biggest shareholder is CCTV, China’s

state-owned broadcaster, which enjoys

huge subsidies and sells $3.6 billion a

year in advertising. Future’s other in-

TECHNOLOGY

ONLINE VIDEO

China’s Black Box

BY SIMON MONTLAKE

China’s answer to Apple TV is full of pirated content. Hollywood can’t sue because the government owns a piece of the action.

TRENDING

What the 51 million

Forbes.com users

are talking about.

For a deeper dive go to

FORBES.COM/TECHNOLOGY

PERSON

ROSS ULBRICHT

The FBI busted the alleged

mastermind behind the

$1.2 billion drug-traf cking

site Silk Road. Friends say he

was just a mild-mannered

libertarian materials scientist.

Hello, son of Walter White!

COMPANY

TWITTER

Neither snow nor rain nor

government shutdown nor

fears of a Facebook-like fi asco

will stop the messaging service

from its cash-gusher IPO

(see story).

IDEA

LONG-STRING SEARCH

Google’s fi rst update to its

search algorithm in three years

is capable of handling more

complex queries, especially as

people speak longer searches

into their phones.

Xiaomi CEO Lei Jun: not guilty. F

centurylink.com/link

56 | FORBES OCTOBER 28, 2013

Ja

mie

Kr

ipK

e f

or

fo

rb

es

Pitching the promise of doing for contacts

what Dropbox did for storage, Lorang raised

nearly $9 million in venture capital, includ-

ing a $7 million round in July 2012 led by the

Foundry Group.

Since early this year FullContact has

been selling a card scanner to frms such as

Amazon, Coca-Cola and Hewlett-Packard to

upload employees’ contacts. Other smaller

customers have used its data-appending

service to supplement their contact lists with

public information and social network data.

FullContact now has gathered 300 million

names in its database, claiming a 60% match

rate and 90% accuracy. Some frms provid-

ing data-appending services report a higher

match rate. Rapleaf, for example, says it can

match 80% of U.S. consumer e-mails.

In the coming weeks FullContact plans to

go live with its consumer service, which will

be free up to a set number of contacts and

then $99 a year beyond that.

Lorang sells access to his database to mar-

keters, but privacy advocates who have parsed

FullContact’s data-use policy don’t like the

way that Lorang is merging publicly available

data with the contacts it picks up from user

activity. Sarah Downey, a senior strategist at

privacy company Abine, in Boston, says there

is cause for concern: “FullContact can store

your information forever, use it to improve its

core database and license use of it in perpe-

tuity. This goes for any of their partners and

third parties to whom the partners wish to

resell. To my knowledge, this level of data en-

hancement and third-party reselling has never

been done before.”

David Abrams, a lawyer and engineer

who is an expert on privacy issues, assessed

its privacy policy. “I get the impression they

don’t want to be just another general data

broker but that they want to use the cor-

relations to provide sophisticated links that

would elude general data collection.”

Lorang stresses that he will sell only pub-

licly available data and considers phone num-

bers of-limits. “Public details that we append

to contact records are fair game, but private

contact data is private contact data, period,”

he said. If anyone is uncomfortable with Full-

Contact’s use of their data, Lorang says, they

can always opt out. He also has this advice:

“One, check out your social network privacy

settings. Two, use companies that give you

control of what you appear in.”

When entrepreneur Bart Lorang

met his future wife in 2010, he fell in love

with her address book, too. “She had pruned

and preened it every week, and it had updated

titles and photos and e-mails and phone num-

bers for pretty much everyone she knows,” he

says. “I wanted that address book. I wanted a

perfect address book that just worked.”

So he created a startup called FullContact,

which aims to gather a person’s contacts in

one place and automatically update them ev-

erywhere at once by reaching out to Facebook,

Twitter, Gmail, iCloud and other Internet sites

to grab the latest publicly available informa-

tion. It would be a step ahead of Plaxo, now a

subsidiary of Comcast, which hosts 50 million

address book accounts.

TECHNOLOGY

FullContact founder

Bart Lorang has 300

million names in his

database and is not

even out of beta yet.

One Address Book To Rule Them All

By adam tanner

A startup bets $9 million it can build the perfect self-updating contact book. Privacy experts are a little freaked.

GamE CHaNGErs

F

RUN BETTER.

THE

CLOSING THE DEAL CLOUD

In the cloud built for business, you don’t have to force your

sales team to use the tools that get the job done.

Learn more about SAP® Cloud for Sales at sap.com/cloud

Supply chain sustainability

and business value are not

mutually exclusive. In fact,

sustainable supply chains

are becoming a vital strat-

egy through which companies can not

only meet regulatory requirements and

burnish their reputations, but also bet-

ter manage risks, reduce costs, increase

productivity and optimize strategic sup-

plier relationships.

“Most businesses are not implement-

ing sustainable supply chain initiatives

just for the sake of reducing their carbon

footprint,” says Robert Sanchez, Chair-

man and CEO, Ryder System, Inc. “That’s

why everything we do at Ryder, from

optimizing logistics networks to deploy-

ing alternative fuel vehicles in feets, is

about making our customers’ supply

chain operations more effcient. When

we demonstrate the return for a sustain-

able investment, we see our customers

adopting more environmentally friendly

technologies and logistics strategies.”

The Sustainability Advantage“We know that a more effcient supply

chain is a greener supply chain because

higher effciency means better use of

resources, and that translates into lower

energy consumption,” Sanchez says,

noting that Ryder’s transportation and

logistics solutions drive value in every

major category:

• Lower Costs: Fuel-effcient vehicles,

optimized supply chain networks, pre-

ventive maintenance and driver training

enhance performance and safety, while

Ryder leads the commercial transporta-

tion industry by operating more than 300

natural gas vehicles across the country.

“Businesses can realize cost savings on

day one when operating a natural gas

vehicle based on the price differential of

natural gas versus diesel,” Sanchez says.

• Reduced Risk: Risk is a topic that

has moved from the warehouse foor

to the boardroom as companies have

realized the value of supply chains that

can respond quickly to disruptions. A

regional or near-sourced distribution

center network can help reduce trans-

portation miles and carbon emissions,

but also reduces the risk of a global

supply chain disruption, while alterna-

tive energy solutions like natural gas will

function even in the event of power loss

or fuel supply disruption.

• Better Intelligence: “We track and

report sustainability performance with

transparent metrics that enable our

customers to understand the environ-

mental impacts of their operations,”

explains Sanchez. “Additionally, we are

able to give customers carbon footprint

data on the parts of their supply chain

operations that we manage as a sup-

plement to the standard transportation

data we provide.”

• Tight Execution: “Execution is

everything,” Sanchez states, “so our

warehousing and transportation experts

help knit customer supply chains

together more tightly for both economic

and environmental benefts.”

A Formula for Success “Early on, Ryder recognized the busi-

ness value that comes from operating

sustainable logistics and transportation

networks, and we’ve made the invest-

ments required for success at our com-

pany and with our customers,” Sanchez

says. “When customers trust us to

operate critical functions of their sup-

ply chains, they can focus on their core

business while leveraging our scale,

infrastructure, expert people, capacity

and new technologies.”

For more information, visit ryder.com.

Promotion // logistics

Unleashing Sustainable Supply Chain ValueBy Michael Roney

60 | FORBES OCTOBER 28, 2013

Ian

Lo

nd

In F

or

Fo

rb

es

of indexing, actively managed stock-picking

funds still dominate the mutual fund business.

Firms like Fidelity, Franklin Templeton, Ameri-

can Funds and Dodge & Cox, and stock pickers

like Mario Gabelli, Will Danof and Ron Baron,

have yet to be invited to the ETF party.

What Precidian has figured out (and patented

as ActiveShares) is a process that keeps most of the

low-cost and tax-efficient benefits of an ETF while

disclosing holdings only quarterly, as active manag-

ers now do. If ActiveShares’ “nontransparent” ETF

structure is SEC-approved, you may soon be able

to log on to your e-broker any time of day to trade

into and out of the portfolios of great managers like

Donald Yacktman and Bruce Berkowitz.

“It’s clear that funds are ready to leap into

the next generation of products,” says Precidian

The next big thing in the $1.5 trillion

exchange-traded funds business is

being cooked up in a small ofce

sharing an entrance with a beauty

salon in the bucolic town of Bed-

minster, N.J. There, in a loftlike space outft-

ted with whiteboards, comfy chairs and a pool

table, the four principals of Precidian Invest-

ments run what amounts to a lab for designing

and patenting new forms of ETFs. Few inves-

tors have heard of them, but to mutual fund

frms like Fidelity and American Funds, Precid-

ian may well be the messiah of new growth.

Precidian has devised a new structure that

would essentially enable old-school mutual fund

companies to ofer ETF versions of their exist-

ing actively managed funds. Despite the growth

funds

by Ari i. Weinberg

Thanks to little-known Precidian Investments, ETFs may soon be emerging from their index fund ghetto.

Precidian Chief Daniel

McCabe wants to deliver

old-school mutual funds

to the eTF party.

InvestIng

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Born a racer.

funds

on redemption. The tax consequences of this trad-

ing are borne by the blind trust, not the investor.

Cracking the code on actively managed ETFs

is a big deal because the $6.8 trillion market for

managed stock mutual funds dwarfs the index

ETF business, whose growth has slowed. SEC

approval of “nontransparent” ETFs could open

the ETF world to dozens of fund families.

It could also create a big payday for the

founders of Precidian, which earns small license

fees based on fund expense ratios. Currently

most of its revenue comes from the fees it earns

on Guggenheim’s nine CurrencyShares ETFs

($1.5 billion in assets) and its own $130 million

ETF, the Maxis Nikkei 225 Index Fund.

McCabe, 49, and partners Stuart Thomas,

Paul Kuhnle and Mark Criscitello are veterans of

Wall Street trading fl oors and back of ces who

specialized in structured products and derivatives

operations. All but one is a college dropout. But

what they lack in book learning they make up for

with deep Wall Street connections, trading expe-

rience and, most important, market savvy.

McCabe, who is fond of wearing Prada loaf-

ers sans socks in the of ce, headed up NYSE and

CEO Daniel J. McCabe. “Several of the world’s

largest asset managers have already embraced

our structure.” McCabe isn’t saying who, but

SEC f lings indicate he is most likely talking

about BlackRock and State Street.

Precidian’s ActiveShares brings several in-

novations to the ETF world that could attract

stock-picking funds. The most important is the

publication of intraday indicative values every 15

seconds, a standard for all ETFs but a hurdle for

traditional active mutual funds, which publish

prices only once a day, after the market closes.

Those values, matched with a fund’s bench-

mark, should give ETF marketmakers enough

information to hedge their trading throughout

the day in the futures market, a key to keeping the

ETF price in line with its net asset value (NAV)

and giving all investors the opportunity to buy the

fund at a fair price. But portfolio managers would

not be required to disclose their holdings daily as

most other ETFs are required to do by the SEC.

Another Precidian innovation involves tax effi-

ciency. Its new structure establishes blind trusts for

authorized participants, who act as a filter to bring

cash into the ETF or receive and liquidate securities

InvestIng

tRendIng

What the 51 million

Forbes.com users

are talking about.

For a deeper dive go to

FOrbeS.COM/inVeSTing

PERSON

WiLLiAM rUPreCHT

sotheby’s head is under

fi re from hedgie dan Loeb

(the auction house’s largest

shareholder) for big pay,

small returns, lack of skin in

the game.

IDEA

MOrTgAge MeDDLing

Will seemingly endless

congressional debt-service

wrangling and other fi scal

disputes lock the door on the

nascent housing recovery? 

Finished at charm school.

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Amex trading f rm Bear Hunter Structured Prod-

ucts, a subsidiary of specialist f rm Bear Wagner,

which was owned by Bear Stearns. Kuhnle, 50,

studied quantitative analysis at Penn State before

dropping out, later landing a Wall Street IT job.

He worked with McCabe at Bear Hunter, as did

Criscitello, 52, Precidian’s f nance of cer.

The three met Thomas, 47, formerly in equity

sales at Morgan Stanley, when he was helping

the World Gold Council create the U.S. entity

that would become State Street’s SPDR Gold

Trust, the world’s largest gold ETF, with

$38 billion in bullion. Most investors know the

übersuccessful ETF by its ticker symbol, GLD.

Launching the f rm in 2006 was a midlife

gamble for the group. At a time when other Wall

Streeters tried to cash in on the ETF boom by

launching their own funds, Precidian’s partners

stuck to product design, in a model similar to

that of microchip IP f rm ARM Holdings.

“Thinking creatively about building products

with protected intellectual property has a dif er-

ent return prof le than launching me-too ETFs,”

says Michael Brown, general partner of Waltham,

Mass.’ Battery Ventures, which took a stake in Pre-

cidian in 2007. The me-too ETF business, he adds

dismissively, has simply been a race to the bottom.

Not surprisingly, Precidian isn’t the only one

trying to create a viable ETF structure for active

mutual funds. Eaton Vance, Guggenheim and T.

Rowe Price have f led their own SEC applica-

tions. Vanguard already has a process for creat-

ing ETF share classes of its passive index funds.

As they await an SEC ruling on ActiveShares, the

Precidian crew is floating another ETF innovation

aimed at the ravenous market for income. Accord-

ing to SEC filings, Precidian is the brains behind a

proposed WisdomTree S&P 500 Managed Distri-

bution ETF. Like an annuity, the fund promises a

fixed 6% annual payout in all markets, despite the

fact the underlying S&P 500 offers only a 2% divi-

dend yield. Precidian’s patented formula incorpo-

rates the possibility of returning capital as part of the

annual payout. Given the recent boom in indexed

annuity sales it’s likely to be a winner, if approved.

“Precidian brings a level of expertise that

provides for their ideas to advance,” says Wil-

liam Belden, Guggenheim Funds’ head of prod-

uct development. “They’re not just throwing

things against the wall.” F

COMPANY

bLACKberry

Floundering smartphone pioneer

is trying to fi nd a savior. Is there an

activist investor willing to take a

chance on the hidden value in the

battered company?

64 | FORBES OctOBER 28, 2013

INVESTINg

KEN FISHER — PORTFOLIO STRATEgY

Long before foLks fretted the

demise of “quantitative easing,” I fretted

its existence. It proved the reverse of its

image, an antistimulus, and we’ve done

okay not because of it but despite it.

With its demise forthcoming, I’m bull-

ish on banks, relative to the market.

Why? Banking’s core business is

simple: Take in short-term deposits,

make long-term loans. The spread

between short- and long-term interest

rates pretty well refects future gross

operating proft margins on new loans

(efectively cost versus revenue). The

bigger the spread, the more proftable

future loans will be, all else being equal.

Ending so-called QE steepens that

spread by defnition, since it stops the

Federal Reserve’s buying of long-term

debt (thus lowering future long-term

debt prices and pushing rates higher).

As the spread rises, so will bank proft-

ability on new loans, and banks’ eager-

ness to lend—along with overall loan

revenue—will rise in lockstep.

Since long-term rates correlate

highly between developed and less-

developed nations, countries where

the spread is smallest will now likely

see the most relative improvement.

Take Chile, for example. Its spread is

basically zero. As long-term rates rise,

its spread should rise relative to, say,

Brazil’s, where the 90-day to 10-year

spread is already high at 3%-plus.

Hence, I’m more prone to buy Chile’s

banks than Brazil’s.

Then, too, bigger banks tend to do

well later in bull markets. And we’ve

kicked the bankers sociologically so

long that someday soon we’ll tire and

seek new dogs to kick.

I remain content with the seven

banks I recommended earlier this year:

Australia & New Zealand Banking,

Banco Santander, China Construction

Bank, HSBC, JPMorgan Chase, Royal

Bank of Canada and Wells Fargo.

I also have a few new favorites:

Sweden has one of the most narrow

yield-curve spreads among devel-

oped nations—hence an opportu-

nity when it widens. Buy SWEDBANK

(SWDBY, 24). There’s great potential in

eastern European growth, particu-

larly in Estonia, Latvia and Lithu-

ania. It trades at ten times my 2014

earnings estimate.

