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THE $12 BILLION TRIBE • FREE MARKET PHILANTHROPY

NOVEMBER 8, 2016

N-DOLLAR
IO
ST
L
NEXT BIL

25
ART
UPS

UNDER-THE-RADAR
WINNERS

MARTIN VARSAVSKY
“WE’RE ABOUT
PRESERVING YOUR
FERTILITY WHEN
YOU’RE YOUNG.”

END OF THE
BIOLOGICAL CLOCK
EVERYTHING YOU KNOW ABOUT SEX, CAREER AND AGE IS ABOUT TO CHANGE
HOW ONE OF EUROPE’S TOP ENTREPRENEURS
IS SPENDING $200 MILLION TO REINVENT FERTILITY
TWO WORLDS,
ONE MACALLAN

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Contents // NOVEMBER 8, 2016 VOLUME 198 NUMBER 6

ON THE COVER
84 | END OF THE BIOLOGICAL CLOCK
Serial entrepreneur Martin Varsavsky, pictured with his wife, Nina,
has a $200 million war chest built around persuading women to
freeze their eggs while they’re young. Decisions about career, mates
and motherhood will never be the same.
BY MIGUEL HELFT

TIMOTHY ARCHIBALD FOR FORBES.


ON THE COVER:
PHOTOGRAPH BY
JAMEL TOPPIN FOR FORBES.
GROOMER: SUZANA HALLILI USING
MARIO BADESCU & MINERALS BLACK TIE

14 | FORBES NOVEMBER 8, 2016


NOVEMBER 8, 2016
23 | FACT & COMMENT // STEVE FORBES
48 Obama’s feeble apologia for the economy.

LEADERBOARD
28 | TOP-EARNING DEAD CELEBRITIES
Dr. Seuss, John Lennon, Elvis: All pull in posthumous piles. But no
one can hold a sequined glove to the most moneyed dirt-napping
star of all.

30 | NEW BILLIONAIRE: HIGH SCORER


Jun-Hyuk Bang, head of South Korea’s Netmarble Games,
keyed in early on mobile’s ascension. His pocketbook has
fattened accordingly.

32 | ON THE BLOCK: PABLO’S POTS


A collection of Picasso’s clay work owned by the late actor and director
Richard Attenborough goes under the hammer at Sotheby’s.

34 | THE RICHEST PEOPLE IN INDIA


Most of the subcontinent’s wealthiest tycoons are entrenched
industrialists—but the occasional tech titan is working
his way up as well.

36 | BUSINESS LIBRARY: THE BESTSELLERS


It’s not easy to sell a million books, but these business writers have
turned the trick. Plus: notable celebrity publishing imprints.

38 | FORBES @ 100: HIGH TECH, HIGH ANXIETY


In the pre-personal-computer dark ages of late 1971, maintaining
America’s weakening technology dominance was a prime challenge.

40 | CONVERSATION
Readers weigh in on The Forbes 400: those at the top, the
immigrants breathing new life into the American Dream . . .
and one Donald Trump.

THOUGHT LEADERS
42 | CURRENT EVENTS // AMITY SHLAES
MetLife takes the lead.

44 | INNOVATION RULES // RICH KARLGAARD


Digital death star.
52
STRATEGIES
48 | TOO MUCH BAGGAGE
Vera Bradley has been a major player in women’s handbags and
accessories for nearly three decades, but the brand is struggling to
expand its market. Can the queen of fresh prints get a handle on
Millennials?
BY MICHELA TINDERA

TECHNOLOGY
52 | STEPPING OUT OF YOUTUBE’S SHADOW
Erik Huggers wants to make Vevo the top destination for online
music videos. First he needs to outsmart the king of digital video.
BY SHELBY CARPENTER

56
16 | FORBES NOVEMBER 8, 2016
Is your portfolio TOO LOCAL
for a GLOBAL ECONOMY?

100%
of the time, over the past
78%
30 years, the top-performing
equity market has been of global GDP comes
outside the U.S.1 from non-U.S. countries.2

only
26%
of the world’s publicly
traded companies are
based in the U.S.3

Diversify your portfolio with Fidelity international funds.

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Past performance is no guarantee of future results.
Stock markets are volatile and can decline significantly 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 magnified in emerging markets.
1
Source: MSCI All Country benchmark returns 1986–2015.
2
Source: Nominal GDP in current U.S. Dollars via the IMF World Economic Outlook Database — April 2016.
3
Source: FactSet as of 03/31/2016. Data presented for the MSCI AC World Index, which represents 23 developed and 23 emerging market
countries and contains 2,480 constituents, covering approximately 85% of the global investable equity opportunity set. The index is not
intended to represent the entire global universe of tradable securities.
Fidelity Brokerage Services LLC, Member NYSE, SIPC. © 2016 FMR LLC. All rights reserved. 675573.5.0
NOVEMBER 8, 2016

ENTREPRENEURS
56 | WHAT PRICE GROWTH?
To one founder of the iconic Zingerman’s Deli, opening a satellite store in
the Detroit airport is a no-brainer. To the other, it’s a threat to their business
model. They’ve been debating this for decades.
BY BO BURLINGHAM

INVESTING
62 | IRAS GONE WILD
Here’s how to invest your retirement account in private equity, real estate or
gold—without a tax penalty flag.
BY ASHLEA EBELING

WITH SCHWAB ADVISOR SERVICES


HOW TO FIND THE RIGHT ADVISOR—FOR YOU | 65

66 | PORTFOLIO STRATEGY // KEN FISHER


Trump or Hillary? Bull market either way.

67 | INVESTMENT STRATEGIES // WILLIAM BALDWIN


An ETF tax hustle.

70 | SMALL STOCKS // JIM OBERWEIS


Earnings surprises in the heartland.

92 FORBES LIFE CARS


73 | THE FAST AND THE LUXURIOUS
Game-changing sedans, sports cars and SUVs for 2017.
BY JIM GORZELANY

FEATURES
92 | FREE MARKET PHILANTHROPY
GoFundMe is changing the way people give money to causes big and small,
but it is not a charity or a foundation. It’s a highly profitable company with a
brilliantly simple business model.
BY SUSAN ADAMS

PLUS: NEXT BILLION-DOLLAR STARTUPS

104 | THE ALLIGATOR WRESTLER AND THE CASINO BOSS


How the Seminole Tribe of Florida went from being a band of outcasts
living in the Everglades to the multibillionaire owners of an iconic
global brand.
BY LAUREN GENSLER

112 | THOUGHTS
On great ideas.

104 73

18 | FORBES NOVEMBER 8, 2016


   
  
      
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20 | FORBES NOVEMBER 8, 2016


PUTTING YOU AT THE CENTER OF OUR WORLD
Welcome to our Business Class, where your comfort is our priority.

AIRFRANCE.US
EDUCATION FOR LIFE
FACT & COMMENT
“With all thy getting, get understanding”

OBAMA’S FEEBLE APOLOGIA


FOR THE ECONOMY BY STEVE FORBES, EDITOR-IN-CHIEF

PRESIDENT OBAMA HAS written to attention whenever a Washington


an “open letter” of several thousand agency sends a mere “advisory” letter;
words to The Economist about capital- such letters have been used to gut due
ism, immigration, the economy and the process regarding all sorts of alleged
economic areas on which his successor offenses, the result of which stifles free
should focus. speech and promotes thought control.
The whole thing encapsulates the For-profit educational institutions
wrongheaded and obstinately held have been targeted for extinction.
thinking that has brought the U.S. and The IRS continues to suppress groups
the world economies to a near halt. deemed hostile to Big Government.
The duration of the stagnation—and Obama never misses an opportunity to
the feeling that there really is no end in advance his goal of federal control of
sight—is breeding increasingly ugly politics. local law enforcement. Even the Internet—the most dy-
The essay also has its share of Obama’s trademark namic force in modern time precisely because it’s been
disingenuousness that has fanned the political divi- free from government control—is being brought to heel
siveness that he so piously denounces. For instance, he with 1930s-style FCC regulation. And on and on it goes.
declares that “capitalism has been the greatest driver of Is it any wonder that for the first time in memory the
prosperity and opportunity the world has ever known.” creation of new businesses lags the closing of existing
Yet as President of the U.S., the bastion of free enter- ones? Or that the economic recovery from the sharp
prise, he has successfully pursued a socialist agenda 2008–09 downturn has been the worst in U.S. history?
that has Karl Marx applauding from the grave. Despite the most serious and unrelenting attempt in
Smart socialists years ago recognized that govern- our history to give the economy a socialist overhaul, the
ment doesn’t need to seize “the means of production” President’s wordy missive states that “the economy is not
to control the economy. Instituting sweeping and an abstraction. It cannot simply be redesigned wholesale
intrusive rules and regulations that make the survival and put back together again without real consequences
of whole industries and companies dependent on the for real people.” Yes, and you can keep your doctor, too.
whims of government bureaucrats is sufficient. Finance Regardless, Obama’s real feelings about free markets
is the lifeblood of an economy, yet banks have been come through: “Economists have long recognized that
subjugated by the Dodd-Frank Act. Regulators are also markets, left to their own devices, can fail. This can hap-
using that legislation to try to rope in insurance com- pen through the tendency toward monopoly and rent-
panies, mutual funds and any other entities that deal seeking.... More fundamentally, a capitalism shaped by
in finance to garner more control for Washington. The the few and unaccountable to the many is a threat to all.”
Federal Reserve has engaged in a regime of credit al- Free markets don’t fail. Bad government policies
location that has led to the credit malnutrition of small fail. Every major economic disaster has at its source
and new businesses. With no authority it has given government error. A global trade war triggered by the
itself a bond portfolio totaling some $4.2 trillion. U.S. Smoot-Hawley Tariff, followed by enormous tax
We also see what the horrific so-called Affordable Care increases, gave us the Great Depression. Our destruction
Act is doing to health care, which encompasses almost of the gold standard gave the U.S. the horrific inflation
20% of the economy. Fossil fuels have been under relent- of the 1970s. The deliberate weakening of the dollar in
less bureaucratic attack. Colleges and universities jump the early part of the last decade and other regulatory mis-

NOVEMBER 8, 2016 FORBES | 23


FORBES

FACT & COMMENT STEVE FORBES

takes begat the housing and commod- one” and “preventing colleges from Restaurants:
ities bubbles that led to the 2008–09 pricing out hardworking students.” Go, Consider, Stop
crisis. Barack Obama and the Federal Naturally, like most politicians and
Reserve’s nonstop antigrowth policies economists these days, Obama believes Edible enlightenment from our eatery
have stifled economic life since 2009. that economies are like machines and experts and colleagues Richard Nalley,
Obama rolls out an old trope from can be controlled by a “proper” mix Monie Begley and Randall Lane,
as well as brothers Bob, Kip and Tim.
the 1960s about the alleged crisis of of monetary and fiscal policies. That’s
rising expectations. “Just as the child bunk. What the U.S. and most other z Benoit
60 West 55th St. (Tel.: 646-943-7373)
in a slum can see the skyscraper near- countries need are structural reforms
Over the summer Alain Ducasse closed his midtown
by, technology allows anyone with a in taxes, spending and regulation. bistro for a beautiful “face-lift.” What hasn’t been
smartphone to see how the most priv- Free market economies will enable altered is the delectable fare: corn velouté soup,
ileged live. Expectations rise faster more and more people to achieve an a creamy delicacy; escargots in shells, a buttery,
garlicky classic; tarte flambée, a take on flatbread
than governments can deliver and a ever higher standard of living and a pizza; golden, crispy whole chicken for two; perfect
pervasive sense of injustice under- richer quality of life if governments pommes frites; and divine chocolate soufflé.
mines peoples’ faith in the system.” don’t get in the way. Obama and his z Sistina
Governments don’t create wealth— ilk want us to believe that the choice 24 East 81st St. (Tel.: 212-861-7660)
people do. If governments don’t is between an always expanding gov- Opened 33 years ago, this upscale Italian restau-
stand in the way, free markets always ernment and anarchy. But think about rant has moved to a beautiful building near the
Metropolitan Museum of Art. Begin with mozzarel-
turn scarcity into abundance and automobiles. We need commonsense la and prosciutto ringed with fresh figs. The Parmi-
luxuries into commodities. Take the “rules of the road.” We don’t need giano-Reggiano custard round is a creamy delight.
The two featured risottos are rich and delicious.
smartphone Obama mentions. The government telling us what to drive, The Dover sole is perfection, and the tuna steak is
original cellphone—with only a voice when to drive or where to drive. pink and moist. Spoil yourself with the bomboloni,
a hot, fluffy, ricotta-filled Italian doughnut.
feature—cost $3,995 30 years ago.
Today a feature-rich mobile device Un-Greating Britain z Jane
100 West Houston St., between Thompson
costs less than a twentieth of that.
After patting himself on the back Prime Minister Theresa May, who took St. and LaGuardia Pl. (Tel.: 212-254-7000)
for mythical economic successes, office in Great Britain in the aftermath Watermelon salad with cucumbers, sunflower
seeds, baby mustard greens, ricotta and a tangy
Obama asks the question, “So where of June’s Brexit vote, is no Obama-esque citrus vinaigrette is a refreshing start to a meal.
does my successor go from here?” socialist. But she’s pursuing policies that The kale and quinoa salad, partnered with chick-
en, is a delicious main course, as is the grilled
His answer is to prescribe more will afflict her country with the kind of chicken paillard, also with kale, cucumbers, toma-
of the same—just as doctors of old, economic stagnation that’s plaguing toes, feta and a Dijon vinaigrette. A big hit is the
so much of the rest of the world. pot of mussels cooked in a white-wine tomato
when their patients became more ill, broth with chilies. For dessert, go for the yummy
prescribed more bleeding. More taxes; Before Brexit Britain’s economic bananas Foster, crème brûlée or mousse torte.
more government spending (which performance had been something of
z Eastfield’s Kitchen & Bar
Obama now calls “fiscal expansion”); a happy outlier, thanks to tax cuts, a 1479 York Ave., between 78th and 79th
more regulation (which Obama euphe- vigorous paring back of government streets (Tel.: 646-964-4918)
mistically labels as “better oversight bureaucrats and a monetary policy A new addition to the Upper East Side that serves
for a range of institutions and mar- that was less antigrowth than that of American-centric food in a glossy nautical setting.
It’s hard not to fill up on the starters: slices of toast
kets”), including mandatory paid leave any other major central bank. layered with creamy peekytoe crab and avocado; a
for parents and guaranteed sick days; Now the PM seems ready to toss all crunchy cauliflower gratin topped with Parmesan
bread crumbs and leeks; or fried Montauk squid with
more subsidies; more unemployment of that away with a binge of government chili aioli. The chicken parm is thick and juicy; the
insurance; more government-funded spending, more regulation and—bewil- arctic char is roasted to perfection; and the Maine
job training; a higher minimum wage deringly, for a country so dependent on lobster club and the grilled Piedmontes skirt steak
are irresistible. Whiskey bread pudding is a must.
(which, as states and cities that have trade and skilled foreign workers—a
already instituted this are discovering, mindlessly restrictive immigration z Mamo
ends up killing jobs for the least skilled); policy. These self-inflicted wounds will 323 West Broadway, between Grand and
Canal streets (Tel.: 646-964-4641)
and stronger and bigger unions (ignor- overwhelm the Bank of England’s recent
Authentic, wonderful Mediterranean/Italian cuisine
ing how they helped undermine such encouraging moves to enable banks to served in a casual yet elegant space. Start with the
legacy industries as steel and autos). do more lending to businesses, which signature tiny ravioli with truffles or the calamarata,
a delicious mix of squid tossed with potatoes, pesto
Obama throws in some new beau- would generate more economic growth. and cherry tomatoes. The main meat courses are
ties, such as “providing wage insur- The smallness of almost all of today’s very generous and good, especially the tagliata
ance for workers who cannot get a global leaders’ thinking is astonishing— (sliced tenderloin with porcini mushrooms) and
the costoletta Milanese (pounded veal topped with
new job that pays as much as their old and dangerous. F chopped salad). Small pizzas are also offered.

