Professional Documents
Culture Documents
SPECIAL
REINVENTING
AMERICA
BUILDING A
SKYSCRAPER,
LEGO-STYLE
2014 Cartier
watEr-rEsistant to 300 mEtrEs, thE caliBrE dE cartiEr diVEr watch is an authEntic diVing
watch. FittEd with thE 1904 mc moVEmEnt, it comBinEs thE high tEchnical rEquirEmEnts
oF thE iso 6425: 1996 standard with thE assErtiVE aEsthEtics oF thE caliBrE dE cartiEr watch.
EstaBlishEd in 1847, cartiEr crEatEs ExcEptional watchEs that comBinE daring dEsign
and watchmaking saVoir-FairE.
Social
Productivity
Platform
Insights
72 | crude capitalist
Harold Hamms vast
North Dakota oilfelds are
the grease in the American
economy.
lEADERBOARD
16 | cAStlES OF kUkiO
20 | DEGREES OF hAppinESS
The business schools with the most
contented M.B.A.s.
86 | factory town
Does CEO still know
best in 21st-century
America? Cummins
thinks so.
cover photograph by david yellen for forbes
4 | FORBES MAY 5, 2014
Over 20 million kids in America lack access to healthy food. So, a company called
Revolution Foods came up with a solution: affordable, nutritious, kid-inspired meals,
available in schools and stores.
To make an impact, they needed capital, nancial advice and guidance. With Citis
support, they went from a small kitchen to employing more than 1,000 people, serving
a million meals a week nationwide. Now Citi is helping the company expand, as they
continue their mission to make nourishing food accessible to all.
For over 200 years, Citis job has been to believe in people and to help make their ideas a reality.
#progressmakers
2014 Citigroup Inc. Citi and Citi with Arc Design are registered service marks of Citigroup Inc.
30 | FAiRESt FOwl
32 | ActivE cOnvERSAtiOn
thOUGht lEADERS
34 | cURREnt EvEntS
by paul johnson
36 | cURREnt EvEntS
by david malpass
38 | cApitAl FlOwS
by bjorn lomborg
52 | eyes
on you
Wearables:
singing the
body electric
to save a
few bucks.
40 | innOvAtiOn RUlES
by rich karlgaard
StRAtEGiES
42 | UnFiniShED BUSinESS
48 | once
youre
lucky ...
Biotech billionaire
Robert Duggan
is desperate to
prove hes not
a fash in the
petri dish.
by matthew herper
tEchnOlOGY
52 | BiG BROthER inc.
58 | silverware,
sofas ... and
software
Wayfair had
ambitions to be
the Webs Sears,
Roebuck but frst
needed algorithms
to get to know its
customers.
EntREpREnEURS
58 | thE cAlcUlUS OF cOUchES
Wayfair.com sells nearly $1 billion
worth of home furnishings.
But its real business is data mining.
by abram brown
invEStinG
62 | DAllAS BUYERS FUnD
66 | FinAnciAl StRAtEGY
by a. gary shilling
68 | cApitAl MARkEtS
by marilyn cohen
70 | intRinSic vAlUE
62 | little ideas
Not everybody thinks bigger in Texas. Proof:
small-cap specialists Don and Craig Hodges.
by bonnie baha
REinvEntinG AMERicA
72 | thE MAn FUElinG AMERicAS
REcOvERY
98 | sky-high
stocks
Theyre
baaack! Stock
strategist
James Montier
says you can
kiss growth
good-bye.
94 | lEGO hiGh-RiSE
FEAtURES
98 | iRRAtiOnAl ExUBERAncE:
thE SEqUEl
liFE
106 | thE wOOD whiSpERER
112 | thOUGhtS
On reinvention.
106 | hollywood
woodwork
Frank Pollaro, carpenter to the stars.
FORBES
EDITOR-In-CHIEF
Steve Forbes
CHIEF PRODUCT OFFICER
Lewis DVorkin
FORbEs MagazInE
EDITOR
Randall Lane
ExECUTIvE EDITOR
Michael Noer
aRT & DEsIgn DIRECTOR
Robert Mansfeld
FORbEs DIgITal
vP, InvEsTIng EDITOR
Matt Schifrin
ManagIng EDITORs
Dan Bigman Business, Tom Post Entrepreneurs, Bruce Upbin Technology
sEnIOR vP, PRODUCT DEvElOPMEnT anD vIDEO
Andrea Spiegel
ExECUTIvE DIRECTOR, DIgITal PROgRaMMIng sTRaTEgy
Coates Bateman
assIsTanT ManagIng EDITORs
Kerry A. Dolan, Luisa Kroll Wealth
ExECUTIvE PRODUCER
Frederick E. Allen Leadership
Tim W. Ferguson FORbEs asIa
Kashmir Hill sIlICOn vallEy
Janet Novack WasHIngTOn
Michael K. Ozanian sPORTsMOnEy
Mark Decker, John Dobosz, Deborah Markson-Katz DEPaRTMEnT HEaDs
Avik Roy OPInIOns
Kai Falkenberg EDITORIal COUnsEl
bUsInEss
Mark Howard CHIEF REvEnUE OFFICER
Tom Davis CHIEF MaRkETIng OFFICER
Charles Yardley PUblIsHER & ManagIng DIRECTOR FORbEs EUROPE
Nina La France sEnIOR vP, COnsUMER MaRkETIng & bUsInEss DEvElOPMEnT
Jack Laschever PREsIDEnT, FORbEs COnFEREnCEs
Michael Dugan CHIEF TECHnOlOgy OFFICER
Elaine Fry sEnIOR vP, M&D, COnTInUUM
FORbEs MEDIa
Michael S. Perlis PREsIDEnT & CEO
Michael Federle CHIEF OPERaTIng OFFICER
Tom Callahan CHIEF FInanCIal OFFICER
Will Adamopoulos CEO/asIa FORbEs MEDIa
PREsIDEnT & PUblIsHER FORbEs asIa
Rich Karlgaard PUblIsHER
Moira Forbes PREsIDEnT, FORbEsWOMan
MariaRosa Cartolano gEnERal COUnsEl
Margy Loftus sEnIOR vP, HUMan REsOURCEs
Mia Carbonell sEnIOR vP, CORPORaTE COMMUnICaTIOns
FOUnDED In 1917
B.C. Forbes, Editor-in-Chief (1917-54)
Malcolm S. Forbes, Editor-in-Chief (1954-90)
James W. Michaels, Editor (1961-99)
William Baldwin, Editor (1999-2010)
IN BRIEF
An American
Reinvention
by Dan bIgMan
UPGRADE TO THE
MOST UPGRADES.
Sometimes the best destination youre looking for is on the ight itself.
Fortunately, Delta ofers the most seat upgrade opportunities of any
airline, so you can move on up more often. Which means more chances
to enjoy the extra inches, added amenities, and Priority Boarding. If its
a bump to First Class youre looking for, youll nd more of it. In fact,
youll nd the most of it.
DELTA .COM
FORBES
Good news for those who believe in the rule of law: Theres a
big court case coming up that could
deal a powerfully positive blow for
the Constitution and the idea that
Presidents cannot change lawsor
decree themat their whim. The
Afordable Care Acts language is
explicit: If a state doesnt set up its
own insurance exchange and the
feds have to do it instead, then buyers in that state cannot get subsidies
in purchasing health insurance. The delusional White House was convinced that the
law would be so popular that virtually no state
would pass up the opportunity to build an
exchange. Lo and behold, 34 did.
Its no surprise the federal government is
ignoring the law and paying subsidies in those
states anyway. But there is a case, Halbig v.
Sebelius, thats challenging this arrogant trampling of the rule of law. Its currently at the appellate level but will surely wend its way to the
Supreme Court, which will then have a unique
opportunity to save our battered Constitution
from becoming a dead letter.
| 13
FORBES
l Cafe Luxembourg
l Olives
l Allonda
The kitchen has hit its stride at this new and totally
transformed space with the bar downstairs and
the handsome dining room one fight up. Try
razor clams with soppressata, diced sardines or
miso-dressed salad; then move on to bucatini
with smoked uni, Hampshire pork with smoked
apples and red cabbage, or skate. Dont pass up
the chocolate cake.
14 | FORBES
MAY 5, 2014
Startup to IPO.
Change for the better.
Switch and you could save with GEICO.
Some discounts, coverages, payment plans and features are not available in all states or all GEICO companies. GEICO is a registered service mark of Government Employees Insurance
Company, Washington, D.C. 20076; a Berkshire Hathaway Inc. subsidiary. GEICO Gecko 1999-2014. 2014 GEICO
LEADERBOARD
Birds EYE
Castles of KuKio
Warrens sister paid only $3.2 million in 1997 for her 6,815-square-foot
home, which overlooks the Jack Nicklaus-designed Hualalai Golf Course.
