Forbes USA 11 February 2013

KKR GOES RETAIL * NBA VALUATIONS ¢ FRACKING URANIUM? Come EE on) AMERICA’S eis LastelIETT cf COMPANIES Rr aC Lely Ene ier elasales 1 Bran sad / PN N=) |=) y = EU CHESKY Sees) Praia) BUSI trey sy INTO HOTELS TO BE IRE Ne THE PEER-TO-PEER SHARE ECONOMY IS CREATING MILLIONS OF MICRO-ENTREPRENEURS, DISRUPTING MASORICORPORATIONS— AND CREATING A HANDFUL. ORSACKPOTS.Travel in pure comfort. Work, sleep or dine in three separate cabin zones so when you arrive at your meeting you know that you're ready for it. Find out more about the Legacy 650 and our six other exceptional models at EmbraerExecutiveJets.com Latin America +55 12 3927 3399, U.S., Canada and Caribbean +1 954 359 5387, Europe, Middle East and Africa +44 1252 379 270, China +86 10 6598 9988, Asia Pacific +65 6734 4321rxmmouws € EMBRAER Executive JetsCONTENTS — FEBRUARY 11, 2013 VOLUME 191 NUMBER 2 A PAGE 58 “WE NEVER CONSIDERED THE NOTION WE WERE PARTICIPATING IN ANEW ECONOMY. WE WERE JUST TRYING TO SOLVE OUR OWN PROBLEM” BRIAN CHESKY, AIRBNB COFOUNDER ERIC MLLETTE FOR FORBES Ye aney 11 FACT & COMMENT /] Stove Forbes ‘Obama's ly foreign policy legacy LEADERBOARD 14 | BILLIONAIRE BISTRO Settle into the Four Seasons’ Gril Room fora peek at the power elite. 16 | WELCOME TO THE CLUB ‘We've uncovered 28 ten-fgure fortunes in the lst three months, Plus: up-and-comers Sheldon Adelson gains $25 billion; Dan Snyder loses his tar quarterback 20 | FORBES MAKEOVER ‘We give sneaker king Phil Knight's wardrobe a workout~and critique the new look. 22 | BROKEDOWN PALACES "There goes the neighborhood: five mansions mired in foreclosure, bankruptey and lawsuits Plus: A million-dollar Bible 24 | KINGS OF THE COURT Led by Kobe Bryant, the NBAS Cen highest stars are set to earn $340 rallion tis year 26 | ACTIVE CONVERSATION Readers weigh in on Michelle Obama's favorite fshionista and David Karp’ shiresleeves, THOUGHT LEADERS 28 | CURRENT EVENTS // David Malpass “The batele fo limit government: America needs to win nove 30 | CAPITAL FLOWS // Marl-Spitznage! ‘The role of capital has politicians confused 32 | INNOVATION RULES // Rich Karlgaard ‘Atoms versus bits: where to find innovation,CALIBRE DE CARTIER ee tut ae ets OS et oa ote od Erma PRN eR a ktsCONTENTS — FEBRUARY 11, 2013 A PAGE 42 “IT BOILS DOWN TO THIS. WE ARE NOT LEAVING THE INTERNET” “THERE ARE FRANCHISES IN THE NBA THAT WILL BE WORTH A BILLION DOLLARS. IF THERE AREN'T ALREADY” =WYCGROUSBECK, BOSTON CELTICS CO-OWNER A PAGE 88 “THE EAGLE FORD SHALE WILL BE THE SITE OF A URANIUM BOOM” AMIR ADNANI, URANIUMENERGY CORP. CEO AMERICA'S MOST PROMISING COMPANIES 68 | UNHOLY TRINITY Creative tension among ts cofounders keeps 3Cinteractive in the forefront ‘of connecting brand advertisers and their customers via mobile ‘Can they stay ontop of this rapidly morphing business? 11. c01K0 74 | COPYcAT g's plan for the cool snack food popchips is modeled on the outrageous stecess of vtaminwater, rom its private equity backing down to its celebrity shilling Crazy~or can lightning strike twice? 'BY MEGHAN CASSERLY 78 | THE NIFTY 50 ‘You may not have heard of them, but these smal high-powered private companies are soaring, EDITED BY JJ. COLAO AND EMILY CANAL FEATURES 82 | AKINDER GENTLER KKR // CHANGE AGENTS ‘The barbarians who made billions pioneering Wall Steet’s hostile leveraged buyouts now want to be Main Street's go-to investor 88 | FRACKING FOR URANIUM Deep in the hear of the Texas oil and gas boom, atiny Canadian company has found a novel way to dredge up fuel for nuclear reactors ‘And prompted the most unusual batiefrant in America's war over fracking 98 | BOSTON BULLISH Money man Wye Grousbeck and his partners have made aking owning the Celtis "Time to sell? No way, they say. Is this love or just smart business? ‘Plus: NBA franchise valuations LIFE 104 | PANTS PERFECT High-tech office wear comes in from the cold. ‘by BRUCE UPBIN M12 | THOUGHTS (on football—— PERE’S To —_ Cana re 7 a La pat in PNR B bd OC ee RLS Cd business needs most. Booed eg Ore UC Ecru’ CUED) Oe Tee eer fen") q PPT e FA, 4 CHASE & MAKE YOUR MARK’Forbes Steve Forbes FORBES: IN BRIEF ‘cae Roe Manel ‘Dnigan “Bins urd Ney -Lscy. ‘Toe Pont epee ely an We rn oes ee rode lence Cots Bateman Consus ‘am Regis FORGES ASIA ‘asa, ey A Dan SLICON VALLEY ‘Ma Duca John Dobos, a Debra Maso Kats DEPARTMENT HEADS Jo Tama OP ONS ‘at Fatenberg EDITORIAL COUNSEL ‘Mary Lotus SEWOR Ve, HUMAN RESOURCES ‘ine ry SEWOR Ve, MAD, cONTNUUM Michaels Pers PRESIGENT CEO ichKargaard PUBLISHER ‘win Adamoposls PRESIDENT PUBLISHER FORBES ASIA ‘hanes aro PUBLISHER & MANAGING DIRECTOR FORBES EUROPE aes 97758) Malin Foes Eto Che 195490) Stes W Michaels Er 090199) Wan Blan Er 998200) FEBRUARY 11,2013 — VOLUME 191 NUMBER 2 How Our New App Links Many Worlds BY LEWIS DVORKIN often say the tools of digital publishing will set you free or imprison you. [learned that the hard way during my days at AOL. It could take us hours to program a digital screen, Over the past two years FORBES has builta set of tools that makes it incredibly simple for our editors and writers to publish text, photos, video and more. Now we're using an elegant platform to publish an exciting new FORBES magazine iPad app that merges the power of print storytelling with social sharing and the Web. ‘We have a habit of approaching new technology with careful thought before building any new product. That's why we didn't grab for the pixie dust floating around the iPad like most publishers did. Instead, we chose first to transform our website into a dynamie publ ing platform for the era of social media. Then we rebuilt a mobile site, betting on the tried-and-true browser, which remains the reader's preferred way to consume news. FORBES magazine recharged itself, too, with an evolving design and a people-centric cover strategy that reinforced our message of entrepreneurial capitalism. ‘With patience came an understanding of what our iPad app should be. We didn’t want to trap consumers inside the app. We wanted to offer news enthusiasts the freedom to glide between the magazine, Forbes.com and the social Web—to discover, to learn and to share stories with their friends and colleagues. Enter MAZ, a Silicon Alley startup. Its tools enable our producers to quickly layer clickable buttons and links atop what are known as magazine PDFs. Once inside the app, you can follow a writer by pressing the ‘Twitter button, or go to the FORBES Facebook page, or visita writer’s page on Forbes.com, Pressing another button takes you to related real-time posts, or wealth lists, o videos, or galleries on Forbes.com. An easy-to- use clipping tool makes it fun to share our magazine and ‘Web content on Facebook, Twitter, Tumblr, Pinterest or through e-mail. All this functionality applies to ads, too. ‘We're quite proud of our new tablet app. It unites our ‘magazine with the timeliness and depth of digital, links consumers with advertisers and their sites, and connects readers looking to share information with their friends, Apple likes it, too, makinggit an Editors’ Choice at the app store, We hope you'l give ita try. ©iy ig Pelee rg Bae oti POS CLL) Prat Switch to iGATE. Se eek pee eed Cn Sut yaad oiEehey Business Outcomes model.Bold is The first of its kind, Moxie™ showerhead + wireless speaker lets you belt it out while lathering up or long after you've dried off. \FACT & COMMENT — STEVE FORBES “With all thy getting, get understanding” OBAMA'S UGLY FOREIGN POLICY LEGACY BY STEVE FORBES, EDITOR-IN-CHIEF AFGHANISTAN'S mercurial president, Hamid Karzai, came over fora visit to discuss future US. troop levels in his country. The White House vibes on this are bad: President Obama ‘wants no US. presence in Afghanistan after next year. He did the same in Iraq in late 20M, pulling out all US. forces. Given US. war weariness, such actions score well in the polls, bt they point to bloody troubles for the US the future. Obama's desire to reduce the US. global presence to the scale of, say, Belgium. is deliberate but betrays an abysmal, murderous ignorance of history and global realities. Without a strong US. political/military pres ence around the world instability increases as anti-American, antimodern forces violently as- sert themselves. We've seen this movie before in the isolationist 1930s and again in the 1970s, when the US. seemed to be in terminal decline. We are not the world’s policeman, but we are the best guarantor of peace and stability ‘Take Europe, a continent that was wracked by constant conflict for centuries. Today a ‘major war there is inconceivable. This new real- ity wouldn't exist ifit weren't for the security umbrella the U.S. has provided since the end of World War I Or look at Asia, North Korea is becoming increasingly belligerent, and China is more truculent with its neighbors. Alarm bells are going off in neighboring countries. Vietnam, for example, has made abundantly clear that it wants an increasing, not a decreasing, US. military presence in that part of the world. Vietnam and China had a brief but violent military flare-up in 1979, Japan’s new prime minister has made clear hhis desire for Japan to embark on its first major rearmament program since World War II. Would it really serve the purpose of global peace to have Japan engaging in a major military buildup, as well as becoming a nuclear power? Do we really want the instability of increased tensions and the possibility of armed conflict in the region? ur unnecessary withdrawal from Iraq is destabilizing that already shaky part of the world. Iran is using Iraq asa thruway to supply arms to the Syrian government, which has killed 60,000 ofits unhappy citizens. Iraq itself may break apart in communal conflict. A meaningful US. {troop presence in Irag would have been aben- ficial check to Iranian belligerence and would have given more credibility to our warnings to ‘Tehran to cease its race for nuclear weapons. Bugging out of Afghanistan after over- stretched US. forces have achieved considerable success in stabilizing much of the country will, only mean that the Taliban and al Qaeda get another shot at taking the country. Doesn't anyone remember where the 9/11 plot was hatched? Moreover, the vacuum we create in Afghanistan will mean more trouble in neighboring Pakistan, where moderate forces are already on the defensive. Their boldness and numbers would grow if they felt the U.S. was taying the course” in their part of the world. Can Afghanistan defend itself against Is- lamist militants? Probably not, just as Western Europe during the Cold War could never have defended itself against the Red Army without American help. The US., nearly six decades after the Korean War, still maintains a presence in South Korea. Those troops are the only reason North Korea hasn't again tried toFACT & COMMENT — STEVE FORBES “With all thy getting, get understanding” take over the South. ‘We've made plenty of mistakes in our foreign policy since WWII, but there's no gainsaying the fact that our refusal to retreat into isolation, as we did in the 1930s, has made the world afar safer and infinitely richer place. GOP: Stuck in Failure When Alfred Sloan took over a nearly bankrupt General Motors in the early 1920s, the rival Ford Motor Co. had an almost 60% market share, No other company came close to making a car as cheaply as Ford made its Model So Sloan changed the rules of the game by doing things that today seem ‘mundane but at the time were highly innovative: allowing consumers to buy cars on credit; letting custom- cers choose the color of their vehicles (Henry Ford famously said that Model T buyers could have any color they wanted as long as it was black); instituting the annual model change, which created excitement each year over new designs and technological breakthroughs; and segmenting the ‘market instead of sticking with Ford's one-model-for-all approach. Within a few years GM surpassed Ford in sales, and despite all the recent turmoil it ‘maintains that position today. Congressional Republicans should adapt the Sloan spirit to battling the White House; otherwise, the GOP will continue to be bested by Obama. Regarding the upcoming debt-ceiling showdown, do Republicans really believe they won't again be forced to cave when the President employs the threat of temporarily cutting or delaying Social Security benefits? Ronald Reagan was right when he ‘mused that the best way to change ‘minds in Washington is not through sweet reason but