24 | FORBES NOVEMBER 8, 2016


All together now.
Introducing G Suite, intelligent apps that break down silos
and bring people together to move your business forward.
LeaderBoard He was The Greatest
in life, but he’s far from
the greatest earner in
NOVEMBER 8, 2016
the afterlife. Muhammad
Ali, who died June 3
at age 74, pulled in
around $7 million over
the past year, placing
him alongside Garry
Shandling and Harper
Lee (among others)
as deceased famous
folks who failed to
make enough income
for inclusion in our
annual ranking of the
Top-Earning Dead
Celebrities. Who’s No. 1?
A certain long-dead
moonwalker who
earned more this year
than any celeb, above or
below ground, ever has.
PAGE 28

KOREA’S NEW MOBILE-


GAME BILLIONAIRE 30
AUCTIONING PICASSO’S
POTS 32
INDIA’S RICHEST 34

BESTSELLING
BUSINESS BOOKS 36

FORBES @ 100, 1971:


HIGH TECH, HIGH
ANXIETY 38

STANLEY WESTON/GETTY IMAGES

NOVEMBER 8, 2016 FORBES | 27


LeaderBoard
ENTERTAINMENT 3. ARNOLD PALMER
$40 MILLION
ATHLETE

Top-Earning Dead Celebrities DIED: SEPT. 25, 2016 AGE: 87


CAUSE: HEART DISEASE
He won’t be doing more TV spots for
the likes of Electronic Arts and Xarel-
YES, THE PEARLY GATES seemed to welcome an unusual number of celebs in to, but 500 Arnold Palmer–branded
the past year (David Bowie, Prince and Arnold Palmer, to name a few)—but the stores in Asia and his eponymous
half-lemonade, half-iced-tea drink,
long-departed King of Pop had the time of his afterlife. The $750 million sale of which accounts for a quarter of
Arizona Beverage’s revenue, will
Michael Jackson’s half of the Sony/ATV music publishing catalog, famous for its certainly enrich the golfer’s afterlife.
library of Beatles tunes, puts him at the top of our annual ranking of the dead
celebrities who earned the most. This is ironic given that many critics, and
some of Jackson’s advisors, once derided the catalog as a badly overpriced
investment. Jacko’s payday ranks as the biggest annual haul by any
celeb—dead or alive.

2. CHARLES SCHULZ
$48 MILLION
CARTOONIST
DIED: FEB. 12, 2000 AGE: 77
CAUSE: COLON CANCER
The Peanuts creator moves near the top of
the list with his cut of the beloved brand’s
licensing revenue, boosted by last year’s
well-received 3-D Peanuts movie.

9. ALBERT
EINSTEIN
$11.5 MILLION
SCIENTIST
DIED: APR. 18, 1955 AGE: 76
1. MICHAEL JACKSON CAUSE: NATURAL CAUSES
$825 MILLION The frizzy-haired
MUSICIAN 10. BETTIE PAGE physicist stars not just on
DIED: JUNE 25, 2009 AGE: 50 $11 MILLION dorm-room posters and
CAUSE: OVERDOSE / HOMICIDE MODEL sophomoric T-shirts but
Jackson paid $47.5 million in 1985 ($140 million in 2016 dollars) to DIED: DEC. 11, 2008 AGE: 85 also on tablets designed by
buy the Beatles-packed ATV publishing catalog. Ten years later CAUSE: NATURAL CAUSES
Israeli tech company Fou-
Sony paid him $115 million to form a 50/50 joint venture, then The original pinup’s eternal sex appeal
rier Systems; his estate has
purchased the other half this past March. In all, the sales gave Jack- has scored her lingerie, bridal wear and
also licensed his name to
son’s estate, which is controlled by lawyer John Branca and music handbag licensing deals.
Salesforce’s new artificial-
executive John McClain, a 30% annualized return on investment. intelligence product.

Biggest Celebrity Paychecks, DR. DRE


$620 MIL
YVES SAINT LAURENT
$335 MIL
OPRAH WINFREY
$315 MIL
HOWARD STERN
$302 MIL
Dead or Alive (2014) (2009) (2010) (2006)
SOURCE: SOURCE: SOURCE: SOURCE:
MICHAEL JACKSON’S $825 million income in 2016 is the most APPLE/BEATS POSTHUMOUS TELEVISION SHOW SIRIUS XM DEAL
any celebrity has ever earned in a single year—and he did it while DEAL ART-AND-ANTIQUES
deceased. Only Yves Saint Laurent has come even remotely close AUCTION
from the boneyard; these other big paydays went to the living.

28 | FORBES NOVEMBER 8, 2016


5. PRINCE
$25 MILLION
MUSICIAN, ACTOR
DIED: APR. 21, 2016 AGE: 57
CAUSE: OVERDOSE
His Purpleness passed away while still
at the top of his touring game (grossing
nearly $2 million per show). He also sold
more than 2.5 million albums over the past
year, more than any other deceased musician.
4. ELVIS PRESLEY
$27 MILLION
MUSICIAN, ACTOR
DIED: AUG. 16, 1977 AGE: 42
CAUSE: HEART ATTACK
The King still moves more than
1 million albums per year—most of
them physical, not digital—a haul still
dwarfed by his multimillion-dollar
Graceland income, mostly from ticket
sales. (A change in how we account
for those ticket sales, not weakening
demand, accounts for Elvis’ 50% drop
in income since last year.)

7. THEODOR
“DR. SEUSS” GEISEL
$20 MILLION
AUTHOR
DIED: SEPT. 24, 1991 AGE: 87
CAUSE: NATURAL CAUSES
From there to here and here to there, Seuss’ work is
everywhere: Geisel still moves millions of his whim-
sical children’s books annually—a take that doubled
in the past year with the 2015 release of the previ-
ously unpublished What Pet Should I Get?
6. BOB MARLEY
$21 MILLION
MUSICIAN
DIED: MAY 11, 1981 AGE: 36
CAUSE: CANCER
Album sales aren’t really what
keeps Marley alive on our
ranking. Instead, it’s House
of Marley audio products,
Marley’s Mellow Mood bever-
ages and merchandise sales.

8. JOHN LENNON
$12 MILLION
MUSICIAN
DIED: DEC. 8, 1980 AGE: 40
CAUSE: MURDER
The British bard continues to share
in the Beatles’ spoils—some 65 mil-
lion albums sold in the United States
alone in the past quarter-century—
and other ventures, such as Love!,
EDITED BY ZACK O’MALLEY GREENBURG AND NATALIE ROBEHMED

the Fab Four–themed Cirque du


Soleil extravaganza in Las Vegas.
11. DAVID BOWIE
WITH ADDITIONAL REPORTING BY KURT BADENHAUSEN

$10.5 MILLION
MUSICIAN, ACTOR
DIED: JAN. 10, 2016 AGE: 69 13. ELIZABETH TAYLOR
CAUSE: CANCER $8 MILLION
Industrious to the very end, the ACTOR
J.K. ROWLING FLOYD MAYWEATHER Thin White Duke released his 12. STEVE MCQUEEN DIED: MAR. 23, 2011 AGE: 79
CAUSE: HEART FAILURE
$300 MIL $300 MIL final album, Blackstar, just two $9 MILLION The celebrity fragrance business may
(2008) (2015) days before his death. The ensu- ACTOR
DIED: NOV. 30, 1980 AGE: 50 seem lifeless, but Taylor’s scents, such
SOURCE: SOURCE: ing sales spike helped him outsell
CAUSE: COMPLICATIONS FROM SURGERY as White Diamonds, linger on.
HARRY POTTER BOXING MATCH VS. Michael Jackson and Elvis Presley
over the past year. Tag Heuer, Porsche, Persol and Barbour all
MANNY PACQUIAO have deals with McQueen thanks to his
enduring aura of daredevil cool.
PUSH ART

Estimates are for pretax income from Oct. 1, 2015 through Oct. 1, 2016 before deducting expenses for agents, managers and
lawyers. Sources include Nielsen SoundScan, Nielsen BookScan, PollstarPro, IMDB and interviews with estate experts.

NOVEMBER 8, 2016 FORBES | 29


LeaderBoard
NEW BILLIONAIRE UNICORN METER
Blessed Event
WHICH OF today’s unicorns will
become tomorrow’s blue chips?
Our ongoing poll of our Midas
List of the world’s top venture
capitalists provides an exclusive
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of these billion-dollar startups—
and things are looking bright for
Eventbrite, an online marketplace
for festivals, parties and races.
4 FUTURE BLUE CHIP

3 TEN-BAGGER

EVENTBRITE
2
2 SOLID EXIT

1 BUYOUT BAIT

High Score 0 TOTAL WRITEOFF

With his mobile games already megahits in South Korea, SCORECARD


Jun-Hyuk Bang hopes to win over America, too. FREDERICK SMITH
THE LATEST EPIC SAGA to capture the world’s attention unfolds at fingertip speed: +$290 MILLION
NET WORTH: $4 BILLION
The mobile game Marvel Future Fight boasts a complex narrative set across alternative Amazon is reportedly laying the
dimensions and an ever-increasing cast with such comic book A-listers as Iron Man and groundwork to compete directly with
Spider-Man. Since its April 2015 debut it has been downloaded more than 50 million times FedEx in shipping, but investors don’t
and cracked the top ten in 118 countries, including the U.S., Britain and South Korea. seem worried. Shares in FedEx jump
Its Korean success isn’t a surprise. Marvel Future Fight was created by Seoul-based 7% after CEO Smith announces a
revenue increase of 20% in the
Netmarble Games, the brainchild of Jun-Hyuk Bang, 47. Netmarble has developed hits past year.
such as the creature-capture adventure Monster Taming and Seven Knights, a mix of
ILLUSTRATION BY BRIAN TAYLOR; ZUMA PRESS/ALAMY (BOTTOM)

Norse myth and Game of Thrones. Bang knows how to spin a good tale in his games and
his life story: He has been compared to Steve Jobs, given that both men left tech companies
they founded (for health reasons, in Bang’s case), only to return and revive them. Bang
founded Netmarble in 2000, departed six years later and came back in 2011, shifting its
focus from desktop to mobile: “I saw the [increase in the] number of people using smart-
NEW BILLIONAIRE BY GRACE CHUNG

phones in Korea and felt this is going to be the new culture, more than just a phone.”
With his 32% stake in Netmarble worth an estimated $1.2 billion, he is eyeing the U.S.
as his next growth market. He’s banking on his Marvel partnership to help, as well as the
$130 million Netmarble paid last July for a majority of Los Angeles-based SGN Games.
It’s a departure for Bang in terms of geography—and style. SGN’s biggest hit so far: the
simply plotted but aptly named Cookie Jam, a Candy Crush-esque baked-goods game.

30 | FORBES NOVEMBER 8, 2016


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LeaderBoard
ON THE BLOCK 30 UNDER 30

Pablo’s Pots Public Servants


Civics with the Forbes 30
Under 30, in 30 words or less.
WHEN RICHARD Attenborough
was in his 40s, he and his family had a
steady tradition: While vacationing in
southern France each August they’d
visit Pablo Picasso’s pottery studio, and
the British actor and director would
pick out a birthday present. Now, two
years after Attenborough’s death, his
estate will sell his 74-piece Picasso col-
lection at a Nov. 22 Sotheby’s auction.
The centerpiece is a 26-inch vase (left) ANDY BROMBERG
featuring three nude women, a 1950 SIDEWIRE | 22
piece inspired by the Graces of Greek Bromberg’s site is a place for political
myth. That one vessel is expected to newsmakers to chat publicly about
issues without battling social-media
fetch almost $500,000, and the sale’s
trolls. Next up: conversations about
total could go as high as $2 million. tech, sports and entertainment.

Below, from left:


Richard Attenborough,
Picasso’s Chouette (1969)
and Corrida (1959). ANISHA SINGH
CENTER FOR AMERICAN PROGRESS (CAP) | 29
Singh is a CAP campaign manager who urges
legislators to fill vacant judiciary posts. She
helped launch the “Do Your Job” initiative,
which targets specific senators.

ILLUSTRATIONS BY PATRICK WELSH; RICK MAIMAN/BLOOMBERG (BOTTOM)


ON THE BLOCK BY ABRAM BROWN; 30 UNDER 30 BY KATHRYN DILL

SCORECARD
DANIEL OCH
–$412 MILLION
NET WORTH: $2.6 BILLION DIPAYAN GHOSH
His hedge fund firm, Och-Ziff Capital Management,
FACEBOOK | 28
agrees to pay $412 million to settle charges that it doled
out bribes to government officials in Libya, Chad, Niger An electrical engineer by training, the
and the Democratic Republic of the Congo. Och will former White House advisor on tech and
cough up much of the payment himself by buying up to economics is now focused on privacy
$350 million worth of preferred shares in the firm. and cyberpolicy for Facebook.

32 | FORBES NOVEMBER 8, 2016


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LeaderBoard
BILLIONAIRES RICHEST BY STATE

India’s 1. Mukesh Ambani


$22.7 BILLION S Wisconsin
Richest
SOURCE: OIL/GAS/PETROCHEMICALS AGE: 59. MARRIED, 3 CHILDREN
RESIDENCE: MUMBAI POPULATION: 5.8 MILLION
2015 GROSS STATE PRODUCT:
2. Dilip Shanghvi
People $16.9 BILLION T
SOURCE: PHARMACEUTICALS AGE: 61. MARRIED, 2 CHILDREN
$305.8 BILLION (1.8% GROWTH)
GSP PER CAPITA: $52,985
MOST OF THE great wealth in RESIDENCE: MUMBAI (RANKS NO. 25 NATIONWIDE)
India is held by established indus- 3. Hinduja brothers RICHEST: JOHN MENARD JR.,
trialists, so it’s rare for young up- $15.2 BILLION S $9.6 BILLION
and-comers like brothers Divyank SOURCE: DIVERSIFIED RESIDENCE: LONDON
(34) and Bhavin Turakhia (36) to HERE’S A NIGHTMARE scenario for any
earn spots on our ranking of India’s 4. Azim Premji billionaire: An ex-lover, who also hap-
$15 BILLION T pens to be your ex-lawyer, sues for part
richest. The near-billionaires have of your empire. John Menard escaped
SOURCE: INFORMATION TECH AGE: 71. MARRIED, 2 CHILDREN
built their fortunes by being “fast RESIDENCE: BANGALORE from that knotty situation last month
followers” in a number of Web- when a Wisconsin appeals court threw
related industries. For the full rank- 5. Pallonji Mistry out a 2008 suit brought by his former
ing of the country’s 100 richest, $13.9 BILLION T fiancée, Debra Sands. She had claimed
SOURCE: CONSTRUCTION AGE: 87. MARRIED, 4 CHILDREN that Menard promised her a share
visit forbes.com/india-billionaires. RESIDENCE: MUMBAI
of his companies—which include his
eponymous home improvement retailer,
Menards, plus horse racing and private
WHEN SECOND IS BEST equity assets—for being his “life partner,
“We’ve never been the first at anything, and it social companion and manager” for
makes no difference to us,” declares Divyank eight years, as well as his attorney for
Turakhia. “But show me an industry where parts of that period.
there’s $1 billion–plus to be made and I’ll do Among other things, Sands says she
a better job than everyone else.” He and his suggested new product lines for Menards,
brother, Bhavin, have taken that attitude remodeled three of the billionaire’s
and spun it into a shared $1.3 bil- homes and advised on private jet decor.
Menard denies ever promising her equity,
lion fortune (No. 95 on our list of
and in the end the court ruled that be-
India’s wealthiest).
cause Sands had been his attorney, the
Since their early years as boy
agreement would have been subject to
programmers and teenage tech extra regulations on attorney-client busi-
consultants, they’ve created ness deals (such as putting terms
numerous tech companies: a in writing), which Sands did not follow.
Web-hosting concern, a digital- The 76-year-old Menard, who paid

INDIA RICH LIST BY NAAZNEEN KARMALI WITH ADDITIONAL REPORTING BY MEGHA BAHREE, SEAN KILACHAND
payment processor and many for college by building low-cost pole
more. Divyank sold his own barns for Wisconsin farmers, is known
biggest success, an Internet for lording over the company he
advertising firm called Media founded in 1958. Menards does nearly
.net, to a consortium of $9 billion in sales while expecting its
AND ANURADHA RAGHUNATHAN; RICHEST BY STATE BY CHASE PETERSON-WITHORN
Chinese investors in Au- store managers to adhere strictly to its
gust for $900 million; edicts—down to precisely which prod-
he’ll stay on as CEO. ucts they use to clean the floors.
Bhavin, meanwhile,
is concentrating on
ERIC MILLETTE FOR FORBES; ILLUSTRATION BY CHRIS LYONS

three more start-


ups. The brothers
are bachelors:
“We’re too
busy building
businesses,”
Divyank says.

34 | FORBES NOVEMBER 8, 2016


Take off in your own

PRIVATE WORLD

EMIRATES FIRST

ăIJĪğĬģğĨĝğĮĢğįĦĮģħěĮğĦįIJįĬijĩĠijĩįĬĩıĨĪĬģİěĮğĭįģĮğûĠģĨğĞģĨģĨġ
ěĮěĨijĮģħğûĩİğĬËûÎÉÉĝĢěĨĨğĦĭěĨĞěĨĩĨĜĩěĬĞĭĢĩığĬĭĪě~
Hello Tomorrow

Onboard shower spa available on Emirates A380s.