Rouxs private equity frm helped take Dell private last year.
The ofcial owner is a business that shares the address of Marks company.
The Silicon Valley tech investors place lies two lots down from Dells
and has fve bedrooms and fve and a half baths.
by erin carlyle
BRiaN PoWeRS foR foRBeS
Promotion | LoGiStiCS
Fleet Management:
Green Is the Color of Success
By MICHAE L RONEy
Oldenburg notes that todays technological advancements are really helping feet
managers: When you go green, you can
do so and actually save money, he points
out. We see a lot of commercial operators
switching to hybrid vehicles, and the savings in fuel alone more than offsets the
costs they were incurring with less-efcient
vehicles. That is a tremendous help to commercial feet managers.
Assuring Success
For maximum feet management success,
consider these best practices:
Make sure everyone within your organization understands that the feet is the
lifeblood of any company strategy.
Partner with world-class providers that
can align their services and products with
your strategy.
Spec new vehicles strategically, according to their TCO.
Be one of those companies that adds up
all of the costs over the life cycle of the vehicle, from acquisition price to operational
efciencies and ultimately the resale value,
Oldenburg advises. Ask, What will be the
When you go
green, you can do so
and actually save money.
That is a tremendous
help to commercial feet
managers.
MaRK OLDENBURG
TOyOTA
advantages of building a fleet of highermileage vehicles? Can I reduce my insurance costs? Can I reduce my maintenance
expenses? Toyota is very well positioned
for all of those companies that are looking to green their feets and manage them
from a TCO perspective. n
.
D
.
A
E
O
N
I
R
L
E
M
H
O
T
T
N
T
O
O
T
B
A
R
E
U
R
O
G
Y
S
N
K
O
O
R
O
L BETTE
EVEN
Prototype shown with options. Production model will vary. 2014 Toyota Motor Sales, U.S.A., Inc.
LEADERBOARD
50
SCoRECARD
buSinESS SChoolS
winners
Christy
Walton
Chip
Wilson
Alfred
Mann
+$1.6 billion
+120 million
+$110 million
Net worth:
$38.5 billioN
Net worth:
$2.4 billioN
Net worth:
$1.2 billioN
LOsers
Stanford
Uc BERkELEy (HaaS)
2
9
Mark
Zuckerberg
Vince
McMahon
Micky
Arison
-$4.2 billion
-$360 million
-$150 million
Net worth:
$25.9 billioN
Net worth:
$1.2 billioN
Net worth:
$6.2 billioN
Facebook plunges as
investors question big
purchases. Jan Koums
shares are down 15% since
February acquisition of his
company, whatsApp.
Carnival announces
a quarterly loss as it
discounts cruise prices and
increases ad spending in
the wake of high-profle
mishaps.
FiGureS reFleCt the ChANGe iN Net worth FroM MAr. 19, 2014 to Apr. 9, 2014.
SourceS: InteractIve Data vIa FactSet reSearch SyStemS; ForbeS.
19
22
inDiana (kELLEy)
5
4
36
DaRtMoUtH (tUck)
6
2
38
DUkE (fUqUa)
7
5
18
RicE (JonES)
8
23
21
WiSconSin-MaDiSon
9
13
10
12
cHicago (BootH)
10
6
40
DeGrees OF
HAPPiness
create tailor-made
medicine, could we stay
healthier for longer?
Personalized healthcare
a dream our software could bring to life.
LEADERBOARD
9,522
thE VERdiCt
JA: We didnt need him to be a
shirt-and-tie guy; we just needed
to clean him up a bit. its a neater,
fresher, younger look.
Before
After
EnSEMblE
JA: the big baggy jacket
and wrinkled shirt feel
like hes a college student
and someone told him to
put on a jacket. No shape
or form.
Ki: the sleeves are clearly
too long. the shoulders are
misshapen.
ShiRt
Ki: his blue shirt missed its
appointment with an iron.
JACKEt
JA: the checked jacket looks
youthful and goes great
with khaki trousers. Not too
studied, not too perfect.
Ki: the tailoring of the
jacket is gorgeous. the cut
of the sleeves and their
length frame his hands to
say: i am strong.
ShiRt
Ki: the shirt tucked in
adds a structured but still
comfortably casual look.
PAntS
JA: khaki pants are every
young guys uniform.
Wearing those with a belt,
hes buttoned up a little,
but not too buttoned up.
the after imaGe iS a Simulated imaGe of What palmer luckey Would look like if he had actually participated iN the forbeS makeover, Which he did Not. Nor doeS he eNdorSe aNy productS pictured here.
new billionaires
CEO MAKEOVER: PhOtOgRAPhER: JEff fRiEd; StylE diRECtOR: JOSEPh dEACEtiS; fAShiOn ASSiStAntS: tiM ARMitAgE And tAniERA REid; nEw billiOnAiRES by AlEx MORREll
Navy / White GiNGham Sport Jacket ($2500.00); Navy Short Sleeve polo Shirt ($310.50); taN tWill paNt ($385.00) by aScott chaNG. available at aScot chaNG; leather belt ($540.00) by bruNello cuciNelli, available at WWW.bruNellocuciNelli.com
top: ap photo / Jeff chiu; luckey (before): Getty imaGeS
forbes makeover
$85,000
LEADERBOARD
path to success
He became a billionaire last year after selling most of his stake in the fashion empire
he built with his ex-wife. Now hes making new investments around the world while working to
prove that his own womens wear chain, C. Wonder, can be more than a Tory Burch knockof.
sHarp eYe
startup
gOIng glOBal
rOugH patcH
spreaDIng WOnDer
On HIs OWn
BY clare OcOnnOr
Burch; train: getty images; scott eells / BloomBerg; tory Burch: Kevin mazu / getty images; shoes: samuel granado / mct / newscom; cwonder: donald Bowers / wireimage / getty image; fidelity: Brent lewin / BloomBerg
100%
80%
only
26%
FDIVX
FIDELITY DIVERSIFIED INTERNATIONAL FUND
FIGFX
FIDELITY INTERNATIONAL GROWTH FUND
FIVFX
FIDELITY INTERNATIONAL CAPITAL
APPRECIATION FUND
Fidelity.com/opportunity
800.FIDELITY
Before investing in any mutual fund, consider the investment objectives, risks, charges, and expenses. Contact Fidelity for
a prospectus or, if available, a summary prospectus containing this information. Read it carefully.
Past performance is no guarantee of future results.
Stock markets are volatile and can decline signicantly in response to adverse issuer, political, regulatory, market, or economic developments.
Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnied in emerging markets.
1
British chic, Swiss excellence: Breitling for Bentley combines the best of both worlds. Style and performance. Luxury
and accomplishment. Class and audacity. Power and renement. Perfectly epitomising this exceptional world, the
Bentley B05 Unitime houses a Manufacture Breitling calibre, chronometer-certied by the COSC (Swiss Ofcial
Chronometer Testing Institute), the highest benchmark in terms of precision and reliability. It is distinguished by its
exclusive crown-adjusted worldtime system featuring revolutionary user friendliness. A proud alliance between the
grand art of British carmaking and the ne Swiss watchmaking tradition.
BENTLEY B05
UNITIME
2 MILLION
hip-hop holdings
Back in 2007 Sean Diddy Combs teamed with Jay Z and 50 Cent to create a song titled I Get Money: Forbes 1-2-3
Billion Dollar Remix. Less than a decade later rappers are closing in on ten-fgure fortunes. Heres how they made it,
and, at bottom, where it would go if they put their money where their mouths are, per the lyrics of their latest albums.
1. Diddy
2. Dr. Dre
net worth:
$550 million
net worth:
$520 million
3. Jay Z
4. Birdman
5. 50 Cent
the superproducer
leapfrogs Jay z this year,
fueled by the runaway
success of Beats by dr. dre
headphones, a business he
cofounded in 2008.
6%
6%
12%
7%
4%
2%
8%
4%
8%
net worth:
$700 million
REAL
ESTATE
21%
17%
JEWELRY
4%
WINE & SPIRITS 7%
CARS
18%
CLOTHES
18%
net worth:
$160 million
15%
8%
net worth:
$140 million
9%
21%
35%
25%
12%
12%
67%
CASH
32%
35%
41%
46%
LEADERBOARD
463,000
LEADERBOARD
ASK 50 BILLIONAIRES
rich returns
Do billionaires pay enough in taxes?