through the heat of public opinion. GOP leaders must turn up the heat on the White House. Republicans could adopt several new approaches that over time would turn the tide. + The debt ceiling, Fonget about achiev- ing big cuts or entitlement reform. Instead come up with alist of egregious or duplicative government programs. One example, of literally thousands, is that there are, according to the Govern ‘ment Accountability Office, 94 federal initiatives to encourage “green build- {ng” in the private sector, all run by 11 different agencies. The changes here ‘won't amount to much, but they'll start educating the public as to how many crazy things our central government is engaged in and will graphically portray how wasteful Washington is with the people's money. Extend the ceiling for, say, 45 t0 60 days, and then come back with another list ofeye-rolling items, Former House speaker Newt Gingrich came up with a good idea: Lista number ofthe most ludicrous offices (and, thus, programs) and have the public vote on the worst ten that should be climinated. I¢s an easy thing to set up in this electronic age and would quickly engage voter interest. A similar approach could bear fruitin the sequestration fight. At the same time House Repub- Ticans should pass bills that will put them on the side of the angels and put the Democrats in an uncomfort- able defensive position, + Allow no diversion of funds from Medicare to ObamaCare. The White ‘House plans to raid more than {$700 billion from Medicare for pre- isely that purpose. + No cuts in Medicare and Social Se- curity benefits for current recipients or for those about to go on those two programs. The big changes should be applied to younger people. + Convert the $2.5 trillion in Social Security Trust Fund reserves from nonnegotiable Treasury 10Us to fully ‘marketable Treasury bonds. Even if the debt ceiling isn’t raised, Social Security beneficiaries will still re- ceive all their payments. + No raising of the debt ceiling until the Senate passes a budget, which it hasn't done since 2009 in contraven- tion of existing law. + Allow US-based companies with cash overseas from unrepatriated profits—now totaling $17 trillion—to bring that money home and be taxed at the low rate of, say, 6% instead of the 35% they'd be hie with now. We did something similar eight years ago. More than $300 billion came home to our shores, and the US. Treasury pocketed a quick, easy $18 billion. If House and Senate Republican leaders continue in their losing, trench- ‘warfare-like approach to the President, the backbenchers should rise up and throw them out, as they are clearly in- capable of learning from failure. Restaurants: Go, Consider, Stop Edible enlightenment from our eatery experts and colleagues Richard Nalley, Monie Begley, Randall Lane and Chef Jeff Lamperti, © Deux Amis 356 Bast Sist St. (Tel: 212-230-117) This classic French eatery serves avery good. meal at a eatively reasonable price~pleas- antly and efficiently delivered by a well-tained Staf. The escargots would do any Pars bistro rout: cit the steak au poive andthe roasted Chicken. Prfiteoles and pistachio ke cream are noteworthy, 4s well as brothers Bob, Kip and Tim @ Locanda Verde Greenwich Hotel, 377 Greenwich St. (fel:212-925-3797) Trendy alan tavera with al, beamed ceilings and open kitchen that create a belsters yet Cony ‘kmosphere, Start with the crostini the creamy ‘Sheen's milk ricotta andthe blu crab with lar ‘efo are delectable. Then ty the spce-glazed (Uck oF the sea trout with waluts and pancetta @ LaVillette 10 DowningSt. (Tel: 212-285-0300) Fabulous fare at this new bistro, To start try the giilled calamari wth tangy tapenade or the sau {ed tiger stvimp. The fet mignon sas tender ‘ast comes the steak tartare i perfection, as ISthe side of crunchy, oiled asparagus. You cant go wrong withthe mousse au chocolat, the rome orale ofthe hot fate aux pommes.I believe GoToMeeting with HDFaces has the quality and features that make meetings more productive. Angie’s List CTO Find out why businesses like Angie’s List believe in the power of GoToMeeting — the extremely simple, extraordinarily powerful way to collaborate face to face in high-definition video. Try it free today. . 2 J GoToMeeting meetingisbelieving.com citrixy Ya YS LEADERBOARD Pega hae eS POWER TABLES BISTRO Settle into the Four Seasons Grill Room fora peek at the power elite. SINCE 1959 the Grill Room at the Four Seasons restaurant has served as the place for lunch for New York's ruling class. “It's like a public club” says co-owner Julian Niceolini, Some regulars, like billionaire Pete Peter- son, have dined at the same table for more than four decades. Insider perks include bespoke meals and hassle-free house credit—one banker even has the right to duck behind the bar to mix his own cocktails. Want a seat a capitalism's Car: Hall? You'll need to mak tion weeks in advance, or in a pinch just belly up to the bar. Be sure to try the iconic Bloody Mar watch habitus lil and Stephen Schwarzman work the room before cutting into their Dover sole ($65). You might even spot the Commander-in-Chief: With the exception of Richard Nixon, every President since Kennedy has lunched between the Grills French oak wallsPeed read care Evercore Partners i bs read ea) Een re ere eave,32% fim Share of the fast-growing “pocket camcorder” market controlled by GoPro billionaire Nicholas Woodman's company. WELCOME TO THE CLUB NEW MONEY We've uncovered 28 ten-figure fortunes in the last three months. Here’s a sample, DomenicoDolceand Anders Holch Povisen Paoloand Nicola Nicholas Woodman Stefano Gabbana ‘BESTSELLER Bulgari GOPRO DOLCE & GABBANA. Denmark Lv us. italy S1.BBILLION aly $1.2BILLION S2BILLION (EACH) ‘The 40-year-old Poulsen tok. $1.4 BILLION (EACH) The 37-year-old founder of Ital’ fashion bad boys are ‘over aril fashion compary, Jewelry fortune heirs traded ‘extreme sports camera maker Besser at 28, Now Besser cunershinintheic company | GoPro sal the perfect tol for generatesarnualrevenueot | for astake in Bernard Amaults | _generation YouTube. A $200 $82bilion sling tenchicbrands | LyMHin 20M. Rising share prices | milion cash infusion from Apple in 3000 stores across Europe, have ince restored their own |_- manufacturer Foxcona values ‘Asia the Mle East and Canada, bilionair satus. the company at $225 ion. currently on trial for tx evasion. The duo (oreviously boyfriends) have made billons hawaing hele couture, purses and perfumes. UP-AND-COMERS FASHIONISTAS PROGNOSTICATOR BREATH FRESHENER Daniella Yacobovsky, Amy Jain save.ssan The two Harvard Business School grads moved ro nance t fashion wth BavbeBar, which sources jer fom high-end designers and sels iton the cheap via the Web. Say customers sve ts Bing that woul sel $90 at Anthropologie o 5rew canbe hac for bout $30 rom Baublar estos be the bargain as wl Yacoborsky an Jin ave raced $56 milion invent baking lea by Accs Partners 201 the duo excanded om clicks tobi, oneing a showroom in New York's Flatron dst. Tha high-prolecolaboratos include Eson Beamon Nina Garcia and Aarti Pale Leigh Drogen esrmze Reta estos dont get access to “whisper numbers"the weighty, unofficial analyst expectations that culate Wall Stet before earings cl So Droge’ tstizecolecs estimates fom 2000 conor (poessna nalts and amateurs lie, rodcng a crowdsouresé number that's more acute than te Street consensus two tics of the time. Hedgo funds pay $3,000 ner eat per month to access larger datasets, Droge, 26, started a hedge fund at 22 and launched Estiniz in 20 Investors ncude Contour Ventre Partners and Longworth Venture Partners Jacqui Rosshandler earwaarever Rosshandler, 30, graduated with a law degree from Australia National University in 2008, but she skipped the bar and instead ran an events-anc-nterordesign company for Antony Todd in New York Later on a whim, she decided to jumo into the breath-freshener game. Her play: Eat Whatever, a two-step systom that includes a parsley-and- peppermint capsule followed by a mint. Packs of ten gelcaps and mints sll for $329 at Duane Reade in New York and are soon to debut at Walereens. Former Topps candy and trading-card CEO Arthur Shorin holds a 75% stake.THIS IS NO PLACE TO DREAM SMALL. IN NEW YORK STATE, A BUSINESS CAN GROW AS BIG AS ANYONE CAN POSSIBLY IMAGINE. THIS IS A PLACE WITH A WHOLE NEW APPROACH TO BUSINESS DEVELOPMENT. WITH THE FASTEST-GROWING TECH SECTOR IN THE U:8. ONE OF THE BEST-EDUCATED WORKFORCES IN AMERICA, AND OVER $1 BILLION IN INCENTIVES AND TAX BREAK! IT’S NOT SURPRISING THAT OUR E 80,000 NEW BUSINESSES LAt NO ONE EVER CAME HE PLAY SECOND FIDDLE, OR MAKE IT SMALL. THIS IS NEW YORK STATE. Big happens a Find out how to move or grow your business. BigHappensHere.com62 Percentage of sales that Hong Kong- based Li Fung Group generated in the US Sales from Asia? 13%, EE LBS SCORECARD WINNERS Sheldon Mark Michael Pierre Phil Adelson Zuckerberg Dell Omidyar Knight +$2.5 BILLION | +$1.7 BILLION | +$730 MILLION | +$400 MILLION | +$330 MILLION | NET WORTH NET WORTH NET WORTH NET WORTH NETWORTH: — § $24.6 BILLION $13.7 BILLION $14.9 BILLION $9 BILLION SI4BILLION —§ cas stcts ating | Wall svetownedas | Delite thicget PC | stresofecommere | Ne snsReryMetoy £ astacaureguators | Facebook unvelled its | mater intake about | pioneer eBay trade at | thewrlds No,tgole, to reported arecordyesrin | newest innovation Graph | a potetalLBO with | therhighestevelsince | long-term endorsement = Gaming revenue in2012, | "Search Shares stilup | private equty frm | 2005 a: G4 earings beat | dea that covers apparel USS. Hesofarthisyear. | SiverLake Partners. |” analysts’ projection. and equipment. LOSERS i gg ; ae ra » a Victor Min David Jack Dan z Fung Kao Murdock Ma Snyder -$300 MILLION | -SSOMILLION | -S30MILLION -CEO ROLE -STAR QB NET WORTH NET WORTH NET WORTH: NET WORTH NET WORTH $2.8 BILLION $2. BILLION $2.3 BILLION $3.4 BILLION $11 BILLION shares ofhis global | Atthe 2015 CES, Garmin | Dole Foodsshares side | Founder of Chinese | Wathngton Redskin supply chain company, | introduces sick new | on report of decining | e-commerce fim Albaba | owner loses franchise Lig Fung fal sx aterit | products but analysts | earings rom ts rut | stepping own as day- | player Robert rif I to forecasts 40% decine | havea negative growth | unt Wilretum tothe | to-day chet to make way | knee inary for ix monthe in 2012 operating profit | outlook for 2015. | CEO postiaterths year | for younger leaders oF moreFor a healthy portfolio, think health care. Fidelity Select Health Care Portfolio can help you lower your overall volatility and add growth potential to your portfolio. 