LeaderBoard
BUSINESS LIBRARY Klieg Lit
CELEBRITIES ARE big business in the book industry, rou-
Bestselling Business Books tinely securing boffo advances for their memoirs. Now there’s
SHIFTING A MILLION physical copies is a challenge in today’s also a cottage industry of celeb publishers eager to cash in
publishing climate; doing so with a business book is even trickier. on the back end, too. Some imprints have been small, such as
Yet 11 authors have managed it since 2004, when Nielsen began actor Viggo Mortensen’s Perceval Press, which focuses on the
tracking book sales. Occupying the executive suite: Tom Rath’s arts and criticism. Others are more mainstream. One certain
StrengthsFinder 2.0, from 2007, which purports to help you dis- to do well: Oprah Winfrey’s as-yet-unnamed Flatiron Books
cover hidden talents and put them to use. imprint, which will publish her memoir in 2017.
Rath’s sales demolish even those of such well-known pop-econ-
psych works as Blink and Freakonomics. The oldest title still being
plucked off shelves: the find-a-career classic What Color Is Your
Parachute?, first published in 1970 and now in its 47th edition.

DEREK JETER ANTHONY BOURDAIN GWYNETH PALTROW


Jeter Publishing Anthony Bourdain Goop Press
Simon & Schuster’s Books The actress-turned-
partnership with the The country-hopping, lifestyle guru recently
former Yankee taps exotic-grub-gobbling spun her popular blog,
1. StrengthsFinder 2. Blink 3. Good to Great 4. Rich Dad,
2.0 Malcolm Gladwell Jim Collins Poor Dad sports-related works. chef finds a few food Goop, into a Grand
Tom Rath 2.68 MIL 2.3 MIL Robert T. Kiyosaki A children’s offshoot and pop culture titles a Central Publishing
4.5 MIL 2005 2001 2.2 MIL includes a picture book year to publish through imprint for style, food
2007 1997
and a fiction trilogy Ecco, a HarperCollins and beauty-advice
based on Jeter’s life. subsidiary. books.
Bestseller: Jeter Bestseller: L.A. Son First Book: It’s All Easy
Unfiltered (2014; (2013; 19,000 copies (April 2016; 58,000
105,000 copies sold) sold) copies sold)
Latest Release: Latest Release: Upcoming Release:
Muhammad Ali They Call Me Goop Clean Beauty
Unfiltered Supermensch (due out in December
(October 2016) (September 2016) 2016)
5. Freakonomics 6. Who Moved 7. The Five 8. The Total
Steven D. Levitt My Cheese? Dysfunctions Money Makeover
and Stephen Spencer Johnson of a Team Dave Ramsey
J. Dubner 1.77 MIL Patrick Lencioni 1.74 MIL
Flight Booking

JASON MERRITT/GETTY IMAGES; SLAVEN VLASIC/GETTY IMAGES; SONIA MOSKOWITZ/WIREIMAGE; PATRICK JAMES MILLET
2 MIL 1998 1.76 MIL 2003
2005 2002
Chieh Huang, cofounder and
CEO of Boxed—on our list of
the next billion-dollar startups
(see p. 94)—shares what
he reads at 30,000 feet.
IN A GOOD book, I look for
9. Now, Discover 10. Getting Things 11. What Color Is 12. The Big Short people who have made a ton of
Your Strengths Done Your Parachute? Michael Lewis mistakes, so I can learn from
Marcus David Allen Richard N. Bolles 916,000
Buckingham and 1.1 MIL and John E. Nelson 2010 them. One of the observations
Donald O. Clifton 2001 1 MIL in The Founder’s Mentality [by
1.3 MIL 1970
2001 Chris Zook and James Allen]
is that founder-led companies
in general perform better on
the stock market. Before that
I read The Hard Thing About
Hard Things [by Ben Horowitz,
BY NATALIE ROBEHMED

cofounder of VC firm An-


dreessen Horowitz]. He went
13. Lean In 14. Getting to Yes 15. The 21 16. The Automatic through so much. He had two
Sheryl Sandberg Roger Fisher and Irrefutable Laws Millionaire
911,000 William Ury of Leadership David Bach weeks of cash left and IPO’d as
2013 741,000 John C. Maxwell 722,000 a last resort.
1981 723,000 2003
1998 All domestic book-sales data goes back to 2004 and is sourced from Nielsen
36 | FORBES NOVEMBER 8, 2016 BookScan, which tracks 85% of the U.S. print market.
haveKINDLE willTRAVEL
JAIPUR, INDIA ARAVIND ADIGA, THE WHITE TIGER: A NOVEL @ AMAZONKINDLE
FIGURE FROM THE PAST

LeaderBoard Firm and Fruitful


Anthony T. Rossi, the then-71-year-
old Tropicana founder, credited his
success to one factor: “If you lose
control, you lose everything.” Nearly
FORBES @ 100 30 years after he began to build
As FORBES’ September 2017 centennial approaches, Tropicana into the U.S.’ biggest
we’re unearthing our favorite covers. fresh orange-juice maker, he
still designed much of its
equipment and invented
a method to keep juice
Nov. 15, 1971: from spoiling during long
unrefrigerated periods.

High Tech, High Anxiety


IN THE EARLY 1970S America was wor-
ried about maintaining its position as the
world’s high-technology leader. By 1971
the U.S. accounted for less than 65% of the
planet’s exports in goods such as aircraft
and computers, down from more than
80% in 1965. Competition among the U.S.,
Canada, Europe and Japan had intensified
(especially as foreign firms like Sony and
Siemens forged reputations as extremely
efficient manufacturers), and America’s
trade surplus in high-tech goods had fallen
43% to $2.1 billion (some $12.5 billion
today) over just those five years. Various
factors got the blame: trouble turning ad-
vanced technology into marketable goods;
former space-race scientists left unem-
ployed (or underemployed); and more.
In the end it would fall largely to entre-
preneurs rather than established firms to
cement America’s technological domi-
nance, and many got their start later that
same decade: Bill Gates’ Microsoft dates
to 1975; Steve Jobs cofounded Apple in
1976; Genentech was cofounded by Robert
Swanson and Herbert Boyer in 1976; and
Larry Ellison cofounded Oracle in 1977.

AMAZING ADS
The Executive’s New Clothes
The broad appeal of wide lapels.
BY ABRAM BROWN

FAST-FORWARD
Electric Avenue
1971: “Like alchemists trying to turn lead into gold, men are still
trying to come up with a marketable electric automobile.”
In this case, British Enfield Automotive, maker of the
Enfield 8000, a two-seater with a range of 60 miles and
a maximum speed of 40mph. Cost: $1,800 ($10,700 today).
2016: We’ve gotten much better at automotive alchemy.
Elon Musk’s latest Tesla, the Model 3, has a 215-mile range and
can go from zero to 60 in under six seconds. Cost: $35,000.

38 | FORBES NOVEMBER 8, 2016


Grander
than ever.
We’ve taken our top hotels to a whole
new level called Sheraton Grand.
LeaderBoard
CONVERSATION TRUMPED UP
Our asset-by-asset look at The
Donald’s net worth was a lightning
THROUGHOUT OUR annual Forbes 400 issue rod for impassioned Forbes 400
(Oct. 25) we celebrated a notion that many think readers. Who’d have guessed?
has all but withered away: the American Dream. JEFF COX, CNBC: “Donald
Specifically, as it’s experienced by immigrants, a Trump is still way richer than
record 42 of whom—from 21 countries—earned you are, but the gap is closing.”
spots on this year’s tally of the United States’
richest people. “Some lament that the Ameri-
can Dream is dead,” observed Amanda Hoover CUTHBERT, VIA FORBES.COM:
of the Christian Science Monitor, but FORBES’ “Of course Trump will deny
[FORBES’ $3.7 billion estimate
coverage “suggests it may still be possible to of his wealth]. So the real
start with next to nothing and build something question is, how high will he
extraordinary in a single generation.” That is say his net worth has climbed
indeed the idea, though some readers detected a now? $11 billion? $12 billion?”
note of election-year immigration advocacy. Via
LinkedIn, tech executive Matthew Shipley was
irked: “Forbes, stick to business and stop trying KABOUS LE ROUX, SOUTH
to sway political sentiment.” AFRICA’S CAPE TALK:
“The latest Forbes 400 shows
that the average member of
this elite saw his or her net
THE INTEREST GRAPH worth rise by $200 million,
to $6 billion. Donald Trump,
Great fortunes make great reading: Billions of dollars
however, bucked the trend.”
attracted millions of eyeballs online for The Forbes 400.
The 2016 Forbes 400 1,155,787 views

Donald Trump’s Fortune Falls $800 Million to $3.7 Billion


AUSTINVP, VIA FORBES
“As with Oprah
.COM: “Mr. Trump’s debt-to-
274,045 Winfrey and Mark
value ratio is extremely low.
Cuban and all the
rest, FORBES doesn’t Wouldn’t that be great for
The Forbes 400: The Top 20
ascribe an intangible the USA?”
159,161 value to Trump’s
‘brand.’”
14 Under 40: The Youngest Billionaires on The Forbes 400 CHRIS SNYDER, VIA
FORBES.COM: “I wonder
115,947 how much income he’ll have
“Kapoor has made from licensing his ‘brand’
An Opioid Spray Showered John Kapoor in Riches. Now He’s Feeling the Pain a habit of founding now that it’s not so cool
companies and allowing to be associated with the
75,492
them to push legal and Trump name.”
ethical limits, confident
he’ll be able to clean up
Six Immigrant Stories That Will Make You Believe in the American Dream Again
the mess.”
CHRIS O’SHEA, ADWEEK.COM:
43,205 “We know you’re wondering
about Donald Trump. He’s now
The NFL’s Most Valuable Teams just the 157th-richest person
in the nation. Sad!”
38,175
“For all the political
BY ALEXANDRA WILSON

bombast, the
Rupert Murdoch’s Wall Street Journal Paper Chase pace of economic
ROB ADAMS, VIA TWITTER:
hypersuccess among
“Maybe [the decline in
immigrants is
THE BOMB increasing.” Trump’s net worth from a
year ago] is because he has
351 VIEWS
been focused on something
much more important to
40 | FORBES NOVEMBER 8, 2016
him than money.”
6

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THOUGHT LEADERS AMITY SHLAES // CURRENT EVENTS

METLIFE TAKES THE LEAD


“THANK YOU, MetLife.” contract-related work to the states.
That’s what we all ought to be saying That aggregation takes place under a false
this month, as the insurance company premise—that having more centralized control
goes before a panel of federal judges makes markets safer. Negative outcomes actu-
to defend its bid to keep the MetLife ally become more likely under aggregation. After
name off of the federal government’s all, the principle of diversification applies not
“Too Big to Fail” list. only to portfolios but also to regulators: There’s
The facts of MetLife v. Financial some safety during a crisis when investors and
Stability Oversight Council are simple. companies operate in multiple jurisdictions.
After the 2008 financial crisis lawmak-
ers passed the Dodd-Frank financial DEFEND MAIN STREET
reform act. Dodd-Frank, in turn, created Investor recognition of this reality has been in
the FSOC, establishing a class of so-called systemically important financial the data since the crisis. The Chicago Booth/
institutions, or SIFIs. The SIFIs would be herded into a corral reinforced Kellogg School Financial Trust Index has moni-
with heavy capital requirements and cumbersome regulations. The FSOC tored investor trust since 2009, looking not at
promptly herded big banks into its SIFI corral—and then for good measure insurance, specifically, but at local institutions
took out its lasso to rope in insurance companies. The nonbank MetLife’s on which the FSOC, the Fed and the Treasury
total balance-sheet assets as of 2013—when the FSOC made its move— spend less time. The index suggests that inves-
stood at $900 billion, which makes MetLife more elephant than steer. tors have consistently trusted credit unions
But this elephant has a habit of resisting federal lures, dating back and local banks at triple the rate that they trust
to 2008, when MetLife, unlike fellow insurer AIG, didn’t take a Trea- banks in which governments have a stake.
sury rescue. MetLife also had the temerity to actually make money The 150-year-old Main Street life insurance
during the crisis years. Postcrisis, MetLife noted the obvious: The business has been one of those great local sta-
states, not Washington, regulate insurance companies. And insur- bilizers—and could do more. How? One of the
ance companies are less likely than banks to be subject to great runs bases President Obama cited for ObamaCare
on their resources: The first thing people do in a financial panic isn’t to was the actuarial principle: If every 20-year-old
cash out their life insurance policies. AIG’s rescue took place only be- comes into the health care pool, then funding the
cause the insurer had, rodeo-style, developed a disconcerting sideshow health care of the few costly individuals becomes
in credit-default swaps. To prove its own bona fides, MetLife exited feasible. Imagine if health insurance labored
the banking business, selling MetLife Bank to GE Capital in 2013. under fewer mandates—using the same principle,
When the FSOC continued to pursue MetLife, the elephant went we could cover more people. Or imagine an an-
to court. (MetLife’s Steven Kandarian is an example of the difference an nuity business so solid that it provided the equiva-
uncowardly CEO can make.) In March Judge Rosemary Collyer of the U.S. lent of Social Security pensions to all Americans,
District Court for the District of Columbia rescinded MetLife’s “systemical- obviating the need for public programs.
ly important” designation. Share prices in MetLife and its fellow insurers Others are rallying to the rebel MetLife’s
rallied at prospects that the industry might elude the FSOC. The govern- side. The National Association of Insurance
ment promptly appealed, with Treasury Secretary Jacob Lew chastising Commissioners (made up of state regulators)
Collyer in a nastygram for “overturning the conclusions of experienced put in an amicus brief on MetLife’s behalf,
financial regulators.” Elephants, even nimble elephants, must be corralled. the message from states to the FSOC being
Perhaps the FSOC was too arbitrary in designating MetLife an “We’ve got this.” When judges Patricia A. Mil-
SIFI. Perhaps the Fed chairman, Janet Yellen, and Secretary Lew, lett, Sri Srinivasan and A. Raymond Randolph
THOMAS KUHLENBECK FOR FORBES

who sit on the FSOC, don’t even understand what they’re doing. consider “MetLife v. FSOC,” they might read
But there’s a bigger, even elephantine, issue here: the aggregation that brief. Permitting competition to chal-
of power. The federal government isn’t content with its brief, which, lenge a monopoly financial regime isn’t just
since the creation of the Federal Reserve and the Securities & Ex- “systemically important,” to borrow the stat-
change Commission, has been to regulate financial markets and leave ute’s language. It’s systemically beneficial. F
AMITY SHLAES, PRESIDENTIAL SCHOLAR AT THE KING’S COLLEGE AND CHAIR OF THE COOLIDGE FOUNDATION BOARD; PAUL JOHNSON, EMINENT BRITISH HISTORIAN
AND AUTHOR; AND DAVID MALPASS, GLOBAL ECONOMIST, PRESIDENT OF ENCIMA GLOBAL LLC, ROTATE IN WRITING THIS COLUMN. TO SEE PAST CURRENT EVENTS COLUMNS, VISIT OUR
WEBSITE AT WWW.FORBES.COM/CURRENTEVENTS.