16%
no
response
TROPhIES
22%
62%
no
yes
fairest fowl
One Of Chinas riChest men, Liu Yiqian, just paid
$36 million for this 3-inch-wide cup covered with chickens,
making it the most expensive piece of Chinese porcelain
ever. It dates back 500 years to the Ming dynasty; there are
fewer than 20 such chicken cups in the world and none in
better condition. If you buy Chinese art, this is the holy
grail, said Sothebys expert Nicolas Chow before the sale.
Liu built a $900 million fortune in real estate and pharmaceuticals and is expected to display the cup at Shanghais
Long Museum, which he founded.
UP-AND-COMERS
seed money
These innovators are fnding breakthrough ways to improve life on the farm.
Rob Leclerc AGFUNDER
Despite his M.B.A. from uc Berkeley, Sikka, 35, spends much of his time these days in the feld, literally. he founded terViva in 2010. it develops new crops to thrive on land no longer being productively farmed: for example, played out acreage in Florida and hawaii that once grew citrus and sugarcane. its frst commercialized crop is pongamia, a tree whose
pods can be processed into biofuels, fertilizer or animal feed. its similar to soy but yields up to eight times the harvest
while requiring less wateran accomplishment that has drawn $5.5 million in private capital and grants to date.
he grew up on a midwestern farm, but his passion was always for tech. Vollmar, 25, did a brief West coast stint participating in
startup incubator Y combinator before returning to Michigan in 2012 to found FarmLogs, a software platform that helps farmers harness data to make crucial decisions, such as which felds, according to meteorological data, will be too wet to work on a
particular day. FarmLogs exploits the reach of high-speed internet into remote rural communities to save farmers hours of labor
a day, he says. More than 5% of u.S. farms with row crops now use the technology, which has attracted $5 million in investment.
Leclerc, 41, had a ph.D. in biology and a background in artifcial intelligence when he went to work with an African agribusiness
company and became fascinated with the challenge of connecting a winning idea with willing investors. in 2013 he launched
AgFunder, an online investment platform for the global agriculture industry. handling $1.3 billion worth of projects, AgFunder
connects private and institutional investors with ventures ranging from cattle ranches in Brazil to hawaiian dairy farms to
cloud-based ag software. he says he wants to make it the fnancial infrastructure of farming.
Invest in futures.
Yo u t h S e rv ic e s
Utility Assistance
S o c i a l S e rv ic e s
Emergency Response
Evangelism
LEADERBOARD
$3.2 MIllION
active conversation
SILICON VALLEYS
SEQUOIA CAPITAL
@KANCHANKUMAR
Heartwarming @sequoia
story. Confrms my belief:
VCs who think and act
like startups have better
chances of success.
@CARLOSDOMINGO
Since when is a VC
an innovation factory?
They are investors.
POT sTOcks
Editors Michael Solomon and Daniel Fisher reported on billionaire Vince McMahons bet that he can remake his $500
million (sales) business, World Wrestling Entertainment, by
launching a paid streaming service on the Internetdespite
fears that it could cannibalize his traditional pay-per-view
TV audience. Hell need a million subscribers just to break
even, the authors calculated, and two or three times that to
make real money. One analyst predicted hed get 6 million to 8
million. Commenter Chris Harrington found that preposterous: No serious analyst can even pretend [thats] a serious
number for a company that is averaging less than 4.3 million domestic viewers for Monday Night Raw. Tony Petzold saw it diferently: Something approaching that should
prove possible in time as the ability to subscribe to the network expands overseas. The market apparently agreed with
Harrington: The website Wrestling Rumors reported that
shortly after the article came out WWEs stock took a
dramatic fall dropping 2.18, about a 7.34% decrease, and
the stock had dropped another 22% by press time. A. Simon
foresaw trouble even if streaming takes of: Just imagine
WWE is successful with this over-the-top expansion campaign and manages to double and even triple the value of
its shares. Then what? Where to expand next? Not much
left. They can start to raise dividends extremely, which in
turn (coupled with the lack of further really big growth opportunities) would greatly reduce the value of the shares
quite a big problem ... depending on how much of a loan
they took out to fnance their growth. WWE has come a
long way already, though; it was a modest regional operation
when McMahon took it over in 1982. Now who would have
thought you could grow WWE into a multi-billion-dollar
business, said Pascal Terjanian.
@CYRILEHENRY
favOrITe
TweeT
@pmarca (Andreessen on
two fctional companies
in HBOs sitcom Silicon
Valley):
Im still kicking myself
for missing out on Hooli.
Luckily we managed to get
a little money into Aviato.
NETJETS INC. IS A BERKSHIRE HATHAWAY COMPANY. ALL AIRCRAFT OFFERED BY NETJETS IN THE UNITED STATES FOR FRACTIONAL SALE, LEASE, OR USE UNDER THE MARQUIS JET CARD AND PRIVATE JET TRAVEL CARD PROGRAMS ARE
MANAGED AND OPERATED BY NETJETS AVIATION, INC., A WHOLLY OWNED SUBSIDIARY OF NETJETS INC. NETJETS, EXECUTIVEJET AND THE MARQUIS JET CARD ARE REGISTERED SERVICE MARKS. 2013 NETJETS IP, LLC. ALL RIGHTS RESERVED.
Tr u s t c a n n o t b e b o u g h t ,
B U T I T C A N B E E A R N E D.
f o r b u s i n e s s , f o r f a m i l y, f o r l i f e
N E TJ E T S.CO M
thought leaders
Paul JohNsoN CurreNt eVeNts
Is vladImIr PutIn
another adolf hitler?
as Mein Kampf makes clear, Hitler
sought to unite all the people of German speech and culture into one state,
or Reich, preferably by peaceful negotiation, otherwise by war and conquest.
To do this Hitler needed to void the
provisions of the Treaty of Versailles,
which Germany had signed after its
defeat in the Great War of 191418.
First he marched into the Rhineland,
which had been demilitarized under
the treaty, stationing regular army
divisions and tanks there. The Allies
Britain and Francedid nothing.
Next Hitler marched into Germanspeaking Austriaan annexation
known as the Anschluss. Having been
stripped of their empire, the Austrians
were glad to become part of a mighty
Reich. Again, the Allies did nothing.
Hitlers next claim was the Sudetenland. This was a territory on the
border of Czechoslovakia inhabited by a
German-speaking people who were absorbed into the new state against their
will. The Allies allowed this landgrab to
stand in an agreement reached at a September 1938 Munich summit meeting.
British Prime Minister Neville Chamberlain, who negotiated the agreement,
argued that Hitler was merely asserting the rights of the Sudeten Germans,
who wanted to belong to his Reich.
The falsity of Chamberlains position
and Hitlers deceit were proved within
months. The Sudetenlands annexation
had made the Czech frontier indefensible, and in March 1939 Hitler invaded.
The Czechs put up no resistance, and
the rest of the country fell into Hitlers
hands without a shot being fred.
Alarmed, the Allies signed a protective treaty with Poland. But Hitler
ship. Putin can rely on these minorities to agitate for Russian intervention
whenever he wantsmost importantly
in the Baltic states of Estonia, Latvia and
Lithuania. His successful annexation
of Crimea is greatly encouraging to his
long-term plans, and its clear hell use
everything in his power, including military force, to reconstruct his empire.
ShadeS of Munich
also had claims against the Poles, in
particular the German-speaking port of
Danzig. When he invaded in September
1939, the Allies reluctantly fought.
Had the Allies stopped Hitler at
the beginning, when he was remilitarizing the Rhineland, hed have
been overthrown and World War II
avoided. But the only one pointing
this out was Winston Churchilland
his was a lonely voice.
Todays drift toward war with Russia
seems like a replay of the past. Putin is
a Russian nationalist, whose goal is to
reverse the events of 1989the end of
the Soviet state and dissolution of its
enormous empire. He seeks to do this by
using what remains of Russias Stalinist
heritage: the military, a huge stockpile
of nuclear weapons and immense resources of natural gas and other forms of
energypowerful tools to wield against
the various weak states that were part of
the U.S.S.R. None has nuclear weapons,
and most are dependent on the (relatively) cheap energy Russia supplies.
All have ethnic Russian minorities, who
speak the language, boast of their superior Russian culture and claim to have
been relegated to second-class citizen-
Paul Johnson, EMinEnt BRitiSh hiStORiAn And AuthOR; DaviD MalPass, glOBAl EcOnOMiSt, pRESidEnt OF EnciMA glOBAl llc; aMity shlaes, diREctOR, thE 4% gROwth
pROjEct, gEORgE w. BuSh inStitutE; And lee Kuan yew, FORMER pRiME MiniStER OF SingApORE, ROtAtE in wRiting thiS cOluMn. tO SEE pASt cuRREnt EvEntS cOluMnS,
viSit OuR wEBSitE At www.forbes.coM/currentevents.