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FORBES MAKEOVER PHIL KNIGHT We give the sneaker king's wardrobe a workout—and critique the new look. ‘CARLY CUSHNIE: Half ofthe design duo Cushnie Et les NGI chs, Cushnie has created outfits for Michelle Obama, ‘Salma Hayek, Reese Witherspoon and Alicia Keys Her apparel s sold in 60 stores worldwide, including Bergdorf Goodman and Saks Fifth Avenue, Before ea omng After eo— ee, een teed a4 1 Ae : in, hs d How do you turn 20 gigabytes of om Suicaaieg eae into a faster qualifying time? b :$33 MILLION Estimated amount the late designer Gianni Versace spent expanding his South Beach mansion between 1992 and 1997, | TROPHY HOMES ‘BROKEDOWN PALACES There goes the neighborhood: five mansions mired in foreclosure, bankruptcy and lawsuits. CasaCasuarina Albemarle —-BeverlyHouse —_‘1220South Versailles ‘Miami Beach, Fla. Charlottesville, Va. ‘Beverly Hills, calit. OceanBoulevard — windermere, Fla, LIST PRICE: $100 milion. LISTPRICE: $100 milion, LIST PRICE: $95 milion. ‘Palm Beach, Fla. LISTPRICE: $65 milion. THE DIGS: 23.000-square- THE DIGS: Ad5oom THE DIGS: Former Hearst List pRICE: $74 milion,» THE DIGS: Unfinished foot spread, where Gianni neo-Georgian with wine estate has double master THe pies 27000-squere- 90,000-square:foot home Versace was shot, has a grotto and helipad, suites, two screening is America’s biggest, with foot lakefront house hotel and goldlined pool OWNER: Donald Trump. rooms, nightelub and spa. three poots and kitchens. has sculpture garden and ‘OWNER: Peter Loftin. LEGAL WOES: Bank of OWNER: Leonard Ross, prep elin ‘OWNERS: David and LEGAL WOES: VM South America foreclosed on LEGAL WOES: Longtime wer Don Swanson, Jacqueline Siegel Beach filed foreclosure Patricia Kluge, exbilion- owner Ross fled for ecaL WOre:nGetoner LEGAL WOES: Bank of suitin Decemiber 2011on ate divorcee, after she Chapter Tibankruptcy “Gory swoncontied or, AMetica scheduled 3 $25 millon loan default, defaulted on $23 milion protection in 2010, re- 8 year later Loftin's LLC is loan. Tump stepped in portedly because of legal foreclosure auction in April Chanter protectin for recone auton Ap 26 milion in loans from suing lender WestLB for and got it cheap lsputes with several Rarciesnen 20IN;the Siegel scored a fraud. There's abo a pend $6.5 milion in banks:he:silowns the igekcicorsD Bonk, 20min oan escaping ing bankruptey claim. September 2012. mansion, atleast for now. foreclosure TREASURE HUNT THE GOOD BOOK IT MAY BE EASIER for a camel to walk through the eye of a needle than for arich man to enter heaven, but you'll need a bit of cash to buy a text Of this caliber: Steve Green, the son of David Green—the billionaire founder of arts-and-cratfts chain Hobby Lobby— recently spent more than $1 million on this 12th-century Byzantine New Testa- ‘ment, an Ussher Gospels text, of which only a handful exist. It’s “extraordinary.” says seller Sandra Hindman of Les Enluminures. The purchase is one more step on the Green family’s quest for the world’s largest Bible library. Their cup runneth over: The collection already hhas around 40,000 items. jDell services and solutions help growing businesses accelerate innovation. Teena ucicac none a emer tne aches esr ia er ena aire ite challenges, visit dell.com/domore CreteLEADERBOARD Total career salary (excluding endorsement income) Kobe Bryant will have earned by the time his current, Lakers contract expires atthe end of the 2013-1 SPORTSMONEY KINGS NBA OWNERS INTENDED last season's lockout to reduce player salaries and increase parity between small-and lange- market teams (see NBA valuations package, p. 98). While over all player costs are down, the stars are still rakingit in. The ten listed here will collectively earn around $340 milion this year alone through salary and endorsements, with big-market SOS acme cttetc eer eect) 2. LeBron James mami west Pronnete ern oe EM i es(ale lo eerie) Pere eer en eee ea) mipmeehrri ect tials ‘ Ce Cla ere Perec ttre, be (CAT Bc yee (Merten tale wetter er cod EARNINGS: $28.4 MIL (ON-COURT: $194 ML; OFF-COURT: $9 MIL) PA Nuc ie Poot e ona Peete tees arta pmenenteriel a oretencenrt ots 8. Dwight Howard 10s ancetes taxers Pr ect estan) Eel ie t3 en Perro Peer eect) Herlasesireorsstcenaa stent semen illech 10. Pau Gasol 10s anceves racers Detect tamer) players dominant: Seven ofthe top ten suit up in New York, Los Angeles or Chicago, with two others (guess who) hailing from sunny, no-income-tax Miami, And US. hoops mania isonly part of the story—the NBA's popularity soaringin China, helping players land lucrative deals with Nike, Adidas and Coke asthe brands fight to expand their reach in Asia,16 ‘The number of people on FORBES’ 30 Under 30 list (out of 450 total) who are under age 20. The youngest? Actresses Maude Apatow and Chlo& Morets, both 15. ACTIVE CONVERSATION ™ READERS PONDER (OUR TUITION- MINIMIZING ~ STRATEGIES Bi katuryn miner ‘The more willing families are to rethink the importance of a ‘name brand’ school... the more options they'll have. College is more than the bumper sticker!" , ¥ vopsvo.craLz WHIZ KIDS TUMBLR’S “Inestate colleges aren't FORBES, JANUARY 21,2015 TYCOON an ange. 1s simply a good 4851281 VIEWS ON FORBES.COM ross. sanuanrazors | fel dvision the basin For our second annul 30 Under 30 list, FORBES, with | 185,271 VIEWSON FORBES.COM | {dinero the help of expert judges, highlighted the brightes Jeff Bercoviei's cover young talents who are reshaping our world across 15 cat- | profile of Tumblr founder | oy rye peRVERSE FLUENCE = including eae canes ae oe an s ae - aa eee (OF PATIENT SURVEYS Mark Zuckerberg (tech) and LeBron James (sports). tomaximize profits from a a U opaacla aorta! Bue we also featured a number of up-and-comers who | minimalist platform. Some | “Patfent satisfaction is are flying well below the radar. “Fashion designer readers, though, were most | "important outcome, Carly Cushnie, actress Kate McKinnon and video- struck by Karp’s pricey but ee ee . game creator Kim Swift may not be houschold names | virtually empty Brooklyn yet,” wrote Patricia Reaney for Reuters. “But they are | apartment. Rebecca Green- | ™éthods and reliable data destined to do great things.” British Vogue, meanwhile, | field, on the Atlantic Wire: | &* ineredibly important. homed in on our fashion picks: “Other faces to make | “These entrepreneurs | Fl ayei. misina the list area litle less well-known, including Carly | like to look like they don’t | srssfying this seemingly Cushnie of US. label (and Michelle Obama favorite) | care about money, even intractable problem requires much better communication between patient and physi cian, which will ultimately require a reward system that measures the quality Cushnie Et Ochs; Sophia Amoruso, founder of fashion | if they do.” Karp's spartan retailer Nasty Gal—which was valued at $130 mil lifestyle includes a dearth lion (£797 million) this year; Brazilian-born designer | of clothes that fit. “The Pedro Lourengo, who counts Lady Gaga asafan;and | [FORBES] creative diree- the grandson of Richard Avedon, Michael Avedon, a | tor thought it was very New York-based photography student.” For its part, | important that my shirt | uch communication. ‘TechCrunch took note of the shared business-incuba-___| cuffs be fully expressed;” tor pedigree of many of our digital-industry players: Karp blogged about his “FORBES released its annual 30 Under 30 list yester- | covershoot.“Weended | FAVORITE. day, anda stunning 15 ofthe 30 companies that people | upeuttingthesleeves | TWEET on the ‘Tech’ list work for are ¥ Combinator alumni” | and taping the cuffs to my wrote Billy Gallagher. “Now, obviously we should take | arms.” Esquire’s Jonathan | ONKARPSASCETICLIFESTYAE this with a grain of salt .. but when you consider YC’s | Evans had our back: “That | @omgbren {-boggling statistics (alums have raised over creative director was “Tdon’t have any books...” $1 billion) and sterling reputation, it's not hard to see | right. You shouldbe able | This @DavidKarp quote st why it’s currently the most revered startup incubator | to show alittle euff past | kicked him off the top of my in the world.” the end of your jacket.”._| Internet crushes list.Cement Keser, \es) TIME2CABO.COM oe eee Ar aaras roto cn mola augTHOUGHT LEADERS DAVID MALPASS — CURRENT EVENTS THE BATTLI E TO LIMIT GOVERNMENT AMERICA NEEDS TO WIN NOW AMERICA GREETED 2013 numbed to the absurdity of 0% interest rates, endless Federal Reserve bond purchases and $1 trillion deficits. President Obama imposed a January fiscal deal that added $4 trillion to the projected national debt, on the surreal claim that the US. government doesn't have a spending problem. His Cabinet and policy choices, show satisfaction with the status quo and astate of denial over the dangers ahead. In December he made the claim of national well-being: “Our economy is really starting to recover, and we're starting to see optimistic signs.” However, per the U.S. census, inflation-adjusted median household income has fallen for more than a dec ade, a stunning national failure. The federal debt has topped $16 trillion, which is more than our entire GDP. Much of the inerease is being funded by the Fed’s $1.6 trillion in dangerous overnight debt to the banking system. Meanwhile, the once staid European Central Bank has propped up Europe by piling increasing amounts of debt on its books from underwater banks and governments. And Japan's new govern ment has just launched a new round of deficit spending and is set to order the Bank of Japan to buy more Japanese government debs, despite Japan’s world-record 245% debt-to-GDP ratio. Central banks have become the world’s biggest speculators. The Fed in 2012 eared $91 billion in profit on its {$55 billion in equity capital That's more than ten times the normal private- sector profit rate and was achieved by leveraging its liabilities up to nearly $3 tillion, 1 50-to-1 debt-to-equity ratio. The Fed’s interest rate bets are a zero-sum game—the Fed wins, while the losses are borne by underpaid private-sector savers. Worse, the policy of ‘manipulating interest rates to artificially low levels has interrupted the vital market-based connection between interest rates and investment decisions. This creates economic distortions that slow growth and will take years to um ‘The result hits US. living standards, Despite gigantic debt-fueled govern- ‘ment transfer payments, Ame! are suffering from a five-year stagna- tion in inflation-adjusted disposable income, which is expected to continue into 2014, The deterioration is due to ‘weak labor markets, bigger govern- ‘ment, artificially low interest rates and the policy of weakening the dollar in the hope that it will become so cheap it becomes attractive. Instead, one industry after another has shifted new investment to non-Japan Asia, where currencies are more dependable, the legacy bur- den of retirees is lighter and national debts are not ata crisis stage. Our daily newspapers are filled with the struggle over the debt limit, butit’s written to harm fiscal conservatives, not cutspending, This leaves us with a grim prognosis and no treatment plan, BATTLE FOR POWER ‘The battle we now need to wage includes debt but is even bigger: to create an enforceable process for limiting fed~ eral power. The Constitution provides a degree of protection through the Tenth Amendment's reservation of undelegat- ed power tothe states and the people, ‘but this hasn't translated into limits on government spending or debt. ‘Some focus lesson the Constitu- tion, hoping that boundaries will emerge through culture, moral government and political compro- mise; others argue directly for bigger government. Some expect the bond market and a downgrade in our credit rating to force limits, which seems unlikely given weaker coni other countries. They'll fail frst. “These approaches leave a vacuum in restraining government growth and debt. Rather than negotiate in that framework, our government and citizens must overturn the existing rules and create a workable new debt and spending limit, guided by the Constitution and the rule of law. “The President has said he doesn't ‘want to cut spending. His party should then be held to account—they should prepare to vote for a series of short- term increases in the debt limit with no spending cuts attached. If that becomes politically unpopular, as it probably would, they should offer spending cuts and work out bipartisan amendments to the debt limit so that it forces spending restraint rather than default or government shutdown. @ sor Stee acto ‘rosa ensr Gunmen Ents COUN Vt OUR Woon Wine ecoXa at 40; eet SM Muu ana a Rye cto utc cone cams Seat Wane aa STR cc) ‘A380, now departing twice daily from JFK. ae iS Hello Tomorrow EmiratesTHOUGHT LEADERS MARK SPITZNAGEL — CAPITAL FLOWS THE ROLE OF CAPITAL HAS POLITICIANS CONFUSED ‘THE NONCHALANCE with which politicians on both sides ofthe aisle discuss ever higher taxes as the solution to ourendless budgetary isis emblem- atic ofa widespread and consequential ‘misunderstanding of capital Indeed, those who claim that higher taxes bring prosperity miss the point entirely. That is, they mistake means for ends, You see, capital is not ends; capital is means. Capital is not what humans strive for, the triumphant reward of al aims. Rather, itis what intermediate tool ‘which we attain those aims. Itis the means of higher output per unit of input (bringing our species from hand-to-mouth past to the present), whereby, when paired with more inputs—among which is labor—we get greater economic profit and real GDP. growth, But these means are typically far removed from their ends, both tem- porally (produetion takes time) and economically (production is costly); they are exceedingly indirect (or, a8 the Austrian economist Eugen von [Bohm-Bawerk said, they are “round- about”). The entrepreneur must navi= gate a circuitous path, and those who think itbenign to hand their capital over to bureaucrats miss this path altogether; they see only the lucky pot of gold at the end, They fixate on the inanimate stuff of capital and overlook the human imagination, patience and effort to anticipate consumer desires and bring together the many factors of production to eventually satisfy them. Itisa tautology of corporate