Some emerging markets banks

should beneft doubly from widening

global yield curves and relatively high

domestic growth rates—like Santiago-

based BANCO DE CHILE (BCH, 93), that coun-

try’s second biggest (with over 430 full-

service branches and a roughly 20%

national market share) and, in my view,

its best (and surely better than its 29%

owner, Citigroup). It’s of 2% this year,

trading at 13 times my 2014 earnings

estimate, with a 4.8% dividend yield.

I love South Korea for what John

Wayne would call true grit, for its

unending determination and focus!

SHINHAN FINANCIAL GROUP (SHG, 41) is its

best pure-play bank. The street ex-

pects 2014 earnings to fall fully 15%.

Hence it trades at 1.8 times trailing

revenue, 80% of book value and eight

times my 2014 earnings estimate. As

earnings drop the stock and growth

prospects should rise.

Of 38% this year with the much

publicized Indian fear-fest comes In-

dia’s second-largest and best bank, ICICI

BANK (IBN, 32). The panic widened yield

spreads, but with fear comes opportu-

nity. It’s cheap, since proftability is low.

Expect improvement. It’s at 2.4 times

revenue and ten times my March 2015

earnings estimate. It yields 2.1%.

Thailand has fairly fat banking

margins now. KASIKORNBANK (KPCPY, 23), its

fourth largest, is fast-growing, diversi-

fed, well managed and on a roll. Yet it’s

of 9.6% in 2013 due to general emerg-

ing market and Asian fears. It’s only 2.7

times revenue and ten times my 2014

earnings estimate.

Finally, if you can stomach recent

Mideast risk (spelled S-y-r-i-a), which

comes and goes, buy Turkey’s AKBANK

(AKBTY, 7.8). It’s of 26% since May. But

it’s great, growing and generous at

three times trailing revenue and six

times my 2014 earnings estimate (and,

similar to Banco de Chile, minority-

owned by Citigroup). Like the rest, this

is the literal version of the proverbial

money-in-the-bank play.

BETTING AGAINST

BERNANKE

MONEY MANAGER KEN FISHER’S LAtESt BOOK IS MARKETS NEVER FORGET (BUT PEOPLE DO) (JOHN WILEY, 2011). VISIt HIS HOME PAGE At WWW.FORBES.COM/FISHER.

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BANK oN IMPRoVED PRoFITS FRoM

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66 | FORBES OctOBER 28, 2013

INVESTING

JIM OBERWEIS — SMALL STOCKS

Few were surprised when

small-cap stocks fell hard during the

fnancial crisis. They are generally

considered the riskiest group in the

equity markets. In fact, during 2008

and early 2009 valuations for high-

growth small caps dropped to their

lowest levels in 30 years.

But as the market rebounded and

our economy grew stronger from

2009 to 2012, investor appetite for

risk—arguably more important than

individual stock fundamentals dur-

ing some periods—helped kick prices

back up to more normal valuations.

These days a diferent dynamic

is in play. With valuations no longer

at bargain-basement levels, earnings

growth will be the driver for high

returns. For companies under $1

billion in market capitalization and

with annualized growth rates of 30%

or more, the average forward price-

to-earnings multiple is now 16.1—a

shade above the 15.6 times earnings

for the S&P 500. But you’re paying

for faster growth, and it’s actually an

unusually small premium to those

large-cap stocks.

I think there’s still room for more

fun. Here are my picks from the list

of America’s Best Small Companies,

starting on page 82. I’ve recommend-

ed some of these stocks in previous

columns. I still like them and own

them in my asset management frm.

8x8 (EGHT, 10) is disrupting the tele-

com market for small businesses

with cloud-based solutions for

hosted PBX telephony, unifed com-

munications and videoconferencing.

I expect revenues to grow 20% in the

next year, while improving margins

lead to an even stronger 43% earn-

ings growth. The stock currently

trades at 35 times my 2014 EPS esti-

mate of 30 cents.

An uncertain economy is good for

temporary stafng frm BARRETT BUSI-

NESS SERVICES (BBSI, 66), which focuses on

telecom needs of small and medium-

size businesses mostly in the western

U.S. As its customers expand, they’re

more likely to prefer the fexibil-

ity of temps and outsource noncore

functions like human resources. The

employer mandate of the Afordable

Care Act may push many cost-con-

scious companies to part-time help.

Shares trade at 25 times my 2014

earnings estimate of $2.80, for ex-

pected EPS growth of 37%.

INVENSENSE (INVN, 20) is riding the

Samsung boom. Its motion-tracking

devices, such as gyroscopes (see p.

98), originally used in game sys-

tems like the Nintendo Wii, are now

becoming standard in smartphones.

InvenSense recently ramped its

market-leading six-axis single-chip

gyro/accelerometer platform across

Android phones, while contending

with ferce rivalry and falling prices.

Though the company failed to get a

design win in Apple’s iPhone 5S and

5C, it has a shot with the new iPad

later this year. I expect revenue to

grow at 30% in the next 12 months.

Shares trade for 23 times my 2014

EPS estimate of 85 cents.

IPG PHOTONICS (IPGP, 60) produces fber

lasers whose high output and en-

ergy efciency is well suited to such

industrial applications as materials

processing and automotive welding.

Nearly seven in ten fber lasers are

made by IPG. China is a big buyer,

accounting for about 35% of its sales;

as its factories start whirring again,

IPG is getting the updraft. Shares

trade for 17 times my 2014 estimate

of $3.50, with a 15% growth.

STAMPS.COM (STMP, 43) provides a

service for purchasing and printing

postage over the Internet (see p. 82)

and aims one day to cancel the old

Pitney Bowes meters. Its customer

list of individuals and small business-

es grew 12% last quarter, year over

year, and their postage use jumped

60%. Stamps.com has tremendous

leverage, as seen by a 600-basis-

point operating margin expansion

last quarter. I expect the company

will increase revenues at a 15% clip

and earnings at an even faster rate.

Shares trade at 17 times my 2014 EPS

estimate of $2.65.

america’s Best

Small StockS

F

JIM OBERwEIS iS pRESidEnt OF OBERwEiS ASSEt MAnAgEMEnt And EditOR OF the Oberweis

repOrt. FOR MORE inFORMAtiOn viSit www.fORBES.COM/OBERwEIS.

valuationS are no longer at bargain

levelS but there’S Still room For Fun

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INVESTINg

wIllIam baldwIN — YEar-ENd ChECkup

Congress has plaCed some

of your money on a bait pedal. Can

you deftly remove it without getting

trapped? I think you can.

The bait is something called a

Roth conversion, wherein you

pay taxes on retirement savings

now in return for a permanent

tax shield on the portfolio. It’s a

scary business, since you could be

injured by future tax law changes.

But this is an occasion to take a

calculated risk.

I’ll assume that you have both

assets in a tax-deferred IRA or

401(k) and some spare cash out-

side that account. Say you have a

$50,000 slice of your retirement

pot that you might convert, you

are in a 40% tax bracket (federal

and state combined) and you have

$20,000 sitting around. If you do

the conversion, $50,000 gets added

to your taxable income this year

and you hand over the 20 grand to

grateful tax collectors.

Let’s suppose that you won’t be

spending this retirement money for

a few decades, and that it will have

quadrupled by then. The transaction

leaves you with $200,000 free and

clear at the back end.

What if you don’t convert? The

$50,000 still turns into $200,000

inside the account, but to get it out

you have to pay tax. If your bracket

remains the same, the retirement

account will be worth only $120,000

to you.

By choosing not to convert, you

would also have the $20,000 to in-

vest. But this sum won’t quadruple.

Outside your tax shelter, it gets

whacked every year for taxes and

compounds slowly. You’ll be lucky if

it grows to $60,000. Aftertax spend-

ing money for the nonconverter:

$180,000, or $20,000 less.

The usual advice on Rothifying

goes like this: If your tax bracket at

retirement will be the same or higher,

go ahead and convert, but if your tax

bracket is likely to be lower, don’t do it.

I think that advice is too timid. In

this case the Roth choice wouldn’t

hurt even if your tax rate falls by a

fourth, to 30%.

You can, in fact, calculate how

far your tax rate has to fall before

the conversion becomes a loser. My

rough rule of thumb: Rothifying is

a bad idea if your tax bracket falls

in retirement by the fraction RTN,

where R is your annual portfolio re-

turn, T is the tax rate on your portfo-

lio, and N is the number of years until

you’re going to be pulling money out

of the IRA.

Say your stocks make 7% a year,

you pay a 20% tax on dividends and

capital gains, and the money will stay

put for 18 years. Then the question is

whether your tax bracket for ordi-

nary income is going to fall by the

fraction 7% times 20% times 18, or a

fourth.

This RTN shortcut overstates

the case for Rothifying a bit, so give

yourself a margin of safety. Convert

only if your bracket is likely to fall

by a lot less than that RTN fraction,

and convert only a portion of your

account. If you’re 52 and can stay

invested for 18 years, and if your

bracket is likely to fall only a little

(say, from 40% to 35%), snatch the

Roth bait.

It’s scary to prepay taxes, and,

yes, there is some chance that

Congress will spring the trap, tax-

ing Roth account holders. But this

would instantly end the flow of

accelerated revenue from conver-

sions, to which the government is

now addicted. So I think the risk

is low. More likely are rising tax

rates, with the result that your

conversion pays off better than you

expected.

Leave some savings unconverted,

so that you or a surviving spouse can

do a strategic Roth conversion later.

You might want it to ofset a large

deduction, such as for nursing home

expenses.

A Roth

Conversion Formula

GO TO forbes.com/sites/baldwin fOr my 21-parT

series, “payinG fOr cOlleGe.”

GO TO forbes.com/investorcheckup

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68 | fOrBes OcTOBer 28, 2013

When should you prepay taxes on

your retirement aCCount?

Certain banking and brokerage accounts may be ineligible for real-time money movement, including but not limited to transfers to/from bank IRAs (CD, Money Market), 529s and Credit Cards and

transfers from IRAs, Loans (HELOC, LOC, Mortgage) and accounts held in the military bank. Merrill Edge is available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), and consists of

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Banking products are provided by Bank of America, N.A. and affi liated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.

Investment products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value © 2013 Bank of America Corporation. All rights reserved.

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70 | FORBES OCTOBER 28, 2013

Can TwiTTer

Save Tv?

(And Can TV Save Twitter?)

On the eve of its fervently hyped IPO, the micromessaging service

has a radical plan for nabbing the ad dollars it needs to thrive: helping

TV networks survive the digital media revolution.

By Jeff BercoviciCEO Dick Costolo must

convince investors that

Twitter can get wildly

proftable—and stay

that way.

er

ic M

ill

et

te

fo

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or

Be

s

OCTOBER 28, 2013 FORBES | 71

72 | FORBES OCTOBER 28, 2013

FORBES

twitter

named Kevin? Curly hair, tattoos?”

he asks one stagehand, who doesn’t.

Just as it’s looking hopeless, one

of Adashek’s lieutenants scrounges

a portable wireless hot spot. Bingo.

Moments later, the Deschanel sis-

ters—New Girl star Zooey and Bones

star Emily—wander through, fresh

from the red carpet. “Hey, let’s take

a picture in the Twitter mirror!”

Zooey says.

Time check: 4:59 PST.

To its 200 million-plus active

users, Twitter is many things: a social

network, a short-form messaging ser-

vice, a newswire, a tool for self-ex-

pression—even, some believe, a force

for global political change. But the

company itself seems far more keen

to position itself among its users—

for access that resulted in a “Twitter

Mirror” set up just outside the green

room entrance, steps from the stage.

A tricked-out looking glass with an

iPad embedded in its surface, it lets

honorees and presenters coming of-

stage snap and broadcast casual self-

portraits—“selfes”—to the 246,000

followers of the @CBS and @Prime-

time Emmys accounts.

It’s supposed to, anyway. With 15

minutes left before the 5 p.m. Pacif-

ic start time, a full house of iPhone-

toting actors and producers has over-

loaded the Wi-Fi network. Andrew

Adashek, the boyish 36-year-old

ex-TV producer who manages Twit-

ter’s television partnerships, speed-

walks through the crowd, trying to

fnd a solution. “Do you know a guy

T’S EMMyS nIgHT AT

the nokia Theatre in

Los Angeles, and as

showtime approach-

es, a mosh pit of blue-

chip television stars jostles backstage.

Conan O’Brien and Robin Williams,

Alyson Hannigan and Jim Parsons,

Jon Hamm and Sarah Silverman—all

spifed up and squeezing past one an-

other and a few score of other celeb-

rities in the narrow corridor between

the producers’ station and the green

room. “This can’t be fre safe,” grum-

bles Hamm, the Mad Men heartthrob,

as he shoulders through the throng.

Maybe not, but a team from Twit-

ter faces a more immediate prob-

lem. They spent months negotiat-

ing with CBS and Emmy executives

I

Wil

lia

ms

: B

ra

d B

ar

ke

t/G

et

ty

im

aG

es

, c

os

te

lo

: e

ric

mil

le

tt

e f

or

fo

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es

, m

iln

er

: s

imo

n d

aW

so

n/B

lo

om

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, d

or

se

y: Je

ff

ko

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ls

ky/B

lo

om

Be

rG

, B

ain

: r

ea

ltim

e r

ep

or

t

evan WilliaMs (cofounder)

stake: 12%

Value: $1.2 Bil

coMPany, eMPloyees,

otHer investors

stake: 44%

Value: $4.4 Bil

Planned PuBlic

sHares (iPo)

stake: 10% (forBes est.)

Value: $1 Bil

BencHMark caPital

Partners

stake: 6.7%

Value: $670 Mil

sPark caPital

stake: 5%

Value: $500 Mil

dst GloBal (yuri Milner)

stake: 5%

Value: $500 Mil

dick costolo (ceo)

stake: 1.6%

Value: $160 Mil

Gsv caPital

stake: 0.4%

Value: $40 Mil

adaM Bain

(President of

GloBal revenue)

stake: 0.4%

Value: $40 Mil

Jack dorsey (cofounder)

stake: 4.9%

Value: $490 Mil

union square

ventures

stake: 5%

Value: $500 Mil

rizvi traverse

stake: 5%

Value: $500 Mil

Who Owns Twitter?BasED On a COnsErvaTivE $10 BilliOn pOsT-ipO valuaTiOn, hErE’s Our EsTiMaTE OF whO sTanDs TO havE whaT.

74 | FORBES OCTOBER 28, 2013

FORBES

twitter

the digital video recorder empowers

those watching on their own schedule

to skip the commercials—a DVR sold

by Dish network, the nation’s third-

largest TV provider, even lets users

skip past commercials in prime-time

shows automatically.

Over all this looms the specter of

so-called cord-cutting—the practice

of canceling cable or satellite service

and relying entirely on the Internet

for your video needs. For now it’s a

marginal phenomenon, representing

less than 5% of the market, according

to studies by Magid and the Conver-

gence Consulting group. But it’s prev-

alent enough—an over-the-Internet

service called Aereo lets users with-

out a pay TV subscription, or even

a TV set, record network television

shows and stream them to a variety of

devices—that the number of pay-TV

households nationwide has shrunk

for the frst time in the modern media

era. With cord-cutting dramatically

more common among under-30 con-

sumers, the trend will accelerate.

It gets worse: Internet services

like netfix, Hulu and Amazon are

producing original premium con-

tent that holds up against anything

HBO or PBS is putting out. netfix’s

House of Cards, nominated for this

year’s Emmy Award for best dramat-

ic series, was a game changer. “The

seal has been broken,” says Larry

Tanz, CEO of Vuguru, an Internet

video studio owned by former Disney

chief Michael Eisner. “It’s the frst

time the fact of what network it was

on doesn’t matter to people.” If net-

and, even better, potential users—as a

TV companion, an indispensable tool

to keep up with, discuss and even in-

fuence the outcomes of shows and

live events like sporting contests and

political debates. This “second-screen

experience” turns TV into a partici-

patory activity, allowing Twitter users

to broadcast wisecracks, critiques and

theories in real time; the networks,

in turn, share the behind-the-scenes

worlds of writers’ rooms and dressing

rooms, 140 characters at a time.