A peerless message.
Te Soft Edge nails
the diference between
success and failure.
Vivek Wadhwa
Tom Peters
Rich Karlgaard is a
navigator for the rest of us.
Bold, timely,
and compelling.
Clayton M. Christensen
Stephen M. R. Covey
www.richkarlgaard.com
thought leaders
david malpass current events
DaviD Malpass, glOBAl EcOnOMiSt, pRESidEnt OF EnciMA glOBAl llc; paul Johnson, EMinEnt BRitiSh hiStORiAn And AuthOR;
aMity shlaes, diREctOR, thE 4% gROwth pROjEct, gEORgE w. BuSh inStitutE; And lee Kuan yew, FORMER pRiME MiniStER OF SingApORE,
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the ENTREPRENEURSHIP of
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Cherie Blair
Chair,
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Bobbi Brown
Founder and Chief
Creative Ofcer,
Bobbi Brown Cosmetics
Tory Burch
Founder & Chief
Executive Ofcer,
Tory Burch
Theresia Gouw
Founding Partner,
Aspect Ventures
Goldie Hawn
Founder,
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Vice President &
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Deputy Chief of Naval
Operations for Operations,
Plans and Strategy, U.S. Navy
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Chief Technology &
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Cisco Systems
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STRATEGIES
TuRnARoundS
Unfnished Business
next two to four years. Chambers is the ffthlongest-serving CEO in tech. Its remarkable
hes held on to the job given that Ciscos shares
havent broken $35 since 2001.
In November Chambers, known for his
knack for forecasting fuctuations, ofered a
disappointing forecast and said it was hard to
read the economic environment. In December Cisco cut the low end of its sales growth
estimates for the next three to fve years from
5% to 3%. The last time it cut its long-term
outlook was in 2011, when it projected growth
of 12% to 15%. In February the company reported a 7.8% drop in quarterly sales and a
product gross margin of 58.8%, the lowest in
more than a decade.
Were not a perfect company, nor am I the
1
2
3
ELIQUIS and other blood thinners increase the risk of bleeding which can be serious,
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ELIQUIS can cause bleeding which can be
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Call your doctor or get medical help right
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symptoms of bleeding when taking ELIQUIS:
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cough up blood or blood clots
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STRATEGIES TuRnARoundS
ACAdEMIC
EConoMICS
GrAtefUl
GrADUAtes
perfect leader, Chambers says. I have to con- prices to fend of rivals like Huawei, AlcatelLucent, Juniper Networks and Hewlett-Packstantly reinvent myself. If you dont do that,
ard, sacrifcing its once unassailable gross
you get left behind.
margins. Chambers also jettisoned more than
The problem: Cisco is fnally facing the
12,000 workers and ditched poorly performreckoning that hit the PC and server indusing businesses, including its consumer fortries years ago. Its dominant market share in
ays into things such as Flip video cameras.
routers and switches, the equipment that diIn March Cisco announced plans to spend
rects Internet trafc and accounts for almost
more than $1 billion over the next two years
half of its sales, is being eroded by networking software and by cheaper, unbranded alter- to build a global computing cloud to undernatives to Ciscos premium-priced equipment. pin its Internet of Everything ambitions. It set
up a $100 million Internet of Everything fund
Customers are outsourcing their networking
needs to cloud service providers such as Rack- that has invested in about a dozen companies
in the past year. Cisco, which has always purspace and Amazon rather than building their
sued a growth-by-acquisition strategyspendown data centers. The phone companies, governments and large businesses that are Ciscos ing $71 billion to buy 169 companies over its
historyin 2012 spent $1.2 billion to buy Merbiggest customers have dramatically reduced
aki, a maker of Wi-Fi networking gear, and
spending. The question is how quickly Cisco
in 2013 spent $2.7 billion for security providcan supplant its declining businesses with exer Sourcefre and $863 million to buy what it
panding ones.
didnt already own of data-center startup InChambers calls 2014 the year of architecsieme Networks, which makes products that
ture, as the $48.6 billion (sales) company pulls
have become Ciscos answer to the softwaretogether new technologies that it can sell to
defned networking touted by such rivals as
customers instead of just the gear that transArista Networks, VMWare, HP and Juniper.
mits digital video, voice and e-mail. Cisco is
We will monetize [the Internet of Everybetting a big part of its future on what it calls
thing] by providing almost all the elements
the Internet of Everything, a world where bilthat connect this together,
lions of sensors, phones and
No ResPeCt
Chambers says, from the
machines can be stitched toCISCOS STRONG GROWTH HAS NOT
virtual data center to the
gether by Cisco and its cusIMPRESSED WALL STREET MUCH.
servers to the technology
tomers. The company teamed
$80
to the video to the Web inwith Major League Baseball
SToCK PRiCe
frastructure. And we will
this year to allow fans in a sta40
30
combine it with everybody
dium to use their smartphones
20
elseopenso the sento get real-time statistics and
sors companies, the manreplays, including unique cam10
ufacturing companies and
era angles of the play. Through
others can be able to inter4
a mobile app Cisco helped de3
face to it. We will provide
velop with AT&T and app de2
the consultancy, and over
veloper Meridian, visitors to
1
time, if we do everything
the Fernbank Museum of Nat1995
2004
2014
right, well bring more and
ural History in Atlanta have acmore applications to it.
cess to interactive audio, video,
The Internet of Everysketchbook logs and other fea- $50
thing
is far from a boon
tures that pop up as they visit
neT SAleS ($Bil)
40
yet to Ciscos cofers. The
specifc locations in the musecompany has had to revise
um. The city of Barcelona has
30
downward the growth foreworked with Cisco over the
cast for its $11 billion (sales)
past few years to connect its
20
services arm. Even at 7%
citizens through video-enabled
to 10% its still too optimisinformation kiosks tied to city
10
tic, says George Notter at
hall and mobile apps that direct
Jeferies. Most of its serusers to available parking spots.
0
1995
2004
2013
vices revenue comes from
Cisco has been cutting
SOURCE: FACTSET.
STRATEGIES TuRnARoundS
maintenance contracts tied to hardware sales,
most of which are declining. Ciscos nonservices revenue is forecast to drop 5.7% for 2014.
The math is inexorable, says Alex Henderson, who has followed Cisco for years as an analyst for Needham & Co. Theyre a big, branded
IT company in a world thats shifting away from
branded IT.
Former Yahoo chief executive Carol Bartz,
who has served on Ciscos board since 1996
and has watched the company grow from
$400 million in sales, says transitions are
good. It gets all the complacency out of the
system, says Bartz. People get energized.
Theres a new battle to win. Thats when
teams come together.
Chambers, who turns 65 in August, has announced his departure before, but this time
he says he means it. It was very deliberate,
Chambers says of his retirement announcement. Ive got next-generation leaders that
can lead, that are getting ready.
At least fve executives could plausibly take
over as CEO, though Chambers doesnt call
out any favorites. The likeliest front-runner
is Robert Lloyd, president, development and
sales, but solid candidates also include Padmasree Warrior, chief technology and strategy
ofcer; Chuck Robbins, senior vice president
of worldwide feld operations; Pankaj Patel,
chief development ofcer; and Edzard Overbeek, senior vice president of Cisco Services.
Chambers acknowledges the company is
still working on getting the lighthouse clients it needs as proof of concept around Internet of Everything. He expects to have those
reference accounts up, running and talking
in the next year. In the meantime hes sharing Ciscos vision with everyone from Israeli
Prime Minister Benjamin Netanyahu to South
Korean President Park Geun-hye, whom he
pitched at the World Economic Forum in
Davos in January. Shes an engineer by background, so that helped a little bit.
Over the past few years, Cisco executives
say, theyve been rethinking all aspects of the
business, including setting up a formal program called the Accelerated Cisco Transformation to consider ways to boost the top and bot-
fiNAl tHoUGHt
noTICEd
tHe PUNcH list
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What the 60 million
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to FORBES.COM/BUSINESS
PERSON
RICHARD PLEPLER
With record audiences
for Game of Thrones new
season, HBOs CEO shows
everyone from Netix to
Yahoo hes the real king of
original video programming.
COMPANY
WHOLE FOODS
Target and Wal-Mart
announce new organic
and sustainable product
lines. How well can Whole
Paycheck withstand the
coming price war?
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TECHNOLOGY
HardwarE
The real value in smart gadgets may be not in what they tell you but in
what they say to your doctor, insurance company and utilities.