finance that growth in profits comes from the recursive reinvestment and compound- ing of past profits. For instance, GDP srowth is aresultof (in addition to pop- ulation growth) the income reinvest- ‘ment rate in the economy multiplied by the rate of return on that reinvestment (or the aggregate ROIC in the econo- ry). So when taxes skim from the re- investable-capital stock each year, they thus skima proportional share from subsequent economic growth. (And, ro, governments do not replace private ROIC with their own public ROI) Politicians are certainly not alone THOSE WHO CLAIM THAT HIGHER TAXES BRING PROSPERITY MISS THE POINT ENTIRELY in their profound misunderstanding of the process of capital and production (while the high-tax impresario himself, ‘Warren Buffet, understands the com- pounding tax impact so well that he dis- ingenuously structures his investments to evade them). This misconception is often at the core of much bad thinking among economists and investors alike (two groups that should know better). Consider most economists’ treat- mentof capital as a homogeneous blob fabricated by central bankers out of eredit. They ignore that means, by necessity are scarce (they are foregone consumption) and must be econo- ‘mized to attain the most desired ends. (Cireurnventing that fact, a history has repeatedly shown (for instance, in past periods of economic growth despite high taxes), leads only to artificial ‘booms canceled out by subsequent credit collapses. In investing, ours is the age of im- ‘mediate and direct ends. We have become a capitalism of momentum- based hedge fund punters, quarterly earnings growth and the cash-out 1PO dream; and it is the age of pundits pushing an incomprehensible world, such that meandering aims seem to trump the commitment of entrepreneurial long-range designs. ‘Amid all ofthis messy this ‘we miss the simple truth behind ‘our material wealth: Iehas been achieved through the accumulation, by us and inherited from our forefathers, ofa stock of highly configured and embedded tools that make human effort more effective and things pos- sible that never were before. ‘And we turn our backs on this truth when we turn more and ‘more of these tools over to govern- ‘ment bureaucrats. Profits are but an intermediate end of capital investment. Its ultimate end, in fact, isthe material progression of ur civilization. How easily we lose sight of this, at our and our progeny’s peril, We all want more economic growth, but we ignore the means to get there: the onerous choices and com- ‘mitments made along the round- about path to those ends. We even confuse the means with the ends. @Forhes Smarter and richer. ah JHE OB MosT POWERFUL pe aN Read a good business story — the kind you find in every issue of Forbes — and that’s what you’ll be. Forbes y G 3 7 4 B Cc i"THOUGHT LEADERS RICH KARLGAARD — INNOVATION RULES ATOMS VERSUS BITS WHERE TO FIND INNOVATION “WE WANTED FLYING cars. Instead ‘we got 40 characters” says Peter Thiel, the cofounder of PayPal and an carly investor in Facebook. Thiel made billions from PayPal and Facebook, but he says the pace of innovation in the broader world has slowed way down. Is Thiel right? The answer de- pends on whether you mean innovation in the world of atoms (physical things) or innovation in the world of bits (software), + Atoms: slowing. The Boeing 747 first flew in 1969, yet it stil is the main Jet carrying people across oceans. Automobiles still travel 70mph on our highways. They use less fuel and are safer, but the pace of improvement is nothing like it was 100 years ago. : accelerating, The cellphone was the size of a brick 30 years ago. Six years ago it was much lighter, though still mainly a phone. Today it’s a camera, radio, television, credit card and disease diagnostic tool ‘The most fertile areas for innovation become clear in this atoms versus bits view. If the atom world is slow to change, how can bits replace atoms or change the way we use them? News- papers have transitioned from atoms to bits. Trickier are classrooms and health diagnostics, but they're moving, too. Fi- nally, bits will never replace such things as cars or airplanes (unless you think Scotty can beam you up), but they'll change the way we use those things. ‘Take classrooms. I predict that 50% of colleges will fail during the next decade. The high ROI that a diploma once guaranteed is no longer certain. That's because the “I” has grown way out of control, a result of decades of 7% annual price increases. Employ ers now have other and cheaper ways to test for intelligence and drive. Onlline education got serious in 2012. Two open-enroliment online colleges—Coursera and Udacity—each raised more than $10 million in venture capital. Both have excellent parentage, started by professors from Stanford. Coursera plans to make money by selling certificates for around $100, verifying course completion. If you can earn a certificate for completing an artificial intelligence class taught by a Stanford professor, gee, where does that leave the math professor at the underfunded liberal arts college second, ess noticed kind of edu- ‘The Apollo Group, which owns the University of Phoenix, has made a big bet to create the Innovator's Accelera- tor and has signed up noted Harvard Business School professor Clayton Christensen and others to teach corporate teams how to become more innovative. I was allowed a sneak peck at Innovator’s Accelerator; it looks like something George Lucas would have cooked up had he turned his creative talents to education. The Innovator’s Accelerator—or something like it—will soon change the $50 billion corporate training market as we know it. A third way bits can transform atoms is to change the way we consume and value atoms. An example in air travel is XOJet, which has made private-jet travel cheaper. XOJet, owned by Texas Pacific Group, was able to use TPG's credit to buy scores of late-model jets on the cheap after the financial crisis. XOJet’s chief, Blair LaCorte, then im- ported strategies and taetics from two other businesses owned wholly or in part by TPG: low-cost air carrier Ry- anair and resorts operator Harrah’ “We got people to think of private jets as nice hotel rooms to rent, not resort homes to fractionally own,” LaCorte says. XOJet owns 75 jets but has only three types: the Challenger 300, the Hawker 800XP and the Ci- tation X. “We know how to maintain these three types,” he says. That's crucial, because XOJet gets 1,200 annual hours of use from each jet, as opposed to 600 hours for the average fractional jet and 250 hours for the average privately owned jet. XOJet’s volume means that you ean rent a Challenger to go from Van Nuys, Calif, near L.A., to Teterboro, N.J, near Manhattan, for as low as $23,000. ‘The more custom your needs—say, Santa Monica to White Plains at a precise time—the more the price will 20 up, of course. But thanks to the Internet and some clever analytics, XOvetis able to price each request, offer a smart deal and make money. Yes, it’ still ajet, but bits have transformed how the jet is being used. @“We're ready to expai our business and we ~ need a partner with the capabilitiestohelp us get there.” HOLESALE When you need someone to strategize with, we'll be ready to talk. Our relationship managers take the time to learn your business and gain a deeper understanding of your expansion goals. 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MC-S3M VBSTRAT AVIATION Ready for Takeoff United Technologies’ Louis Chénevert bet more than $1 billion ona risky new jet engine technology—and won one of the most important contracts in aviation. BY DANIEL FISHER nited Technologies CEO Louis Chénevert took the biggest gamble of his career on something called a geared turbofan, Ina modern jet airliner there are really just two ways to increase fuel econ- ‘omy, the most critical selling point in an era of tiny margins and volatile costs for carriers. One ‘way is to increase combustion temperatures so fuel is burned more efficiently. But engines are already operating at levels above 2,500 degrees hhrenheit, the melting point of the turbine blades that propel the plane, forcing engineers to dream up exotic coolin to special coatings and unwieldy mater The other possibility is to increase bypass, or the amount of air the fan on the front blows past the engine. The problem: Bypass fans operate most efficiently at slow speeds, while turbines like to spin fast. Reconciling the two is no easy feat. But engineers at Pratt & Whitney, UTC’s storied aeronautical division, had an idea. While UTC’s Connecticut archrival, Gen- eral Electric, went with higher combustion temperatures, Chénevert, at Pratt at the time, backed a seemingly riskier solution of putting a gearbox on the front of the engine to slow down the turbine shaft and drive the fan. If it worked the new engines would cut fuel burn by more than 15% compared with competing turbojets and produce half the noise, allowing airlines to push more fi through urban airports, “Anything that’s going to burn 15% less fuel is like Christmas to the airlines,” says Philip Abbott, British publisher of Aircraft Engines, “Once this sort systems and turn Is like of thing catches on, especially in this business, it tends to boom.” Skeptics questioned whether a gearbox was an unnecessary complication for a jet engine. The addition of the Fan Drive Gear System added only seven moving parts, but the 18-inch-diameter gearbox had to be engi- neered to withstand thousands of high-stress takeoffs and landings without maintenance. If it failed it would likely mean the end of the commercial jet business for Pratt & Whitney which grew famous for the Wasp engines used in thousands of B-24 bombers during, World War Il and the ubiquitous JTSD jet that powered Boeing 727s and DX 9 jetliners but lately had been in d Chénevert never worried. Recruited to the small-aireraft engine unit of Pratt & Whitney in 1993 before taking over the whole division in 1999, he spent several years overseeing the production of small jet turbines with gear- «helicopter blades and turbo- prop propellers. “I'd ma gearboxes probably in the aviation industry than anybody else" he says. He convinced then CEO George David to sign offon development costs of more than $100 million a year, smal relative to UTC's $4-billion-a-year R&D budget but hardly insignificant (upwards of $1 billion) over time. Turns out he was right. And now his very big bet is paying offin a very big way. With 3000 orders in the 24 months since the Pure~ Power Geared Turbofan engine was unveiled, itis proving to be one of the most successful Jaunches in the history ofthe aireraftbusi- ness, expected to double Prat’ jeten enues—about $12.2 billion in 2010—by 2020. boxes to dr ufactured more een errs rineGin [Ey AVIATION The sweetest moment came in January 2013 when Brazilian manufacturer Embracr announced it had selected the UTC engine for its next line of large regional jets, dis- placing incumbent General Electric’s. The geared turbofan has put Pratt in the envi- able position of supplying the most power plants for the most popular airliners for the next couple of decades: single-aisle jets that will absorb much of the travel boom in emerging markets. By the end of this decade “we're going to see volume at Pratt that we haven't seen in 25 to 30 years,” says Chéne- vert, a 6-foot-6 Quebec native whose speech bears strong hints of his French-speaking. upbringing. It’s the tastiest win since Chénevert took over Hartford-based UTC when David re- tired in 2008. David was a tough act to follow: ‘A Harvard grad and international yachts- ‘man, David has captivated the press with his ‘marital and maritime adventures (including an ugly divorce from a Swedish countess 2009 and a near-death experience in the 2011 Fastnet regatta, when his 100-foot racing boat capsized), Chénevert is not nearly as glamorous. He earned a degree in production management from the Université de Montréal and spent his early career overseeing assembly work- ersata General Motors factory in Canada ‘The most exciting entry on his social calen- dar lately is the upcoming birth of his third grandchild, ‘But Chénevert has maintained David's rig- orous focus on high free-cash flow and con- servative accounting, The company generated about $5.5 billion in cash (earnings before depreciation and taxes but after necessary capital expenditures) on sales of $55.8 billion in 201 from