By James Kwak
I took a short break from fiscal and monetary policy to write an Atlantic column about Steve Jobs’s retirement and what it means for the eternal debate over whether and when founder CEOs should be replaced by experienced outsiders. Along the way, I read some interesting papers on the relationship between founder CEOs and stock market returns or company valuations.
I should clarify that I’m no Apple fanboy. I use a MacBook Pro, which I consider almost a necessity given how much time I spend with my computer and the abominable state of Windows. But I don’t like the “my way or the highway approach” when it comes to hardware; I wish it had a Backspace key and a deeper keyboard, among other things.
I understand that controlling the hardware ensures a more consistent user experience and less customer dissatisfaction, but allowing hardware manufacturers to compete certainly has its advantages. Look at Android, for example: I use an Android phone, and even if the iPhone is still the best phone for the median customer (a highly debatable point), the proliferation of Android models means that for most people, there is an Android phone that is a better fit. Although I was an early iPad adopter, I’m generally disappointed with it. It’s great for playing Plants vs. Zombies, checking the weather, or watching a TV episode, but it’s too slow and the browser is too weak to do anything serious. And the fact that you can’t swap out the default Apple keyboard (as far as I know) is a classic example of the problem with the Apple approach: the thing doesn’t even have arrow keys (yes, I know how to use the magnifying glass), and every Android keyboard does a better job with special characters.
Still, there’s no question Steve Jobs is a genius, and nothing like the empty suits who parade through the Times‘s Corner Office column who talk about nothing but hiring, motivation, and teamwork.
Update: Sorry, I meant to say Delete key, not Backspace key.
Stock or Cash?
By James Kwak
I’m sure many of you saw the article featuring David Choe, the artist who painted the walls of Facebook’s first offices and received stock that now could be worth $200 million. Nice story. I was thinking, though: why was Facebook paying its vendors with stock?
I understand what you pay your early employees with stock: (a) you have to in Silicon Valley and (b) you want their fortunes aligned with those of the company. Outside board members also will often demand stock. But in most circumstances, you should pay your vendors with cash.
Giving a vendor stock instead of cash is equivalent to raising capital from that vendor—at the existing valuation. When you’re an early-stage startup, you want to raise as little money as possible, at as high a valuation as possible—because the whole point of the startup is that it should be getting much more valuable over time. There are tactical considerations, like not letting your bank balance get too low (because then your VCs will have too much negotiating power). But in general, you want to delay raising more capital until you reach some milestone that will boost your valuation significantly.
Obviously, things turned out just fine for Facebook. But it doesn’t seem like the smartest business move.
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Posted in Commentary
Tagged facebook, startups, technology