TECHNOLOGY HardwarE
comes lucrative. For now both have free and
open APIs (application programming inter
faces) that link their smartphone apps with
insurers, employers and ftness apps like
RunKeeper, with a users permission. Jaw
bone vice president of product management
Travis Bogard says Jawbone may ape Fitbit
and provide analytics software to employers.
It might also take a revenue cut from third
party services like Sleepio, which charges in
somniacs $25 a week for cognitive behavior
al therapy sessions by tracking them (at no
charge, for now) through the Jawbone UP, or
Wellos $199amonth online ftness classes,
which also draw data from the UP.
This time last year Jawbone spent $100
million on BodyMedia, a maker of hightech
armbands that could track sweat, activity and
temperature and that had just started a test
project with Cigna. The bands tracked sever
al thousand people deemed at risk of diabe
tes, and Cigna provided remote coaches to en
courage them to become more active. Early
anecdotal evidence shows a doubledigit im
provement in users risk profles from cate
gories like chronic to at risk, according to
Cigna spokesman Joe Mondy.
Cigna wants to eventually reach millions
of employees and estimates the right con
sumeroriented product could lead to a 13%
yearoveryear reduction in medical trend,
what insurers charge employers based on the
risk profles of their employees, Mondy says.
We can literally bend the cost curve.
Part of the outcome will rest on what new
conveniences consumers will share in ex
change for their increasingly personal data. It
will defnitely be about the data as we move
forward, says Jawbones Bogard. The quan
tifed self was just a frst step, he adds. Most
people dont really care about how many steps
theyve taken each day, but they do care about
their insurance and energy bills.
Once all these data are mined and shared
across a growing web of connected things
and entities, Karl Dalals Fitbit will not only
inform his insurer hes running a
feveritll tell his Nest thermostat to
turn down the heat.
fINAL THoUGHT
TrENdING
What the 60 million
Forbes.com users
are talking about.
For a deeper dive go to
FOrBes.COm/TeCHnOlOGy
PERSON
Brendan eiCH
Mozillas ten-day CEo steps
down after howls of protest
over his support of Californias
anti-gay-marriage Prop 8.
Donor disclosure, whether
leaked or mandated, is a
Pandoras box.
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E-COmmErCE
final thought
TECHNOLOGY
Stories of Innovation
eNTrePreNeUrS
e-commerce
The Calculus
Of Couches
Wayfair.com sells nearly $1 billion
worth of sofas, chairs and
cat playgrounds. But its real
business is data mining.
BY ABRAM BROWN
ayfair is an e-commerce
site selling home furnishings. But with 1,600
employees, its physical
presence is rapidly outgrowing its space in an obelisklike skyscraper
in Bostons Back Baywhich happens to be a
former hub of the Christian Science church.
Long gone are the white shag carpets, wood
paneling and executive-foor elevators that
once allowed church higher-ups to avoid hoi
polloi. Flat-panel TVs on each of 12 foors beam
not messages of faith healing but maps of the
U.S. and Europe that light up whenever theres
a sale. Within seconds Katherine from Decatur, Tex. buys a $49 tungsten wedding ring, Jen
adds a $94 cherrywood bar stool to her lounge
in upstate New York, and Jenna in Connecticut
picks up a $102 gray Parsons kitchen chair.
We installed those TVs so we dont forget
what were doing, explains Niraj Shah, the
dapper, bald 40-year-old CEO and cofounder
of Wayfair. Hes passing through the 24th
foor with cofounder and Chairman Steve
Conine, 41, a more hirsute, if less buttoneddown, counterpart. Were selling people
things to put in their homes.
A lot of thingsmore than 10 million tables,
sofas, patio chairs, cat playgrounds and so
forth, just last year. If its margins are in line
with other e-commerce sites, Wayfair netted an estimated $18 million on $915 million
in 2013, up 55% from the year before. It sells
goods to customers across the U.S., Canada,
Germany and the U.K. Each month more than
11 million peoplemostly 35- to 65-year-old
womenvisit Wayfair.com to browse its massive housewares catalog, an online directory hundreds of times larger than any Sears,
Roebuck ever produced. Shipping is free for
orders over $49; assembly is usually up to you.
Wayfair doesnt make anything. Many of its
goods are produced by mom-and-pop operations, and the site will carry a product even if it
sells it only once.
The key to this enterprise is a series of
algorithms that fulflls orderswith a 98%
success rate thats improving all the time.
Deployed to manage 7,000 vendors and a
head-spinningly convoluted supply chain,
that secret sauce makes shopping a virtually
frictionless experience. Wayfair is as much
a data miner as it is a retailer. It constantly
probes and processes information about its
eNTrePreNeUrS e-commerce
becomes one stop for them. They often come
to the site through SEO. Theyre just bumping around for the best price, says Conine.
They typically spend fve minutes or so on
Wayfair.com, rack up 50 page views and
check out quickly. Prices for items they
frequently view may have to be adjusted to
compete more aggressively with the likes of
Amazon.com.
Gatherers are more like window-shoppers.
They often return to Wayfair, sometimes
spending tens of minutes, even hours, on
the site, racking up hundreds of page views.
These browsers, too, arrive via search, but
unlike hunters, they also fock to Wayfair.com
directly. They enjoy browsing topics like bedroom sets and are less brand-driven. Wayfair
caters to this group with its photo-rich Ideas
& Advice section, designed to set up a sale. But
thats about as far as the company is willing to
snap the trap.
There are still complaints from shoppers, mostly focused on slow shipping. To
address the gripes Wayfair oers customer
service out of oces in Utah and Boston.
E-mails get answered within four business
hours. There are Q&A pages that encourage customers to post queries and concerns.
Even engineers are told to answer complaints directly if theres a problem with the
site. Employees who go the extra mile get
reward dollars; customer service reps who
score high on follow-up questionnaires get a
monthly bonus.
One set of customers may soon get more
attention: Wayfairs investors. In three equity
roundsthe latest one brought in $157 million last monththe company has raised $358
million for an estimated valuation of $2 billion. (Shah and Conine still hold an estimated
50%.) A potential initial oering this year is a
poorly kept secret. Wayfair may have tipped
its hand last year when Michael Fleisher, who
took Warner Music public in 2005, was hired
as its new CFO. There are IPO suspicions,
says Spark Capitals Alex Finkelstein,
who can barely suppress his glee. But
I cant say too much about them.
FInaL THoUGHT
TreNDING
What the 60 million
Forbes.com users
are talking about.
For a deeper dive go to
FORBES.COM/ENTREPRENEURS
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Quirk recently gave a tour of chat rooms run and
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on a particular class of assets or transactions.
In Shadow Trader, for example, two technicians
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listened in, according to Quirk, who was monitoring the room on his screen.
TD Ameritrade, Inc., member FINRA/SIPC/NFA. Commentary provided for educational purposes only. Past performance
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FinaL THoUgHT
tRendIng
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forbes.com users
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for a deeper dive go to
fOrbeS.cOM/INveStING
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Promotion
15
TOmOrrOW
naTiOnal FinalisTs
They designed drains to trap storm water polluting their
river; built a solar-powered lighting system to improve safety near
their school; grew vegetables in aquaponic beds to provide nutrition for the homeless; and reduced the severity of the European
green crab infestation wreaking havoc on their coastal town.
They reached out to civic groups, government offcials, engineers
and academics. They gathered samples, conducted tests, analyzed
results, created prototypes and built websites.
They are the Samsung 15middle- and high-school teams
chosen from a feld of more than 2,300 applicantsand they are
fnalists in the Solve for Tomorrow competition. Samsung created
guarding the
Water supply
Oliver street school,
New Jersey
Cooling Off
a region
east Valley high school,
Washington
Motivated to reduce the amount of electrical
energy the average local household consumed
each summer, the team from East Valley High
School designed, built and tested a prototype
of a hydro-chill unitan easy-to-use, energyeffcient air-conditioning system that utilizes
irrigation water readily available in their region.
P R O M O T I O N / T H E S A M S U N G S O LV E F O R T O M O R R O W 1 5
Reducing Carbon
Footprints
Bailey STEM Magnet
Middle School, Tennessee
Blowing Away
Alkali
Sunburst Junior High,
Montana
The students at Sunburst Junior High tackled
an issue plaguing local motorists: alkali
from nearby salt fats was blowing across
the interstate highway, causing dangerous
visibility problems. The students examined
the area, dug and tested soil samples, and
then created an elevation model of the
adjoining farmland, which they determined
was contributing to the problem. To help stop
the water runoff, which was causing alkali to
blow, they met with plant specialists, grew
and tested different varieties, and made
recommendations to convert the surrounding
farmland to alfalfa, making it safer for drivers
living inand traveling throughthe area.