42 | FORBES NOVEMBER 8, 2016


THOUGHT LEADERS RICH KARLGAARD // INNOVATION RULES

DIGITAL DEATH STAR


STOP ME IF you’ve heard this before: the CIO. The CIO role became entrenched in
“Digital changes everything.” Of course the 1980s, but its duties have changed. The
you’ve heard it before: 1981 (IBM explosive growth of government regulation,
Personal Computer), 1984 (Apple Mac- financial complexities and hacker threats to
intosh), 1994 (Netscape, the first com- data and network security mean that CIOs
mercial Web browser), 1998 (Google’s now spend their time playing defense. They’re
founding), 2007 (Apple iPhone). forced to think about things that can go wrong
And, of course, digital does change and how to prevent and mitigate damage.
everything—not once, but many times. Hardening the defenses of one’s website,
Digital technology is like a death star. e-mail and telecommunications isn’t difficult.
First it pulls your industry, company If CIOs are judged and paid for their ability
and career into its orbit. Then it wipes to do these things, this is what they’ll do. The
out your old, tired (but nicely profitable) business model. Then it trick is doing these while not killing speed,
imposes its own laws on how you must run your business. Transform, flexibility and customer friendliness—or
or you die. Play by the digital rules, or you die. Not just one time, but what you might call the company’s offen-
again and again. sive strategy. Thus, the need has arisen for a
Think of Wal-Mart, a global colossus with 11,500 stores, 2.3 million new role that’s separate from the CIO. Think
employees and $482 billion in revenue. Wal-Mart was founded in 1962, about it this way: If the CIO is the compa-
but canny Sam Walton used digital technology—bar-code scanners to ny’s captain of technology defense, then the
collect data and mainframe computers to crunch data—to blast past chief digital officer is captain of technology
Sears, Kmart and other discount stores that were too slow on their dig- offense. The CDO uses technology to drive
ital uptake. Wal-Mart can’t rest, though. Its future growth is threatened speed and sales growth.
by Amazon, Alibaba and companies born as digital disruptors. At the same FORBES conference I inter-
The digital death star evolves at the pace of Moore’s Law. It gets twice viewed the tech heads of two professional
as powerful every 18 to 24 months. So when the digital death star sucks sports organizations: the San Francisco Giants
you into its orbit, you have a hard choice: Evolve your company at the and the Golden State Warriors. Both fran-
pace of Moore’s Law—get twice as good every two years—or fall behind. chises are indisputably excellent. The Giants
How to avoid this fate? At a recent FORBES conference on the digital won the World Series in 2010, 2012 and 2014
revolution we discussed strategies and techniques to stay ahead. Like and have enjoyed 489 straight home-game
Wal-Mart, Cisco, the $50 billion router company, has been hugely suc- sellouts. The Warriors won the NBA champi-
cessful. Yet its future is threatened around the world by faster-growing onship in 2015 and set a record of 73 regular-
Huawei, based in Shenzhen, China, and at home by the latest tech season wins in 2016.
generation of cloud-computing services that let you rent computing, Data and analytics have transformed sports.
storage and telecommunications capabilities as you need them. Every NBA arena now has cameras everywhere
Cisco knows it must change its product, sales and operating to record every movement of every player.
model—and quickly. The company created a new job—chief digital Coaches know in real time whether a player
officer—to lead the transformation. The CDO, Kevin Bandy, reports is slowing a tick in the fourth quarter or, per-
not to the chief information officer but directly to Cisco’s CEO, haps, not jumping as high.
Chuck Robbins. That’s a sign of how urgent Cisco feels it is to make But tech is transforming the business side
itself digitally fitter to compete with such cloud giants as Amazon of sports, too. The Giants think about how
and Microsoft, the cloud startups that are popping up like weeds and driverless cars will change the way fans get to
the Chinese juggernaut Huawei. the stadium. They think about wireless charg-
THOMAS KUHLENBECK FOR FORBES

ing of mobile phones within the stadium.


OFFENSE AND DEFENSE And they think about virtual reality tricks
Cisco has it right. The chief digital officer should report to the CEO, not designed to appeal to Millennials and future
generations of baseball fans. Hey, if you want
RICH KARLGAARD IS EDITOR-AT-LARGE / GLOBAL FUTURIST AT FORBES. HIS LATEST BOOK, TEAM GENIUS: THE
NEW SCIENCE OF HIGH-PERFORMING ORGANIZATIONS, CAME OUT IN 2015. FOR HIS PAST COLUMNS AND BLOGS another 489 straight sellouts, these are the
VISIT OUR WEBSITE AT WWW.FORBES.COM/KARLGAARD.
kinds of things you have to think about. F
44 | FORBES NOVEMBER 8, 2016
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Time and Labor | Payroll | Good Job
Last year, Olivia was too sick to dream.
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Thanks to the Jeffrey Modell Foundation,
she has been properly diagnosed and treated.
Now she can leap for the stars.

helping children reach for their dreams

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Verticals At Ann Arbor’s beloved
Zingerman’s, employees are
NOVEMBER 8, 2016 taught the provenance of the
cheeses, meats and smoked
fish the deli sells. They also
learn the company’s approach
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the “10/4” edict—which calls
for welcoming visitors with
a smile from 10 feet and a
greeting from 4. PAGE 56

STRATEGIES
CAN VERA BRADLEY BAG MILLENNIALS? 48

TECHNOLOGY
THE DIGITAL AGE’S MTV WANNABE 52

MONEY & INVESTING


THE DO-IT-YOURSELF IRA 62

PHOTOGRAPH BY BRANDON SCHULMAN FOR FORBES

NOVEMBER 8, 2016 FORBES | 47


STRATEGIES LUXURY

anted $250—and turned it into


a lifestyle and accessories busi-
ness with $500 million in 2015
sales. And while Vera Bradley’s
growth earned Baekgaard, 77, and
Miller, 78, spots on FORBES’ list
of richest self-made women, with
estimated personal net worths of
$270 million and $300 million, re-
spectively, their business has been
dropping like a heavy suitcase
of late. The stock is down 39%
since the company went public
in 2010, net income is down 60%
($27.6 million in 2015) since its
2012 peak, and sales are down 6%,
to $503 million, as the company
struggles to recover from an over-
ambitious post-IPO expansion.
Vera Bradley was born three
decades ago during an airport
layover. Baekgaard and Miller
were traveling from Boca Raton,
Fla. back to Fort Wayne, and
while waiting for their flight, both
noticed how drab women’s lug-
gage looked. The two went home
and “literally started the company the next
day,” Baekgaard says. Named for Baekgaard’s

Too Much Baggage mother, Vera, who was a model for Eliza-
beth Arden in the 1930s, the company began
when she and Miller started using colorful
Vera Bradley has been a major player in the printed cotton to sew duffels based on the
women’s handbag and accessories market popular Pierre Deux bags of the 1970s.
for nearly three decades, but the brand is As demand for the bags grew, Baekgaard
struggling to expand its market. Can the queen stopped doing the stitching on her own and,
of fresh prints get a handle on Millennials? with Miller, hired a group of seamstresses
and tailors. Baekgaard and Miller enlisted
BY MICHELA TINDERA
their friends and relatives—including Vera
Bradley herself—to work as sales reps,

B
arbara Bradley Baekgaard’s home getting products into specialty gift stores
in suburban Fort Wayne, Ind. is a around the country. The duo expanded the
kaleidoscope of vibrant, colorful line, adding totes, wallets and other travel
patterns, much like the signature accessories. Sales grew even more, and the
quilted cotton bags and accesso- brand became popular among teens and
ries produced by her company, Vera Bradley: college-age women.
The kitchen is wallpapered in a green-and- And then, after more than 25 years of
Carrying on: Vera white gingham, the master bedroom in a pink success—with annual revenue of about $290
Bradley CEO Robert floral, the dining room in a diamond pattern. million and five-year annual growth of nearly
Wallstrom with
Just a few miles away is Baekgaard’s old 25%—they opened Pandora’s purse. Start-
BRIAN KELLY FOR FORBES

cofounder Barbara
Bradley Baekgaard residence, where she and her then-neighbor ing in 2007, Vera Bradley launched nearly 30
are out to bag former Patricia Miller launched the firm in 1982 on retail stores and was ready to become a true
customers—and
introduce the brand to a basement Ping-Pong table. The pair took retail company, aiming to have 300 stores of
a new generation. a $500 initial investment—each woman its own. To raise the money for expansion,

48 | FORBES NOVEMBER 8, 2016


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STRATEGIES LUXURY

product count from 3,000 to 2,000. BY THE


Over the years, Vera Bradley dominated NUMBERS
the luxury cotton handbag market, but it
eventually reached a ceiling. The company
HERE COMES
claims that cotton bags make up only 4%
of the U.S. handbag market and that it is
THE SUN
responsible for 75% of those sales. “It’s very SURE, AMERICANS ARE
POLARIZED—BUT ONE
important for any company not to be a one- THING THAT UNITES
trick pony,” says Steven Marotta, an analyst THEM IS THEIR DESIRE TO
LIKEWISE BE SOLARIZED:
at C.L. King & Associates. “Even if their trick A BLINDING 89% ARE IN
is pretty good, eventually that will run out.” FAVOR OF EXPANDING THE
USE OF SOLAR POWER
Enter Robert Wallstrom, who took over NATIONWIDE. SOME 40%
as CEO in late 2013, coming from Saks Fifth OF HOMEOWNERS SAY
THEY’VE GIVEN SERIOUS
Avenue, where he had helped reinvent the THOUGHT TO INSTALLING
shoe department at its Manhattan flagship. SOLAR PANELS. THE TOP
EARLY ADOPTERS: THE
“In our research,” the 50-year-old Wallstrom SUN-BAKED DENIZENS OF
says, “what we heard a lot of people say is THE WEST.

‘I’ve purchased a lot, but I don’t know


Bright ideas: Wallstrom has redesigned the Vera Bradley
retail stores and limited new openings to four in 2016. exactly when I’ll be back.’ ”
Wallstrom quickly announced his
the company went public in 2010, bringing in new plan. The first priority was to lure
$176 million. back those former customers. He decid-
But the brand wasn’t ready for the growth ed to introduce new fabrics, most nota-
a public offering required. At the time of bly leather, which was added to the col-
the IPO, Vera Bradley had products in 3,300 lection for the first time in the company’s
independent retailers and had developed history. Next, he cut back the number of
an aggressive strategy that called for open- patterns the company released each year
ing 20 new retail shops every year to reach and ended its baby-gift line. He also eliminated WEST
the projected 300 stores. Miller, who had aggressive online promotions; customers can
been running the company as co-president, now expect discounts of no more than 30%.
52%
HAVE CONSIDERED
SOLAR PANELS
stepped down, while Baekgaard stayed on A remaining piece of Wallstrom’s strategy
as chief creative officer, a position she still was a rebranding of Vera Bradley. In Au- 14%
HAVE INSTALLED
holds. Sales continued to grow, reaching a gust the company rolled out new marketing SOLAR PANELS

peak of $536 million in 2012. aimed at Millennials, but it faced an immedi-


At the same time, Vera Bradley was churn- ate backlash against its “#itsgoodtobeagirl” SOUTH
ing out new products, introducing roughly campaign, which was perceived by some as 33%
HAVE CONSIDERED
16 quilted cotton prints each year (a decade patronizing and old-fashioned. (The com- SOLAR PANELS
earlier it had released only 6), causing inde- pany says it listened to feedback and adjusted 3%
pendent retailers to buy lots of new mer- the campaign.) HAVE INSTALLED
SOLAR PANELS
chandise, even if they hadn’t sold out of their And Wall Street remains hesitant. Since
previous inventory. Excess product ended up January, Vera Bradley’s stock is down 3%. (By NORTHEAST
for sale on the company’s website at prices comparison, competitors’ stocks are up: Kate
up to 70% off. Spade has gained 1.5%, Coach 12% and Mi-
38%
HAVE CONSIDERED
SOLAR PANELS
Compounding its problems, the company chael Kors 17%.) And sales for the first two
was still indulging custom requests from spe- quarters of 2016 are up just 1.2% compared 2%
HAVE INSTALLED
cialty stores, which unnecessarily increased with the same period last year. SOLAR PANELS

the size of the product line. “If one of our Naturally the company remains hope-
stores came and said, ‘I really want another ful that its new look and products will break MIDWEST
WALDORF CREATIVE (TOP); ALAMY

zipper on this bag,’ we’d make it for them,” through with Millennials. After all, the queen 42%
HAVE CONSIDERED
says Julia Bentley, vice president of investor of prints needs just one more to work—the SOLAR PANELS
relations. The company has since slashed its new blueprint. <1%
HAVE INSTALLED
SOLAR PANELS
FINAL THOUGHT
Source: Pew Research.
“I get ideas about what’s essential when packing my suitcase.” —DIANE VON FURSTENBERG

50 | FORBES NOVEMBER 8, 2016


PROMOTION

Graduating the Future


By Nancy Branka
The Maker Movement Grows Up
Maker. Editor Dale Dougherty West Haven, Conn. Consid- to bring the Engineering and
coined the term in the inau- ered a leader in experiential Science University Magnet Steven Kaplan, President
gural issue of Maker maga- education, its engineering School for middle and high University of New Haven
zine in 2005. At the time, few and business programs now school students on cam-
understood the zeitgeist he offer an Entrepreneurship pus. According to Kaplan,
had tapped into, nor could and Innovation Program and “In engineering in particular,
they have predicted its ensu- Center. They are educating there’s a shortage of stu-
ing growth. A decade later, and graduating Makers. dents coming out of middle
the influence of the Maker According to Steven Kaplan, and high schools aspiring to
Movement and its empha- the university's president, develop products and to be
sis on physical product cre- design of a 40,000-square- innovators.” Besides taking
ation and innovation—often foot Maker center is currently advantage of UNH resources,
enhanced by technology— under way. “This will house these students are able to
can be felt from start-ups to a substantial Maker space, take engineering, science and
today’s leading corporations. communications studios, math undergraduate classes.
A growing assortment of very innovative classroom Kaplan says he’s optimis-
enterprises offers resources and learning spaces—all tic about the future, based
for Makers. One of these is completely nontraditional on the university’s gradu-
the University of New Haven and fo cuse d on making ating Makers: “It gives you
(UNH), a private university things,” he says. hope when you see the pas-
of 6, 800 undergraduate UNH has also partnered sion for innovation that’s in
and graduate students in with the city of New Haven this generation.”

Entrepreneurship &
Innovation Program

Start-Up
Central
www.newhaven.edu/forbes

West Haven, Connecticut


TECHNOLOGY DIGITAL MEDIA

by Universal Music Group and Sony Music


Entertainment, two of the “big three” music
labels, is trying to do for the mobile era what

Stepping Out of MTV did for TV: be the premium destination


for music videos from popular and up-and-
coming artists. Already many of the videos it
YouTube’s Shadow distributes—on Vevo-branded channels on
YouTube and also on Vevo.com—are among
Erik Huggers wants to make Vevo the top the most popular anywhere. “Hello,” by
destination for online music videos. First he Adele, for example, has been viewed 1.7 bil-
lion times on YouTube, making it the sixth-
needs to outsmart the king of digital video.
most-watched video ever on that site. Justin-
BY SHELBY CARPENTER BieberVEVO, the artist’s YouTube channel,
is the site’s third most popular. And that’s

F
or Erik Huggers the giant signs precisely the challenge. Most viewing of
outside his office building are a Vevo clips takes place on YouTube, not on
grating reminder of what he’s up Vevo.com or the company’s mobile app, and
against. The Market Street tower music fans barely register the white Vevo logo
in San Francisco advertises its on the bottom right corner of the screen.
other illustrious startup tenants, Uber and Huggers wants to change that and lure more
Square. But Vevo, whose sprawling offices music fans to Vevo itself. But stepping out of
offer sweeping views of the city from the YouTube’s shadow will be challenging. Vevo
21st floor, doesn’t rate a mention. Huggers was born in 2009 out of the tense negotia-
believes Vevo deserves a spot among the tions between Google-owned YouTube and
marquee names of the digital era. After all, its the music labels, which were unhappy with
music videos are watched by millions of fans the dollars they were getting from YouTube.
every day. But the Vevo brand languishes in The labels, leveraging their massive catalogs,
obscurity. And as CEO, Huggers is on a mis- pressured Google into a new deal: The two
From atop Vevo’s sion to transform his company from You- sides would create Vevo as both a stand-alone
$500 million business, Tube’s underappreciated business partner site and a provider of artist-specific channels
Huggers is gunning for
YouTube’s much larger into a top streaming platform in its own right. on YouTube. “The record labels said, ‘Let us
music video audience. Vevo, the majority of which is owned launch Vevo, or else,’” says Mark Mulligan, an
analyst at MIDiA Research. Google
and Abu Dhabi Media ended up
with minority stakes.
The alliance has been fruitful.
Huggers tells FORBES that Vevo
anticipates $500 million in revenue
this year, much of it from its ad-rev-
enue-sharing deal with YouTube.
(That’s roughly half of Pandora’s
2015 revenue and about a quarter of
Spotify’s.) An average of 25 million
people watch a Vevo video each day
on its own site or on YouTube. That
not only makes Vevo a major player
in digital music but also puts its au-
dience on par with that of a top-five
cable-TV channel.
JAMEL TOPPIN FOR FORBES

Huggers, a 43-year-old with a


lanky build and Bradley Cooper
hair, was brought on as CEO in
April 2015 to push the business
further. By shifting even a fraction