“As we’ve grown, it’s become

more and more clear to us that the

characteristics that make up Twit-

ter—public, real-time and conver-

sational—make it a perfect comple-

ment to television,” says CEO Dick

Costolo. “TV has always been so-

cial and conversation-driven. It’s

just that in the past, the reach of

that conversation was limited by the

number of people in a room or who

you could talk to on the phone or the

next day at the watercooler. Broad-

casters have come to understand that

Twitter is a force multiplier for the

media they’ve created.”

And a force multiplier is exactly

what Twitter itself needs. While its

recent S-1 fling contains the rapid

revenue growth analysts were ex-

pecting, it appears to be nearing a

wall. The average price of an ad has

been plummeting, down 46% in the

most recent quarter. To ofset that,

Twitter needs more eyeballs, but in

the U.S., where it makes the vast ma-

jority of its money, user acquisition

has stalled out, with only a 2% gain

in the last quarter. Americans now

make up just one-fourth of Twitter’s

participants. “People have a popular

awareness of Twitter, but they don’t

always know how to use it,” says

eMarketer analyst Debra Aho Wil-

liamson. “It’s a very difcult language

to learn for the average user.”

As revenues threaten to plateau,

red ink pools. numerous reports that

Twitter was already proftable proved

to be of base. Wildly. net losses, driv-

en by heavy capital expenditures and

R&D costs, totaled nearly $70 million

in the frst half of the year. Facebook,

by contrast, was clocking annual prof-

its of $1 billion when it went public

in 2012. For moneylosing Twitter to

sell itself to the public at a $10 billion-

plus valuation, as it intends, it needs

to sell a new business model. TV is

Twitter’s panacea.

HE FIRST SCREEn IS

a more-than-willing

partner in pushing the

second-screen experi-

ence. yes, Americans

still watch unholy amounts of TV

programming—about fve hours a day

per person, according to nielsen—

but as the what, when and how

changes rapidly, the model is coming

apart at the seams.

In many ways television shouldn’t

even be called television anymore.

“Video” would be more apt. More

than a third of “TV” viewers watch

programming each day on laptops,

smartphones and tablets, according to

Frank n. Magid Associates. And live

TV? not in an age of “on demand.”

It’s taken as a given by all parties

that viewers ought to be able to access

their favorite TV shows however they

prefer. But that makes ratings hard

to measure and has prompted a turf

war (digital streaming rights were a

bone of contention in this summer’s

standof between Time Warner Cable

and CBS, which resulted in the net-

work being blacked out in millions of

homes for weeks). More ominously,

“The characteristics that make up Twitter ...

make it a perfect complement to television.”

T

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Request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. *In determining the funds on the MONEY 70,® the staff of MONEY® Magazine based its decision on each fund’s fees, stewardship, experienced managers, and performance. The ending date for performance was 12/10/12. Note: The 11 T. Rowe Price target-date retirement funds are counted as one fund on this list. (The T. Rowe Price Retirement Income Fund is not considered a target-date retirement fund.) From MONEY® Magazine, January/February 2013 © 2013 Time Inc. MONEY and MONEY 70 are registered trademarks of Time Inc. and are used under license. MONEY and Time Inc. are not affi liated with, and do not endorse products or services of, T. Rowe Price. **The same nine funds made MONEY Magazine’s 2012 “MONEY 70” list, with the exception of the Diversifi ed Mid-Cap Growth Fund; last year, the International Bond Fund was included on the list. T. Rowe Price Investment Services, Inc., Distributor. MON081930

Nine T. Rowe Price funds on the MONEY 70® list of “recommended” funds.

Read the story behind our performance.

76 | FORBES OCTOBER 28, 2013

FORBES

twitter

fix were a channel, the 87 minutes

per day that the average subscriber

spends streaming the service would

make it one of the most-watched

cable networks.

google, Microsoft, Facebook,

yahoo and AOL all smell blood. The

money here remains massive: While

Americans now spend more time

on the Internet than they do watch-

ing television, advertisers still spend

the fattest chunk of their budgets

on TV—by far. Television currently

captures 39% of all U.S. ad spending,

some $66.4 billion, according to re-

search frm eMarketer, versus $42.3

billion for digital media.

So google has spent more than

$100 million in the last two years

seeding its youTube with premium

series and channels, many of which

can compete for quality with network

fare but are far more targeted. yahoo

and AOL have also made big invest-

ments in video series and, like you-

Tube, now hold annual “newfronts”

that compete with the traditional net-

works’ presentations to advertisers.

Facebook is even more direct: Draw-

ing on a nielsen survey which found

that more 18- to 24-year-olds access

Facebook during evening prime-time

hours than watch ABC, CBS, nBC

and Fox combined, it will soon start

selling video ads—i.e., commercials—

priced at up to $2.5 million per day.

Twitter’s message to the networks

is diferent, and it is well short of 140

characters: We come in peace; let’s

make money together. Lots of tweet-

ing when a show frst airs transforms

TV into what it used to be: an event

that others scramble to join live. Live,

of course, means viewers can’t skip

the commercials (which separately

explains the soaring prices of sports-

programming rights). And when the

commercial is followed up by an ad on

Twitter, the company says, the view-

er proves more likely to buy what’s

being advertised. “We help marketers

win the moment,” says Adam Bain,

Twitter’s head of revenue.

Jennifer lopez @Jlo

Followers: 24.3 million

recent tweet: “i know it’s

been a long wait, but

#astepaway is coming

soon to @mynuvotv!!

can’t wait for you to get

to know @jlodancers! #BestintheBiz”

ellen deGeneres @theellenshow

Followers: 22.7 million

recent tweet: “i’m excited

to watch american

Horror story tonight. i

know it’s gonna scare the

pants of me. Which is

why i’m wearing two pairs of pants.”

oprah Winfrey @oprah

Followers: 21.4 million

recent tweet: “so many

people do that hold

their feelings inside.

and the truth is

vulnerability is where

your true power lies. #fixmylife”

kim kardashian @kimkardashian

Followers: 18.6 million

recent tweet: “obsessed

with my quick

fx essential! the

#kardashiansunkissed

instant sunless spray

is everything!!!”

ashton kutcher @aplusk

Followers: 15.1 million

recent tweet: “yesterday

was today’s author and

today will be tomorrow’s

but we each hold our

own pen.”

ryan seacrest @ryanseacrest

Followers: 11.6 million

recent tweet: “orange is

the new black is the new

gluten free diet”

tyra Banks @tyrabanks

Followers: 10.8 million

recent tweet: “so you

know when you’re

soothed by the sound

of a fountain but then

are like, ‘that kinda

sounds like a toilet’ ”

ashley tisdale @ashleytisdale

Followers: 10.8 million

recent tweet: “Guys that

play guitars r hot”

Jimmy fallon @jimmyfallon

Followers: 10.2 million

recent tweet: “thank

you, crocs, for being

a terrifying animal

and an even more

terrifying shoe.

#thankyounotefriday”

charlie sheen @charliesheen

Followers: 10.1 million

recent tweet: “think my

twitter acct was hacked

dog and Beth do what?

who efn cares! we’ve

seen the fake hair and

the utility belts! (it’s me again) btw c”

TV’s Top Ten Twitter StarswhEThEr ThEy’rE prOMOTing ThEir shOws Or jusT ThEM-sElvEs, MOrE Than 150 MilliOn FOllOwErs arE lisTEning.

78 | FORBES OCTOBER 28, 2013

FORBES

twitter

fnancial limits. The downward pres-

sure on ad rates, along with fat U.S.

growth, in theory requires throttling

more promotions into each user’s

streams—undermining the experi-

ence that drew people to Twitter in

the frst place. Enter television. Bain,

Twitter’s revenue chief, chides his

new media rivals for their “wrong-

headed” adversarial posturing. Adds

Costolo: “Technology companies

have traditionally looked at other

forms of media as something to be

disrupted or disintermediated.”

ATCHIng TV WITH A

computer, smartphone

or tablet in hand is

rapidly becoming

mainstream behav-

ior; 55% of respondents in a study

by PricewaterhouseCoopers report-

ed doing so at least some of the time.

Dozens of companies have sprung

up to give these multiscreen viewers

a way to talk about and delve deeper

into the shows they love and discover

new ones. They have names like get-

glue, Fanhattan, BuddyTV and Zee-

box. But TV programmers don’t have

much use for most of them. “Televi-

sion, being a national medium, needs

a national companion to be viable,”

says J.B. Perrette, chief digital ofcer

WITTER, BORn In 2006,

has followed the clas-

sic hockey-stick tra-

jectory. Its original

creator, programmer

Jack Dorsey, developed it as a way of

broadcasting SMS text mes sages of

up to 140 characters to groups via the

Web. At the time, Dorsey was work-

ing with google veterans Evan Wil-

liams and Biz Stone at Odeo, a pod-

casting company. As the new service

started to gather users, the three

bought the assets of Odeo from their

investors and launched Twitter as

its own company. Early investors in-

cluded Marc Andreessen, Ron Con-

way and Union Square Ventures.

It took more than two years

for the service to register its frst

billion tweets; 11 months later the

5 billionth was sent. As the platform

grew, its users came up with innova-

tions that its engineers turned into

core features, including the retweet,

a way of resharing another user’s

message to one’s own followers, and

the hashtag, a label that makes mes-

sages searchable.

In 2010 Twitter fipped the rev-

enue switch, allowing marketers to

pay to have their tweets promoted in

users’ streams. Before long they could

also buy promotion for their accounts

and placement in the site’s list of

trending terms. But as the company

was getting its business legs under it,

it was also undergoing turmoil at the

top: that October Williams stepped

down as CEO, and Costolo, who as

COO had spearheaded the monetiza-

tion push, replaced him.

Within a few months Williams

and Stone left the company; Dorsey

remains involved as executive chair-

man but splits time with his new

startup, the mobile-payments service

Square, which quickly encompassed

a larger part of his paper fortune.

The revenue-focused Costolo is now

the company’s driving force.

As the S-1 makes clear, his origi-

nal promotion-buying model has its

of Discovery Communications, “and

there’s not many that have that.”

Enter Twitter, whose users, unlike

Facebook’s, see one another’s posts

in real time, which allows for spon-

taneous public conversations. Those

conversations frequently center on

television: In one study of users in

the U.K. a full 40% of tweets men-

tioned TV shows. In 2012, 32 mil-

lion Americans tweeted about TV,

according to nielsen. When enough

people are interested in talking about

the same show at once, the results

can be impressive.

In June about 3 million peo-

ple tuned in to Discovery to watch

acrobat nik Wallenda’s tightrope

walk across an Arizona gorge. As he

crossed, the rate of activity on Twit-

ter rocketed, peaking at 40,000 mes-

sages per second as the walk neared

its conclusion. By the end the event

drew an audience of 13 million view-

ers and generated 1 million tweets.

While it’s impossible to determine

how many viewers tuned in after see-

ing tweets about it, Discovery’s Per-

rette attributes at least some of the

spike to “not having to wait until to-

morrow to be part of the watercooler

conversation.” The network fed the

fre by posting celebrity tweets on the

broadcast during Wallenda’s walk.

Discovery is one of more than 40

networks that Twitter’s TV team,

led by Fred graver, meets with at

least quarterly. A former program-

ming executive at MTV networks, he

holds regular “boot camps” to teach

producers and writers about the

platform, coaches actors and hosts

on using it to build their “personal

brand,” suggests social media inte-

grations—whether featuring viewers’

tweets on air or letting them vote by

tweet—and helps remove any tech-

nological obstacles to implementing

them. “It’s a little bit of a brave new

world,” graver says. “We’ve never all

gone camping together before.”

The purest expression of Twitter’s

let’s-proft-together philosophy: Am-

“It’s the frst time

the fact of what net-

work it was on doesn’t matter to people.”

T

W

80 | FORBES OCTOBER 28, 2013

FORBES

twitter

sumably encouraging ad buyers to

carve out a chunk of their budgets for

social media follow-ups.

“you might have 500,000 people

watching a specifc episode of Break-

ing Bad, but you have millions of peo-

ple participating in a conversation

around it,” says Bonin Bough, head of

global media and consumer engage-

ment at the packaged-goods giant

Mondelez International, whose com-

pany has seen efectiveness for TV

spots double when accompanied by a

social media push.

Mondelez scored one of the great

spontaneous marketing coups of re-

cent years following this philoso-

phy. When the lights went out at the

Super Bowl this past February, Mon-

delez’s Oreo brand, a Super Bowl ad-

vertiser, pushed out a tweet—“Power

out? no problem. you can still dunk

in the dark”—that instantly went

viral, retweeted more than 14,000

times. “We efectively won the larg-

est advertising platform in the United

States,” says Bough. “That’s a mas-

sively concrete win for us.”

Companies like Mondelez will

soon be able to measure the efect.

nielsen bought another analytical

startup, Socialguide, last year, and

will shortly unveil the nielsen Twitter

Television Rating. Developed in con-

cert with Twitter, it purports to weigh

the social engagement around TV

content. Bain will now try to sell mar-

keters on “a Moneyball opportunity”:

buying shows with lower traditional

ratings but with more interaction—

with the balance of their ad budgets

coming over to Twitter. Broadcast-

ers will presumably begin garner-

plify, a program used by more than

35 networks and other broadcasting

partners to distribute short video-

clips. Each clip is preceded by a short

ad, which Twitter and the partner

sell jointly.

Here’s how it works: Say Detroit

Lions receiver Calvin Johnson scores

a spectacular touchdown during a

Thursday night game on the nFL net-

work. The league, an Amplify partner,

tweets out a clip to its 5.1 million fol-

lowers with a six-second commercial

for Pepsi and pays to have it promot-

ed. The league and Twitter both make

money—they’ve already booked more

than $10 million in commitments—

and the nFL network gets the beneft

of added viewership from users who

see the tweet and opt to tune in.

Essentially, the league has turned

its own promo into inventory it can

monetize. Meanwhile, Twitter gets to

serve its users premium video con-

tent it didn’t have to buy. “It’s a great

consumer experience,” says Bain, the

revenue chief. “Tweets help drive

ratings, and interesting content helps

drive tweets. It’s a self-propelling

ecosystem.”

In February, though, Twitter

moved aggressively past just promot-

ing content, paying $67 million for

Bluefn Labs, a startup that used se-

mantic analysis to tie social media

chatter to television (Bluefn co-

founder Deb Roy became Twitter’s

“chief media scientist”). This tech-

nology allows marketers to push ads

to Twitter users who have recently

watched television commercials for

the same products, reinforcing the

message while it’s fresh—and pre-

ing higher rates for shows previously

considered just beloved runts.

HE POST-IPO TWITTER will look dif-

ferent—literally. For its

new television era the

company has been test-

ing out diferent de-

signs, include a “TV

trending” box that appears in users’

timelines to highlight popular shows

and a “stream” that allows users to

view only TV-related discussions.

Such moves will be necessary to jus-

tify a valuation akin to that of a hot

Internet stock, despite an S-1 that

confrms domestic growth has slowed

to a crawl. About 14 million people

signed up last quarter—13 million of

them were from overseas, where each

user proves only about one-seventh as

lucrative.

According to Brian Blau, a tech-

nology analyst at gartner, Twitter’s

TV strategy “is probably the best rev-

enue story they’ve got right now,”

and it could solve their audience

issue, too. “If all of these shows start

to advertise Twitter as part of their

marketing and branding, it could

drive users, because they have a lot

more viewers than it has users,” he

says. How much money does Blau

think is at stake for a company that

next year will take in $950 million,

according to eMarketer’s projection?

“Could it be a billion-dollar business

for them? That’s hard to imagine in

the near term, but the sky’s the limit.”

That seems to be the forecast for

its IPO price as well, which explains

why Twitter will grab every watt of

borrowed star power it can get. Back

at the Emmys, there’s plenty on hand.

Breaking Bad’s Bryan Cranston stops

by the Twitter Mirror for a quick

snap. So do Claire Danes, Stephen

Colbert, Kerry Washington and even

Bob new hart. When someone asks

Conan O’Brien to pose, he quips, “So-

cial media? That stuf is never going

to catch on.” Then, like everyone else,

he steps up and mugs for his selfe.