Earthquake Protection
Sandcreek Middle School, Idaho
The students from Sandcreek Middle School,
located in the shadow of the Yellowstone
supervolcano, wanted to know the risk of
catastrophic earthquakes in their area as
well as ways to mitigate their effects. They
conducted research to identify faults, looked
up building codes and considerations in
engineering and architecture, and built simple
monitors to record ground motion. To apply
what they learned, the students constructed a
building model and tested it on an earthquake
table to demonstrate how modifcations might
reduce damage from an earthquake.
Finding the
Safest Route
Academy at Palumbo,
Pennsylvania
The Academy at Palumbo team focused on
mitigating the risk to students who must walk
through dangerous neighborhoods to get to
and from school, and they set out to create
a system to determine the safest possible
routes. The team developed a survey to
measure student travel patterns, mapped
out the information they collected, plotted
points correlating to real crime data, and
created an algorithm to rate the safety of
each route. At the end they created a website
to communicate the most effcient and safest
options to the community at large.
Legend:
National Finalist
Winner
T H E S A M S U N G S O LV E F O R T O M O R R O W 1 5 / P R O M O T I O N
Lighting Up a Community
H.D. Woodson STEM High School,
Washington, D.C.
H.D. Woodson STEM High Schools team wanted to
improve the safety of their Northeast Washington,
D.C., community, and help students and their
families feel secure as they traveled through a
neighborhood park to and from the school in the
evenings. The students surveyed the area using
geo-spatial technology and identifed ten locations
where there was a need for light sources. They built
solar cells that could power the lights with a low
carbon footprint, and created a plan for confguring
and building the system.
Freshening
the Waters
Growing and
Donating Fresh
Produce
Clearing
the Air
Elko Institute for Academic
Achievement, Nevada
The Elko Institute for Academic Achievement
project aimed to solve the mystery of the
dirty air in the high desert region of Nevada,
where the air is generally crisp and pure.
The students wanted to analyze the chemical
compounds in their precipitation to see if
the dirty air contained dangerous chemicals.
They worked with government agencies,
engineered a prototype of a collection
station, attended a college class on acid
rain, and ultimately conducted a series of
tests on rainwater and snow for acid rain.
They documented their precipitation collection
methods and processes for measuring its
chemical composition.
P r o m o t i o n / t h e S a m S u n g S o lv e f o r t o m o r r o w 1 5
Old Smokeys
Dirty Secret
G.W. Carver Middle School,
Florida
Taking Care
of Crabbiness
Frank H. Harrison
Middle School, Maine
The Frank H. Harrison Middle School team
focused on mitigating the environmental
impact of an invasive species on their local
ecosystem. The European green crab, which
feeds on juvenile clams, wreaks havoc on the
$11 million-a-year clamming industry, and is
destroying the grass in local tidal marshes.
The students reached out to the Maine
Clammers Association, local lobstermen,
town offcials and university professors. They
collected, organized and analyzed data in
order to come to their own conclusions about
the magnitude of the problem, and then
developed recommendations to share with
their community.
Diagnosing
a Hospital
Worcester Technical
High School, Maryland
The Worcester Technical High School project
was a partnership between the schools
pre-engineering and biomedical sciences
students, who worked collaboratively with
their local community hospital to create a
redesign of its outpatient and emergency
department waiting area. Antiquated and
ineffcient, it no longer met the needs of
patients, their families and the staff. The
students analyzed the space, met with
hospital offcials and engineers, and then
created a detailed redesign using sustainable
materials. Their plan addressed the need to
improve privacy and confdentiality, infection
control, effciency of patient care and security.
The students had the opportunity to present
their plan to the hospital for consideration.
Fishing for
Population Data
Vermillion Middle School,
South Dakota
Vermillion Middle Schools team examined the invasion of Asian
carp in the Missouri National Recreational River and its threat
to this historically and environmentally signifcant waterway.
The students brought in experts, such as fsh biologists, to
learn about the carps impressive appetite and growth rate as
well as control methods, and then they went out and captured,
measured and tagged fsh for future research. The students
helped increase awareness of the problem through social media,
media outlets and educational outreach, and advocated for
research and development.
Samsung is proud to partner with Adobe Youth Voices (AYV), DIRECTV, Forbes, National Environmental Education Foundation (NEEF) and
National PTA. For more information on the Samsung Solve for Tomorrow education contest, please visit www.samsung.com/solve.
FORBES
Hamms oil fnds in North Dakota set of a 19th-century-style boom in the state, which has the U.S. lowest unemployment rate: 2.7%.
dubbed Americas Most Reckless Billionaire on its cover in 2011, shakes his
hand and beams a camera-ready smile.
When Hamm begins small-talking
McClendons wife, McClendon himself leans over to a FORBES reporter in
a ft of pique. I dont get it, he whispers. You write all this bad stuf about
me, while you hold up Harold Hamm
as some paragon of virtue.
Paragon of virtue? Maybe, maybe
not. But whats clear is that Hamm
made money the old-fashioned way: He
stuck with what he knewand innovated. McClendon bet $13 billion in borrowed money that he could buy millions of acres of trendy shale gas felds
and fip them at top dollar, but he nearly bankrupted Chesapeake (and soon
thereafter lost his job) when prices collapsed from the oversupply he helped
create. Hamm plodded along with a
buy-and-hold plan for less glamorous oil. Convinced that the newly combined recipe of horizontal drilling and
hydraulic fracturing had the potential
to unlock not just gas but also oil from
deep source rock, Hamm instructed
Continental to lease hundreds of thousands of acres while most of the rest of
the industry just scratched their heads.
Today North Dakotas Bakken feld
produces nine times more oil than
it did fve years ago, and Continental is good for more than 10% of what
arold Hamms story is actually the story of postwar domestic energy. Hamm, in fact, was
born just a few months after V-J Day,
the 13th and last child of Okie sharecroppers who moved to the boom-andbust oil town of Enid, a place where everyone had seemingly stepped out of
the James Dean movie Giant. The people there were diferent, charismatic,
bigger than life, remembers Hamm.
FORBES
BOOM ATLAS
CONTINENTAL
600
CONTINENTAL
RESOURCES
500
400
EOG
RESOURCES
300
S&P 500
200
BY THE NUMBERS
2013:
EXXON MOBIL
CHESAPEAKE
ENERGY
net income
$760 MIL
100
80
sales
$3.6 BIL
2008
2009
2010
2011
2012 2013
total assets
$12 BIL
lonG-term debt
PROVED RESERVES
$4.7 BIL
ALASKA
A
number oF emPloyees
950
BARRELS OF
CRUDE OIL PRODUCED
BY CONTINENTAL
2013:
35 MIL
29 MIL
PROVED
VED RESERVES
RESER
CALIFORNIA
4,100
1,800
GROSS
BILLION
BARRELS
ARREL
NET
Just bakken:
2,600
1,000
MONTEREY
GROSS
NET
CONTINENTALS
PROVED RESERVES 1,080
(millions oF barrels)
785
508
257
2009
365
PROVED RESERVES
TEXAS
2010
2011 2012
2013
TOTAL U.S.
OIL PRODUCTION
(millions oF barrels Per day)
1900
80 | FORBES may 5, 2014
STOCK PRICES
1910
1920
1930
BILLION
BARRELS
1940
OIL PRICES
($ PeR bbl)
RuSSiA
WEST TEXAS
INTERMEDIATE CRUDE
$150
100
60
kAZAkhStAn
30
1986 1990
2000
iRAn
u.S.
iRAQ
174
10
SOURCE: ENERGY INFORMATION AGENCY.
cAnAdA
2010 2014
151
27
143
14
12
10
8
6
4
2
0
kuwAit
CRUDE OIL
IMPORTS TO U.S.
100
veneZuelA
211
10
u.A.e.
98
SAudi ARAbiA
270
libyA
47
niGeRiA
37
PROVED RESERVES
BAKKEN
BILLION
ARREL
NIOBRARA
MARCELLUS / UTICA
5
7.5 MIL
TOTAL U.S.
OIL PRODUCTION
FAYETTEVILLE
WOODFORD
W
89 MIL
HAYNESVILLE
PERMIAN BASIN
A
TOTAL WORLD
OIL PRODUCTION
2012
TUSCALOOSA
PROVED
VED RESERVES
RESER
GULF REGION
EAGLE FORD
BILLION
BARRELS
1950
1960
1970
1980
0
1990
2000
2010
2013
FORBES
When it comes to predictions for North Dakota oil, no one is as bullish as Hamm. Hes a little bit over the top, says one rival.
he benefts derived from Americas $150 billion annual investment in horizontal drilling carry
many, many zeroes. Domestic oil output
has surged by 50% since 2010, creating
more than 1 million jobs while slashing
some 800 million barrels of of annual
imports. Shale gas production has risen
to more than 10 trillion cubic feet per
year from nothing 15 years ago. Oil prices
have stayed high, but U.S. consumption
has been fat for fve years, resulting in
$100 billion a year in petrodollars that
now stay in the U.S. instead of accruing
to the likes of OPEC and Russia.