52 | FORBES NOVEMBER 8, 2016


November 2-4 • Coronado, CA
CONFIRMED SPEAKE RS

Marc Mathieu Michael Sprague Rebecca Messina James Thompson


Samsung Electronics Kia Motors Beam Suntory Diageo
America America North America

Maryam Banikarim Maggie Chan Jones Antonio Lucio Jeremy Burton


Hyatt Hotels SAP HP, Inc. Dell
Corporation

Chief marketing officers from Forbes Global 2000 companies and leaders of major brands will
convene at the 12th annual Forbes CMO Summit to gain new knowledge, share best practices and
find inspiration for change and innovation to better navigate marketing’s complexities, challenges
and opportunities. This year, we will highlight how CMOs are building strong, company-wide
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PRESENTED BY
TECHNOLOGY
of the YouTube audience onto its own site and Warner Music Group, the other big-three
TRENDING app, Vevo could collect far more ad revenue, label, finally agreed to distribute its content
WHAT THE 50 MILLION
given that YouTube keeps a large portion—nei- through Vevo, plugging a major hole in its
FORBES.COM USERS ther side will say exactly how much—of what catalog. (Warner still has a separate distribu-
ARE TALKING ABOUT.
FOR A DEEPER DIVE GO TO
it makes from clips played on its site. “Today tion deal with YouTube.)
FORBES.COM/TECHNOLOGY Vevo is just a watermark,” he says. His dream is Vevo’s cry for attention is well-timed.
to turn it into a youth lifestyle brand. Spending on digital video advertising is pro-
Working with more than 325 employees in jected to reach $10.3 billion this year, accord-
New York City, San Francisco and other cities, ing to eMarketer, with 43% of that going to
Huggers, the former head of Intel’s media divi- mobile. By 2019 it could reach $16.3 billion.
sion, has made strides. In July Vevo released Much of that will target Millennials, who
a slick redesign of its website and app aimed don’t mind watching on a small screen. It’s an
squarely at luring YouTube viewers. Now when audience that’s especially hungry for the kind
COMPANY
you open Vevo on your computer or phone, of content Vevo offers.
YAHOO a video launches immediately, an experi- But YouTube is not about to cede its music
The battered company ence much like radio, where music is playing fans to anyone. It launched its own dedicated
allegedly helped when you turn it on. As with many streaming app, YouTube Music, in November 2015. This
U.S. intelligence services, you can create your own playlists or summer, around the time of the Vevo redesign,
snoop on customers’
follow those of others and see suggestions for it launched a national marketing campaign to
incoming e-mails—an
arrangement apparently artists you might like based on your viewing promote it. “The feedback from music fans so
history. Huggers says the Vevo app is a place far has been great,” a YouTube spokesperson

MARCIO JOSE SANCHEZ/AP


not shared with its
own security team. where people can find the best music and says. In September YouTube hired industry
It calls such reports won’t “stumble upon videos about how to feed veteran Lyor Cohen, a former Warner exec
“misleading.”
a giraffe,” as they might on YouTube. and founder of the independent label 300 En-
Huggers scored a coup in August when tertainment, for a new role called global head

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DIGITAL MEDIA

of music. Part of his job will be to mend You- videos has yet taken off. “I don’t think anyone
Tube’s fraught relationship with major artists, has figured out a competitive model based
some of whom argue that the company pays purely on music videos,” says Woody Mar-
them too little for their content. In a letter to shall, a Spotify investor and board member.
his new crew, Cohen said he looked forward Huggers believes Vevo can beat the odds
to “helping the music community embrace with its recent redesign and an upcoming
the technological shifts we’re seeing in music subscription service. The company plans to
today, so we can help take the confusion and start out with a free tier and then phase in a PERSON
distrust out of the equation.” premium service. But it, too, faces long odds. STEVE JOBS
Despite the open rivalry for eyeballs and ad YouTube’s own subscription service, You- Five years after the
Apple cofounder’s
dollars, both Vevo and Google insist the rela- Tube Red, allows fans to “use the music app death, Google’s
tionship is cordial. “In any relationship there to listen to music videos offline—without an derivative new Pixel
are ups and downs, but it’s been mutually Internet connection—and uninterrupted by phones offer redundant
beneficial,” Huggers says. Google is similarly ads or when their phone’s screen is turned evidence of just how
neutral: “We work hand in hand with them off,” a spokesman says. Red also gives users significant the iPhone
was—and still is.
to support artists in making connections with access to ad-free videos and original YouTube
fans around the world,” a spokesperson says. shows. None of that will stop Vevo from forg- IDEA
As he seeks to make his mark, Huggers ing ahead. Its subscription service is likely to VIRTUAL REALITY,
M.D.
faces yet another challenge. While music- launch in the first half of next year. “We’ll ship
VR headsets are helping
streaming companies like Spotify have it when it’s ready,” Huggers says. For Vevo the the legally blind see—
experimented with adding videos to their ser- bigger question may not be when it will be
HERBERT KNOSOWSKI/AP

and proponents say


vices, no company based specifically on music ready but whether anyone will care. many other medical and
therapeutic applications
FINAL THOUGHT are coming.
“We are so visually biased that we call our wisest men visionaries.” —MARSHALL MCLUHAN

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ENTREPRENEURS SMALL GIANTS

What Price Growth?


To one founder of the iconic Zingerman’s Deli, opening a satellite
store in the Detroit airport is a no-brainer. To the other, it’s a threat
to their business model. They’ve been debating this for decades.
BY BO BURLINGHAM

M
ore than a quarter-century company. The deli, meanwhile, has more fans
ago Zingerman’s Delicates- than ever. Celebrity chef and restaurateur Mario
sen in Ann Arbor, Mich. was Batali has called it “a national treasure” and the
in the process of winning a center of his “gastro-deli universe.” President
cultlike following that had Obama went out of his way to visit the deli on
customers from all over the country lining up to a trip to Ann Arbor in 2014—first, he said, be-
order its sandwiches. People had also begun try- cause “the Reuben is killer” but also because of
ing to persuade founders Paul Saginaw and Ari Zingerman’s employee-friendly culture. Indeed,
Weinzweig to open delis in other college towns. among those who know the company, it is al-
Instead, Saginaw and Weinzweig drew up a re- most as renowned for its business structure and
markable growth plan that has guided them ever management practices as for its food.
since. At least until recently, when an opportu- Its popularity is the main reason Detroit
nity arose that has challenged their vision. Metropolitan Airport has long been eager to
At the core of the vision was a plan to build have a Zingerman’s. Today there is one—sort of.
other food-related companies in the Ann Arbor It takes the form of a concession in the McNa-
area, creating what would be known as Zinger- mara Terminal, labeled “Plum Market featuring
BRANDON SCHULMAN FOR FORBES

man’s Community of Businesses. That commu- Zingerman’s.” Inside, you can find, among other
nity, which has annual revenue of $57.9 million things, Zingerman’s coffee, chocolate bars, pas- Local heroes: Ari
and a pretax profit margin of 3%, now includes a tries and cheese and a case of sandwiches made Weinzweig (left) and
bakery, a creamery, a coffee company, a restau- with Zingerman’s bread. You may even think it’s Paul Saginaw have
passed up opportunities
rant, a candy manufacturer, a mail-order com- a Zingerman’s store—many people do—and that to re-create their deli
pany, a caterer, a working farm and a training confusion hasn’t hurt sales. Expected to do around the world.

56 | FORBES NOVEMBER 8, 2016


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ENTREPRENEURS SMALL GIANTS

$4 million to $5 million in sales a year, the airport years. Then, in 2014, another airport concession-
Plum Market has done more than twice that. aire, Hojeij Branded Foods, approached Zing- MARGIN
Given Plum’s success, you might ask why erman’s. By then a number of the businesses PROPHET
Zingerman’s doesn’t have its own store at De- were selling the products wholesale, enough to WHAT CLAYTON
troit Metro. It’s the kind of question Saginaw has account for 20% of the company’s revenue. Ad- CHRISTENSEN GOT
WRONG
been asking for decades. The answer, at least in ditional sales at the airport represented a huge
KNOWN FOR HIS 1997 BOOK,
part, is his cofounder, Weinzweig. opportunity to grow. THE INNOVATOR’S DILEMMA,
Their 35-year partnership is a noteworthy Again, Saginaw was eager to do a deal. THE HARVARD BUSINESS
SCHOOL PROF HAS A NEW
achievement considering their contrasting Weinzweig, however, was more opposed than TOME, COMPETING AGAINST
personalities, passions and priorities. It was ever. “I don’t want to spend more time than I LUCK—AND SOME UPDATED
THOUGHTS ON INNOVATION.
Saginaw, for example, who have to at the airport,” he says.
approached Weinzweig in But there was an alternative.
1992 and insisted they decide The company was already
whether to take the deli na- selling products wholesale to
tional. “We might be stupid not the Plum Market chain, based
to do it,” he said. in Bloomfield Hills. Saginaw
Weinzweig didn’t disagree urged Hojeij to let Plum have
but wanted no part of it. “I the space and feature Zing-
didn’t want to spend my time erman’s products. Hojeij, he
flying to Kansas City to see suggested, could also set up
some mediocre Zingerman’s,” a “grab-and-go” case stocked You say entrepreneurs
he says. “For me it was impor- with sandwiches made with should focus more on
tant to be part of something Is it possible to sell food that is ingredients from the deli. context and specific jobs to
“great and unique” in an airport? be done. Explain.
great and unique.” For two In the year or so since, air-
Go to McDonald’s at 11 a.m.:
years they worked on an alter- port sales of Zingerman’s prod-
The people at the back tables
native plan, ultimately producing a document ucts have exceeded expectations, although the are sales or service people
called “Zingerman’s 2009: A Food Odyssey” that grab-and-go case (called Detroit Street Lunch- who don’t have offices. If an
detailed their vision of a community of food-re- box) has garnered some negative Yelp reviews automaker were to design a
lated businesses, all in or near Ann Arbor. because the sandwiches aren’t as fresh as those car that could function as an
office, a few million people a
The opportunity to open a Zingerman’s at the in the deli. “We’re working on it,” Saginaw says.
year would buy it.
airport challenged that vision. The offer came “No one thought we’d sell so much food there.”
What’s an example of
in 1999 from Compass Group, a food-service And now there’s an opportunity to open a someone focusing on a
company that owned the right to develop retail Zingerman’s-branded cafe in a prime airport specific job to be done?
space at the newly renovated and expanded Mc- location. To Saginaw it’s a no-brainer. “Do you Minute Clinic, now owned
Namara Terminal. Saginaw was eager to accept. know how many customers you have to go out by CVS. The youngest child
of one of the founders had
Weinzweig and others had questions: Could and find to get $10 million in sales? Which I
an earache on a Friday.
Compass—the operator of the store and thus the think we could easily do. And it would give us She called the pediatrician
actual employer—create a Zingerman’s work money to do a lot of other things—quickly raise for a prescription, but the
environment? How would employees at the our entry-level wage to $15 an hour, donate doctor said he had to see the
airport interact with those in Ann Arbor? And more money to the nonprofit sector.” He also child—could she come in on
Saturday? The job to be done
what about the principle of staying local? sees it as a chance to prove that the Zingerman’s
is to get a prescription for a
“Paul and I spent hours with the managing way of business can work outside Ann Arbor—a sick child without spending
partners,” Weinzweig says, “and we had open thesis he’s testing by investing his own money in half the day doing it.
meetings with the staff to discuss whether we food ventures in Detroit and Las Vegas. Does this theory conflict
could do in that setting what we were doing in But he has not been able to achieve consen- with your disruptive-
Ann Arbor. … It was a matter of intense discus- sus. Weinzweig, who doubts it’s possible to cre- innovation theory?
sion and lots of disagreement before we decided ate a great and unique airport store, remains op- My disruption theory is
BRANDON SCHULMAN FOR FORBES (LEFT)

a theory of competitive
to go forward with the plan.” But the opportu- posed, as do a few other partners. If consensus
response. It lets me predict
nity fell through in September 2001, when Com- proves unattainable, Saginaw says, “I’m going whether a company will go
pass abandoned the project. to let this pass because the partnership and the after you or not. What the
The issue remained moot for more than ten friendship are more important.” jobs-to-be-done theory adds
is it helps me predict whether
FINAL THOUGHT a company will succeed.
—Susan Adams
“I cannot and will not cut my conscience to fit this year’s fashions.” —LILLIAN HELLMAN

58 | FORBES NOVEMBER 8, 2016


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B R E IT L IN G . C O M
INVESTING RETIREMENT

IRAs
Gone Wild
Here’s how to invest your retirement
account in private equity, real estate
or gold—without a tax penalty flag.
BY ASHLEA EBELING

A
record $7.5 trillion is sitting in
individual retirement accounts,
the bull market is looking tired,
and the Internal Revenue Ser-
vice’s army of auditors has been
shrinking. So the temptation to get creative
with IRA money has never been greater and
the marketing pitches never more pervasive.
You can put real estate, private equity, private
loans and even gold coins and bullion (but not
collectibles or insurance) in a tax-deferred IRA
or a Roth IRA, where all growth is tax-free. You
do this through a “self-directed” IRA—which
is simply one parked at a custodian that allows
you to invest in alternative assets.
But the tax rules surrounding self-directed
IRAs are tricky, the penalties for violations can
be punishing, and the IRS recently started re-
quiring custodians, in their annual filings, to flag
accounts holding alternative assets. At the same
time Congress’ Government Accountability Of- areas where he has expertise over investing in the Seattle lawyer Warren L.
fice is studying self-directed IRAs to see how broad stock market. Baker coaches clients on
they’re used and if more restrictions are needed. Example: One client, an engineer, used his how to stay safe while
investing IRA money in
Seattle tax attorney Warren L. Baker, 37, has IRA to invest in Vicis, a three-year-old Seattle startups like football-
spent a decade building a national practice advis- company that has developed a high-tech football helmet maker Vicis.
ing owners of self-directed IRAs. He sees both helmet to reduce head injuries. The company’s
the potential and the peril. One client inherited cofounders include an engineering professor and
a $10 million IRA that has grown into a $50 mil- a pediatric neurosurgeon, and its list of 250-plus
lion IRA largely through private equity invest- investors—it has raised more than $20 million—in-
ments. Another turned a $200,000 Roth IRA into cludes dozens of doctors, current NFL players and
a $10 million tax-free retirement kitty by buying Roger Staubach, the legendary Dallas quarterback
raw land on the edge of a Midwestern city, selling turned real estate entrepreneur.
at a profit and investing in more land. That’s the promise. The peril? Baker estimates
“For the real estate guy driving around look- that half of those with self-directed IRAs are violat-
ing for deals, it’s not that much of a stretch for ing one or another IRS rule, usually without even
him to have his IRA buy property,’’ Baker says, realizing it. “If you’re handed a gun, you shoot your
adding that his typical client prefers investing in foot if you don’t know how to operate it,” he says.

62 | FORBES NOVEMBER 8, 2016


No, Baker isn’t urging all retirement savers to Not only did all the money in their IRAs become
hire $400-an-hour lawyers like him for safety retroactively taxable; they also got dinged with TRENDING
lessons. Instead, he says, those without a good in- a 10% early-withdrawal penalty because they
WHAT THE 50 MILLION
vestment reason to hold alternative assets should weren’t yet 59½ at the point of the violation. FORBES.COM USERS
stick to conventional IRAs. That’s what he does. One popular technique these days is to have ARE TALKING ABOUT.
FOR A DEEPER DIVE GO TO
Baker and his law partner and wife, Angela your self-directed IRA invest in an LLC and FORBES.COM/INVESTING
Carr Baker, earned their LL.M.s in taxation from then manage investments from that LLC. This
the University of Washington School of Law in provides more flexibility. If you’re investing in
2005, then hung out their shingle. They invest real estate, you can write checks for expenses
their SEP-IRAs exclusively in publicly traded from the LLC without going through the IRA
securities and are considering selling the one custodian, Baker notes. But the LLC layer
rental property they own (outside their IRAs) doesn’t change what’s prohibited—it can’t pay
because managing it eats up time they’d rather the IRA owner a salary.

KRISZTIAN BOCSI/BLOOMBERG
spend with their two young children or earning And forget IRA deals involving your spouse,
legal fees. says Robert Finkel, a corporate tax lawyer in
Still got the urge to invest in a self-directed Waltham, Mass. He recently nixed a client’s
IRA? Watch out for these risks. plan to use $250,000 of his wife’s IRA for a
FRAUD The Securities & Exchange Com- cash infusion in his own tech startup and jokes
mission warns that scamsters encourage marks he saved the man from both a tax disaster and COMPANY
to invest through self-directed IRAs as a way to a divorce. He also urges anyone investing in a DEUTSCHE BANK
give their schemes a patina of legitimacy. But in- private company to carve up his or her IRA into Is the battered German
financial giant too big
vestors can’t rely on IRA custodians to vet their separate pieces first—that way, if a prohibited
to fail? As the Obama
alternative investments. In June an administra- transaction is found, only one piece will become Justice Department
tive law judge rejected the SEC’s first attempt to subject to tax. trains its sights on it,
hold a custodian responsible. The judge agreed One widely marketed gambit supposedly beleaguered Angela
with Equity Trust Co., the custodian for 130,000 gets around the prohibition on investing your Merkel looks for
a way out.
self-directed IRAs, that it wasn’t responsible for IRA in your own business. You start a company,
fraudulent promissory notes marketed to 100 of establish a 401(k) for it that offers company stock PERSON
its clients. as an investment option, roll your IRA into the JOHN STUMPF
Peggy Cramer, a vice president of San Fran- 401(k) and then use it to buy company stock. In Wells Fargo’s CEO is
cisco-based Pensco Trust Co., which has offered theory this is legal. In practice? Baker won’t assist blasted by Congress
for the bank’s fake-
self-directed IRAs since 1989, was disturbed by people doing it, he says, in part because there are
accounts scandal and
RICK DAHMS FOR FORBES

some of the presentations she heard from com- multiple steps where you can make a fatal error. surrenders $41 million in
petitors recently at the MoneyShow: “I didn’t A dicey pitch now being flogged online: Buy compensation
feel like they were being clear enough about the gold for your IRA and take delivery of it. But days later.
need for extensive due diligence and the risks keeping the gold in your basement, bomb shelter
IDEA
involved.” or home safe, Baker says, means you’re in pos- BIG FISH EATS
CONFLICTS OF INTEREST The punish- session of the IRA’s property, likely a disqualify- LITTLER FISH
ment for “prohibited transactions” is brutal: ing conflict. Better to store the gold at a deposi- In a consolidation of
Your entire IRA is disqualified, and its assets are tory company. outdoor-retail titans,
Bass Pro Shops will pay
considered distributed and taxable as of Jan. 1 ANNUAL TAXES An IRA owes annual
$5.5 billion to swallow
of the year of the verboten transaction. What’s income taxes on profits from partnerships and rival Cabela’s hook, line
prohibited? Basically, any deal between the IRA LLCs that don’t pay corporate taxes and from in- and sinker.
and the IRA’s owner or his business entities or vestments purchased partly with debt. (The top
his immediate relatives. federal income tax rate of 39.6% and the 3.8%
So while an IRA can invest in a private com- net investment income tax both kick in at just
pany, it usually can’t be one that pays you a salary $12,400 of taxable income in an IRA.) Yet some
or one you’ve guaranteed loans for. In March the IRA owners, and even tax pros, are unaware of
U.S. Tax Court upheld a $180,000 tax assessment this, Baker says, raising the risk their IRA could
against a couple who had personally guaranteed get hit later with a big bill for back taxes, interest
a loan to a corporation owned by their IRAs. and penalties.