operations, including Pratt aireraft engines and Hamilton Sundstrand controls, Otis elevators and Carrier heating and air-conditioning equipment. He deftly sidestepped the financial crisis, that nearly drove GE into insolvency, because UTC never built up a finance arm dependent upon commercial paper markets for funding. “Post 08, the one thing people have learned is having access to commercial paper is critical when it’s choppy out there,” he says, ina subtle dig at GE Chief Jeffrey Immelt “He's a very effective operating executive,” David says of his successor. “He knows how to get projects conceived, scheduled, funded and completed.” He also maintained David's practice of ex- pensing the costs of developing new products against current earnings, instead of eapital- izing them. That means shareholders have already absorbed the entire expense of devel- ‘oping the geared turbofan and can immedi ately begin enjoying the di ‘The geared turbofan wasn't Chénevert’s only challenge. While UTC has performed well in recent years—a better than 1,000% return under David from 1994 to 2008 and another 35% return under Chénevert—the ‘company needed to diversify away from the volatile defense business and inerease its international presence. Chénevert took a big step toward that goal last year when he completed the $184 billion acquisition of Goodrich, the largest takeover in aerospace history. Chénevert initiated the talks with Goodrich’s then chairman Mar- shall Larsen and pushed the deal through, hungry for Goodrich’s jet-engine nacelles, landing gear and thrust reversers to comple- ment aircraft engines. “A company like Good- rich only comes around once ina lifetime," he says. Now UTC gets less than a fifth o revenue from military aviation, including ‘ky helicopters and engines for the new F-35 Joint Strike Fighter, Half comes from a diversified collection of nonaviation businesses with heavy exposure to China and other growing emenging markets. (Otis recently moved its business development office from Connecticut to China, because elevator sales there dwarf the entire North American market.) And aviation is now skewed toward the commercial business, which is poised to double (measured in revenue passenger miles) over the next ten years as millions of ‘emerging market consumers grow affluent ‘enough to fy. Chénevert’s next goal: extract more sav- ings from UTC’s labor-intensive manufac turing operations. He's already cut 25,000 jobs and taken $2 billion in charges. Oper- ating margins, a key measure of efficiency, rose from 13.5% to 15.1% since he took over. Now he’s promising $400 million in similar “synergies” from the Goodrich aequisition. “There's alot to be gotten,” he says. “There's another decade ahead.” @ Trending ‘What the 38 milion Forbes.com users are talking about. For a sdeener dive, scan below or goto FORBES COM/BUSINESS DAN GILBERT Billnaire buying up Detroit's office build- ings now gaming on big casino there. Tip for mayor: Just sell him the city. Fast. ‘GIAGEN Hopes for new diagnostic test spike shares of Netherlands, magical eompany. ‘AUTONOMOUS CAR Driverless driving ar- rives. Now to convince insurers. Best argu- ment: No way robots are worse than peopl.GALLERIES — PART OF DUBAI'S VIBRANT ART SCENE PEOPLE VISITED ART DUBAI IN 2012 PER CENT OF MIDDLE EASTERN ART IS TRADED HERE. WELCOME TO THE REGION'S ARTISTIC HUB WHEN YOUJRUN THE NUMBERS, DUBA| MEANS BUSINESS. yp ol aelH (1 -Va (KO ONO laa) EXPO 2020 DUBAI, UAEMARKETING Once Upon a Soda Consulting firm Starlight Runner helps movie directors like James Cameron-and big brands from Coca-Cola to Mattel to Pepperidge Farm—keep their stories straight. GROWING UP ON the rough streets of 1970s New York City, Jeff Gomez told stories to keep from getting bullied. “I was not a fighter,” says Gomez, now the CEO of New York City-based consulting firm Starlight Runner Entertainment. “I wanted to be a paleontologist. Sohe hung out on the fringes of a group of tough guys and one by one lured them into playing Dungeons & Dragons, the tabletop ‘game where participants roll dice and talk their way through a narrative adventure. “I guys about their interests Gomez. “We all want 0 they kept coming. ‘The cheese whisperes: Starlight founders Mark Pensavalle and ‘Jeff Gomez know why “Golafeh crackers smile,“There hasn’t been a game-changing book on personal development in a long time. The wait is over.” Jack Canfield, New York Times bestselling author of The Suces Principles “Every once in a while, you read a book that completely changes how you think about your life...ths is that kind of book.” —David Bach, #1 New York Times bestselling author of The Automatic Millionaire “...a must-read for any serious student of success and high performance.” Darren Hardy, Publisher of SUCCESS magazine and [New York Times bestselling athor of The Compound Effct You're right: something is missing in life ‘And there isa reason you're not feeling more energized, productive and fulfilled e See ee eee (ae Inara setae, ec be ode oul hy tg SENATE " CONFIDENT INSIGHTS » DECISIVE RESULTS © 2013 ForeSe. All oghts reservedINVESTING JOHN W. ROGERS JR. — THE PATIENT INVESTOR. RETURN TO THE AS 2013 BEGINS | remain outside the consensus: A chorus of voices continues to fret about a new normal, whereas I simply expect a return to normalcy. Everyone is focused on the bad news, and you hear a lot about slow growth and low returns. 1 expect growth to pick up, unemploy- ‘ment to fall and stocks to continue their climb, Since the beginning of 2008 there has been a $300 billion selloff in equity mutual funds and a $1 trillion push into bond funds. Never mind that stocks have beaten bonds since the end of 2008 and are relatively cheap. Bonds are as pricey as ever, but people are so scared of a 2008 re- peat that they'll accept a big chance at low returns instead of a small chance of temporarily big losses. Last year was a strong year for stocks, but a dose of contrarian- ism could have helped you beat the market. All but two of my picks from this column in 2012 made money, and many were big winners, In all, FORBES calculates that after deduct- ing 1% for commission costs, my rec- ‘ommendations scored a total return 0f 17% versus 9.2% for similarly timed S&P 500 purchases. I thought a housing recovery was inevitable, and it arrived swiftly. Title insurer FIRST AMERICAN FINANCIAL @as,25 defied Wall Street group- think that anything housing-related would be stuck in reverse and has surged 55% since my recommen- dation last March. Carpet-and-tile ‘maker INTERFACE GSIA 16) climbed 40% on improving fundamentals. Newspaper and television station owner GANNETT (6,20) defied naysay- OLD NORMAL . DS cers with a 49% gain after I recom- ‘mended it in May. ‘Not every stock I touted worked out so well in 2012. Magazine publisher MeREDITH (wor, 34 gained 10% but trailed the overall market. I still like it. With titles like Better Homes and Gardens it has evergreen co tent and a stable, financially soli subseriber base. Another one I'm sticking with is asset manager JANUS CAPITAL GROUP NS, 9.8, which sank after my column last fall. But the ing on service companies in niche areas. In energy services I like specialist sistow rou cers, 6), which provides helicopter service to and from offshore rigs. It has long-term agreements with the global giants that smooth out the hills and valleys of the oil business. Bristow trades at 13 times 2013 earnings and below the fair value of its fleet LUFE TECHNOLOGIES LIFE, 60 is the re sult of 2008 merger of Invitrogen and Applied Biosystems. It provides array of products and ser- including genetic sequencing, that help health care companies and other scientific entities to conduct research and test products. Life’s customers need its products and services to do their work. It trades at just 14 times forward earnings, which should grow 9% in 2013. Finally, ToweRs WATSON (TW, 58 the global market share leader in human resources consulting. Simply ut, many companies want to be BONDS ARE AS PRICEY AS EVER, BUT PEOPLE ARE STILL SO SCARED THAT THEY'LL ACCEPT LOW RETURNS stock was up more than 40% in 2012. Janus is a powerful brand in both. growth and value investing and has lots of room to grow. CCONTANGO OIL 8 Gas Mer, 45) dropped 30% after it drilled two “dry holes” ina short time. I stand by Contan- go's long-term track record and lean valuation of 15 times book value and less than 10 times free cash flow. Texpect the economic growth to accelerate in 2013, and so Tam focus- best-in-breed in their core business. ‘Human resources functions can be a distraction, prompting most larger public companies to call on Towers’ expertise. Helping giant companies ‘manage people is a great business, offering good growth potential, low capital requirements, high margins and high retention rates. It trades at below-market forward P/E of ten, with earnings expected to rise 8% in 2013.0and “> ~_what you ‘elon ee ee Pree ese Mme men) ste gute ee Seneca ener tae creat at tle Mes ane pen ner rot ey the same combination ofless noise Iiféike music. lasting quality and net ee ere com. ‘Simply put, the sountlis bagutful: We invite youte hearth Ryerss agree aisien Se eee ete es See ere aan) eee a lexicons me o/s £7 1-800-729-2073, ext. Q8681 or visit Bose.com/QC eee han cLConsumers are building multibillion-dollar marketplaces for sharing cars, homes, bicycles, driveways and tools. In looking for a better deal and extra income, they're reshaping business. BY TOMIO GERON PHOTOGRAPHS BY ERC MLLETE FOR FORDES 1 paper, Frederic Larson is just one data point in five years of US. government statistics showing underemployment in dozens of industries and stagnant in- ‘come growth across the board. The 63-year-old photographer with two children in college was downsized by the San Francisco Chronicle in 2009. He now spends his time teaching at Academy of Art University with occasional lecturing gigs in Hawaii, A far cry from the salary, benefits and company car he used to have. But Larson is also a data point in an economic revolution that is quietly turning millions of people into part-time entrepreneurs, and disrupting old notions about consumption and owner ship. Twelve days per month Larson rents his Marin County home on website Airbnb for $100 a night, of which he nets $97, Four nights a week he transforms his Prius into a de facto taxi via the ride-sharing service Lyft, pocketing another $100 a night in the process. Itisn't glamorous—on nights that he rents out his house, he removes himself to one room that he’s cordoned off, and he showers at the gym—but in leveraging his hard assets into seamless income streams, he’s generating $3,000 a month. “I've got a product, which is what I share: my Prius and my house,” says Larson. “Those are my two sources of income.” He's now looking at websites that can let him rent out some of his camera equipment. The “gig economy,” the plethora of microjobs fueled by online marketplaces offering and filling an array of paid errands and office chores, has been well-documented, and sites like TaskRabbit, Exec and Amazon's Mechanical Turk continue to grow apace, What Larson finds himself in, howBrian Chésla 0 of airy Booked mare gests 6n New ‘Yedes thai the Vegas StinTHE SHARE ECONOMY ly far more disruptive—a share economy, where asset owners use digital clearinghouses to capital- ize the unused capacity of things they already have, and consumers rent from their peers rather than rent or buy from a company. While Airbnb is the best-known example of this phenomenon (to ‘most casual observers, it’ the only example), over the past four years at least 100 companies have sprouted up to offer owners a tiny income stream out of dozens of types of physical assets, without needing to buy anything themselves. “The sharing economy is areal trend. I don't think this is some small blip.” says Joe Kraus, a general partner at Google Ventures who has backed two car-sharing sites, RelayRides and Sidecar: “People really are looking at this for economic, environmental and lifestyle reasons. By making this access as convenient as ownership, companies are seeing a major shift.” ‘The sharing concept has created markets out of things that wouldn't have been considered monetizable assets before. A few dozen square feet in a driveway can now produce income via Parking Panda. A pooch- friendly room in your house is suddenly a pet penthouse via DogVacay. On Rentoid, an outdoorsy type with