Natural gas prices, meanwhile, have
halved since 2008 to about $4.50 per
thousand cubic feet. A Yale study fgures the direct savings to America
amounts to roughly $125 billion. Researchers at energy consultancy IHS
say the oil and gas boom is contributing
$300 billion a year, or more than 1.7%
of GDP. Take that away and President
Obamas tepid recovery would look
downright anemic.
Which perhaps explains why
Hamm, Mitt Romneys energy advisor
during the 2012 election, lashes out at
anyone who wants to rein in the boom.
michigan
meets
comeback
its a new day for business in michigan.
Through a series of recent initiatives, Michigan
is once again becoming a preferred place for business.
Starting with a new fat 6% business tax. The pending
elimination of personal property taxes. New right-to-work
1.888.565.0052
michiganbusiness.org/FOR
FORBES
Welcome To
cummins, u.s.A.
The Indiana enginemaker believes deeply in the
anachronistic idea that investing in its community is smart
business. Could it be on to something?
credit tk
By Joann Muller
FORBES
To produce one of the worlds most powerful engines, Cummins CEO Tom Linebarger wants to transform a town.
Siemens industry
software helps
innovative companies
increase productivity,
improve accuracy, and
signicantly reduce costs.
siemens.com/answers
FORBES
that was expanded to include all public buildings, including the fre station,
courthouse, city hall and even the jail.
Private developers followed. Today Columbus boasts more than 60 modernist buildings designed by masters such
as I.M. Pei, Eero and Eliel Saarinen, and
Cesar Pelli. Six of the buildings were
designated National Historic Landmarks in 2000. Since 1957 Cummins
has spent $19.2 million on architectural
fees for Columbus.
Born into a family of preachers,
Millers personal beliefs on social justice and service to others guided many
of his business decisions. As the frst
lay leader of the National Council of
Churches, Miller worked with Martin
Luther King Jr. and Andrew Young to
organize the historic civil rights march
on Washington in 1963. In the 1970s
the company took a substantial fnancial hit when it pulled out of South Africa, abandoning a 20% market share
for diesel engines because the apartheid
government wouldnt let Cummins desegregate its factories. It has ofered domestic partner benefts to employees
since 1999, and in the last few years the
company and its executives have been
lobbying to legalize gay marriage.
Whatever you do in this world,
youve got a responsibility and a privilege
of doing it the very best way you can,
Miller, who died in 2004, said in a company flm clip. And whether it is architecture or cooking or drama or music,
the best is none too good for any of us.
OD DOMESTIC
OD EXPEDITED
OD PEOPLE
OD GLOBAL
OD TECHNOLOGY
Old Dominion Freight Line, the Old Dominion logo and Helping The World Keep Promises are service marks or registered service marks of Old Dominion Freight Line, Inc.
All other trademarks and service marks identied herein are the intellectual property of their respective owners. 2014 Old Dominion Freight Line, Inc., Thomasville, N.C. All rights reserved.
FORBES
ations in 2013 that allowed it to continue to invest in its business (and its social
projects) and still increase the cash returned to shareholders by 34% in 2013.
This year the company expects revenues to grow between 4% and 8%, with
earnings expected to grow faster due to
cost controls and other initiatives. Linebarger says the company expects to return about half its cash from operations
to shareholders. The stock is up 400%
since 2009, or four times the S&P 500,
to a recent $145 per share. Its market
capitalization now stands at $27 billion.
Apartments are
preassembled at the
factory to ensure they ft
before they go to the site.
by The numbers
$150,000
Lego
HigH-Rise
The future of afordable housing is being snapped
together in Brooklyn, one apartment at a time.
By erin carlyle
nside a warehouse at the Brooklyn Navy Yard steel beams and fat metal
sheeting rest atop a workbench. A diagramwhich looks an awful lot like
IKEA furniture assembly instructionsspells out where each beam and
metal screw belongs. On it someone has carefully checked of each component, one by one.
The metal may not look like much yet, but its on its way to becoming part of
the worlds tallest modular residential high-rise. Workers will confgure these
beams into walls, which will become the scafolding of rooms, which link together to form entire apartments. Then the mods are loaded onto a truck
and driven 2.5 miles away, lifted by crane and snapped into position like Lincoln Logs at the Atlantic Yards complex being built next to the Barclays Center (home to the NBAs Brooklyn Nets). Time to load an apartment: 30 minutes.
From the frst cut of metal to placing a mod next to the arena, the entire process takes about 20 days. And well get faster, says Susan Jenkins, vice president of Skanska, one of the companies behind the mods. This is bringing the
best of manufacturing and construction together.
The frst 32-story tower, dubbed B2, which will include street-level storefronts as well as 363 rental apartments, is slated for completion in December.
Build-out of the $4.9 billion project6 million square feet of residential (6,430
apartments, 2,250 of them designated afordable) plus nearly 600,000 square
feet of ofce and retail spread over 22 acres in the heart of Brooklynis scheduled to last 20 years.
FCS Modular, a joint venture between New York City real estate developer Forest City Ratner (which was forced to build the afordable housing as part
of its Barclays Center deal) and Swedish construction giant Skanska, is counting
on the new factory approach to urban construction to save on costs and provide
greater quality control. The industry, projected to spend some $108 billion building multifamily units over the next three years, according to real estate consultant Metrostudy, is watching. A 1,000-square-foot apartment in New York costs an
estimated $330,000 to build; FCS estimates it will knock 15% to 20% of that this
go-roundand as much as 30% of with more experience.
If they can show that here, I think it has potential to have a transformative
$330,000
cost to build the
same aPartment in
new york city
$275,000
estimated cost of a
similarly sized fcs unit.
1.2 million
forecast number of
new-aPartment
households by 2018
700,000
200,000
affordable aPartments
new yorks new mayor
wants created by 2024
15,000
total market-rate
and affordable units
new york finances each year
SourceS: GreeN STreeT ADVISorS; NeW YorK cITY
DePArTMeNT oF HouSING, PreSerVATIoN &
DeVeLoPMeNT; reeD coNSTrucTIoN DATA.
FORBES
$60,000
IrratIonal
ExubErancE:
thE SEquEl
The Shiller P/E signal is fashing warning signs.
What are you doing to defend yourself?
By william Baldwin
$10,000
$7,000
$4,000
1980
1982
1984
1986
1988
1990
1992
1994
1996
price
value
$60,000
price
value
$10,000
StockS:
PrIcES and ValuES
$1,000
$100
$60
1914
2014
SourceS: robert Shiller; S&P Dow JoneS inDiceS; bureau of labor StatiSticS; forbeS.
1998
2000
2002
2004
2006
2008
2010
2012
2014
Theres a counterargument to be
made to the GMO thesis, so lets listen
to it. It comes from Jeremy Siegel, a
professor at Wharton who is as reliably bullish as Shiller is bearish. They
both have victories to claim as market
seers. Siegels stock market cheerleading in the book Stocks for the Long Run
appeared in 1994, a good time to be
going long. Shiller published his textbook for bears, Irrational Exuberance,
at almost the precise point in 2000
may 5, 2014 FORBES | 99
FORBES
2.0
1.0
0.9
0.8
0.7
0.6
0.5
0.4
Source: gmo.
0.3
1967 1970
1980
1990
ProSPEctIVE rEturnS
What to expect when youre investing: not much, says GMO, unless you want to take a chance
on China, India and Brazil. The numbers are guesstimates for real annual returns through 2021.
real annual return
1.6
5.1%
4.1%
0.4%
U.S. BONDS
Source: gmo.
6%
6%
2000
2010
2014
hoW to bE a bEar
Go to caSh. GMO analyst James Montier
is only 30% invested with his own savings.
Thats a bit drastic, but you could lighten
up. You could unload some stocks youre
not fond of.
thIS IS not a coStlESS moVE. While
youre on the sidelines youll be getting a
real return (interest minus infation) of 1%
to 2%. Also, you might owe capital gain
taxes on the sale of your stock.
buY an oPtIon. A put contract on the
S&P 500 index with a strike price of 1,800
and an expiration in December 2015 was
recently trading on the Chicago Board
Options Exchange near 160. That means
you shell out $16,000 and collect on
expiration $100 for every point that the
index closes below 1,800.