FINAL THOUGHT

“To find yourself, think for yourself.” —SOCRATES

NOVEMBER 8, 2016 FORBES | 63


Fiduciary:
It’s the word
independent
advisors
live by.

Independent Registered Investment


Advisors are held to the highest
standard of care. As fiduciaries, they
are required to act in the best
interests of their clients at all times.
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financial advisors. And why we think
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FindYourIndependentAdvisor.com

Annette B. | Independent financial advisor since 2006

Charles Schwab is committed to the success of over 7,000 independent financial advisors who are passionately
dedicating themselves to helping people achieve their financial goals.

This content is made available and managed by Charles Schwab & Co., Inc. (“Schwab”). The purpose of this information is to educate investors about working with an
independent Registered Investment Advisor (RIA). The RIAs and their representatives featured here use Schwab Advisor Services™ for custody, trading, and operational support.
Inclusion should not be construed as a recommendation, an endorsement, or a sponsorship by Schwab. Many independent RIAs and other financial services professionals
receive compensation for services in a variety of ways. Registration does not imply a certain level of skill or training. It is the responsibility of each investor to determine
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FORBES

BrandVoice WITH SCHWAB ADVISOR SERVICES

How To Find The With prospective clients, we go


through a process and ask a series

Right Advisor – For You


of questions, starting with, ‘What’s
important to you?’ We have a frank
and open discussion about their
Everyone’s financial position is different, and everyone’s financial goals are unique.
Finding an advisor is a key first step to defining what’s important to you and needs and determine how we can
outlining a path to achieve those objectives. What’s the best way to find an advisor best meet their objectives.”
that will meet your needs for the next 10, 20 or 30 years?
To help answer that, we surveyed individual investors, including high net worth Gregory S.,
individuals, to find out what matters most to them. Here’s what they said: Founder of an independent Registered
Investment Advisor firm

DETERMINE WHAT
OUTLINE YOUR QUALITIES ARE MOST DEFINE THE OPTIMAL
FINANCIAL GOALS IMPORTANT IN AN ADVISOR ADVISOR RELATIONSHIP

Before seeking an advisor, think Not surprisingly, investors place a premium The individuals who are most satisfied
about what’s most important to your on advisor integrity. But only 1 in 3 actually with their financial advisor identify the
financial future. By having a sense know whether or not their advisor is a below characteristics as the reasons
of your priorities ahead of time, you fiduciary, or someone who is legally bound behind their successful relationship.
can direct your advisor’s attention to put their best interests first. This Establishing the kind of dynamic you
to what matters most. highlights an opportunity where you could want with your advisor can lead to a
ask more questions in order to understand healthy partnership.
the type of advisor you’re working with.

My advisor understands my

54 % Saving for retirement


79 % Honesty/integrity
78 % investment goals and objectives

Ability to understand my My advisor is readily available to

33 % Minimizing tax exposure


67 % investment goals and objectives
75 % discuss my questions and concerns

My advisor has my best

29 % Help with money management


50 % A long-term relationship or approach
71 % interests at heart

Years of experience or My advisor clearly explains

28 % Estate planning
41 % professional credentials
63 % recommended investments

My advisor is transparent

16 % Managing wealth transfer


19 % Will act as a fiduciary
47 % about fees

Choosing an advisor shouldn’t be difficult. The three steps above can help get you started down the right
path to finding someone who not only understands your financial goals, but can also help you achieve them.

Charles Schwab AdvisorVoice: To learn more, visit www.forbes.com/sites/charlesschwabadvisor


Based on a 2016 survey of 328 U.S.-based individual investors, including high net worth
individuals, conducted by Forbes Insights in partnership with Charles Schwab.

NOVEMBER 08, 2016 FORBES | 65


INVESTING KEN FISHER // PORTFOLIO STRATEGY

TRUMP OR HILLARY?
BULL MARKET EITHER WAY
WITH NOV. 8 NEAR I have no confi- are a bevy of buyers to take over its brands,
dence in who wins but see a 2017 stock limiting downside.
market victory either way—for evident Swiss Pharma giant NOVARTIS (NVS, 78) has
reasons I’ve never seen stated. disappointed and lagged for 15 months. Its
I’ve previously shared data showing time is nigh. Management is forthright on
that when we elect Republicans stocks problems and on addressing them. Stocks
have done better than average in the like that. It’s turning around potential heart-
run-up but badly in the following in- blockbuster Entresto—and fixing NVS’s weak
augural year. The reverse occurs when vision segment. Overall, health care has
electing Democrats—bad election lagged too long. NVS is easily worth more
years and consistently strong inaugu- than 17 times my 2017 earnings estimate. It
ral ones. yields 3.46%.
I ascribed that to Democrats being foreseen as more antibusiness How to react to the Wells Fargo phony-
and yet able to do less than folks fear once they have the presidency, so account scandal? First: Buy WELLS FARGO (WFC,
the inaugural-year surprise becomes positive. Our three-branch gov- 45). Yes, I recommended it at 51 on May
ernment helps here. I well recall Ronald Reagan saying if a president 31 and never foresaw this. But this will all
is skilled he can still get only about three important things done in a blow over after more hyper-hoopla, hand-
term, less than many folks fear or hope. Few believe that. I do. wringing, likely fines, lawsuits and relatively
Stocks should treat a Clinton presidency like they normally have immaterial settlements. And in no time it
Democrats. That would make 2017 a positive surprise. Here’s the will be seen, like most stock scandals, as
twist: Since July I’ve come to see stocks treating a Trump presidency an unmemorable molehill. Wells Fargo is a
similarly. great franchise. Its stock will soon enough
Why? Because so many conventional Republican investor types show that.
fear him as well—that he will be antitrade, populist, pro-rabble and Second: Buy five hated banks all in—each
at 40% the dollar value of your normal stock
purchases—worth two normal stock posi-
EQUITIES SHOULD POP IN 2017 tions. Which? Number one in the hate hier-
NO MATTER WHO WINS archy: REGIONS FINANCIAL (RF, 10). Then in order:
CITIZENS FINANCIAL (CFG, 26), SUNTRUST (STI, 46), FIFTH
undignified! As if commerce’s chaos were genteel or gentility were THIRD BANCORP (FITB, 21) and PNC FINANCIAL SERVICES
needed for bull markets. (PNC, 92). I’m ranking hate by data from the
Never has so much of the GOP firmament so opposed its nomi- too-publicized Consumer Financial Protec-
nee, including three of the last five nominees, a slice of Congress, big tion Bureau (an oxymoron to be sure) on
global-trade firms and Wall Street, and its same-name journal. The complaints per billion bucks of deposits.
Trump frumps’ fears must all be priced into stocks now. With polls Complaint volume, like scandals, has
close, stocks act low-returnish—as when Democrats win. nothing to do with the basics of a bank’s
With either victor we’ll get congressional gridlock (a new form if franchise. Overall these banks are just fine.
Trump prevails). Equities have averaged 22.4% better in Democratic Because they’re seen as hated, they’re all
inaugural years. I think we’ll get that kind of pop either way in 2017, ultracheap, with better than T-bond dividend
with stocks like these: yields. Surely they will be working overtime
THOMAS KUHLENBECK FOR FORBES

NEWELL BRANDS (NWL, 52,) is a boodle of bright brands: Sharpie, El- moving forward to improve their images.
mer’s, Papermate, X-acto, Coleman, Mr. Coffee and dozens more. It’s The time for blowhard senators (and flawed
well-managed, strategic and priced well at 16 times my 2017 earnings presidential candidates) will soon be over for
estimate. If it falls much relative to the market, I’m convinced there this cycle. Buying time! F

MONEY MANAGER KEN FISHER’S LATEST BOOK IS BEAT THE CROWD (WILEY, 2015). VISIT HIS HOME PAGE AT WWW.FORBES.COM/FISHER.

66 | FORBES NOVEMBER 8, 2016


INVESTING WILLIAM BALDWIN // INVESTMENT STRATEGIES

AN ETF TAX HUSTLE


WHAT’S THE POINT of a sector charity, give them to low-bracket relatives or
index fund, like one that buys just oil leave them in your estate.
stocks or just consumer staple stocks? Is this hustle legal? You bet. Rich people
If you knew which sectors were about have been playing loss harvest for years, and
to get hot, you’d buy those. But you now, courtesy of robo-advisors, the middle
might not know. class is getting in on the action. The profes-
Here’s another purpose, suited to sionals do a fine job of slicing up the stock
savers who do not consider themselves market (into hundreds of stocks rather than
clairvoyant. Use exchange-traded sec- a dozen funds), thus capturing more losses.
tor funds to dodge taxes. The drawback is the money-management fee.
Instead of buying some sectors, It could eat up a significant fraction of your
buy them all. Own a dozen or more tax savings.
exchange-traded funds. Beginning not quite a year later, do some loss Do-it-yourselfers should not attempt to
harvesting. Sell losers, temporarily reinvesting the proceeds in simi- create a 200-stock portfolio that mimics the
lar, but not identical, funds. Stand pat with the winners. S&P 500 perfectly. Settle for a mix of cheap
We’re talking, of course, about the goings-on in your taxable bro- sector funds that merely comes close to
kerage account. None of what follows is relevant to IRAs and 401(k)s. tracking the market. Bear in mind that im-
Your goal in the stock market is not to get poorer just so you can perfect tracking does not lower your expect-
put one over on the IRS. No, you’d rather see every one of the sec- ed return; it only increases anxiety.
tor funds you buy shoot straight up. But such good fortune is not Step one: Find cheap sector funds using
to be expected. In all likelihood you’ll wind up with at least a few the Forbes Best ETFs for Investors 2017
stinkers. ranking, available online. This scorecard in-
If you had played this game beginning a year ago you’d now have corporates stock-lending revenue in the cost
a 13% return on the whole pot. Within it the biotech sector fund, formula, an important factor in speculative
containing stocks like Gilead Sciences and Incyte, would be down sectors (like biotech). Then use Morning-
10% or so. star’s portfolio-analyzer tool to adjust share
counts so that the sector weightings match
those of the S&P 500.
USE SECTOR FUNDS I used this recipe to create a 14-fund port-
TO SLICE YOUR TAX BILL folio whose details are in the online version
of this column. The six biggest positions,
Suppose you owned the PowerShares version of biotech. You’d accounting for 70% of the money, are these:
sell that, capturing a capital loss, and immediately buy the iShares the consumer staples and financial funds
bio fund, which has a somewhat different portfolio. Or vice versa. from FIDELITY (FSTA, FNCL), the health care and
After 31 days you could swap back into the original sector fund if you industrial funds from STATE STREET’S SPDR (XLV,
wanted to. If the sale occurs less than a year after the purchase, the XLI), and the consumer discretionary and
capital loss would be of the valuable short-term variety. information technology funds from VANGUARD
Such legerdemain makes sense if you can put stockpiled capital (VCR, VGT).
losses to use, absorbing gains occurring elsewhere—for example, Morningstar tells me that the composite
THOMAS KUHLENBECK FOR FORBES

from the sale of a vacation home or from capital gains distributions expense ratio for the 14-fund version is 15
thrown at you by your actively managed funds. basis points ($150 per $100,000 per year). I
Also critical here: an exit strategy for the sectors that go up. Ap- calculate that the effective cost, figuring in
preciated shares escape capital gains taxation if you give them to the lending revenue, is only 3 basis points.
That’s competitive with traditional index
GO TO FORBES.COM/SITES/BALDWIN FOR MORE ON RETIREMENT STRATEGIES. funds. F

NOVEMBER 8, 2016 FORBES | 67


INVESTING JIM OBERWEIS // SMALL STOCKS

EARNINGS SURPRISES
IN THE HEARTLAND
THE MIDWEST, WHICH I call home, tems for the automotive industry. In North
might be considered an unlikely spot America it is the leader in fluid-transfer and
to sprout The Next Big Thing. Im- antivibration systems. Its products are used
ages of the heartland do not evoke the in passenger vehicles and light trucks made
sexy creativity of the San Francisco by Ford and GM. In 2009, as a result of the
Bay Area or the survival-of-the-fittest financial crisis and the severe auto industry
competitive dynamic of New York. downturn, the company filed for Chapter
But what you will find in the Midwest 11 bankruptcy and eventually reemerged in
is a meat-and-potatoes adherence to mid-2010. Since then the company has been
execution, process improvement and on an acquisition binge, rolling up smaller
commonsense cash generation. Since competitors to gain scale and expand its geo-
successful investing tends to be about graphic footprint.
finding companies that exceed expectations, one approach is to begin In 2012 Cooper brought in a new CEO, Jeff
by looking at businesses where growth expectations are modest, as Edwards, from Johnson Controls. To appeal
modest expectations are considerably easier to beat. Here are my to global manufacturers’ platforms, Cooper
three small-cap Midwest companies with less glamorous businesses is standardizing processes, equipment and
that are beating investor expectations: product designs across geographic and man-
Headquartered in Oshkosh, Wis., OSHKOSH CORP. (OSK, 56) makes ac- ufacturing locations. On the financial side,
cess equipment and specialty vehicles for commercial, emergency- Edwards cut costs by moving manufacturing
response and military customers. Half of Oshkosh’s business comes from high-cost regions like western Europe
from access products like aerial lifts and telescopic booms marketed and North America to lower-cost ones like
under the JLG brand. Sales for such products have declined since eastern Europe and Mexico. The result:
2010 amid weak North American construction demand and cautious margin improvement and profits well ahead
replacement cycles from rental firms. However, Oshkosh’s defense of expectations in recent quarters. Cooper-
Standard shares trade for a P/E of nine times
my forward EPS estimate of $11.20.
LOOK FOR BUSINESSES WHERE Lastly, PATRICK INDUSTRIES (PATK, 64) in
GROWTH EXPECTATIONS ARE MODEST Elkhart, Ind. is a leading manufacturer
and supplier of building and component
segment is booming. In August 2015 Oshkosh won a $6.7 billion con- products to the recreational-vehicle and
tract to manufacture the Joint Light Tactical Vehicle (JLTV) for the manufactured-housing industries. Patrick
U.S. Army, and in April the company announced that the production sells most of what goes into an RV, including
ramp will be faster than initially expected. Additionally, demand has wall/ceiling panels, countertops, fabricated
been strong among international clients—particularly in the Mid- aluminum products, wrapped moldings and
east—for its Mine-Resistant All-Terrain Vehicle (M-ATV). Although cabinet doors.
defense will account for only 20% of revenues in 2016, the backlog Chief executive Todd Cleveland, who took
for defense vehicles was up 88% last quarter compared with the over in 2009, transformed the business by
same quarter in 2015. Midwesterners tend to be straight shooters, consolidating and rolling up smaller suppli-
and Oshkosh has not sugarcoated its challenges in access products. ers. With 29 acquisitions since 2010, the com-
Still, Oshkosh has beaten analyst expectations for two straight quar- pany has boosted revenues from $278 million
ters, and the stock is near an all-time high, implying that despite the to more than $1 billion today. As sales grew,
THOMAS KUHLENBECK FOR FORBES

slowness in access, investors are beginning to recognize its potential. Patrick recognized operating synergies and
Shares trade for a P/E of 17 times my forward EPS estimate of $3.15. operational efficiencies, tripling margins over
COOPER-STANDARD HOLDINGS (CPS, 102) of Novi, Mich. is a global leader this period. After some positive earnings sur-
in making body-sealing systems and fuel- and brake-delivery sys- prises, shares are up nearly 50% year-to-date
but still trade for just 16 times my forward
JIM OBERWEIS IS PRESIDENT OF OBERWEIS ASSET MANAGEMENT. FOR MORE INFORMATION VISIT
WWW.FORBES.COM/OBERWEIS. earnings estimate of $4 a share. F

70 | FORBES NOVEMBER 8, 2016


LAUREN CONRAD
WANTS TO SAVE THE SEA TURTLES

Fishing nets used to catch some of our favorite seafood catch, injure and kill
thousands of sea turtles every year. For species like the Kemp’s Ridley, extinction is
too close for the government to ignore the problem. Stand with Lauren and Oceana.
Help save sea turtles at www.oceana.org/saveseaturtles
T H E FA S T
AND THE
LU X U R I O U S
G A M E - C H A N G I N G S E DA N S , S P O RT S C A R S A N D SU V S F O R 2 0 1 7

P LU S : T H E Y E A R ’ S M O S T O U T R AG E O U S E X T R A S
(INCLUDING A $100,000 FISHING SET)
MERCEDES-BENZ E-CLASS E300

TECH TO THE FUT URE


FROM INTELLIGENT ENGINES TO A VIRTUAL COCKPIT, THE BEST AUTOS FOR 2017 OFFER GREATER PERFORMANCE
AND SOUPED-UP LUXURY. HERE’S WHAT TO DRIVE BEFORE CARS DO ALL THE DRIVING FOR YOU.
BY JIM GORZELANY

Unless you’ve been living under an overpass, you know it’s only a matter of time before autonomous autos rule
the road. But what if you’d much rather drive than be driven? Then consider this the last Golden Age of Motoring,
a time when those who truly love cars can indulge themselves with models that go fast, handle tenaciously and
look good doing it.
To that end here are 15 of the hottest new releases for 2017—with technological advances aimed at real drivers
who love the feel of the road. They include stately sedans, sleek sports cars with impossible levels of performance,
high-tech hybrid and electric vehicles, and a new generation of SUVs from some seriously luxurious brands.
It’s enough to drive you wild.