Twitter’s TV strategy “is probably the best revenue

story they’ve got right now.”

T

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FORBES

50 Best small COmpanies THE LIST: page 86 • EnTrEprEnEurS cLInIc: page 90 •

“If we hadn’t pivoted,

we’d be out of business today”:

Shutterfy cEo Jefrey Housenbold.

OCTOBER 28, 2013 FORBES | 83

mILd IndIgESTIon —AnnIE’S: page 92 • THE cHIpS ArE up—InvEnSEnSE: page 98

Darwin’s Digital Darlings

Some dinosaurs from Web 1.0 that you probably thought were long dead have surged back onto our annual list of America’s

Best Small Companies. Here’s how they survived—and thrived.

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coming to life, much less taking investor money.

At the height of the frenzy on Mar. 10, 2000,

when the Nasdaq closed at 5048.62, just under

400 Internet companies had a total market

capitalization of $1.3 trillion. By Oct. 9, 2002 the

tech-heavy index had scraped 1114.11.

Helping to pull it down were some hideous

ideas and paragons of

miserable execution.

Among them:

•Pets.com raised $83 million in a February

2000 IPO and spent millions in TV commercials

fronted by its sock puppet. It didn’t sell much in

the way of dog food and kitty litter, though, and

had to liquidate that November.

•Backed by gold-plated venture capital frms,

online grocery business Webvan went public in

March 2000, raising $375 million, but expanded

far too quickly and went bankrupt in July 2001.

Jef Bezos resurrected it in 2007 as Amazon-

Fresh.

•Founded in 1994 as Beverly Hills Internet,

GeoCities grew into the third-most-popular

website (as a way for users to group content)

when Yahoo bought it for $3.6 billion in January

1999. It died slowly over a decade.

But out of the wreckage there also emerged

some notable public and private survivors, bat-

tle-hardened for their struggles. Priceline.com,

Pandora, eHarmony and Angie’s List were all

created in those frothy

times and adapted re-

peatedly to stay alive.

Shutterfy of

Redwood City, Calif.

learned to reboot the

hard way. Founded

in 1999, it sold and

mailed prints of digital

photos back when an

Olympus C-2500L,

with an astonishing 2.5

megapixels, sold for

just under $2,500. The

startup had pedigreed

backers who included

Netscape billionaire

Jim Clark and Silicon

Graphics’ George

Zachary, who led ven-

ture rounds eventually

totaling almost $90

million.

The tech crash was damaging but not fatal.

Two weeks into his new job,

Stamps.com’s CFO Ken McBride

started slashing the frst of 485

workers—87% of the staf. It was

October 2000, six months after

the initial popping sounds of the dot-com im-

plosion, and the electronic-postage company

was spurting gobs of red ink. Just a year earlier

Stamps.com had gone public, raising a stagger-

ing $450 million in two oferings.

Back then investors didn’t seem to care that

the company had lost $56 million on revenue

of $358,000 in 1999; they bid up the share price

to $88. But within a year the price had fallen to

$2.25. Almost the entire senior management had

quit. Hundreds of Aeron chairs sat empty in the

company’s 90,000-square-foot headquarters in

Santa Monica, Calif. Stamps.com fnished out

2000 losing $213 million on $15 million in rev-

enue. “It was not a fun time,” says McBride, 45,

who has been CEO since 2001.

The succeeding years haven’t always been

amusing, either. But today, after years of refocus-

ing, Stamps.com has determinedly pulled out

of a death spiral, netting $33 million on revenue

of $123 million over the most recent 12 months.

So, too, have a couple of other members of our

annual list of America’s Best Small Companies—

online photo printer Shutterfy and j2 Global,

the messaging and communications company.

All three were conceived during Web 1.0.

And like many of their dot-bomb brethren and

sisters, they raised obscene amounts of pri-

vate or public money on the strength of a story,

rather than a business plan, much less a real

product or service. All nearly perished during

the meltdown—and by the laws of reason prob-

ably shouldn’t exist at all today. But the best

entrepreneurial companies have always lived

by their wits—often the diference between life

and death—and can sometimes outlive their

founders. By pivoting, refocusing and acquir-

ing other key companies, Stamps.com (No. 32

on our list), Shutterfy (31) and j2 Global (39)

have all found ways to reinvent themselves, to

survive—and thrive.

Revisiting the 1997–2000 tech boom is a

cringe-provoking history lesson. In those days

the world was lorded over by the likes of Micro-

soft, IBM, Cisco and Hewlett-Packard. AOL and

Yahoo were in rapid ascendance. Google was an

idea barely out of a Menlo Park garage. Amazon

and eBay went public then. So did dozens and

dozens of other startups that had no business

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EDucATION

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50Best small COmpanies in ameriCa

kEY

REvENuEs IN MILLIONs

sALEs GROwTH 5-YEAR AvERAGE

EPs 5-YEAR AvERAGE

cLOsE uP:

• CeO Jason rhode

has 19 patents in mixed-

signal technologies.

• Makes audio chips

used in smartphones,

camcorders, tablets and

media players.

• Over the next four

years the audio market

is expected nearly to

triple in size.

• Apple represented

82% of sales in the

company’s latest fscal

year.

50 Best small COmpanies stAMps.cOM, shutterfly, j2 glObAl

88 | FORBES OCTOBER 28, 2013

quisitions—seven of them in the last two years.

There must have been some survivor’s glee in

snapping up Kodak Gallery (formerly Ofoto),

Fuji’s SeeHere and Sony’s ImageStation. Its most

critical buy may have been the $333 million it

spent in 2011 for Tiny Prints, which makes cards

for weddings and births.

In the frst seven months

1 million customers spent

$93 million. Turns out that Tiny Prints also

feeds new revenue for photo books and other

products.

The recent purchase of Penguin Digital, a

mobile-app-development company, and This-

Life, a cloud-based photo-sharing and storage

service, is nudging Shutterfy in promising new

directions. The company is investing $35 million

or so in new smartphone and tablet services.

And to level out seasonal bumps—more than

half its revenue comes in the fourth quarter and

30% between Thanksgiving and Christmas—

Shutterfy is now earmarking production in of-

peak months for so-called enterprise printing:

direct mail for the likes of Dell, AT&T and the

Gap. While this segment has recently doubled, it

still makes up only 5%

of its $700 million in

sales and, we estimate,

a negligible share of

its $18 million in net

profts.

J2 Global has also

been buying its way

into higher-margin

businesses. Founded in

1995 as a way to deliver

faxes through e-mail,

the company began as

a cheaper alternative

to owning and operat-

ing a fax machine.

Today, incredibly, it

still processes more

than 1 billion faxes a

year for lawyers, doc-

tors and others who rely on delivery confrma-

tion and phone records.

During its yeasty days “everyone was read-

ing every day about everybody making millions

online,” recalls Hemi Zucker, j2’s CEO, who

joined in 1996. Cofounded a year earlier by Jaye

Muller, a musician who kept missing his faxes

and voicemails while on tour, JFax (as it was

then known) began in a one-room ofce in Man-

Shutterfy lost $18.5 million on sales of $7.5

million in 2001, cut 25% of its workforce and

recovered enough to post its frst annual proft

in 2003. A far greater threat came from much

larger competitors: HP’s Snapfsh, Kodak’s

Ofoto and Sony’s ImageStation, which started

price wars as early as 2000, forcing Shutterfy

to give away 85% of the 4-by-6-inch prints for

which it otherwise charged 49 cents. By 2005,

when Jefrey Housenbold, 44, became Shut-

terfy’s fourth CEO, 58% of the company’s sales

came from prints, the 4-by-6s now down to 19

cents an image. “Our margins were shrinking,

and we had to diversify,” Housenbold recalls.

He had to do it quickly, too, since investors

were nudging Shutterfy to go public. “The frst

day on the job I had a 30-minute introduction to

the company, and I spent the rest of the day in-

terviewing banks.” A closer look at the fnances

revealed the obvious: The photo print business

was rapidly approaching a vanishing point.

Housenbold, an eBay and AltaVista veteran,

had the stature to sway investors and rethink

the company. Shutterfy had recently launched,

but not pushed, a $29.99 photo book. Why not

also ofer an array of high-margin personal-

ized products—calendars, greeting cards, slide

shows, apparel and photo-based items? “If we

hadn’t pivoted,” says Housenbold, “we’d be out

of business today.”

Peddling new products via advertising and

diferent combinations of direct and integrated

marketing, Shutterfy also made strategic ac-

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mike FiFer, sturm, ruger & CO.

(nO. 5) the most important incentive is

proft-sharing for all our employees and

contractors. We allocate 15% of pretax

profts every quarter. the frst year it

averaged less than 5% of pay. Now it’s

more than 30%, and everyone is pulling

together in the same direction.

Bryan shinn, u.s. siliCa hOlDings

(nO. 8) recognize the small things. you

don’t have to wait until someone has a

major accomplishment. Don’t be afraid

to challenge the rules or do something

unconventional around reward and

recognition. just calling somebody up

to say, “thank you,” or fnding out what

they like to do in their spare time and

rewarding them with it—that really goes

a long way and can be tremendously

motivational for a team.

Jim kOCh, BOstOn Beer COmpany

(nO. 13) the best way to motivate is

to lead by example and encourage

creativity. I call it the “string theory.”

In the middle of graduate school I became an instructor with Outward bound. At

the beginning of each four-week course I gave everyone a supply of Alpine cord (a

kind of string for lashing gear, pitching tarps, etc.). consistently, if I gave my group

plenty of string, they would run out and need more. but if I gave them less and told

them they had only two-thirds of what they really needed, they would get incredibly

creative and make that cord last. I learned that culture and values can substitute for

money and resources. since we were on a tight budget in the early days, we used

every piece of “string” we had, and that created a corporate culture of innovation

and creativity. I’ve found that this motivates people to do the best and achieve ter-

rifc results with what they are given.

Cheri Beranek, ClearFielD (nO. 14) In the early days we didn’t have many suc-

cesses, so we hung a ship’s bell that we ran with every $10,000 order. later, as

we grew, we hung a $100,000 bell. When we got our frst million-dollar order, we

didn’t yet have the $1,000,000 bell. but today, all three hang on our sales foor to

remind us where we’ve been—and where we need to go. the culture of celebration

builds upon our philosophy that while we may feel like a family, we choose to oper-

ate our business as a small town, with each individual motivated

to make active choices to continue to belong to the group—not

feeling any level of entitlement.

hattan’s SoHo. After receiving $25 million

in private rounds of funding, the company

moved to Los Angeles and went public in

July 1999, raising $74 million.

The good times didn’t last. J2 racked

up losses as its stock price plunged 97% to

28 cents. Under threat of being delisted by

Nasdaq, the company did a 4-for-1 reverse

split of its shares in February 2001. To stay

alive, j2 acquired its chief rival, eFax, in

late 2000 and jacked up prices on eFax’s

100,000 customers. Zucker also halved his

$8.7 million ad budget, equivalent to 62%

of its revenue. “I was almost fred because

I started to fght the idea of paying $1 mil-

lion a quarter each to Yahoo and AOL,” he

recalls. Profts came in 2002.

Cost-cutting carried j2 only so far. EFax

added branded products to a mix of e-mail,

fax and voice messages over the Internet.

Zucker has bought 40 or so companies

since, taking j2 into document manage-

ment, e-mail hosting and marketing ser-

vices, conference calls, business cloud ser-

vices, even digital media (the company now

owns publisher Zif Davis). “Everybody

says fax is not sexy, but it makes a ton of

cash,” says Zucker, 66. That ancient mode

of communication still accounts for 58% of

j2’s $446 million in annual sales and more

than 50% of its $121 million in net income.

Like j2, Stamps.com rediscovered its

greatest strength in a core business, though

it took much longer to fnd its way. Be-

tween 2000 and 2006 Stamps.com went

on very expensive detours into a shipping

company, an outft to print tickets and

vouchers, a venture in Dutch postage and,

most notoriously, personalized Photo-

Stamps (which it still sells). Focused on

small and home businesses, Stamps.com

now ofers lots of services around postage,

including printers, toner, scales, labels and

insurance.

Just one little problem, of course: the

company’s total reliance on the U.S. Postal

Service, which lost $15.9 billion in the lat-

est fscal year—and just defaulted again on

the $5.6 billion it owes its health care fund

for retirees. “It’s a challenge,” concedes

McBride, the CEO. But having hopped from

crisis to crisis for more than a decade, he’ll

probably fgure something out.

entrepreneurs CliniC

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50 Best small COmpanies AnnIE’S, nuMBER 10

mild indigestionThis natural foods maker has discovered the double-edged phenom of innovation: New products fuel growth—and nasty competition.

BY MEGHAN CASSERLY

“I live in a state of paranoia,”

says Annie’s CEO John Foraker.

“We’re watching our fanks.”

Numbers don’t lie. Iowa has one of the nation’s lowest costs of

doing business. We’re a right-to-work state with a cost of living

that’s below the national average. Ours is an environment built

for businesses to prosper. It’s why our advanced manufacturing

exports are up 179%. Why the growth of our bioscience

companies has far outpaced the nation. Why we’re home to over

94,000 of the nation’s most savvy finance and insurance pros.

Why our diverse economy is third in the nation in job growth.

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Annie’s, meanwhile, was in a jam. As a pub-

lic, but not publicly traded, company, it was

having trouble raising capital, critical to jump-

starting fat sales. In 1999 Foraker and Home-

grown invested $2 million, with an agreement

over time to buy out shares held by Withey and

Martin and take Annie’s

private. Within months

Martin was out and

Withey relegated to the title of “inspirational

president.” The company began distributing

to chains like Costco, Kroger and Safeway. So

began the Paranoid Era.

By 2002, a lousy year for IPOs and equities,

Foraker needed expansion capital. In stepped

Molly Ashby, whose Solera Capital invested $23

million for a majority stake, folding in Foraker’s

other foodstufs and moving the company from

Boston to Berkeley.

Three years later

Ashby and Foraker

led a buyout of An-

nie’s Naturals, organic

salad dressings and

condiments made by a

diferent eponymous

cofounder, Annie

Christopher of North

Calais, Vt. (It’s been

a so-so acquisition:

Those categories still

drive just 14% of total

sales.)

Came the food

wars. Pushing new

products, Annie’s hired

Bob Kaake, a former

executive at Power-

Bar and Nestlé—just

in time to deal with

Kraft’s 2006 launch of its organic mac-and-

cheese dinner, almost instantly becoming the

industry leader. When the food giant quickly in-

troduced single-serving Easy Mac Cups, Annie’s

decided to one-up Kraft by developing a version

with natural ingredients. Not so easy.

“We just couldn’t fgure it out—we’d work

on it and shelve it and take it back out when

new products became available,” recalls Kaake.

“It was a portion of the market that was expe-

riencing serious growth, and we couldn’t play.

It was incredibly frustrating.” After seven years

of tinkering with formulations—as Kraft sped

further ahead—Annie’s landed in 15,000 stores

When CEO John Foraker

describes his 14-year

stewardship of Annie’s,

he sounds like he’s los-

ing his mind. “I live in

a state of paranoia,” he says of competitors

that nibble like piranhas at his “healthy”

food products. “I’m as obsessed with the big

CPG companies as I am with the up-and-

coming brands”—Kraft Foods on one side,

smaller consumer packaged goods like Back

to Nature Foods on the other. As they say

in Catch-22, “Just because you’re paranoid

doesn’t mean they aren’t after you.”

A little maladjustment goes a long way in

this business. Over the last fve years sales

have steadily grown at a 17% average annual

clip. In the latest 12 months Annie’s earned

$11 million on $175 million selling nearly 150

healthier alternatives to junk food. (While its

meals, snacks and dressings claim zero artif-

cial favors, preservatives or GMO products, its

signature mac-and-cheese mix loses to Kraft on

calorie count and fats, saturated and otherwise.)

As more Americans grab organic foods,

Annie’s continued success seems probable. So

does Foraker’s recurring nightmare: that the

better he executes and the faster he expands,

the more competition he creates. “To stay

ahead, we’ve got to constantly move forward

and put as many points of diferentiation be-

tween us and them as possible,” he says.