newborn who suddenly notices her camping tent never gets used can rent it out at $10 a day to acity slicker who'd otherwise have to buy one. On SnapGoods, a drill lying fallow in a garage can become a $10- a-day income source from a home- owner who just needs to put up some quick drywall. On Liquid, an unused bicycle becomes a way for a traveler to cheaply get around while visiting town for $20 a day. Getting into the share economy was the reason Avis Budget Group last month chose to pay a whopping {$500 million for Zipear, despite the fact that the pioneering rent-by-the- hour startup generated a paltry profit of $47 million over the past year. But Zipear in some ways misses the larger point of what's going on: Its fleet, as with Avis’, has been centrally owned. Amore profitable model may lie in peer-to-peer car-sharing services such as RelayRides and Getaround, which mimic Hertz or Avis except that the service itself owns nothing. Their fleets, about 50,000 combined at last count, draw from the tens of millions of autos idlingsin America’ driveways. SideCar and Lyftslice that ‘market finer, monetizing an empty seat by letting owners tote along fee- paying passengers on routes they may already be taking. Just as YouTube did with TV and the blogosphere did to mainstream media, the share economy blows up the industrial model of companies ‘owning and people consuming, and allows everyone to be both consumer and producer, along with the potential for cash that the latter provides. FORBES estimates the revenue flowing through the share economy directly into people's wallets will surpass $3.5 billion this year, with growth exceeding 25%. At that rate peer-to-peer sharing is moving from an income boost in a stagnant wage ‘market into a disruptive economic force. Technology has vastly im- proved on the newspaper classifieds that brokered the sweating of assets for a century. Ebay’s much duplicat- ced rating system bestows com cial credibility on individuals. With Facebook you can go further, che ing people's profiles before renting to‘Shelby Clark, founder of RelayRides, ‘which now counts GM as an investor. them, Smartphone apps let sharers transact anywhere, see what's being shared nearby and pay on the spot. “We're moving from a world where we're organized around ownership to one organized around access to assets.” says Lisa Gansky, who started. the Ofoto photo-sharing site, before selling it in 2001 to Eastman Kodak. Dozens of startups chasing the trend will fail, as marketplaces like these always prove winner-take-all. The leaders are, as expected, absorb- ing blows from anxious regulators and incumbents. Airbnb is fighting to prove its legality in New York and San Francisco, Lyft and SideCar were cited by California utility commis: sioners recently for operating without a license. Big issues also have yet to be worked out over how these services are taxed and w! protect customers suffi liability and fraud. And who's to say whether what works among the hip- sters in Brooklyn and San Fran translates in between. But for all the doubters, Airbnb cofounder Brian Chesky can point to the figurative heartland, Peoria, where his company has three hosts willing to rent their place for as ow as $40 a night. “People providing these services in many ways are entrepreneurs or micro-entrepreneurs,” he says. “They're more inde- pendent, more liberated, a little more economically empowered.” Even in Peoria, ‘THE GENESIS OF THE modern- day share economy is best traced to San Francisco in 2008, where Chesky and Joe Gebbia, recent Rhode Island School of Design graduates who had fled west, thought they could make some pocket cash by housing attend- ces at an industrial design conference on air beds in their apartment. They put upa site, Airbedandbreakfast com, to advertise their floor space. Alter three people bunked with them that week, they decided to max out their credit cards and build a bigger site with more listings. “We never considered the notion we were participating in a new economy,” Chesky says. “We were just trying to solve our own problem. After we solved our own problem, we realized many other people want this.” ‘Tobeefup their tech chops the ‘ovo designers brought in Nathan Blecharezyk, Gebbia's former room- “PEOPLE WHO PROVIDE THESE SERVICES ARE ECONOMICALLY EMPOWERED.” ‘mate. Early on, the trio focused their site—rechristened Airbnb—on large events where hotels were sold out, such as the 2008 Democratic and Republican conventions. In 2009 they got into the hot Silicon Valley accelerator ¥ Combinator, yet cofounder Paul Graham was dubious. The Airbnb partners impressed him with wacky gambits like “Obama O's" and ‘Captain McCain” breakfast cereals, which they first gave away to bloggers to get publicity, then ended up selling for $40 a box to support the company. “We were skeptical about the idea but loved the founders,” says Gra- ham, Chesky and erew then won over Sequoia Capital, which came up with {$600,000 in seed funding. Airbnb started slowly, facing the critical mass problem that all marketplaces do—buyers want more sellers and vice versa. There was also a social stigma around sharing. A lot of people told Chesky that renting to strangers wasa “weird thing, acrazy idea” To attract more hosts the Airbnb founders went to New York in 2009, where personally—the opposite of what an Internet company typically does—and earn how to improve. ‘That year the site ended with 100,000 guest nights booked, but growth started to tick up faster after adding features like escrow pay- ‘ments and professional photography services, and allowing different kinds of spaces such as whole houses, driveways and even castles and tree houses. By 2010 the site had gone international and guest nights booked rose to 750,000. By 2011 it passed 2 million total nights booked. Critical ‘mass had been achieved. Airbnb has a broker’s model. In exchange for providing the market and services like customer support, payment handling and $1 million in insurance for hosts, Airbnb takes a 39% cut from the renter and a.6% to 12% cut from the traveler, depending on the property price.THE SHARE ECONOMY Last year guest nights booked fell in the range of 12 million to 15 million, estimates Wedbush Securities analyst Michael Pachter. On New Year's Eve alone, 141,000 people worldwide stayed at an Airbnb. In single-occupancy terms that’s al: most 50% more than can fit in all the rooms in all the hotels on the Las ‘Vegas Strip. To be sure, those figures, ill pale next to the entire U.S. hotel industry, which according to research firm STR sold 1 billion nights alone between January and Novem- ber 2012. But if you add Airbnb’s 300,000 listings to the equivalent type of places available on vacation-oriented sites like HomeAway, suddenly house-sharing is larger in terms of room count than all the Hilton- branded hotels in the world, Pachter believes that Airbnb will eventually get to 100 million nights per year, a figure that would likely produce revenue of more than $1 billion, up from an estimated $150 million in 2012. Focused on expansion, the site very likely lost money last year, but that’s an easy thing to do when Silicon Valley is throwing cash at you. Chesky and crew have raised $120 million to date from Sequoia, Greylock Partners, MI CHAIN SAW ES SU CHAIN SAW Andreessen Horowitz and Y Combi- nator. A $112 million funding round in 2011 gave the startup a $1.3 billion valuation. Chesky and his partners are currently trying to raise another $150 million at valuation of $2.5 billion, a figure that could make their stakes worth about $400 million each, with a shotat becoming the first bil lionaires of the share economy. “The potential is huge,” says Sequoia’s Greg McAdoo, “In 20 years we won't be able to imagine a world where we didn’t have access to things through collaborative consumption.” AIRBNB HAD GREAT timing and fast-moving founders but benefited equally from a sea change ove past five years in consumer attitudes about ownership, a shift that could prove to be the longest-la of the Great Recess and deeply ingrained: borrowing to buy assets above your means is a sketchy proposition, as the recent ‘owners of 16.5 million foreclosed houses will attest. Ownership, the root of the American Dream, took a hit. “It’s changed, especially with the younger generation,” says Shannon King, chair for strategic planning at the National Association of Realtors. “Also they like the idea of not being tied into a property. They can move to different areas of town and live a more flexible lifestyle.” ‘And that new paradigm trickled down far past real estate. With cars, for example, the old ideal of buying a ride after high school to squire friends and dates is eroding, The share of new cars bought by Americans 18 to 34 dropped from 16% in 2007 to 12% last year, according to Lacey Plache, chief economist of Edmunds.com. Millennials, the ascendant eco: nomic force in America, have been culturally programmed to borrow, rent and share. They don't buy news- they grab and disseminate la carte via Facebook and ‘Twitter. They don't buy DVD sets; they stream shows. They don’t buy Ds; they subseribe to mu: a=". ° | SabrinaHemandez | Jory Felice ‘Adam Masonbrink Ashley Diedrich Dylan Rogers DoGvAcAY NEI¢HeoRGooDs ‘AIRBNB. POSHMARK RELAYRIDES San Francisco college | Savescash andcutsclut- | uit hisjobinMay and | Seling 10 to 20items —_| Chicago sales executive student hosts dogs in her | ter by borrowing a chain | now travels often, paying | perday on the mobile | makes $1000 month apartment, making 102,500 a month, sn fers the “work” to her previous Starbucks jo. wheelbarrow cat carrie oF kids clothes, He lends ‘out his ladder, rill and for trips by Airbnb-ing his apartment and gi ing car rides on Lyft and travel tours on Vayable app, she now makes ‘more money than her previous nutsingjobin | a Hot Springs, Ark renting his itle-used ded a Jeep Cherokee to his let.DON’T BE SURPRISED IF YOUR SOCKS OUTLAST YOUR SHOES.THE SHARE ECONOMY services such as Spotify or Pandora (or just steal it). Sabrina Hernandez, 23, used to work at Starbucks, but she isn’t going back after averag- {ng $1,200 a month this fall hosting strangers’ dogs in her apartment through website DogVacay. “It’s so ‘much more rewarding than working in a customer-service setting.” Once you get beyond homes and cars, though, creating peer marketplaces for smaller-ticket items SWEATING “wercoauc oon Saaes & | ALL ASSETS Almost anything you can buy new, you can proves more challenging, since the transaction has to be easy enough to justify the owner's effort. Some startups have had success in high- value niches like high-end sporting goods, food-related products and music equipment and instruments. “The value proposition here is not to rent anything from anyone,” says Ron J. Williams, cofounder and CEO of SnapGoods, a neighbor-to-neighbor lending service launche “You have to serve a particular kind of person like a photographer who's traveling and needs equipment.” ‘To ramp up usage Williams “ur rently going a step further: partner- ing with manufacturers and retailers, those crimped by the share economy, to turn his site’s efforts into a try-before-you-buy sales tool, with ‘consumers getting a credit toward aGrace hears the balance beam calling. Sars eect Dee ata De eC CROC eLeRe Ceo ‘That's why St Jude Children’s Research Hospita spends every moment changing i ih pioneering research and exceptional cate See ey Rater pT Tel ee ee eee ee Sree ted Help them live. Visit stjude.org.THE SHARE ECONOMY tive market. While hotels so far are letting regulators do the dirty work of tangeting Airbnb, other industries are pivoting, most notably the auto industry. Besides the Avis acquisition of Zipcar, Mercedes-owner Daim- ler is rapidly expanding its car2go sharing service that rents its Smart Fortwo cars by the minute. But again, that’s corporate Amer- ica mimicking the share economy. General Motors has fully embraced the peer-to-peer market. In late 2011 General Motors invested in a $3 million round in RelayRides, which i thousands of cities. The reason? Marketing. GM hopes people sharing a Chevy will eventually buy one, Additionally, GM can incentivize sales by pro- moting the idea that a new car ean now come with rental income stream attached. You can even open your GM car with RelayRides’ iPhone app using GM's OnStar syster “The partnership allo GM to sell consumers what they're looking for: mobility,” says RelayRides founder Shelby Clark. ECONOMISTS REMAIN perplexed as to how to measure all this activity “We're going to have to invent new economies to capture the impact of the sharing economy’ Arun Sundararajan, a professor at the Stern School of Business at NYU who studies this phenomenon. The largest question for academics is whether this all creates new value or just replaces existing businesses. ‘The answer is surely both. Its classic creative destruction. There may bea short-term negative for the economy because a person isn’t buying a car. (AUC Berkeley study shows that for every vehicle used by companies like Zipear, 9 to 13 cars are being ditched by car owners.) But long-term economic efficiencies result, and that’s ultimately good for everyone. Airbnb commissioned a study of its economic impact on San Francisco last year and found a “spillover e ie an Airbnb rental tends longer and spent $1,100 in the cit compared with $840 for hotel guests; 14% of their customers said they would not have visited the city at all without Airbnb. “It’s never been the case in our economy that utilizing assets more efficiently leads to fewer jobs,” says Robert Atkinson, president of the Information Technology & Innova- tion Foundation. “If were in hotels I wouldn't lose a lot of sleep over it” ‘And perhaps it’s artificial to even divide the world into the individual versus the corporation. Many critics, deride Airbnb and the like as short term fads for slow economic times. (Airbnb’s report found that 42% of hosts use the income to pay ¢ day living expenses.) Safety, value, customer service and quality of goods remain areas where these sites could stumble, ‘There are also regulatory issues: New York and San Francisco, fueled by pressure from annoyed neighbors, have enacted laws that try to crimp short-term house rentals California has been citing ride-sharing services for operating without a taxi license. And there are all sorts of tax questions, such as whether an Airbnb stay should be hit with a local hotel tax. But human beings have been swapping before money even existed. New technologies only grease the wheels ofthese ancient transactional instincts Even ifgrowth levels off, it doesn’t change the fact that peer exchanges are simply another way for entrepre- nurs to reach customers. Dylan Rogers, a27-year- old sales executive in Chicago, began renting out his BMW 6 series on RelayRides because he he intended. Now that he's ‘making $1,000 per month from it—well above what itcosts to finance and maintain—he recently bought a Jeep and plans to add a Charger specifically to rent out, with the goal of netting $40,000 a year for his three-car feet. want vehicles that are useful for the marketplace.” he says. Ishe an entrepreneurial individual, or a small car rental company? Either way, there's nothing to stop hhim from using the tools ofthe share economy to create the next Hertz. @One Company has Your Roadmap to Product and Service Advantage. To gain and sustain a competitive advantage in the 21st century, manufacturing leaders like you need to transform the way you create and service products. PTC's industry-leading technology solutions combine powerful software with over twenty-five years of manufacturing expertise, delivering value to more than 27,000 customers worldwide Nee Ogee Cus acu ay Re ea Ra ge ay eC erLOrecT UVR HONE TON eplere® Looe ielcoeCe eK rent Ty foley etelcaetel de) 1uee-(eAoat SitsiqencienscRac bree (os stay on top of this rapidl Sun(oyno)artal=@pUsinaccts Corre) Dre ed :find John Duffy, 3Cinteractive'sco- founder and CEO, walk past the motor cycles and graffiti- splattered guitars, st the chain-link- fence cubicles and a conference room \wrapped in corrugated metal. Ina sunny comer office atthe headquartersin Boca Raton, Fla, beyond a coffe table topped ‘with a book of Van Halen photos, sits “Duff in front ofa polished conerete ‘wall and yet another custom guitar, this cone a Gothic-black instrument with a Jhuman skull and bones sculpted in relict con the sound box. When I point out the larger-than-life John Duffy “Fathead” that employees secretly plastered to the window of his office, he's momentarily bewildered. ‘Christ, I didn't even fing see that!” he says. That's awesome!” Taking a closer Jook, he has second thoughts. “But why couldn't they have gotten a picture with less chins?” Even without the effigy 3Ciis unmis- takably John Dutfy’s company: The rock roll decor—Dulfy, 47, sports a head of spiky gelled hair and a wrist fullof multicolored string bracelet from the unalterable fact that 3C enterprise technology company, dealing inthird-party software integrations, mobile payment processing and client work flows, among other things that David Lee Roth never sang about. When it comes to making money, though, Ci sings. Founded by Dufly, President Mike FitzGibbon and COO Mark Smith in 2005, the company ‘grossed 60% on $287 million in sales in2012;this followed 7 annual growth over the Driving that expansion: corporate clients like Walgreens, ESPN and Best Buy, which pay 3Ci upwards of 10,000 month, not including transaction fees, for software to help them reach customers on their mobile phones. ‘Want to send an SMS text to remind patient to refill his eds atthe pha macy? 3Cilinks its software with drug chains’ customer management syspromising COMPANIES 3CINTERACTIVE COMPLAINT DEPARTMENT 2.0 Valued Customer '3Cis new MuSIC platform helps companies deal with gripes by sorting out who's complaining ‘and how to respond. Say a frequent fer tweets at an airine’s Twitter handle about a fight ‘change. 3Cipuls up her history ad triggers a remorseful, personal response with a coupon. -0-4-6-@ Average Grumbler Regular customers count too, ofcourse, though perhaps not as muchas loyal and high-paying ‘ones. ist-tme flor tweet, say about a rude seatmat, 3Ci help the catir decide, via language-processing tech, wat kind of mea culpa to senda tweet, a text ora voice recording tems, automatically sending hundreds of thousands of prompts each month. Utility companies use the tech to warn customers about imminent shutofs ink in the text takes late payers toa ‘mobile Web page to surrender a credit card number. The heat stays on, utilities gettheir cash, and 3 ile, gets small cut of each payment. ‘The company delivers mobile news alerts, sports scores and fantasy sports ‘updates from mass media brands, For retailers, 3Cipowers mobile “show- rooming” letting consumers pull product information and compare models by scanning QR codes in stores “They do stuff that’s rea” says For- rester analyst Julie Ask, while alot of panicky boards struggle to flesh out mobile strategies beyond the app. For corporate customers the basis-point improvement in customer retention and engagement that 3Ci delivers is “worth a significant amount of revenue and, really, earnings per share,” says FitzGibbon, Duffy’ spit-and-polish Jieutenant—and ultra-straight man, Yet Ask cautions that the mobile messaging industry is messy: “frag- and “immature” Just where 3Ci, a strong and early player, fits in is far from certain. A list of en- ‘rants in the amorphous market ranges from blue chips like AT&T to smaller ‘outfits like Phizzle, another member of America’s Most Promising Companies. Dufly admits he sees so many different types of companies battling for deals he can't even name his chief rivals. “If we don’esee some competitors pop up in the next 12 months, I will be worried” says John Sculley, the former Apple CEO and PepsiCo president who has invested in 3Ci and serves asits chair- ‘man and Duffy's chief sounding: board, Chaos? It’ part of the origin and continuing dynamic of 3Ci. Today FitzGibbon, the risp executor of strategy. Smith, whom Duffy has called “the janitor” rounds out the trio by mopping, up the back office and hr. clutter. Itgoes back along time. Asa sales rep at MCI in Boca Raton, Duffy had also been starting businesses and making investments since 1995. His successful venture was Bill, which han- dled online creditcard transactions in the early days of the Web. Duffy never took an operating role, but he came up with the idea, put up seed money and hired the team, including Smith as vice president of sales, Founded in 1997, Bill tended up selling its services mostly to porn sites, much to Duffy's embarrass- ‘ment. He came away with just under ‘$1million when it sold for $100 million five years later, his stake heavily diluted by subsequent investments. “Tee itas a lost opportunity” he says. “When I look at what PayPal did at the same time, that's what I would measure it against” ‘Leaving MCI in 2000, two years after its calamitous merger with World- ‘Com, Duffy nurtured smaller ventures, including a string of comedy clubs and real estate investments, while keeping an eye out for talent to run the next company. FitzGibbon, who'd taken over and expanded Duffy's MCI accounts, ‘when he left, caught his eye. “I said, “There's someone you can build a business around; ” Duffy recalls, Astocky,close-cropped 39-year-old, “Mike's the drill sergeant,” Smith quips. “He's tactical, very process-oriented.” Inthe office by 7:30 am. each day, he ‘wears neatly pressed button-downs and slacks, out of place next to Duffy's bagey ‘uniform of golf shirts and jeans. Invited to the CEO's office in Delray Beach, Fla. in October 2004, FitzGibbon listened as Duffy evan- gelized about a big opportunity, “He said, ‘I've got the next tollbooth!”” itzGibbon remembers. “And then he pushed over a box of business cards with my name on them.” The company was called SMSaging—pro- nounced “S-M-essaging”—which inevitably became “smessaging” or ‘SMS Aging” in the mouths of the uninitiated. Duffy, who went on to invest $2 million in the venture, made clear that FitzGibbon would enjoy almost complete control as president, including name changes. The only leline: The business had to sella mobile-based service to help compa~ nies reach customers Leaving his job in sales, FitzGib- bon turned to three salespeople he had once hired at MCL. “Isaid, ‘Tean'taf- ford you guys right now. Keep your day jobs, but you need to start prospecting for deals” The team commandeered MCT funnel sheets to keep track of leads and secretly holed up in acom- pany conference room every Friday for calls with FitzGibbon. In August 2006 they nabbed their first customer, providing JM Family Enterprises, the largest distributor of Toyotas in the US, with a way for employees to checkPayroll doesn’t have to be so frustrating. Unless you like the extra fiber in your diet. Payroll stressing you out? Start using Intuit® Payroll and make it easy Bets PIA TUN Terrence: tra ow ccs you tan poy employees ard tox forms. Just enter employee hours and Intuit Payroll automatically P a y ro | | calculates everything else. And, if you need it, there's live expert support. Saving you time and pencils every month: QuickBooks Pees tari eet) Online Demo | 30-Day FREE Trial | Live Support100% of T. Rowe Price Retirement Funds beat their 5-year Lipper average as of 12/31/12 Read the story behind our performance ‘Our managers continually adjust the funds’ mix to take advantage of changing market conditions T, Rowe Price Retirement Funds are low cost so your investment goes further Consider T. Rowe Price Retirement Funds for your IRA. TRowePtice ths troweprice.com/openira | 1.866.586.9656 INVEST WITH CONFIDENCE 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. : The principal value of the Retirement Funds is not guaranteed at any time, including at or after the target date, which ithe approximate date when Investors arn age OTe funds invest i broad range of underlying mutual funds thatncke socks, bonds and shorter investments, and are subj fo te sks of diferent area of he markt. The ‘ands emphasize potential capital appreciation during the early phases of relirement asset accumulation, balance the need for appreciation with te need for income ay retirement approaches, and focus more on income and principal Stability during retirement. The funds maintain a substantial allocation to equities both prior to and aiter the target date, which can result in greater volatility. “a! omit m2 ot Bel 8.71 be Rene ial mse tr hr pag ey 5a rnd en pln prt 1270, ct me 20, 0, 2 la dg pe 2 fs 05 205 fg penis 1204 0 ne pa SS le oS aa prs Ga a Up} have ieee vee De orsBRonisine COMPANIES 3CINTERACTIVE {nto a centralized database via text ‘messages after hurricanes, FitzGibbon ‘wrote the contract and