S E DA N S swaps the traditional instru-


ment panel for a configurable
Vital specs 2.0-liter turbocharged
four-cylinder engine at 190- or 252hp;
side the hot-blooded 4C sports
car, but the midsize Giulia is
dual-clutch seven-speed automated
and interactive 12.3-inch wide- manual or six-speed automatic trans- clearly not a traditional fami-
VIRTUOUS REALITY: mission; 25–37mpg ly sedan. It comes wrapped in
screen video display. In “Clas-
AUDI A4 Price $34,900
passionately carved bodywork
sic” operating mode it presents
Audi’s midsize A4 sedan is re- a high-tech take on conven- that’s as sleek as an Italian suit.
designed for 2017 and becomes tional gauges, while the “Info- BELLA MACCHINA: A standard turbocharged four-
lighter, roomier and more tainment” setting adds a large ALFA ROMEO GIULIA cylinder engine is plenty quick
powerful in the process. Avail- central window for navigation Alfa Romeo dealers in the enough for the masses, but the
able accoutrements include system, telephone and audio United States now have a more top Quadrifoglio model should
Audi’s Virtual Cockpit, which displays. mainstream ride to sell along- be an enthusiast’s favorite

74 | FORBES NOVEMBER 8, 2016


I BRAKE FOR ELK LET THERE BE LUXURY:
Among its myriad safety fea- GENESIS G90
tures, Volvo’s new flagship S90 Hyundai launches its new
(sedan and wagon) can detect
Genesis luxury-car line for
the presence of woodland crea-
tures like deer and elk—and au-
2017 with the flagship G90
tomatically slam on the brakes. sedan, essentially a redesigned
City Safety with Large Animal Equus. The G90 is large-and-
Detection, as it’s called, may in-charge, with stately styling
not seem necessary for city that exudes opulence. Buyers
folk, but it can also spot urban can choose either a twin-turbo
beasts—like pedestrians, bicy- V6 or a smooth and powerful GENESIS G90
clists and other cars. V8. The available all-wheel-
drive system can channel LINCOLN CONTINENTAL
as much as 90% of the en-
gine’s power to the rear axle
in “sport” mode for a lively
rear-drive feel, but the empha-
sis is more on comfort than on
an exhilarating ride. A hand-
with a blazing bi-turbo V6 somely cast wood-and-leath-
and other enhancements. er-trimmed cabin features lim-
The Giulia’s rich-looking ousine-grade rear legroom and
leather-clad cabin can be can be fitted with many ameni-
trimmed in aluminum, wood ties. There is also an elaborate
or carbon fiber. customer-service plan known
as the Genesis Experience.
Vital specs 2.0-liter 276hp turbo-
charged four-cylinder or 2.9-liter Vital specs 3.3-liter 365hp twin-tur- AMERICAN GRANDEUR: INTELLIGENT DESIGN:
505hp bi-turbo V6 engine; eight- bocharged V6 engine or 5.0-liter LINCOLN MERCEDES-BENZ
speed automatic transmission or 420hp V8 engine; eight-speed auto-
six-speed manual matic transmission; 15/23–17/24mpg
CONTINENTAL E-CLASS
Price $40,000 (est.) Price $68,100 Lincoln redoubled its efforts The tenth-generation Mer-
to regain its status as a pre- cedes-Benz E-Class sedan is
mier luxury brand for 2017 elegant and urbane, and can
with the reborn Continen- be packed with innumerable
tal. It’s a far more refined flag- futuristic features. These in-
ship than the rental-fleet-favor- clude the first steering-wheel
ite MKS it replaces and features controls for a car’s infotain-
quietly elegant exterior styl- ment system that respond to
ing that’s capped with the auto- horizontal and vertical swip-
maker’s large and largely rect- ing gestures like a tablet com-
angular grille. Three engine puter. Customizable ambient
choices include a twin-turbo lighting can illuminate various
V6 with a V8-like 400 horses. parts of the interior with any
A new three-mode suspension of 64 colors, while the door
and steering array maintains a armrests and center console
AUDI A4
smooth ride and confident han- can be heated for cold-weath-
dling, with all-wheel drive avail- er comfort. What’s more,
able for enhanced foul-weather Mercedes’ Drive Pilot sys-
grip. The Continental coddles tem brings the E-Class a step
its occupants with a rich and closer to autonomous driving,
roomy interior, which can be with assisted highway steering
fitted with 30-way adjustable and lane changing. While the
front seats that are heated and base E300 is passively aggres-
cooled and offer massaging, so sive with a turbo-four engine,
even the worst commutes will there’s also a smoking-hot
have their pleasures. 396hp AMG E43 version.
Vital specs 3.7-liter 305hp V6, 2.7- Vital specs 2.0-liter 241hp turbo-
liter 335hp turbocharged V6 or 3.0- charged four-cylinder engine or
liter 400hp twin-turbocharged V6 3.0-liter 396hp bi-turbo V6; nine-
engine; six-speed automatic trans- speed automatic transmission;
mission; 16/24–18/27mpg 22/29–22/30mpg
ALFA ROMEO GIULIA Price $44,560 Price $52,150

NOVEMBER 8, 2016 FORBES | 75


2017 CAR GUIDE

BENTLEY BENTAYGA

S P O R T- the “fastest, most luxurious, and “taiga,” the snow forest neers, and the backseat fitted
UTILITY and most exclusive sport-util- that traverses multiple conti- with dual removable Android

VEHICLES ity vehicle in the world” for


2017, and who can argue? No
nents) is propelled by a pow-
erhouse W12 engine and all-
tablet computers. Exclusive
bespoke options include a me-
mere carpooler, the Bentayga wheel drive. Inside it’s all chanical self-winding Mul-
THE POSH PERFORMER: (its tongue-twisting appella- Bentley: The handcrafted in- liner Tourbillon by Breitling
BENTLEY BENTAYGA tion is a combination of co- terior can be personalized dashboard clock at a breath-
Bentley debuts what it says is founder W.O. Bentley’s name with assorted leathers and ve- taking $160,000.
Vital specs 6.0-liter 600hp twin-tur-
bocharged W12 engine; eight-speed
FISHING FOR automatic transmission; 12/19mpg
COMPLIMENTS Price $229,100

Well-heeled anglers can


equip the already over-the- A CROSSOVER STAR IS
top Bentley Bentayga SUV BORN: CADILLAC XT5
with a lavishly bespoke “Fly Far more chic than the sedate
Fishing by Mulliner” option,
SRX it replaces, Cadillac’s new
which includes a leather-
XT5 midsize crossover SUV
trimmed “master tackle sta-
tion,” leather storage for fish- affords added passenger room
ing rods and nets, and what and cargo space in an efficient-
is probably the most elegant ly and elegantly styled pack-
refreshment cooler ever fab- age. It packs a 310hp V6 en-
ricated. The trunk-mounted gine and a new “twin clutch”
set even includes an electron- all-wheel-drive system that
ic dehumidifier to keep things enhances the wagon’s han-
from smelling musty après dling abilities on wet or dry as-
la pêche. Bentley sets the
phalt. Its opulent five-passen-
price at $100,000 or more,
depending on the materials.
ger cabin can be accented with
Fish sold separately. carbon fiber, two kinds of alu-
minum or three types of gen-

76 | FORBES NOVEMBER 8, 2016


uine wood, along with a video
rearview mirror that provides
BAND ON THE RUN
a wide and unobstructed high- A long-standing dilemma among
definition view of what’s be- weekend warriors is what to do with
hind the vehicle. the car keys or a keyless fob while
swimming or biking. Jaguar solves
Vital specs 3.6-liter 310hp V6 engine;
eight-speed automatic transmission;
the problem for owners
18/26–19/27 mpg of its new F-PACE
Price $38,995 SUV with an op-
tional “Activity
Key,” which
SEXY BEAST: incorporates
JAGUAR F-PACE the electronic
Jaguar leaps into the luxury key chip inside
SUV market for 2017 with the a wearable,
lithe and lively F-PACE com- waterproof
pact crossover. The F-PACE JAGUAR F-PACE wristband.
shares its 3.0-liter supercharged
V6 engine with the F-Type Dynamics system allows a driv- The F-PACE also has a well- overs. Named for the strong
sports car; a more fuel-efficient er to fine-tune throttle, sus- appointed interior that can be Mediterranean wind, the Le-
turbodiesel version will be join- pension, steering and trans- dressed up with ten-color am- vante is suitably tempestuous,
ing the line later in the model mission response for a sportier bient lighting and a choice of with a twin-turbocharged V6
year. An optional Configurable or a more relaxed experience. metal and wood finishes. engine, a low center of gravity,
Vital specs 3.0-liter 340- or 380hp an optimal 50:50 front-to-rear
supercharged V6 or 2.0-liter 180hp weight ratio and an electroni-
CADILLAC XT5 turbodiesel four-cylinder engine; cally controlled air suspension
eight-speed automatic transmission;
18/23-26/33mpg that sits at five separate ride
Price $40,990 heights. Its fashionably fabri-
cated cabin can be trimmed in
A MIGHTY WIND: supple leather and Ermenegil-
MASERATI LEVANTE do Zegna silk and fitted with a
1,280-watt Bowers & Wilkins
Another newcomer to the up-
sound system.
scale SUV arena, Masera-
ti’s luscious Levante is fast Vital specs 3.0-liter 345- or 424hp
twin-turbocharged V6 engine; eight-
and fashionable and promises speed automatic transmission; 14/19-
added exclusivity over main- 14/20mpg
stream-branded luxury cross- Price $72,000

MASERATI LEVANTE

NOVEMBER 8, 2016 FORBES | 77


2017 CAR GUIDE

HYBRID/ after the onetime $7,500 fed-


eral tax credit granted to EV
ELECTRIC buyers.
CARS Vital specs 150kW/200hp electric
motor; single-speed transmission;
238 miles per charge
THE HOT HIGH-TECH Price $37,495
HYBRID: ACURA NSX
Acura brings sexy back for PLUG IN, TURN ON:
2017 in the form of the NSX PORSCHE PANAMERA
sports car. It’s been reinvent-
With a sensational 2017
ed after an 11-year absence as a
makeover that solidifies its
gas/electric hybrid and offers ACURA NSX
status as one of the most mag-
neck-snapping performance
nificent sedans on the planet,
to underscore its good looks.
the all-wheel-drive Porsche
The next-generation NSX le-
Panamera 4 is going elec-
verages dual electric motors
tric—it will soon be offered in
and a turbocharged V6 engine
a plug-in E-Hybrid version.
to provide impressive bursts
Here, an already quick twin-
of speed, and it employs a fully
turbo V6 gasoline engine is
independent suspension and
further enhanced by an elec-
Acura’s Sport Hybrid Super
tric motor to achieve a com-
Handling All-Wheel Drive
bined Porsche-worthy 462hp.
system to keep the car plant-
The Panamera can run for the
ed through the sharpest turns.
first 31 miles solely on bat-
The Integrated Dynamics Sys- CHEVROLET BOLT
tery power for zero-emis-
tem lets a driver fine-tune the
sions driving, but engaging
NSX engine, motor, transmis-
on a charge, sufficient to cover the E-Hybrid’s “Sport Plus”
sion and chassis response, and
a “launch” function enables
CHARGE IT, PLEASE: all but the longest road trips. mode unleashes its true per-
sudden acceleration from a
CHEVROLET BOLT That beats the 215-mile range formance-car persona with a
The first true challenger to promised by the coming Tesla 4.4-second 0–60 time and a fe-
standing start without unduly
the Tesla in the nascent elec- Model 3 and is more than lonious top speed of 172mph.
smoking the tires.
tric car market is Chevrolet’s twice the capacity of the Bolt’s Vital specs 2.9-liter twin-turbo V6
Vital specs 3.5-liter twin-turbo- and 100kW electric motor with
charged V6 engine and dual electric 2017 Bolt EV. This expressively closest competitor, the Nissan
462 combined horsepower; eight-
motors with 573 combined horsepow- styled and reasonably spacious Leaf. The Bolt is also priced speed dual-clutch automated manu-
er; nine-speed dual-clutch automated
manual transmission; 21–22mpg small four-door hatchback de- in the sweet spot of the mar- al transmission
Price $100,000 (est.)
Price $156,000 livers an estimated 238 miles ket, selling for around $30,000

PORSCHE PANAMERA 4 E-HYBRID

78 | FORBES NOVEMBER 8, 2016


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See Puerto Rico @PRTourismCo SeePuertoRico
2017 CAR GUIDE

SP ORTS
CARS
YOUR NEW RIDE,
MR. BOND: ASTON
MARTIN DB11
Aston Martin debuts the
DB11 for 2017, the latest in
a long line of exotic Brit-
ish sports cars that includes
James Bond’s iconic DB5. The
coupe’s expressively athlet-
ic exterior pays homage to its
predecessors with signature
elements like a front-hinged
hood and the automaker’s
iconic trapezoidal grille. One
expects a car that looks this
good to go fast, and the DB11 ASTON MARTIN DB11
does not disappoint—with a
galloping 600 horses that en- 500 coupe, which will later midsize LC 500 is light and seconds. The LC’s driver-fo-
able it to reach 62mph in 3.9 be joined by a gas/electric hy- lively, thanks to extensive use cused interior is engineered to
seconds. A suite of advanced brid version and a convertible. of race-car-worthy carbon fiber place your hip point as close to
chassis-control systems, in- An attractive blend of swoopy and composite materials. Its the vehicle’s center of gravity as
cluding electric power steer- curves capped by the brand’s potent V8 engine facilitates a possible for optimal handling.
ing, torque vectoring and an signature spindle grille, the sprint to 60mph in around 4.5 Vital specs 5.0-liter 467hp V8
adjustable suspension, helps engine; ten-speed automatic
the DB11 maintain a sup- transmission
Price $100,000 (est.)
ple luxury-car ride with true
sports car cornering abilities.
Vital specs 5.2-liter 600hp V12
AMERICA’S SUPERCAR:
engine; eight-speed automatic FORD GT
transmission
Price $211,995 If the Chevy Corvette is
“America’s sports car,” then
the Ford GT is the nation’s
LOW RIDE, HIGH LUXURY: supercar. This street-legal rac-
LEXUS LC 500 er’s teardrop-shaped profile
Lexus expands the perfor- comes bedecked with curves,
mance side of its luxury car LEXUS LC 500 creases and vertical-open-
portfolio for 2017 with the LC ing doors—painted in white it
looks like a Star Wars storm-
FORD GT trooper. Built with extensive
use of lightweight compos-
ite materials, the 2017 GT puts
more than 600hp on the pave-
ment (via a V6 engine, no less)
and rides on a track-ready sus-
pension with ultra-grippy car-
bon ceramic brakes at all four
corners. Unfortunately the GT
is nearly unobtainable—Ford
says it’s already taken more
than 6,500 applications for
the first 500 GTs to roll off the
line, which will amount to two
years of production.
Vital specs 3.5-liter 600hp
twin-turbocharged V6 engine;
seven-speed dual-clutch automated
manual transmission
Price $400,000 (est.)