Annie’s wasn’t originally conceived as an us-

versus-them proposition. Back in 1989 Annie

Withey and then husband, Andrew Martin, had

just sold Smartfood, a white cheddar popcorn,

to Frito-Lay for $15 million or so. An experi-

ment using Kraft macaroni and Smartfood’s

powdered cheddar yielded a tasty dinner for

the couple—and a new business, as Withey and

Martin peddled their wares at festivals and

food co-ops along the East Coast.

In 1995 Annie’s Homegrown completed a

direct public ofering, a little-used means of

raising money from customers. Advertised

with fyers in boxes of mac and cheese, the

DPO raised $1.3 million. Three years later, with

sales approaching $6 million, the company

came to the attention of Foraker, a recent Uni-

versity of California, Berkeley M.B.A. grad who,

with friends, had built Homegrown Natural

Foods, a $10 million (sales) company ofering

favored olive oils and mustards. Foraker was

looking for a new brand.

50 Best small COmpanies AnnIE’S

50Best small COmpanies in ameriCa

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CLoSE up:

• CeO sig anderman

has created four

companies, this one

launched in 1997.

• Originates 20% of the

nation’s new mortgages

every year.

• Its stock is up 400%

since its initial ofering

in 2011.

• According to a recent

report, the company

hired Morgan Stanley to

put itself up for sale.

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keep Annie’s products in households once kids

outgrow nursery school foods. To supplement

bunny-shaped graham crackers and ched-

dar snacks, the company has introduced more

grown-up-looking square-shaped incarnations.

Frozen pizzas and family- size frozen meals

like lasagna and a butternut-squash-tinged

macaroni and cheese are

appearing in 1,700 Target

stores this fall. The frozen-food aisle opens up

a sliver of a $28.4 billion market.

New opportunities sometimes lead to minor

mishaps. In January Annie’s issued a recall of

frozen pizzas after its contract manufacturer

of crusts discovered metal fragments from a

third-party four mill. The company started

replacement shipments with a new supplier

the following month, but distribution hasn’t yet

reached pre-recall levels. According to com-

pany flings, the event

whacked $1.4 million

from its bottom line

this year.

Annie’s has done

most things right. In

March 2012 Solera

Capital took the com-

pany public again,

raising $109 million.

Investors cheered and

have bid up the stock

159% since. Dealogic

called it the single

best IPO in over a

year—the hottest since

LinkedIn went public

in May 2011. Solera

did very well, indeed:

On the day of the of-

fering it recouped

$77 million of its $80

million invested over

ten years; subsequent

oferings netted an ad-

ditional $275 million;

its remaining 15% stake is worth $126 million.

Solera’s Ashby credits Foraker. “He took this

company through exceptional growth and tran-

sitioned himself from entrepreneur at a private

company to public-company CEO.” Foraker ap-

preciates the compliment. But, as you’d expect,

success is only feeding his fears: “The big food

companies are full of really smart people,” he

says. “We’re watching our fanks.”

this past July.

Sometimes getting out in front of a trend is

just a matter of hustle. “In 2010 we knew that

whole grain was getting more attention, and so

we updated our cookie products to include 8

grams of whole grain per serving,” says Kaake.

Snack sales have since more than doubled to $67

million.

While Foraker and Kaake boast about An-

nie’s R&D budget of $2.8 million (1.6% of sales)

it’s laughable next to Kraft’s $178 million spend.

They talk less about small but useful ideas pro-

vided by Annie’s little army of suppliers who

make all their products. “Pasta guys are coming

to them saying, ‘I’ve got a gluten-free, quinoa,

faxseed whatever,’ and Annie’s food scientists

are sitting back going, ‘Okay, let’s tweak this,’ ”

explains Mitchell Pinheiro, an analyst with

Imperial Capital and a fan of the company. “In a

way, they’ve outsourced their R&D for free be-

cause their suppliers want their business.”

Brand extensions in this business aren’t

exactly seismic breakthroughs. “They’re not

doing a lot of actual product innovation,” says

Laurie Demeritt, CEO of consumer research

frm the Hartman Group. “They’re looking to

their right and their left on the shelf and doing

it better or cleaner.” Annie’s skillet dinners—a

packet of organic pasta, spices and cheese to be

cooked with ground meat—are “simply taking

a page out of the Hamburger Helper playbook,”

she says. But it’s paying of.

So, too, is the recent strategy to “age up,” to

50 Best small COmpanies AnnIE’S

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SALES GRowtH 5-YEAR AvERAGE

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CLoSE up:

• CeO Julie smolyansky

became the youngest

female head of a

publicly held frm when,

at 27, she took over her

father’s kefr business

after he died in 2002.

• Russian immigrant

Michael Smolyansky

started making kefr

in his Chicago-area

basement in 1986.

• Ofers the world’s

largest selection of

kefr, a probiotic dairy

beverage.

• Sponsors such major

festivals as Sundance

Film, SXSW and South

Beach Wine & Food.

TO

M h

ER

dE

/ T

hE

BO

STO

n g

LO

BE

vIA

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TT

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Ag

ES

(LE

FT

)

A passion for natural foods inspired the company’s

eponymous cofounder, Annie Withey, back in 1989.

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The Chips Are UpA year after a management shakeup this microsensor company is chugging ahead. Now, if it could only get some of Apple’s business.

Ten-year-old InvenSense rarely causes a

ripple on anyone’s radar. But on Sept. 20, as

Apple’s iPhone 5s hit retail shelves, industry

players speculated that the San Jose, Calif.

components maker had hit pay dirt, mus-

cling out larger rival STMicroelectronics. Weeks before

the release, anticipating that long-awaited debut, inves-

tors bid up the stock 15%.

InvenSense plays in the $9 billion niche of the

semiconductor market called microelectromechanical

systems (MEMS), sensors with moving parts so small

they can be seen only through a microscope. The

components tell your smartphone or tablet if it’s being

tilted, twisted, shaken, turned left or right and how

fast; compass sensors indicate which way is north and

help power onboard GPS.

BY KARSTEN STRAUSS

FORBES

50 BesT smAll COmpAnies invEnsEnsE, nuMbEr 4

“You will see a

marked diference

in the company”:

InvenSense CEO

Behrooz Abdi.

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2003, developing an ingenious MEMS fabrication pro-

cess that bonded all chip components into one package,

simplifying manufacture and improving quality. Rivals

were making bulky, high-cost products, mainly for car-

makers. “I looked at that and said, ‘Ah, I can do that bet-

ter and keep it under $5,’ ” Nasiri recalls.

He also bet early on the consumer end, persuading

Artiman Ventures and Partech International to kick in

$8 million. In 2006 Nasiri started shipping gyroscopic

image-stabilization components to Sanyo, Minolta and

Fujitsu for their digital cameras. Two years later its gyro-

scope sensors were embraced by the Nintendo Wii game

console, adding $50 million to the top line.

Nasiri also had his eye on mobile devices. The ar-

rival of the iPhone, which had an accelerometer sensor,

opened up a market for MEMS chips, but Nasiri found it

hard to strike deals with handsetmakers. “They weren’t

willing to take any bets on any new functions unless

Apple had embraced it,” he says. That happened in 2010,

when the iPhone 4 included an STMicro gyroscope. By

then every smartphone producer had to have one, and

Nasiri found work among Android devicemakers.

A 2011 IPO, raising $75 million or so, gave a payout to

VCs and employees, who then owned 37% of the com-

pany, and a booster shot to R&D and the sales force.

InvenSense then controlled 10% of the consumer MEMS

market; today it’s nearly 40%, according to Abdi. And

drawing excellent reviews. “Their device is superior,”

says Andrew Uerkwitz, an analyst at Oppenheimer.

What’s next? Expansion. “Steve brought the company

from the kitchen table to a billion-dollar valuation,” says

Joe Seeger, director of MEMS development and an early

hire. Rapidly growing along with worldwide smartphone

sales, sensors should account for almost half of the $12

billion in MEMS chips by 2017.

Over the past year InvenSense has doubled capacity

and added 42 engineers. It’s investing heavily in software

that sits on a miniprocessor attached to sensors that han-

dle simple computations that otherwise fall to a phone’s

or tablet’s main processor. “The sensor should be smart

enough to do at least some lower-level activities and save

the battery,” says Abdi.

Sensor technology will push into new areas, like air

pressure and accelerometer devices that augment GPS

and indoor navigation, pedometers that serve as activity

monitors, and image stabilizers for cameras in smart-

phones. “The cloud is getting smarter,” says Abdi. “It’s

going to sense where you are, what you’re doing and how

you’re doing.” It’s easy to see how sensors could play a

role monitoring the elderly, along with other health care

applications.

“You will see a very marked diference in the future

of the company,” he says. Maybe even in the next tear-

down of an Apple device.

As tech bloggers ripped open the latest iPhone to anato-

mize its guts, a ritual known as a “teardown,” you could

sense defation. Inside: an STMicro gyroscope, a compass

made by Asahi Kasei Microdevices and a Bosch Sensortec

accelerometer. InvenSense shares opened 3% lower. No

matter. The stock more than recovered within a week—

it’s up 60% this year—as investors recovered their senses.

The company has shipped 120 million or so units this year

to Samsung, Motorola, BlackBerry, HTC, Acer, LG and

the Nintendo Wii—70% of multi-motion-sensor Android

phones and 80% of sensing tablets. Over the most recent 12

months it netted $54 million on revenue of $208 million.

Another tumultuous, if little noticed, week in the life

of InvenSense. Hardly anyone seemed to register the seis-

mic change last October, either, when the board ousted

founder and CEO Steve Nasiri and replaced him with

tech veteran Behrooz Abdi. It was a classic entrepreneur-

ial putsch: Get rid of the visionary, do-it-all-yourself guy

and bring on the management expert who can scale the

company—an event that long predates John Sculley’s up-

ending Steve Jobs.

“Some board members wanted to infuence day-to-

day direction of the company,” says Nasiri, 58, who now

consults to startups. “I disagreed.” Abdi, 51, who did time

at NetLogic Microsystems, RMI Corp. and Qualcomm,

sees it diferently. “As we get bigger, it really gets more

complex,” he says. “People felt it needed a new phase of

leadership.” Abdi consults with nine vice presidents be-

fore making most decisions.

For a long time InvenSense was Nasiri. The Iranian-

born engineer started it with $500,000 of his own in

“Some board members wanted to infuence the direction of the

company; I disagreed”: ousted InvenSense founder Steve Nasiri.

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102 | FORBES OCTOBER 28, 2013

Battered by p.r. disasters and shrinking margins, Micky Arison, the billionaire chairman of Carnival, brought in an agricultural executive to right the ship. Now investors are headed for the lifeboats.BY CALEB MELBY

Late on Valentine’s Day

Micky Arison, Carnival

Corp.’s billionaire chair-

man and CEO, f nally lost

his grip on his company.

Three tugboats were dragging the Car-

nival Triumph into Mobile, Ala. to un-

load 3,143 exhausted passengers after a

f re destroyed the ship’s power and pro-

pulsion systems, leaving them strand-

ed at sea for f ve days. Raw sewage

leaked from toilets. The air-condition-

ing stopped working. Passengers moved

their mattresses into hallways, away

from the smell and the still heat of their

rooms. Signs on the deck, painted on

sheets and robes, sent desperate mes-

sages via the voracious media: “We R

Not OK,” “R.I.P. Triumph” and one par-

ticularly apt pun, “Ship Happens.”

Yet Arison, who inherited the cruise

industry’s juggernaut and expand-

ed it by buying up smaller rivals, was

nowhere to be seen. The Miami Heat

owner was on Twitter, blithely re-

minding fans on Feb. 11 that standing-

room-only tickets were available for

an upcoming game against Portland. It

wasn’t his f rst lackluster performance

during a corporate disaster. When the

Carnival-owned Costa Concordia ran

aground in Italy a year earlier, kill-

ing 32 people, Arison was a media no-

show, too.

“I’ve always been a behind-the-

scenes CEO,” Arison told FORBES by

phone from one of his two 200-foot

superyachts, cruising of the coast of

Monaco in August. “I’ve let the brand

CEOs and the marketing guys be the

THAT

Ja

So

n M

ye

rS

Fo

r F

or

Be

S

OCTOBER 28, 2013 FORBES | 103

sinkinG FEELinG

The captain

is defi nitely

courageous:

New CEO Arnold

Donald faces a

daunting list of

to-dos at Carnival.

104 | FORBES OCTOBER 28, 2013

FORBES

on the move — carnival corp.

possible to our guests.” Others had a

diferent take: “Once again,” Morgan

Stanley analyst Jamie Rollo wrote, “in-

vestors need to look at least two years

out to make the shares look cheap,

[and] assume a perfect recovery.”

A “perfect recovery”

would be a tall order

for anyone, and Donald

seems as unlikely a sav-

ior as imaginable. He

spent the bulk of his career at Mon-

santo (he joined the Carnival board

in 2001), moving from marketing up

through the ranks of management.

Under his charge the lawn-and-gar-

den division saw revenues jump from

$40 million to $200 million between

1988 and 1992, crushing rival Ortho—

a division of Chevron—in the pro-

cess. A year later he was promoted

to president of the entire agribusi-

ness division, which accounted for

half of the company’s $4 billion in

revenues. After that he and a friend

bought the Equal sweetener brand

from his former company. Donald

ran the company through 2003 be-

fore retiring as chairman two years

later. (It subsequently went bankrupt

and was sold of in 2010.) But while

those who knew him at Monsanto

say he’s formidable (he has a “golden

touch,” says former Monsanto CEO

Dick Mahoney), the fact remains

that he has no hands-on experience

running a vacation or transporta-

tion company—let alone the biggest

one in the world. “[Donald] is an un-

known quantity,” says Josh Herrity,

senior leisure analyst at Telsey Advi-

sory Group.

Donald shrugs of such doubts,

maintaining that he has a clear plan

for Carnival. “Here’s what success

looks like,” he says, leaning into a

conference table in his temporary

digs while Arison’s old ofce is being

cleared out down the hall. “Our em-

ployees feel very confdent in the fu-

ture of the company. They legitimate-

ly feel like winners. For that to hap-

ing. A month later Donald remained

irrepressibly on message during an

interview with FORBES at Carni-

val’s gleaming glass headquarters in

Miami. “We need to get back to what

this is about,” he says. “This is vaca-

tion. This is fun!”

Some vacation. Donald has to cut

costs, rationalize a hodgepodge of

brands, make Carnival’s huge feet

more fuel-efcient and draw reces-

sion-weary vacationers back aboard.

Underscoring the degree of dif-

culty, in late September Carnival an-

nounced a 30% earnings drop in its

third-quarter results and forecast

fourth-quarter income below analyst

estimates. Donald kept a brave face

in a note to FORBES after the results,

saying “long term fundamentals are

sound and our opportunities numer-

ous. This bodes well for enhancing

shareholder value as we stay focused

on delivering the best vacation value

more upfront focus of the company.”

That doesn’t wash in a crisis,

though, and his invisible perfor-

mance was the fnal straw for many

investors. Over the past decade, since

Carnival’s last big acquisition, P&O

Princess, the $15.4 billion (revenue)

company has proven largely inca-

pable of organic growth. Carnival’s

proft margins plunged by two-thirds

over that period, a negative trend line

accelerated by soaring fuel costs. The

stock for the past ten years has been

fat, versus a 25% gain for its near-

est competitor, Royal Caribbean, and

a 60% rise for the S&P 500. Investors

pounded shares down 15% amid the

failure of Triumph.

It’s been a huge comedown for the

largest vacation company in the world,

created in a daring string of mas-

sive acquisitions that made Carnival

a household name and turned Arison

into a multibillionaire and a darling of

the business press in the late 1990s. “I

don’t have the conviction in the name

that would justify the valuation,” says

Sandy Villere, a New Orleans-based

investment manager who sold his

frm’s entire Carnival stake, former-

ly one of its top ten holdings, in Sep-

tember. “I’m glad we’re out of it. The

crises at the company—one after the

other after the other. Where’s the last

shoe going to drop?”