later whipped upamakeshiftinvoice using Excel. Hisad hoe approach soon got its comeuppance. During disastrous meeting with the mobile division of Viacom in New York that October, the division's chief prodded FitzGib- bon, “Come back when you have areal company,” He returned to Florida in a rage. “Mike came in and just smashed everything off my desk and said, “This isbulls—t’” Duffy remembers. FitzGib- bon demanded more people and more cash for the business. The two sat down, wrote up an investment prospec- tusand sent itoutto the network of investors Duffy had acquired over the past II years. They raised $1 million in a month, some checks arriving in the ‘mail without follow-up phone cal. With new capital, 3Ci took more definite shape. FitzGibbon hired his sales team and established a technology office in Uruguay, a burgeon- ing tech hub where Microsoft and IBM have offices, Mark Smith, 47, joined as a partner in 2007, taking ona “handyman” role to figure out payroll, accounting and gritty internal operations, “Mark is the glue inthis business,” FitzGibbon maintains. After signing ESPN in January 2008, the company finally began to stitch its ‘messaging technology into a scalable platform rather than build require- ‘ments from scratch for each client. Long distracted by other ventures, Duffy became more involved as 3Ci showed promise. In 2007 he wound down his investments and became fulltime CEO —his first such stint. Stil, day-to-day ops belong to FitzGibbon and Smith, who manage sales, execute strategy and handle internal operations; Duffy maintains relationships with carriers, investors and the media. “The three of us together make one normal person,” he observes. “A pretty kick-ass person, t00.” ‘A few more KAPs wouldn't hurt. First turning a profit in 2009, 3Ci now handles abillion mobile messages each month—during which 25 mil Americans engage with a voice recording, text or app—a figure set to double by midyear. The company intends to exploit these numbers by changing clients on a per-customer basis, Next quarter 3Ci is introducing tools that integrate social media and big data services into its existing products. Dubbed MuSIC, the new technol- cay includes natural language proces ingto scan Twitter and Facebook for customer complaints. Smart enough to pick out abilling issue amid the noise, the software routes complaints to companies’ back-end software systems and prompts an automatic response catered to every individual gripe. The frequent- flier member of an airline, for example, ‘might get a call from a customer service rep. less valuable patron could get a text message, a voice recording ora return tweet (see char, p.70). ‘Though Tom Holmes, the firm's C10, says 3Ci logs every scrap of data it has on clients’ customers, just keeping track ofthe information is no longer enough. The key is finding actionable relationships within the deluge. “As our eustomers demand better i that’s gap we're going to need to fill” says Holmes. That means more data scientists in addition to the 20 tech and product positions he plans to fill this year. “We could hire 100 engineers right now and keep them busy,” Duffy says. Since South Florida isn't exactly Silicon Valley, 3Ci looks to offices in Montevideo and Eugene, Ore, where it recently acquired Safi Systems, whose forte is interactive voice recording, With $6 million in debt funding from private equity firm Kayne An- derson Capital Advisors in 201, Duffy doesntt plan to raise more money. Shooting for $50 million in sales this year, he expects 3Ci can throw off enough cash to keep itself going for a while, FitzGibbon may have the bigger challenge: ensuring that a disciplined organization keeps pace with his col Teagues' big ideas. @ How smarter research helps us find opportunity. A few times a year, T. Rowe Price ‘media and telecom analysts get together with college students and have pizza. Not because our analysts are interested in pizza consumption, but because they're always on the lookout for new media and technology habits of “early adopters.” Our analysts’ pizza get- togethers help us find insights into technology trends that are ahead! of the curve, leading to better investing decisions. That dedication to more thoroughly researching investment ‘opportunites is just one reason behind the proven performance of our funds. Past performance cannot guarantee future results Visit our website to learn more about our funds and determine whether they are right for your IRA. Or call your advisor, 401(k) provider, ora T-Rowe Price Specialist. TRoweFtice fs INVEST WITH CONFIDENCE Request a prospectus or summary prospectus each indudes investment other information that you should read and consider before investing. “LR rie Investment Series, ett, aerasinc COMPANI COPYCAT plan for the cool snack food popchips is modeled on the outrageous success of vitaminwater, from its private equity backing toits celebrity shilling. Crazy—or can lightning strike twice? [BY MEGHAN CASSERLY e set out to do something, completely different by applying the science of one product to another” says Keith Belling, ‘CEO and cofounder of popchips, the ‘omnipresent snack food, He's referring tohis 2005 purchase and conversion of arice-cake plantin LA, retooled to make a new kind of potato chip, applying the same heat-and-pressure process to spuds. But he might as well be talking of his yearning to replicate the crazy success of vitaminwater—the drink that, swith revenue just north of $300 milion, was sold to Coca-Cola half a dozen years ago fora staguering $4.1 billion, Belling whose entrepreneurial résumé includes a coffee-t restaurant group and allbusiness.com (Gold to NBC for $225 million) —has Jong had a weakness for vitaminw But over the last four-plus years he's also adopted virtually every aspect ofits ‘growth strategy, from its private equity backing its celebrity pimping, in the hopes of reengineering a similar success. Inthe $90-billion-2-year global snacking market, where the odds of survival are slightly worse than riding out the Ebola ‘can lightning strike twice? Popchips started with a distinctive ‘edge. “Popping was a breakthrough; says Kara Nielsen, a so-called food trendologist for CCD Innovation, a San Francisco consultancy. But Belling and cofounder Pat Turpin, an ex-investment banker who managed private-label brands for Costeo, needed to get the snack out there fast before they could persuade chains like Safeway and Whole 4 cchain,aWHY SOME BRANDS HAVE THE EDGE (AND OTHERS DON'T) “Allen Adamson brings to life the rules of smart brand-building in simple, no-nonsense, fast-paced style pulling together tips and insights from an impressive list of the most successful names in marketing, media, technology and entertainment.” Eric Kessler, President and Chief Operating Officer, HBO “What would you give to know the inside tricks of dozens of today's power brands? Allen lets you in on many of them, You read The Edge and you understand how virtually all of this pa ata century's cool brands got that way.” a Svc eae Be Edward Vick, Chairman, iraq and cS ae Aighanistan Veterans of America “This isa fast and intimate view of what makes successful brands and the icons oreword by behind them. Truly news you can use.” Y STEVE FORBES Faith Popcorn, CEO, Faith Popcorn’s BrainReserve Landor wwwlandor.com/theedgePromisinc COMPANIES POPCHIPS SNACK FOOD BOFFOS . HITS Stacey's Pita Chips ‘Stacey Madison and her husband were seling fresh pitas out ofa food truck and started making chips out of ‘day-old bread. She split from her husband ‘and was selling more than $60 milion in sacks before PepsiCo's Frito-Lay bought it in 2005 for an estimated $250 milion. MISSES Rap Snacks Launched by James "Fly" Lindsay in 1994, Rap Snacks potato chips sold for 25 cents: the bags featured faces of ‘popular reppers. Lindsay sold to rapper Li Romeo (a one-time package-boy) in 2007; the snacks disappeared three years later, along with the singer’ career. Foods to clear shelf space. So they gnve away samples—lots and lots ofthem—on Google's Mountain View eampus and the Menlo Park offices of Facebook, as ‘well as atroad races and charity and ‘community events. Street teams de- scended on hip neighborhoods, concerts and cultural events, as vitaminwater had, to give out free bags of popchips. ‘By 2008 popchips sales reached {$65 milion, drawing calls from private equity firms. Only one got Belling’s at- tention—from Alex Panos, managing director of TSG Consumer Partners, ‘whom he'd known socially for years. “Flere’s this triple-A firm, and we're still sosmall? recalls Belling “I laughed and id Td love to meet, but I didn't want to ‘waste his time. But when Alex said [popchips] reminded him of vitaminwater, I shelved the rest ofthat discussion.” ‘Knowing that TSG had been an early investor in vitaminwater—sllingits 30% stake to Indian investment group ‘Tata fora reported $677 million a year before the Coke deal—Belling dropped alline that became his lodestar: “I hope popchips will be the vitaminwater ofthe snack aisle? TSG eventually invested an «estimated $25 million for 30%. ‘The die was cas. TSG introduced . 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Certification as World-Class is based on CONFIDENTIAL franchise owner reviews using serious scientific research methodology, NOT a few hand-picked testimonials. For details go to WorldClassFranchise.com/CertificationRequirements reports at: WorldClassFranchise.com/2013 ade FAST: More than fast. More than signs 1 OURO RRS spherion aia INSTITUT FEBRUARY 11,2013,FINAL THOUGHT There’s just no better way to see a game you really ‘want co see than to watch it on TV from multiple angles, with close-ups—and instant replay, too. MALCOLM FORBES TEE ey For Robert Kraftitall started in 1971 on the cold, hard metal benches ofasad-sack football stadium in Foxboro, Mass. Section 217, row. says the Boston-born businessman, who would bundle up his four boys anda few of their friends to watch the Patriots lose another game on, Ny ‘Sunday aftemoons. used to sit on those benches and dream about \What would doiff owned the team he says. Some 20 years later Kraft THE | delivered on that cold, hard dream. In 1994 he paida then unheard-of ey ) $172 milion to buy a faltering, moneylosing franchise that had won na less than halfofits games since its founding in 1959, Since then Kraft has transformed the Patriots into one ofthe most valuable sports Ey es reat franchisesin the world, The Patriots work, he says, because he treats the Saat property just like our other businesses, [hire good people can trust’ No aa superstars, he says. ‘No Lone Rangers. If you keep the turkeys out of your t life, then good things can happen” —FROM THE SEPT. 19, 2005 ISSUE OF FORBES THOUGHTS ON FOOTBALL oly text this would be my last tide. AndI told them We're in alittle bit of a Ican't ‘Twas just at so much boom right now. Ifthose remember— peace in wherelam ays Rees e aa even though with my decision because of every- hore kind fe tot thisisa thing that I've done in this league. nt = f ta quarterback- Tve doneit, I've done it, man. uarterbacking, 1 STEVE YOUNG drivenleague- “EWS asmany a Tmnot surprised that Junior Seauand Wow, I'm tellin’ ya, you remuricble others have this evidence of brain damage. quarterbacks—you get all the andcompelling —_juniorjust didn't report head injuries. If ae ee stories on the you di report stuff ike that, next thing 8 . eee Youknow youre on waivers Ithinktheyve BRENT MUSBURGER 7 rs basically just scratched the surface of a : og siganticiceberg. They tumedablindeyeto j in We NFLyou stone Gist seeing this year, _thisforsolong.andnowitsanavalanche. round draft pick if youre SEAN MCMANUS MARK WALCZAK i lucky. You couldn't really i outwork anybody else. In Hyping up the Super Bowl ads has gotten even more i college I could recruit ten ridiculous than hyping up the game. 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And IBM to launch new services and SmartCloud” offersa level of flexible enough to scale nicely ease, expertise and flexibility with existing IT, the solution you won'tfind ina “my-way- kept costs and user access lrthe-highway” approach. safely in ine. Cutie your cn suing pen andards nd HEM Sarton. “Fares seach 6M te lag loca BM SaaS: Pare rhea nae vader of eras Buses Maines Cap een many stars wore Acer I ot BU radars lal te ib at wnubean/egaeapadeshnl © rab Buess Nacees Caper 203

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