ItS a rISkY bEt. If stocks go sideways or
up, your $16,000 goes down the drain.
oWn dEfEnSIVE StockS. GMO predicts
that shares of companies with steady
profts and strong balance sheets will hold
up better than other stocks over the next
seven years. In its institutional funds it owns
Microsoft, Google, Chevron and Coca-Cola.
SWItch to bondS. An infation-protected
U.S. Treasury bond due in ten years has a
yield of 0.6%. It could fuctuate in price in
the meantime, but if you hold to maturity
you will be assured of that 0.6% real annual
return.
tHe BILLIonaIre
and tHe
PrIme mInIst
The basic
philosophy of a
liberal economy
is to allow market
forces to play their
role, says a critic
of Indian mogul
Gautam Adani, who
has proted mightily
from political
patronage in the
state of Gujarat.
er
hen his son was married in the coastal state of Goa last year,
Indian billionaire Gautam Adanis guest list included the
richest man in the country and scores of top executives,
bankers and bureaucrats. Most, however, just stopped by the
night before to bless the happy couple and skipped the actual wedding. One prominent friend, however, stayed through all the ceremonies,
which extended over a couple of days, genial and relaxed like a favorite uncle:
Narendra Modi, chief minister of Adanis home state of Gujaratand almost certainly the next prime minister of the worlds largest democracy.
Adani had another reason to pamper his guest. With an estimated worth of
$5.4 billion, Adani runs Indias largest port, a power company and a commodities
trading business. A large chunk of his operations are in Gujarat, where the Modi
government, in power since 2001, has been very, very generous to Adani.
Getting ber-rich by hitching yourself to the most powerful political forces is neither novel nor confned to India (although its getting increasingly common there).
Western plutocrats, dating back to the Borghese and Medici families, perfected the
art. And political ascendance with an assist from the rich is equally tried-and-true:
Mark Hanna got William McKinley elected President, and that tradition continues
today, as candidates from both parties kiss the rings of the likes of Sheldon Adelson.
But the relationship between Adani and Modi seems egregious by any standard. Adanis crown jewels include Indias busiest private port and a 4,620-megawatt coal-fred power plant, both of which sit in a coastal area called Mundra and
are part of 18,000 acres leased from the Gujarat government.
And according to copies of the agreements obtained by FORBES, those
leases30 years and renewablecame at staggeringly generous rates. Paying less
than $44 per acre, Adani has sublet the space to other companies, including stateowned Indian Oil Co., for as much as one thousand times more. Other government
favors are even more troubling. Between 2005 and 2007 at least 2,900 acres of
grazing land used by villagers was leased to Adani under a version of Indian eminent domain that allows the government to confscate land thats in excess. The
villagers say it was signed away without their knowledge. Today its the site of the
port and the power plant.
Preferential treatment? Adani Group disagrees. It will be completely misleading if we compare the price of the land before development and after
development as an entrepreneur takes risk of investing a large amount to develop this land, and if the commercial venture fails, the consequences are only to the
developer, the company argues in an e-mail.
Thats not how folks on the ground see things. The basic philosophy of a liberal economy is to allow market forces to play their role, says Anand Yagnik, a lawyer representing some Mundra villagers who have sued in the Gujarat High Court
to contest the government actions going back to 2005 and earlier. (Several cases are
still pending.) Why do you have to allocate scarce resources to industrial houses at
throwaway prices when they have sucient capital to pay market rates?
In theory thats the kind of argument Modi would make. In February he gave
a speech touting the benefts of more open business competition in India. He
May 5, 2014 FORBES | 103
FORBES
credit tk
has run as the candidate for economic revival, based largely on his Gujarat record. During his tenure the
state has attracted investment in sectors like auto manufacturing and
solar power and made advances in irrigation and electricity supplies; its
GDP has expanded at a 13.4% compounded annual clip, nearly double
the national rate.
The crux is how hes made that
happen. Launched in 1988, the Adani
Group went public in 1994. But its
real rise happened after Modi came to
power. From 2002 to last March the
groups annual revenue rose from $765
million to $8.8 billion while net profits climbed even faster. During this period it constructed its economic zone,
bought mines in Indonesia and Australia to ensure a steady supply of coal for
its thermal power plants in India and
launched Asias largest coal import terminal, in Mundra. In 2011 it further expanded in Australia, buying for $2 billion Abbot Point, a coal terminal in
Queensland. It also tacked on a hefty
amount of debt$13 billionmore
than doubling since 2011.
While none of the other companies operating in Gujarat have
received the same kind of largesse on
land rates as Adani, they, too, have
gotten sizable government handouts.
That history makes a mockery of Modis campaign-trail diatribes against
crony capitalism and speeches on behalf of the downtrodden. At a political rally in distant Lucknow in early
March he claimed he would not
allow anyone to loot the exchequer.
Modi also said that farmers were his
friends and he would stand by them.
But spend time around the villages here and a vastly diferent picture emerges. This region was famous
for its crops of sapodilla, a brown,
feshy fruit slightly smaller than a tennis ball, as well as dates, coconuts and
castor. Area farmers say thats no longer the case. Fly ash and saline water
from Adani Power and a nearby Tata
Power Co. plant are spoiling the crops
High Court saying the seizure was illegal. In January the court declared
the zone illegal and ordered the companies that had set up factories to
stop all work. Reason: Development
had proceeded without environmental clearance. Under Indian law a project of that size needs a nod from the
federal environment ministry before it
can lay a brick. (This judgment is pertinent only to the economic zone and
not to the port or the Adani Power
plant. The company applied forand
receivedseparate environmental
clearances for those projects, and that
lets them operate legally.)
Indias Supreme Court has refused
to stay the lower courts decision, although it ruled that existing tenants
could keep operating. With hundreds
of millions of dollars already invested
albeit in a project now in legal limbo
Adanis efort may have become too big
to shut down. The Gujarat High Court
passed the ball on that decision to the
feds, asking if the project could be
granted a belated environmental clearance. New Delhi requested a couple of
months to ponder that decision.
We could see quicker resolution. Indias unusual nine-phase general elections will be wrapped up May 16. If, as
every poll indicates, Modi and his party
win, Adani and his wealthy cohorts will
very likely get a free pass. F
May 5, 2014 FORBES | 105
FORBES LIFE
DESIGN
The Wood
Whisperer
Frank Pollaro has designed
custom furniture for
Larry Ellison, David Gefen
and Jerry Seinfeld. He also
collaborates on a collection
with his good friend Brad Pitt.
By richard nalley
What To Do Now
Call 1-800-498-9084 and request our Bond Guide,
written by the experts at Hennion & Walsh. It will
give you a clear and easy overview of the risks and
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Dear Investor,
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CALL 1-800-498-9084
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2013 Hennion and Walsh. Securities ofered through Hennion & Walsh Inc. Member of FINRA, SIPC. Investing in bonds involves risk
including possible loss of principal. Income may be subject to state, local or federal alternative minimum tax. When interest rates rise, bond prices
fall, and when interest rates fall, prices rise. *Source: Moodys Investor Service, March 7, 2012 U.S. Municipal Bond Defaults and Recoveries,
1970-2011. Past performance is no guarantee of future results.
Sitting pretty:
an ebony Pollaro
yacht-collection chair.
fiNal thoUGht
TRENDING
What the 60 million
Forbes.com users are talking
about. For a deeper dive go to
FOrBeS.cOM/liFeSTyle
PEOPLE
WU-TanG clan
the secret is out: hiphops bards of staten
island revealed that
theyll nally release a
new double album, Once
Upon a Time in Shaolin, in
a very limited edition: one
copy. the price is expected to be in the millions;
the album will come with
a custom-made engraved
silver-and-nickel box.
COMPANY
JaeGer-lecOUlTre
talk about a smart watch:
Jaeger-leCoultres new
amVoX2 transponder
can lock and unlock the
doors of an aston martin.
the cost for the 44mm
titanium timepiece is
$29,500. aston martin
sold separately.
IDEA
CoUrtesY of WU-taNG
Brain FiTneSS
Will playing Candy Crush
make you smarter? a
new study suggests that
videogames increase
the cortical thickness of
two central brain areas
associated with greater
cognitive functions. but
you knew that.
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14CA036-14-115511-1
may 5, 2014
THOUGHTS
FINAL THOUGHT
Better to schlep through life than sleep through it.
MALCOLM FORBES
ON REINvENTION
An idea can turn to dust or magic, depending
on the talent that rubs against it.
WiLLiAm BerNBACh
simoNe WeiL
Every answer
given arouses new
questions. The
progress of science
is matched by an
increase in the hidden
and mysterious.
Leo BAeCK
mAimoNiDes
FPO
a
d
e
d
e
ne
C HaAgenNt.G E
HERE YOU GO.
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