In June that shoe was Arison him-

self. After 34 years running the com-

pany, the 64-year-old, who has a net

worth of $5.9 billion (buttressed re-

cently by the company’s fat dividends),

announced he would be handing over

the CEO reins to Arnold Donald, a for-

mer senior vice president of agricul-

ture and chemical titan Monsanto.

A pesticide guy running a cruise

company? Arison, who remains

chairman, handpicked Donald, a

Carnival board member who hasn’t

actively worked at a company in a

dec ade. He does, however, know how

to talk. The day after Arison’s an-

nouncement, Donald was chatting

up Charlie Rose on CBS This Morn-

Micky ArisonNet Worth: $5.9 Billion (September 2013)

Age: 64

resideNce: Bal Harbour, Fla.

educAtioN: Dropout, University of Miami

MAritAl stAtus: Married

childreN: 2

oN Forbes lists: no. 70 on Forbes 400

(no. 68 in 2012); no. 211 worldwide

alic

e +

cH

riS

pH

oto

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ap

Hy

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106 | FORBES OCTOBER 28, 2013

FORBES

on the move — carnival corp.

who worked with Ted since Carni-

val’s earliest days. “He’s a bit on the

shy side, but he was a quick study.”

Ted’s big innovation was downgrad-

ing the cruising experience, thus

making it af ordable for the mid-

dle class. The company posted its

f rst prof t in 1975. Ted named Micky

president of Carnival in 1979. While

Dad retained title of chairman, it was

Micky’s ship to helm.

Father and son took the compa-

ny public in 1987, taking $400 mil-

lion of the table while keeping 80%

of the company’s voting rights. They

then bought back stock cheap during

the ensuing market crash, leaving the

company f ush with cash and hungry

for acquisitions. After failing to take

over Royal Caribbean in 1988, Car-

nival acquired Holland America for

$625 million the following year.

Pretty soon Carnival boasted the

nickname “Carnivore Cruise Lines,”

gobbling Britain’s Cunard and Se-

attle’s luxurious Seabourn in 1998,

followed by Italy’s Costa Crociere

pen, we have to consistently exceed

guest expectations; we would then

have to show dramatic increase on

return on invested capital, free cash

f ow and earnings. Which means

our stock price would be up and our

shareholders would be happy.”

If that sounds like little more than

a f nance textbook primer, it also

misses a key point: It’s not enough to

exceed customer expectations if you

don’t have enough customers.

The f nancial crisis crushed Car-

nival’s ticket sales, and the Concordia

and Triumph disasters did a similar

number on the company’s reputation.

Carnival’s research shows that these

disasters don’t af ect repeat custom-

ers’ decisions to go on another cruise

but scare of would-be new cruisers.

Harris polling both before and after

Triumph shows that American con-

sumers’ trust, perceptions of quality

and purchase intent decreased across

the cruise industry following news

of the ship’s breakdown. Carnival

Cruise Lines’ scores in these catego-

ries dropped an average of 25%, send-

ing it to the bottom of the industry.

“Triumph really hit home here in

the U.S.,” says Telsey’s Herrity. “It was

in our backyard, and it really made for

some quick, grabbing headlines over

a four-to-f ve-day period. It became

even more top of mind for U.S. con-

sumers than Concordia.” It could take

two years for the Carnival brand to

recover from the incident, he says.

That brand took decades

to create. Micky Arison

was practically born on

a cruise ship. His father,

Ted, cofounded Norwe-

gian Caribbean Line (now Norwe-

gian Cruise Line) with one ship in

1966, and when he was forced out six

years later, he promptly started Car-

nival, again with a single ship, chris-

tened Mardi Gras, which ran aground

on its f rst voyage. Arison joined the

company as a sales rep in Florida.

“Selling wasn’t his natural personal-

ity, like his dad,” says Bob Dickinson,

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141,000-TON, $750 MILLION ROYAL PRINCESS LAUNCHED IN

JUNE. UNFORTUNATELY, A SEPTEMBER CRUISE

FEATURED A BLACKOUT, TOO.

In the wake of the Triumph fasco

Carnival Cruise Lines also began in-

stalling backup engines on its ships,

at a cost of $300 million, with more

backup-capability improvements on

the way. To save money the compa-

ny is building only one or two ships

a year right now—at an average cost

of $700 million each—down from as

many as four. The new ships rotat-

ing into Carnival’s feet are bigger

(allowing for more passengers and

higher profts) and more fuel-ef-

cient (fuel accounts for 20% of op-

erating costs).

Carnival is also turning to Chi-

na’s budding middle class to re-

store growth. With proft margins

for Asian cruises outpacing those of

American ones, two Costa ships have

been outftted with menus and decor

designed for Chinese tastes, and two

Princess ships have been redeployed

to Japan. “We think Asia is the next

great growth area for this business,”

says Carnival’s vice chairman and

COO, Howard Frank.

Donald acknowledges, politely,

that Arison isn’t comfortable with

all the changes. “Does he love the

idea of fguring out what areas need

to be centralized?” Donald asks. “He

doesn’t necessarily particularly enjoy

that. That’s my job.”

But it’s still Arison’s company—

he remains Carnival’s largest share-

holder with 29.3%. Will he meddle?

“There is potential for that,” says Ste-

ven Wieczynski, a managing direc-

tor at Stifel Capital Markets. “This

wasn’t open market. [Donald] was

handpicked, and Micky will still basi-

cally control the company.”

Arison waves of those fears.

“There’s going to be a difcult peri-

od for me to adjust to it, but it works

well with my management style,” he

says. “I have no problem turning over

the reins to somebody. I don’t think

Arnold would have taken the job if

he didn’t think that was the case.”

Or maybe he just didn’t know how

rough the seas might get.

in 2000. Then came the $5.4 billion

P&O Princess purchase, engineered

to block an announced merger with

Royal Caribbean (the British press

dubbed it “gunboat diplomacy”).

“I’ve always said I really could

care less about market share,” says

Arison. “When I say that, now hav-

ing 50% of the world market share,

it doesn’t sound quite as genuine as

when we were the smallest player.”

All this dealmaking cre-

ated one of the most

complex transporta-

tion companies in the

world, moving 10 mil-

lion passengers a year—20% more

than the population of New York

City. Under Arison each of Carni-

val’s ten brands maintained wide

freedom. Each has its own CEO, and

many keep their ofces in the same

geographical locations as their opera-

tions. In some cases, like P&O, where

shareholders were especially proud

of the brand, this freedom was part

and parcel of the acquisition deal.

(“We’re brand builders, not brand de-

stroyers!” Arison pleaded to P&O’s in-

vestors at a special meeting in 2002.)

Despite this belief in separate cor-

porate cultures, Arison inched to-

ward centralization in his last years

as CEO. He merged two Alaskan

tour companies as well as Carni-

val’s operations in Australia and vari-

ous back of ces. Donald promises to

move more quickly. “This business

was correctly built on the indepen-

dence of the brands,” he says. “When

there were a few ships that made a

ton of sense. When it was a feet it

made good sense. Now it’s an arma-

da. We have 102 ships. The industry

has grown around us. There’s a need

for much more coordination than

occurred historically in the busi-

ness.” He has promised to continue

fuel conservation eforts and consid-

er further back ofce mergers, and

hopes to centralize training for the

company’s 90,000 employees. F

OCTOBER 28, 2013 FORBES | 107

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108 | FORBES OCTOBER 28, 2013

FORBES

BEST BUSINESS SCHOOLS — REINvENTINg AmERICA: EdUCATION

At 27 Calvin Hunt fnally stumbled across his

frst great opportunity. The Atlanta native

and lifelong fshing fanatic had graduated

from Florida State in 2008 directly into

the teeth of the Great Recession. A shot at

a dream job in the corporate headquarters of Hatteras

Yachts in North Carolina vaporized as the tanking econ-

omy swiftly decimated the luxury-boat business. Instead,

for nearly four years Hunt toiled at a Hatteras dealer

in Orange Beach, Ala. servicing old boats, struggling to

sell new ones (“I think I sold three the entire time I was

there”). By the summer of 2012, his interest in the marine

business efectively scuttled, Hunt had relocated to Aus-

tin, Tex. to attend an unusual one-year M.B.A. program

focused on entrepreneurship at the Acton School of Busi-

ness. “The goal was not to earn an M.B.A.,” he recalls. “It

was to learn to start and run a business.”

That’s when his big break appeared. A month before

beginning business school Hunt ran into a friend inter-

ested in hydraulic fracking. The technique can require

transporting massive amounts of water across miles of

open desert, and Hunt and his new partner soon discov-

ered that long, fexible hoses would be superior to the

industry-standard 40-foot-long sections of stif aluminum

piping. The problem? Almost no one made hoses with

large enough diameters to be useful for the frackers.

ENTREPRENEURBOOT CAMP

Austin’s tiny Acton School features business-hardened teachers, real-world challenges and a murderous study schedule, all aligned to turning battle-

ready graduates into startup successes.

By michael noer

Michigan has the perfect recipe for success.

Say hello to one of the fastest-rising economies in the

nation. Recently ranked #1 for job growth by Newsweek and

home to one of the world’s largest concentrations of industrial

R&D, Michigan’s world-class research university system produces

a deep and growing pool of tech-skilled talent. With a business

tax reduction of over 80% and an unsurpassed quality of life,

serving up success in business is Pure Michigan.

1.888.565.0052michiganbusiness.org/FOR

cakefrosting

what happens when

meets

110 | FORBES OCTOBER 28, 2013

FORBES

BEST BUSINESS SCHOOLS — REINvENTINg AmERICA: EdUCATION

Inside the classroom Acton adopts

the same case-study technique used

by many of the best business schools,

particularly Harvard Business

School, where much of the material

was developed. Where Acton difers

dramatically from Harvard is in the

amount of time its students spend in-

side that classroom—5 months com-

pared with 18—and its cost, $49,500

compared with $127,000.

That’s because Acton students

spend their frst four months studying

online. During this prematriculation

period the budding entrepreneurs are

familiarized with the case method

and learn basic fnancial skills like

reading a balance sheet and discount-

ing cash fows. The time commitment

during “pre-Mat” is only 20 to 25

hours a week, allowing many students

to keep full-time jobs—and further

reducing the opportunity cost of the

degree.

The students pay for that relative

life of leisure during the second half

of the program, which runs from Jan-

uary to May. Study groups—assigned

by the faculty and carefully designed

to mix personality types, academic

strengths and prior work experi-

ences—meet daily at 6 a.m. sharp at

Acton’s brick headquarters just south

of the Colorado River. The students

review cases until classes start at 8,

when a rapid-fre discussion careens

Sensing an opening, Hunt swung

into action, frst locating a manu-

facturer of fre hoses in Erie, Pa.

and then busting his tail to line up

enough presales to convince the

manufacturer it was worthwhile to

retool its factory to produce bigger

hoses. By November he had secured

an exclusive North American distri-

bution deal, and by April, when the

frst hoses shipped, his Austin-based

Frontline Fluid Solutions had four

employees, was proftable and was on

track to reach an estimated $4 mil-

lion in sales its frst year.

What he hadn’t done in those

crammed and chaotic nine months:

drop out of business school. Incred-

ibly, Hunt had chosen

to give cheap equity to

his business partner so

he could devote himself

full-time to fnishing his

M.B.A. at the tiny 24-stu-

dent, ten-year-old Acton

School. The education,

he says, was worth the

dilution. “I felt like I

needed to fnish the pro-

gram to run the business

efectively,” he says.

Acton inspires

this sort of loyalty

because of its relent-

less focus on a single goal: educat-

ing aspiring entrepreneurs. The

curriculum discards the traditional

M.B.A. silos of fnance, accounting

and marketing to revolve around

the entrepreneurial cycle of creat-

ing, growing and selling a business.

Courses actually sport names like

“Opportunity,” “Raising Money,”

“Customers” and “Harvest,” and they

are taught exclusively by highly suc-

cessful entrepreneurs rather than by

traditional academics (according to

one oft-trumpeted fact, Acton profes-

sors have built businesses with $4.5

billion in assets “and counting”).

These volunteers—none takes a

meaningful salary—are entirely de-

voted to teaching. The current roster

of ten professors boasts an alpha-

bet soup of advanced degrees from

elite institutions (Harvard, Chicago,

Texas M.B.A.s; a Stanford Ph.D.; Rice,

Purdue M.S.s; a Columbia J.D.), but

they publish no research, and Acton

grants no tenure. Instead, borrow-

ing a page from Jack Welch’s famous

“rank-and-yank” system, the lowest-

rated teacher (as judged by student

evaluations) is asked not to return

the following year. (About 8% of the

students also fail to complete their

degree, a much higher percentage

than most top M.B.A. programs).

“I have found that teachers who

have either ongoing business experi-

ence or prior business experience

—and who focus on teaching, not

research—are intensely more valu-

able to students. Research is valu-

able to institutions and to society, but

teaching is teaching,” says Jef Serra,

a longtime Acton professor and serial

entrepreneur. After serving as CEO

of oil refner Philbro Energy prior to

its 1997 sale to Valero, Serra founded

a renewable energy company that

he sold for $125 million, an Austin-

based technology investment fund

and most recently—and most creepily

—Vida Capital, which is in the busi-

ness of buying life insurance policies

from the elderly for their value after

those people die.

THE STORY OF

ACTON CAN BE

READ AS AN

ELABORATE TALE

OF REVENGE AND

AN EXTENDED

PROOF OF

CONCEPT.

around the room from teacher to

student to student and back again. In

keeping with the Socratic method,

only questions are asked, no answers

are given. After classes end at around

noon, the prospective M.B.A.s dis-

perse to individually grind away at

the next day’s caseload, typically

until about midnight. One-hundred-

hour weeks are the norm.

It’s much harder sledding than

usual for M.B.A. programs, which

detractors often dismiss as “two-year

vacations” or “two-year job search-

es.” And all of that is before the more

unusual “challenges”—such as going

door-to-door in Austin selling highly

marked-up children’s books or nego-

tiating an 80% discount for a (not-

on-sale) item from a department

store—that Acton students must

complete or face dismissal.

“I’m just kind of in survival mode

here,” says Abianne Miller, class of

’13, during the fnal days of her spring

semester. “This isn’t my life. I’m

doing my relationship long-distance.

I’ve put everything on hold—this is

what I’m doing now.”

it is periodicAlly fashionable

to question the value of an M.B.A.

degree, especially as the number

awarded has rocketed. According

to the Department of Education,

American universities produced

more than 115,500 M.B.A.s in 2011,

up dramatically from a decade ear-

lier, and a recently published analysis

of PayScale.com data concluded that

starting pay for new grads has either

stalled or fallen slightly since 2008.

About 13,000 institutions world-

wide confer M.B.A. degrees, but only

557 of those are accredited by the

Association to Advance Collegiate

Schools of Business, an interna-

tionally recognized standard setter

that dates to 1916. An even smaller

subset—maybe 150—are considered

of high enough quality to be ranked

by one organization or another, and

only a handful of those—perhaps 60

DaviD Steel

executive vice PreSiDent

SamSung electronicS america

Transforming STEM Education One Community at a Time

Question: What does the Gowanus

Canal have in common with a wild hog

population in Alabama and a spruce

bark beetle infestation in the forests

of the Alaskan Peninsula?

Answer: each represent s an

environmental problem affecting

communities—in Brooklyn, New York,

in Moulton, Alabama, and in the tiny

bush village of Kokhanok, Alaska.

Moreover, each is a challenge that

has global ramifications. Pollution in

the Gowanus Canal is a microcosm

of global water treatment problems.

Feral hogs and spruce bark beetles are

examples of invasive species that are

laying waste around the globe, some-

times as a result of climate change.

But perhaps the most impressive thing

about these challenges are the practi-

cal, hands-on solutions that have been

proposed for them by students and

their teachers, based on the applica-

tion of STEM—science, technology,

engineering and math.

It’s all part of Solve For Tomorrow,

a national program initiated by Sam-

sung in 2010 in which middle and high

school students come up with solu-

tions for local problems using skills in

STEM subjects and then make a video

of their efforts.

“One of the biggest challenges in

STEM education is making it fun and

relevant,” says David Steel, executive

vice president at Samsung. “This

program gets the kids out of the class-

room and into the community.”

The team from Peter Rouget Middle

School in Brooklyn, for example, iden-

tified “the impervious surfaces that

cover our city” as a key factor in how

runoff overwhelms the city’s water

treatment facilities and pollutes local

waterways. Their solution? To install a

green roof on top of their school. Law-

rence County High School in Moulton

developed innovative methods for

tracking feral hogs. And students in

the village of Kokhanok, population

160, found a use for the estimated 7

million trees around their community

that had been infected by the spruce

beetle. The village is harvesting the

dead trees to fuel a high-efficiency

furnace that provides it with electricity.

In 2014, schools in 50 states and the

District of Columbia will be awarded

prizes and five national winning teams

will receive $140,000 each and an invi-

tation to a national awards celebration

in Washington, D.C. The contest, says

Steel, “helps kids see the impact

locally of what they’ve been learning.”

Colter Barnes, Kokhanok School’s

principal, agrees. Part of the school’s

winnings were applied to a new fiber

optic network for the village. As a

result, says Barnes, “we gain local

knowledge and global understanding.”

BrandVoice BY SamSung

fOrbES

“This program gets the kids out of the

classroom and into the community.”

DaviD Steel

executive vice PreSiDent

SamSung

electronicS america

112 | FORBES OCTOBER 28, 2013

FORBES

BEST BUSINESS SCHOOLS — REINvENTINg AmERICA: EdUCATION

program expanded—and Sandefer’s

one-year gig stretched to 12—he

began recruiting local businesspeo-

ple to teach. It was a popular deci-

sion. By Sandefer’s account his eight

part-time entrepreneur-professors

eventually taught 25% of UT’s elec-

tive hours. At the time the school had

140 full-time faculty members.

A clash and a quickie divorce,

which came in 2001, were probably

inevitable. “We had built a nationally

ranked, great program, and whenever

you do that in academia—and there is

money involved—understandably the

faculty wants to get back in the game,”

Sandefer says. “It was almost like, ‘You

amateurs have done a good job. Now

it’s time for the pros to take over.’ ”

Since Texas ofered a two-year de-

gree, Sandefer felt he had “stranded

about half the kids that had come to

UT for our program.” So “just out of

good conscience” he decided to ofer

a single, not-for-credit, 25-hours-a-

week “murderous” class the follow-

ing year. He thought that 10 students

would show up—130 did.

The following year 27 students

convened in a classroom that Sand-

efer borrowed from a local Catholic

schools—are selective, admitting 50%

or fewer of applicants.

“The bottom tier of this market is

just total schlock,” says John Byrne,

a longtime B-school chronicler who

now runs Poets and Quants, a popu-

lar blog for prospective and current

M.B.A. students.

But it’s equally clear that the high-

end schools—and their graduates—

are thriving. Five years after gradu-

ation the average salary of alumni

of the 25 top schools on FORBES’

ranking of the best U.S. M.B.A. pro-

grams is $159,000—versus $62,000

when they entered school. (Because

we evaluate only two-year degrees,

Acton is not ranked.)

“People tend to look at the aver-

age. Well, we aren’t working with

average,” says Paul Danos, dean

of the Tuck School of Business at

Dartmouth. “You can’t average ev-

erything out. People sometimes say

high schools in America are terrible

on average. It’s not true. There is no

average. There are some terrible high

schools, but we also have some of the

best high schools in the world.”

Danos says that 95% of Tuck grad-

uates fnd jobs within three months

of graduation, and some 60% typical-

ly go directly into high-prestige-and-

pay jobs in private equity, investment

banking or management consulting.

A little more than 5% immediately

take the entrepreneurial route.

Those are fgures that Acton is

striving to invert. “One of the rea-

sons we started this place was we

saw our best and brightest students

going into consulting, investment

banking, private equity— and they

would come back fve years later

making a lot of money and hating

their lives,” says Jef Sandefer, who

founded Acton after teaching at the

University of Texas’ M.B.A. program

for 12 years.

It seems to be working. Two

months after graduation 25% of

Acton’s class of 2013 were either run-

ning their own businesses or in the

process of starting one. Over a longer

time horizon the numbers are even

more impressive: A full 50% of all

Acton alumni describe themselves as

entrepreneurs and another 23% say

they will be running their own com-

pany “someday soon.”

in mAny wAys the story of Acton

can be read as an elaborate tale of

revenge and an extended proof of

concept. After studying petroleum

engineering at UT, Austin, Sandefer

got an M.B.A. from Harvard Busi-

ness School in 1986 (he would go on

to serve on various HBS boards for

more than 20 years) and then em-

barked on a lucrative entrepreneurial

career developing and leasing oil and

gas properties in the Gulf of Mexico

before running an energy-investment

fund from Austin. By 1989 he had

banked “hundreds of millions” and

wanted to go and teach for a year to

“clear his head.”

At the University of Texas’ busi-

ness school Sandefer helped create a

course on entrepreneurship, intro-

ducing the case studies and Socratic

method he was familiar with from

Harvard. As the entrepreneurship

Acton founder Jef Sandefer

Nurturing tomorrow’s innovators starts today.

As a technology leader, we look constantly towards the future. Through

the products and solutions we create, we are dedicated to helping the next

generation discover a world of possibilities.

That’s why we created Samsung Solve for Tomorrow, a nationwide initiative

to promote science, technology, engineering, and math (STEM) education

among students in grades 6-12. A successful STEM program creates critical

thinkers, increases science literacy, and empowers tomorrow’s innovators.

To learn more, please visit samsung.com/solve

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114 | FORBES OCTOBER 28, 2013

FORBES

BEST BUSINESS SCHOOLS — REINvENTINg AmERICA: EdUCATION

(for “my entrepreneurial journey”).

There is a sister school in Guatemala,

and Acton licenses portions of its cur-

riculum for a nominal charge. But the

school’s secret sauce—it’s hyperexpe-

rienced and ultradedicated faculty—is

tough to replicate.

“You can’t franchise it,” says

Miller, who now works full-time at

her startup, Cat Spring Tea, which

sells loose tea made from yaupon, the

only cafeinated plant native to North

America. “But there is enough here

that if you can get other people who

really do want to share this mission,

then yes, they will do a lot to make

that happen, to help them get over

the frst hurdles.”

school, each paying $37,500 for the

privilege. The Acton School of Busi-

ness—named for no discernible reason

after Lord Acton, the 19th-century

British politician famous for his bon

mot “absolute power corrupts abso-

lutely”—was born.

Or nearly so. Sandefer’s enemies

weren’t quite done with him. “We

didn’t know we needed to be accred-

ited,” he says, “Never did. Then we

got a phone call one day—and that

might have been triggered by some-

one at our former employer.”

Fortunately for Acton, Sandefer’s

great-grandfather had been the pres-

ident of Hardin-Simmons Univer-

sity, a small, Baptist school in West

Texas, for 31 years. Sandefer jumped

on a plane to Abilene, Tex. and told

the current president—whom he had

never met before—“I need an ac-

creditation within 24 hours or I am

out of business.” He got it. To this day

Acton operates under the auspices of

Hardin-Simmons.

“We are in a big battle between in-

creasingly hollow prestige that costs

a lot a money,” says Sandefer, “and

performance.”

Going forward, the biggest chal-

lenge for Acton is scaling the expe-

rience. Roughly 900 people from

around the world have paid $300 to

go through the school’s online ofer-

ing—the awkwardly named myEJ.com

Class of 2008 Class of 2014

5-year M.B.a. Gain years salary total1 as % of to Pre-M.B.a. 2012 tuition3 GMat rank sChool / loCation ($thou) exPenses2 PayBaCk ($thou) ($thou) ($thou) sCore

1 Stanford / Palo alto, Ca $100 42% 4.1 $80 $221 $118 740

2 ChiCago (Booth) / ChiCago, il 93 42 3.7 76 200 117 720

3 harvard / BoSton, Ma 80 34 4.0 80 205 127 730

4 PennSylvania (Wharton) / PhiladelPhia, Pa 74 32 4.0 80 205 117 720

5 northWeStern (Kellogg) / evanSton, il 73 34 3.8 73 176 116 710

6 dartMouth (tuCK) / hanover, nh 71 33 3.9 72 189 121 720

7 ColuMBia / neW yorK, ny 70 31 3.9 74 192 124 715

8 duKe (fuqua) / durhaM, nC 70 36 3.7 63 152 112 695

9 Cornell (JohnSon) / ithaCa, ny 68 35 3.8 59 155 118 700

10 MiChigan (roSS) / ann arBor, Mi 68 35 3.7 61 153 113 710

11 unC (Kenan-flagler) / ChaPel hill, nC 67 39 3.7 60 141 106 700

12 Mit (Sloan) / CaMBridge, Ma 67 30 4.0 70 185 120 710

13 uCla (anderSon) / loS angeleS, Ca 66 37 3.8 65 165 112 710

14 uC BerKeley (haaS) / BerKeley, Ca 65 35 4.0 71 175 108 715

15 virginia (darden) / CharlotteSville, va 65 33 3.8 67 158 113 710

16 Carnegie Mellon (tePPer) / PittSBurgh, Pa 64 35 3.7 60 135 112 700

17 BrighaM young (Marriott) / Provo, ut 64 56 3.2 50 109 44 670

18 yale / neW haven, Ct 62 32 3.8 54 144 116 720

19 indiana (Kelley) / BlooMington, in 62 44 3.4 50 120 91 680

20 ioWa (tiPPie) / ioWa City, ia 61 51 3.4 46 118 73 660

21 texaS-auStin (MCCoMBS) / auStin, tx 61 33 3.8 65 150 98 700

22 MiChigan State (Broad) / eaSt lanSing, Mi 60 51 3.3 45 105 85 645

23 nyu (Stern) / neW yorK, ny 59 30 3.9 60 165 115 710

24 eMory (goizueta) / atlanta, ga 58 37 3.7 60 140 92 670

25 MinneSota (CarlSon) / MinneaPoliS, Mn 57 39 3.4 52 121 98 690

1Five-year total compensation aFter graduation, minus the sum oF tuition, Fees and Forgone compensation. Figures are beFore taxes and adjusted For the time value oF money. 2m.b.a. proFits divided by sum oF tuition,

Fees and Forgone compensation. 3total tuition and Fees For out-oF-state students.

the 25 BeSt BuSineSS SChoolSan M.B.a. iS a MaSSive inveStMent at a leading SChool liKe Stanford, Where it CoStS, on average, nearly $300,000 in

tuition and forgone Salary. But the degree iS Still Worth it—at leaSt for a toP PrograM, WhiCh We ranKed BaSed on

return on inveStMent for the ClaSS of 2008. the average PayBaCK Period WaS 3.7 yearS verSuS 2.7 yearS a deCade ago.

F

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116 | FORBES OctOBER 28, 2013

FORBES

BEST BUSINESS SCHOOLS — HUMAN CAPITAL

now a salt-of-the-earth operator who

favors Timberland boots, denim and

a round of beers with the guys. But

UCIT is growing fast. If its 32-year-

old boss stays on track, his stake in

the company could be worth $5 million or more in a few

years—a target that young consultants can’t reach.

Cherun’s inspiration was a little-known but increas-

ingly popular course at Stanford called “Strategy 543: En-

trepreneurial Acquisition.” This second-year elective is

a fast-paced, two-week primer on how to become a one-

person version of KKR or Blackstone Group, carrying out

your own tiny takeover and installing yourself as chief

executive ofcer. This is the business-school equivalent

of Teach for America: a daring way to parachute into

high-authority jobs in unpredictable locales. TFA is for

idealists, S-543 for capitalists.

Every year second-year Stanford students like Che-

Halfway through business school, Rob

Cherun thought he was destined to work

at McKinsey & Co. The elite consulting

frm spent thousands to underwrite his

tuition at Stanford a few years ago, cer-

tain that the wavy-haired Canadian would join right after

graduation. But Cherun changed his mind. Even though

a consulting career seemed safe and prestigious, he de-

clared: “I wanted more volatility in my life.”

Today Cherun is holed up in a gritty industrial suburb

of Toronto, running UCIT Online Security. It’s a small

but fast-growing construction-surveillance company that

Cherun bought soon after earning his M.B.A. If McKinsey

stopped by, its consultants might snicker at the peeling

paint in UCIT’s ofces, the industrial-grade Coke machine

in the hallway or the mud-splattered GMC Terrain in the

parking lot. Cherun has jettisoned his old espresso-sipping

habits, his Prada shoes and his convertible BMW. He’s

TAKEOVER UNIVERSITYA wildly popular class at Stanford encourages M.B.A.s to take control of a real business.By george anders

Rob Cherun (right) and

Erik Mikkelsen became

a two-man KKR on the

outskirts of Toronto.G

Eo

RG

E S

iMh

on

i f

oR

fo

Rb

ES

*Source: 2013 Afl ac WorkForces ReportZ130889C 9/13

How will you help them?Call your local Afl ac of ce or download our Employer’s Guide:

afl ac.com/HCRGuide

Do your workers

understand health

care reform?

More than

7-10 U.S. workers

agree that health

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too complicated

to understand.*

118 | FORBES OctOBER 28, 2013

FORBES

BEST BUSINESS SCHOOLS — HUMAN CAPITAL

element of social service. Besides, he

fgures his general management skills

can help the facility expand and be

more efcient.

“You learn to hustle,” adds Abhi-

jit Phanse, a 2008 Stanford business

school graduate who now runs United

Layer, a data-center company nestled

into a onetime Macy’s warehouse on

the edge of San Francisco. Phanse

came into the job with plenty of engi-

neering and fnance expertise. But he

learned that he could add even more

value to the company by mastering

the art of sales, landing contracts

with customers such as the city of San

Francisco. “They don’t teach that at

business school,” he says.

Business schools’ own data show

how good—or bad—the deal-hunters’

destinies can be. Failure is com-

mon, according to an analysis of 150

alumni of Stanford and other leading

M.B.A. programs going back as far as

1983, well before S-543 began. Slight-

ly more than half the time, graduates

either can’t fnd a deal or end up with

a loss on what they do acquire. But a

few dazzlingly successful deals—with

100-to-1 payofs or bigger—create

not just overall proftability but also

an average annual return of 34%.

Among the epic successes: Asu-

rion, which provides lost-cellphone

insurance to millions of customers,

and ServiceSource, which handles

so many software renewals for tech

giants that it has become a publicly

traded company in its own right.

For Cherun, the son of an Ottawa

pharmacist, everything he heard in

business school about the acquisition

hunt sounded magical. Unable to win

one of the 40 ofcial spots in S-543

during the fall of 2010—his fnal

year at Stanford business school—he

implored class organizers to let him

do something useful, like arranging

guest speaker luncheons. Who could

say no? Before long the interloper

with the lunches had wiggled his way

into a few sessions.

Raising money to pursue acquisi-

run stampede into S-543 to

learn the essentials of rais-

ing money, fnding an ac-

quisition target and closing

the deal. Instructors Peter

Kelly and David Dodson—

two longtime entrepreneurs

and investors themselves—

take only 40 students per

session, and that doesn’t

come close to satisfying de-

mand. Months before this

autumn’s class began, every

slot was claimed, and an-

other 26 students hovered

on the waiting list. Frus-

trated aspirants will get a

second shot in the spring,

thanks to a new scheduling

expansion.

For 80% or more of

enrollees, the notion of

asking strangers across the

continent, “Can I buy your

company?” ends up being

too freaky for their tastes.

Some students treat the

class as a means to surface

investment targets, for others it’s

armchair tourism. That’s fne, says

Kelly. The world that he and Dod-

son describe is full of risks. It’s not

for the faint-hearted. Every lecture

or panel discussion is packed with

warnings about failed searches, hid-

eous operational snarls or companies

that go bust.

Listen to Nick Mansour, who in

the late 1990s thought he could get

rich by taking control of Clear Creek

Environmental, a liquid-waste-ser-

vicing company in Annapolis, Md.

Determined to learn the business at

its most basic level, Mansour early

on decided to accompany a clean-

up crew on a day’s errands. “We had

a large truck, a bunch of hoses and

some septic tanks to empty,” Man-

sour recalls. “How hard could this be?

Well, I pushed a lever the wrong way.

I got a bath—all across my overalls.”

He couldn’t change clothes until the

end of the day. The investment lin-

gered much longer. After three years

Mansour barely recouped the original

money his investors had put in. There

weren’t any profts to speak of.

Mansour returns regularly to

Stanford to share his woes. No matter

how challenging a picture he paints,

some students are undeterred. “Peo-

ple say: ‘That’s not going to happen

to me,’ ” he explains. “They’re opti-

mists. Everyone has to be thinking

that they’re going to be successful.

Otherwise, why would you do this?”

Mansour keeps chasing acquisitions

and thinks his latest deal, taking over

a health-related trade school in Ari-

zona, has great promise.

Among the new optimists is

Alex Stavros, a 2011 Stanford busi-

ness school graduate who now runs

CALO, a teen treatment center in

Lake Ozark, Mo. “It’s the middle of

nowhere,” Stavros cheerfully con-

cedes. But he grew up as the son of

missionaries in Peru and likes the

idea of running a business with a big

An alum of Stanford business school, Abhijit

Phanse honed his sales talents on the job as

CEo of data-center company United Layer.

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120 | FORBES OctOBER 28, 2013

FORBES

BEST BUSINESS SCHOOLS — HUMAN CAPITAL

ing-room performance. Early on,

Cherun’s daily duties included toting

about $15,000 of customers’ checks

to the bank. Now a stafer shuttles

the money—and peak days can reach

$275,000.

UCIT is on track this year to

book a bit more than $10 million of

revenue, double the company’s size

when he and Mikkelsen took over. A

new ofce in Vancouver is humming

after some early stumbles; a Calgary

rollout has been under way for a year.

Proft margins have shrunk slightly as

UCIT invests for growth, but software

upgrades are boosting human opera-

tors’ ability to monitor many cameras

at once, helping overall efciency.

Thrift has become a way of life.

Cherun cuts down on hotel costs

when he travels, couch surfng at

friends’ places instead. Mikkelsen

rents beat-up vans on his business

trips for as little as $20 a day, avoid-

ing costlier new cars. “We think a lot

about opportunity costs,” Mikkelsen

says. “If we don’t spend $300 on a

trip, that’s $300 that can go into a nice

dinner with customers or an extra bit

of marketing at a trade show—all of

which can win us new business. And

the value of that new business can be

way more than $300.”

Turning his back on the McKinsey

job has carried a short-term cost for

Cherun. He had to repay his tuition

subsidy within 90 days of graduation.

More recently he was about to board

a fight in Vancouver when he no-

ticed a former pal from his McKinsey

days getting on the same plane. “We

walked through the entryway to-

gether,” Cherun recalls, “and then he

headed left into frst class. I headed

right into economy. It was hilarious!

I couldn’t help but think: ‘That could

have been me.’ ”

Cherun’s obligations to UCIT may

keep him fying coach for a bit longer.

But he knows that successful entre-

preneurs eventually get to buy their

own jets—or airlines. That’s a leap

that consultants rarely make.

tions was easy, Cherun found. Four

Stanford instructors—including

Joel Peterson, chairman of JetBlue

Airways—volunteered to back him.

That helped attract specialty inves-

tors such as Search Fund Partners

in Menlo Park, Calif., which backs

dozens of business school graduates

in their deal quests. With Canadian

connections rounding out the roster,

Cherun and a buddy, Erik Mikkelsen,

raised more than $500,000 to cover

two years of acquisition hunting. The

young searchers also won assurances

that they could tap the same investor

group for millions more to fnance an

actual purchase.

Deciding what to buy was harder.

Stanford teaches students to look

for growing businesses in simple

industries that require little capital

spending. Being able to buy these

outfts at six times Ebitda (earnings

before interest, taxes, depreciation

and amortization) is considered

good, too. But the standard advice is

to be willing to consider any indus-

try anywhere that might pass those

tests. “So we were really interested in

fsh farming at frst,” Cherun recalls.

He hung out at Chinatown markets

in Oakland, trying to learn about the

sturgeon trade, before realizing that

it could take years to make fsh ponds

pay of. A few weeks later cellphone

kiosks caught his eye. Then, when an

accountant advised that UCIT might

be for sale, Cherun and Mikkelsen re-

alized their quest might be complete.

UCIT provided round-the-clock

camera surveillance of construction

sites, using the Internet to beam im-

ages into a control room at the com-

pany’s headquarters in Mississauga,

Ont. If rogues slipped onto a con-

struction site at 1 a.m. to grab copper

piping, plywood or equipment, signs

of mischief would instantly be vis-

ible at UCIT. (The name is a play on

words: You see it. Get it?) Police could

be on the scene in four to ten minutes.

This, Cherun decided, was a busi-

ness that passed all of Stanford’s

tests. It also sounded a lot more

palatable than some of his predeces-

sors’ picks. As Cherun later put it:

“Who really wants to be the septic

king of Canada?” Best of all, UCIT’s

founder and owner, Sidney Sommer,

was ready for a change in control.

Sommer, 35 at the time, had been

running UCIT for eight years. He

knew the business was ready to open

more sales ofces across Canada. But

he had a wife and two toddlers, so

his ability to travel was constricted.

“I couldn’t do it all—and still have a

successful marriage,” Sommer says.

The solution: Let Cherun, Mik-

kelsen and their investors buy about

90% of the company. Sommer kept

10% of the business, ran the Toronto-

area sales team and remained a direc-

tor. The seller and buyer found their

rhythm early on and struck a deal.

Sommer later joked to the two young

suitors that his frst thought upon

meeting them was: “I see the real in-

vestors sent their children to see me.”

Running a small company, Che-

run says, is “so real!” The hands-on

immediacy of his new job hit home

early when he pointed to a burnt-out

lightbulb in the ceiling and asked:

“What are we going to do about it?”

The answer: If it bothered Cherun,

he could drive to Home Depot, get a

new bulb and install it himself. So he

did. Some days he stays in the ofce

until 1 a.m., overseeing a team fxing

a software bug that hurts monitor-

“ HE HEAdEd

INTO fIRST clASS.

I HEAdEd INTO

EcONOmY.

I cOUldN’T HElp

bUT THINK:

‘THAT cOUld

HAVE bEEN mE.’ ”

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es

There’s a great joy in creating a

product outdoors in one of the

most beautiful places in the

world,” says Bill Price, a one-

time private equity hawk turned

stealth wine mogul. “This morning I was out

in a vineyard to see if we were ready to pick,

and the fog was burning of and the sun was

coming up and the birds were chirping. Pret-

ty great way to spend your workday.”

Price, 57, one of the founding partners

of private equity giant Texas Pacifc Group

(TPG)—“I was the ‘Pacifc’ part,” he says—

spent several careers’ worth of more conven-

tional workdays before following his pas-

sion into the California wine business. Today

PURSUITS

FORBES LIFE

The Vineyard CollectorTPG cofounder Bill Price has a plan: produce wine you can’t buy.by RichaRd Nalley

bill Price with the fruits

of his current labor—

Pinot Noir grapes from

his top-notch durell

Vineyard in Sonoma.

he controls seven wine brands and fve vine-

yards, but for a player of his stature he is al-

most invisible to outsiders. There is no Wil-

liam Price mega-winery on the Route 29 wine

road or anywhere else. And frankly, if you

don’t already have a line on his best wines,

like Kistler and Kosta Browne, you will have

to go to some lengths just to taste them.

TPG, which Price left as partner emer-

itus in 2006, was an exciting ride and af-

forded him a fne life indeed: He splits his

time between California and Hawaii; his 90-

foot ketch is docked in San Francisco Bay.

He shares ofce space these days with his

family’s private museum of vintage Aston

Martins, Maseratis and Ferraris.

His old company did famous deals: Con-

tinental Airlines, Ducati, J. Crew, Petco, Del

Monte. But it was a midlevel score that ac-

tually changed Price’s life: the $350 million

purchase, in 1996, of Napa Valley’s Beringer

Wine Estates from Nestlé. (In a package with

some other winery pur chases, TPG would in

turn sell Beringer to Fosters in 2000 for a re-

ported $1.5 billion.) Price’s exposure to the

wine trade sparked a realization: “In the wine

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The pursuit of a lasting legacy is something we

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PURSUITS

124 | FORBES OctOBER 28, 2013

walks, drains, hose stations and, yes, the bas-

ketball hoop—is remarkable; the level of in-

vestment for a small brand, head-spinning.

And here’s the thing: Although the brand

produces and sells 15,000 cases, very few

new customers ever get the wine—it sells out

mostly through the winery’s mailing list. “It

is kind of weird,” says winemaker Michael

Browne. “We spend hours showing people

around, and they say, ‘Great, so where do I

buy some wine?’ And we say, ‘There isn’t any.’

And they do a double take—‘Wait, what?’ ”

“Yeah,” Price chimes in, in mock puzzle-

ment, “how does this business model work?”

Pretty well, apparently. In a notoriously

low-prof t business, Price claims that several

of his brands enjoy margins of 50% or higher.

Call it the Stardust Factor. Labels like Kistler

and Kosta Browne enjoy such an avid fan base

(there is supposedly a 10,000-person waiting

list just to get on Kosta Browne’s buyers’ list)

that they can charge full retail price ($70-$90

in Kistler’s case) and cut out the wholesale

tier almost entirely.

As a business model it is a balancing act.

Since nonlist drinkers only rarely bump into

a bottle at a restaurant and those actually en-

scribed on the winery’s Sacred Scroll can’t

taste before they buy, the model relies on

word of mouth for fresh customers and re-

peated leaps of faith by the old. It is an indi-

vidualized, consumer-by-consumer process,

and wine collectors can be notoriously f ckle—

hot brands come and go in California.

But Price, the old PE guy, is to all appear-

ances in this for the long haul. High on the

list of mistakes he won’t make, he says, is try-

ing to hook a wine label to the latest wave of

consumer fashion. “This is a very complicat-

ed business where understanding the grapes

from a single piece of property and how a

winemaker wants to use them is a long-term

game,” he notes. “If you don’t stay committed

to your vision you are lost.”

The passion for putting his own vision

to the test still burns. Price recently sought

out a 27-year-old Santa Barbara winemak-

er named Gavin Chanin, whose Pinot Noirs

knocked him out, of ering a balance of lower

extract and alcohol with an intense clarity of

fl avor not quite like anything else in Price’s

portfolio. He and Chanin will launch their

50/50-partnership LUTUM label this month.

Just get your name on the list early.

business, everybody is passionate about his

product. In a private equity f rm, people are in

it because they like the challenge and want to

make a lot of money. But let’s face it, they are

not passionate about spreadsheets.”

His own spreadsheet continues to expand,

thanks to deals like last year’s purchase (for a

reported $100,000-plus an acre) of Sonoma’s

138-acre Gap’s Crown Vineyard. Asked to

estimate the worth of his wine holdings,

Price will only say “in the hundreds of mil-

lions.” His portfolio appears to be something

of a mixed bag at f rst glance, a collection of

small- to-medium-size labels and wineries

and a patchwork of vineyards. But you can

see a unifying strategy—a kind of controlled

carom shot—beginning to emerge.

Most of Price’s holdings are in Sonoma

County, which has become one of the New

World’s cutting-edge regions for planting

Pinot Noir, that wilting belle of a red wine

grape that made Burgundy famous. And,

states Price, “I am def nitely a Burgundy man.”

He is also a businessman, something of a

rare bird in the wine trade at his level of so-

phistication. His Big Idea—really two ideas—is

“to share my business expertise and f nancial

resources with extraordinarily talented wine-

makers and together create the type of iconic

brands that sell direct to the consumer.”

The Price Idea is on full display when we

drive up to leafy Sebastopol to visit Kosta

Browne. Two restaurant workers’ shoestring

startup in 1997, Kosta Browne was plucked

from obscurity by the raves of critics like the

Wine Advocate’s Robert Parker. Suddenly an

outf t that could barely af ord barrels was

beating back customers with a metaphorical

bat. In 2009 a company Price directed bought

a stake valued at $40 million and gained con-

trolling interest.

As we pull into the Barlow, a kind of of ce

park for artisans that also hosts a baker, a dis-

tiller and a Tibetan art gallery, Price smiles.

“I always say that I’ll put money on the inside

of a winery, not on the outside. I made a little

exception for Kosta Browne.”

Kosta Browne’s “bay” in the Barlow has

been converted into a VIP hospitality space

worthy of a shelter magazine, with creamy

leather chairs and a gleaming catering kitch-

en. But the real eye-opener is through the

rear door: the 25,000-square-foot winery. The

winery’s level of detail—the placement of cat- Dim

As

Ar

DiA

N /

blo

om

be

rG

FORBES LIFE

F

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about. For a deeper dive

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IDEA hOllyWOOd PhONeS iT iN 

seven of 2013’s ten

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are sequels, spinoff s or

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128 | FORBES OctOBER 28, 2013

THOUGHTS

There still is backing for really strong ideas, because people

with capital need entrepreneurs and visionaries as badly as

the entrepreneurs and visionaries need them. How do you

think the Rockefellers stay as rich as they do? You get rich

on today’s business, you stay rich on tomorrow’s.

—FROM THE NOV. 15, 1975 ISSUE OF FORBES

Running a company on market research is like driving while looking in the rear-view mirror. —ANITA ROddIck

There are 100 men seeking security to one able man who is willing to risk his fortune. —J. PAUl GETTy

True leadership stems from

individuality that is honestly

and sometimes imperfectly

expressed. Leaders should strive

for authenticity over perfection.

—SHERyl SANdBERG

Innovation is

the specifc

instrument of

entrepreneurship,

the act that

endows resources

with a new

capacity to create

wealth. —PETER dRUckER

I spend 90% of my

time with people who

don’t report to me,

which also allows for

serendipity, since I’m

walking around the

ofce all the time. You

don’t have to schedule

serendipity. It just

happens.

—JAck dORSEy

FINAL THOUGHT

Where are most of the millions of new jobs?

An overwhelming percentage has been, and is being,

created in companies with fewer than 100 employees.

—mALcOLm FOrbes

SOURCES: FORBES; GOODREADS.COM; THE LAST WORD ON MAKING MONEY; LEAN IN: WOMEN, WORK

AND THE WILL TO LEAD; THE OXFORD DICTIONARY OF HUMOROUS QUOTATIONS;

SIMPSON’S CONTEMPORARY QUOTATIONS.

No one is born a CEO, but no

one tells you that. The magazine

stories make it sound like Mark

Zuckerberg woke up one day and

wanted to redefne how the world

communicates [by creating] a

billion-dollar company. He didn’t.

—dREw HOUSTON

The essence of success is that it is never

necessary to think of a new idea. It is far better

to wait until somebody else does it, and then to

copy him in every detail except his mistakes.

—AUBREy MENEN

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ON eNTrepreNeUrs

pOLITIcs OF AUsTerITY “There is a new political rhetoric blowing in the breeze, full of phrases like ‘drawing the line’ and ‘fscal responsibility.’ Conservatives wrote the speeches frst. But now liberals, too, are mouthing the lines.”

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Make it matter.

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Invention of the Tourbillon, 1801

With the Classique “ Grande Complication” Tourbil lon Messidor

wristwatch, Breguet reinvents its most spectacular invention, the

tourbillon, designed to compensate for the effects of gravity. Held

between two sapphire crystals, the tourbillon floats weightless

inside its carriage, while the sapphire dial offers a transparent

vision of the complex proprietary movement and its meticulous

hand finishing. History is still being written …

Breguet, the innovator.

B R E G U E T B O U T I Q U E S – N E W Y O R K F I F T H A V E N U E 6 4 6 6 9 2 - 6 4 6 9 – N E W Y O R K M A D I S O N A V E N U E 212 2 8 8 - 4 014

B E V E R L Y H I L L S 310 8 6 0 - 9 911 – B A L H A R B O U R 3 0 5 8 6 6 -10 61 – L A S V E G A S 70 2 73 3 - 74 3 5 – T O L L F R E E 8 7 7 - 6 5 8 - 5 2 5 9 – W W W. B R E G U E T. C O M