80 | FORBES NOVEMBER 8, 2016


Jacob Sanchez
Diagnosed with autism

Lack of speech is a sign of autism. Learn the others at autismspeaks.org/signs.


MY MOM DIDN’T HAVE MANY OPTIONS.
TODAY’S LUNG CANCER PATIENTS DO.
Twenty years ago, my mother And yet, more than 30% of all
was diagnosed with lung lung cancer patients still don’t
cancer. She had very few know about the therapies,
places to turn, and lost a specialists, and clinical trials
diffi cult struggle. available to them.

Today, we are on the brink Lung cancer is a formidable


of real breakthroughs in lung foe, but we are fi nding new
cancer research and there ways to fi ght it. Please visit
are signifi cantly improved SU2C.org/LungCancer for
treatment options. questions to ask your health
care professional and to
learn about options that
may be right for you.
Tony Goldwyn
Stand Up To Cancer
Ambassador

Stand Up To Cancer is a program of the Entertainment Industry Foundation (EIF), a 501(c)(3) charitable organization.
Photo Credit: Kevin Lynch

SU2C.org/LungCancer
Features
NOVEMBER 8, 2016

END OF THE BIOLOGICAL


CLOCK 84

FREE MARKET
PHILANTHROPY 92

Unlike most tribes, the


Florida Seminoles never
signed a peace treaty with
the U.S. government in the
1800s. More than a century
later, their pioneering
fight to allow gambling on
reservations culminated
in the 1988 Indian Gaming
Regulatory Act. Today
each of the tribe’s 4,100
members receives an
estimated $128,000
annual dividend from
the Seminoles’ gambling
operations.
PAGE 104

AUSTRALIAN PHOTOGRAPHER RUSSELL JAMES SPENT TWO YEARS PHOTOGRAPHING THE SEMINOLES
FOR HIS 30-PIECE “SEMINOLE SPIRIT” COLLECTION. DETAILS AT RUSSELLJAMES.COM.
NOVEMBER 8, 2016 FORBES | 83
SERIAL ENTREPRENEUR MARTIN
VARSAVSKY HAS A $200 MILLION
WAR CHEST BUILT AROUND
PERSUADING WOMEN TO FREEZE
THEIR EGGS WHILE THEY’RE
YOUNG. DECISIONS ABOUT CAREER,
MATES AND MOTHERHOOD WILL
NEVER BE THE SAME.
BY MIGUEL HELFT

TIMOTHY ARCHIBALD FOR FORBES

84 | FORBES NOVEMBER 8, 2016


“We’re about helping women
and couples have healthy
babies when they’re ready,”
says Varsavsky, pictured with
his wife, Nina, who is expecting
the first “Prelude baby.”
NOVEMBER 8, 2016 FORBES | 85
FORBES

END OF THE BIOLOGICAL CLOCK

E
ven among the hyperactive over- gram that pays for egg and sperm freezing, part of an ini-
achieving techies in his cohort, Mar- tiative to retain troops.
tin Varsavsky stands out. He’s built But Prelude aims to take the idea mainstream, giv-
more successful businesses—six— ing it scale and Silicon Valley pizzazz. Varsavsky has al-
than all but the most prolific serial en- ready put his war chest to work, spending, it’s estimated,
trepreneurs. He’s also fathered more tens of millions of dollars to buy a majority stake in the
children—six as well—than all but the largest in vitro fertilization clinic in the Southeast, Re-
most prolific dads. Yet at 56 Varsavsky, one of the most productive Biology Associates of Atlanta, and its affiliate,
recognizable figures in Europe’s tech scene, is going for My Egg Bank, the largest frozen donor egg bank in the
something of a “lucky seven.” Twice. nation. The acquisitions anchor what Varsavsky hopes
After moving to the United States from Spain two will eventually become a national fertility brand. Rath-
years ago, he set to work launching another company. er than offer services piecemeal, like egg freezing, stor-
And his wife, Nina, is expecting another child in Janu- age, IVF and hormonal medications, Prelude will pitch a
ary, their third together. “We call him Seven for now,” comprehensive package it calls the Prelude Method. It in-
Varsavsky quips. The two sevens are inextricably linked. cludes four steps: egg freezing and preservation, embryo
His new startup, Prelude Fertility, whose story is being creation when a woman is ready, comprehensive genet-
told here for the first time, has a bold plan to turn the in- ic screening for congenital diseases and chromosomal ab-
fertility industry on its head. Varsavsky isn’t just Prelude’s normalities, and “single embryo transfers” to minimize
founder—Seven, his upcoming child, will be the the chances of conceiving twins or triplets, a frequent oc-
first “Prelude baby.” currence when women transfer multiple eggs during IVF.
Armed with $200 million, (Prelude, which hopes to cater to couples who may not be
Prelude plans to take the
LIBE “FO ready to have children, will also offer sperm freezing for
technology of infer-
RAT R M men.) Prelude also plans to make the process more
tility—in vitro fer-
I E affordable, offering options with low upfront

IN TNG AS T THAT’S
tilization and egg fees. Keeping the eggs safe and fro-
freezing—and aggres- zen, however, will start at $199
HE 6 HE
0S.” PILL AS
sively expand it into fertility, a month.
hoping to usher in a world where Prelude is bet-
women’s decisions about family and ca-
reer aren’t ruled by their biological clocks.
WAS ting that young
women will pay
Rather than cater primarily to women nearing the a few grand a year to
end of their childbearing years, who often find it hard- alter the equation between
er to conceive, Prelude will target women in their late career and family. “If you know
20s to mid-30s, when it’s easier to harvest eggs and when that your eggs are safe and sound, what de-
those eggs are more likely to lead to healthy babies. As cisions would you make about your life?” says Allison
women increasingly delay childbirth—nearly one in three Johnson, a former top marketing executive at Apple who
in America now has her first child after 30 and nearly one helped to launch the iPhone and who overcame her own
in ten after 35—Prelude sees itself as an insurance poli- fertility issues with hormonal treatments. Her agency,
cy that gives women more control over their childbearing West, is helping to develop Prelude’s go-to-market plan.
choices. “We’re about helping women and couples have “That what’s really exciting about this,” Johnson says. “Go
healthy babies when they’re ready,” Varsavsky says. pursue that graduate degree. Wait for your soul mate. Go
Prelude isn’t the first company to urge women to think travel the world. Your eggs are waiting for you. For me
about fertility earlier in life. While some critics decry egg that’s as liberating for women as the pill was in the 60s.”
freezing for younger women as a risky, often unnecessary
procedure that can give them a false sense of security and VARSAVSKY BEGAN THINKING about Prelude about
increase pressure to put career before family, a gaggle of six years ago. A tech entrepreneur who has long had an
new businesses with names like Extend Fertility and Egg- interest in life sciences, he hit a snag in his life when he
Banxx have sprung up to serve them, offering financing and Nina tried to start a family. Nina, 31 at the time, found
plans that make it easier to cover the procedure, which out she was infertile shortly after the couple married.
can cost $5,000 to $10,000 or more. (Adding IVF can eas- They were able to conceive their first child through IVF—
ily double the cost.) Two years ago Apple and Facebook and froze their eggs and sperm for future use. They now
became the first major companies to offer egg freezing as have two healthy children, ages 5 and 3, and that third one
a benefit, and this year the Pentagon launched a pilot pro- on the way, all conceived through IVF, but the experience

86 | FORBES NOVEMBER 8, 2016


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END OF THE BIOLOGICAL CLOCK

was wrenching. (The couple also went through a battery and egg bank. That meant he would need to seek funding
of genetic tests, many of which will be part of the Prelude from private equity rather than venture capital. He even-
Method.) And the Varsavskys knew couples who weren’t tually settled on Lee Equity Partners, which focuses on
able to conceive through IVF. The data confirm their ex- middle-market transactions and had been eyeing the po-
perience: 12% percent of American women ages 15 to 44 tential of the IVF business.
face difficulties having a baby on their own, according to The IVF industry in the United States has everything
the Centers for Disease Control & Prevention. private equity likes—scale (about $2 billion annually) and
Ever since his childhood in Buenos Aires, Varsavsky growth (more than 10% a year), along with being frag-
has consistently looked for unique opportunities in big mented and having outdated marketing. It’s an industry
markets. His family immigrated to the United States in associated with failure: Roughly two-thirds of IVF cycles
the 1970s as refugees after his cousin David Varsavsky produce no baby, according to the Society for Assisted
was murdered—“disappeared,” in the euphemism of the Reproductive Technology (SART). By freezing women’s
time—by the Argentine military government. While in eggs before their fertility starts to wane, Prelude should
graduate school at Columbia University, he launched a be able to tell stories of success. With its initial purchas-
real estate company that converted industrial buildings es—the thriving RBA practice and My Egg Bank, which
into residential lofts. Two years later he and fellow Ar- freezes roughly 40% of all donor eggs in America—Pre-
gentine César Milstein, a Nobel laureate in medicine, co- lude is already profitable, on revenues estimated at about
founded a biotech company called Medicorp $35 million. And it’s poised for continued growth. “We in-
Sciences, now based in Montreal, that tend to expand nationally and partner with leading clinics
developed an early AIDS in the U.S.,” says Collins Ward, a principal at Lee Equity.
treatment. “WE
FAM THE O NEED
In the 90s TECHNIQUES FOR EGG RETRIEVAL and freez-
Varsavsky turned ing, officially called oocyte cryopreservation,
his attention to ILY W PTI TO G have been around for more than 30
a string of tele-
HEN ONS T IVE W years and were often used as a
com endeavors. The
first, Viatel, founded in 1991 THE O HA OME way to preserve fertility in
cancer patients un-
in New York City, provided low- Y WA VE A N dergoing chemo-
cost long-distance calling. It went pub- NT T therapy. Women
lic within three years. In 1995 Varsavsky moved
to Madrid and subsequently started Jazztel, a provider
O.” typically go through
a course of fertility drugs
of telecom and Internet services that went public in 1999. that stimulate the ovaries to
He then launched Ya.com, a DSL provider and Internet produce eggs. Doctors then extract
portal sold two years later to Deutsche Telekom. His next the eggs with a needle that pierces through a
company, a German applications service called Einsteinet, vaginal wall into the ovary. Because an egg, unlike embry-
failed quickly, personally costing him $50 million. No os, is a single cell made up mostly of water, the standard
biggie. The string of successes left Varsavsky with a net slow-freezing technique often produced ice crystals, mak-
worth that FORBES estimates at $300 million. ing the eggs unusable.
After lying low following the dot-com crash, Varsavsky In the past decade vitrification, a new flash-freezing
founded Fon, an outfit with an ambitious plan to cre- technique, has vastly improved success rates, leading the
ate a global network of “Foneros,” who would share their American Society for Reproductive Medicine to remove
Wi-Fi connections with one another, allowing users on the “experimental” label from the process in 2013. How-
the go to connect to the Internet anywhere in the globe. ever, the group issued a warning: “Marketing this tech-
The startup, which was backed by Google, Skype, Sequoia nology for the purpose of deferring childbearing may give
Capital and Index Ventures, has grown to more than 20 women false hope and encourage women to delay child-
million users, though it has yet to achieve its vision of bearing.”
Wi-Fi ubiquity. After the company became profitable last As of now RBA, tucked in a suburban Atlanta of-
year, Varsavsky says, he decided to step down as CEO (he fice park, serves as Prelude’s nerve center. To visitors it
remains chairman) to focus full-time on fertility. looks like a standard medical office, with waiting rooms
Prelude was officially born in 2015. Varsavsky quick- and exam rooms along corridors painted in pastels and
ly realized that the typical tech startup model wouldn’t adorned with soothing images. Behind the scenes several
work. Because of regulation and other hurdles, he decid- technicians work inside a large lab, some staring into mi-
ed it would be best to buy into an existing fertility clinic croscopes and some at computer screens, amid an array

88 | FORBES NOVEMBER 8, 2016


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Determine how much you can take from Why selecting a benchmark,
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(Tip #12) before you retire might not be a
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How not to get caught
in the inflation trap Estimate what your taxes are going
and the fallacy of to be and look for ways to reduce
most asset-allocation them in retirement.
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*As of 12/31/2015.
LEGAL NOTICE
STATEMENT OF OWNERSHIP, of equipment that includes several
MANAGEMENT AND CIRCULATION
(Required by 39 U.S.C. 3685).
large incubators. There’s a mechani-
1. Title of publication: Forbes. cally controlled machine that allows a
2. Publication No. 00156914.
3. Date of Filing: October 1, 2016. technician, watching through a micro-
4. Issue Frequency: Forbes is published semi-monthly, except monthly in January, March, April, July, August scope, to use a tiny syringe to pierce
and September.
5. Number of Issues Published Annually: 18. the membrane of an egg and fertilize
6. Annual subscription price: $59.95.
7. Complete Mailing Address of Known Office of Publication: 499 Washington Blvd., Jersey City, NJ 07310. it with sperm. Next to the lab is a large
8. Complete Mailing Address of Headquarters or General Business Office of Publisher: storage room filled with cryopreser-
499 Washington Blvd., Jersey City, NJ 07310.
9. Full Names and Complete Mailing Addresses of Publisher, Editor and Managing Editor: Publisher: vation tanks, wheeled 3-foot-tall units
Richard Karlgaard, 250 Montgomery St., San Francisco, CA 94104. Editor: Randall Lane, 499 Washington
Blvd., Jersey City, NJ 07310. Managing Editor: Michael Noer, 499 Washington Blvd., Jersey City, NJ 07310. shaped like small R2-D2s. Each is
10. Owner: This publication is owned by Forbes LLC, 499 Washington Blvd., Jersey City, NJ 07310, which is filled with liquid nitrogen and pre-
owned by Forbes Media LLC, 499 Washington Blvd., Jersey City, NJ 07310, which is owned by Highlander
Management LLC and Forbes Global Holdings, Inc. Highlander Management LLC is owned by SBKTM Holdings, serves embryos and eggs at –321 de-
Inc., 101 Avenue of the Americas, Suite 842, New York, NY 10013. Forbes Global Holdings, Inc. is owned by
Integrated Whale Media Investments, Inc., No. 9 Queen’s Road Central, Room 2401, 24/F Hong Kong. grees Fahrenheit.
11. Known bondholders, mortgagees and other security holders owning or holding 1 percent or more of Until recently, the number of
total amount of bonds, mortgages or other securities: None.
12. Not applicable. women who have chosen to freeze
13. Publication Title: Forbes.
14. Issue date for circulation data below: August 23, 2016. their eggs to preserve fertility op-
15. Extent and nature of circulation: tions was relatively small (6,200 in
Average No. No. Copies
Copies of Single 2014). But after Apple’s and Face-
Each Issue Issue
During Published book’s announcements of egg-freez-
12 Months Nearest to
ing benefits and as celebrities like
Filing Date Sofia Vergara and Kim Kardashian
A. Total Number of Copies
(Net Press Run) 1,014,636 995,206 have gone public about the proce-
B.Paid Circulation (By Mail and Outside the Mail)
(1) Mailed Outside-County Paid Subscriptions Stated on
dure, fertility doctors are reporting a
PS Form 3541 (Include paid distribution above nominal rate, surge of interest.
advertiser’s proof copies and exchange copies) 869,207 884,912
(2) Mailed In-County Paid Subscriptions Stated on There’s no dispute that bank-
PS Form 3541. (Include paid distribution above nominal rate, ing eggs earlier in life improves out-
advertiser’s proof copies and exchange copies) 0 0
comes. RBA’s Dr. Zsolt Peter Nagy,
(3) Paid Distribution Outside the Mails Including Sales
Through Dealers and Carriers, Street Vendors, Counter Sales who helped pioneer vitrification
and Other Paid Distribution Outside USPS® 36,266 27,341 techniques, says an egg extraction
(4) Paid Distribution by Other Classes of Mail
through the USPS (e.g. First-Class Mail®) 0 0 in a 32-year-old woman will typi-
C.Total Paid Distribution (Sum of 15B (1), (2), (3) and (4)) 905,473 912,253 cally yield between 15 and 20 eggs,
D.Free or Nominal Rate Distribution which would eventually result in
(By Mail and Outside the Mail)
(1) Free or Nominal Rate Outside-County about 10 to 14 fertilized eggs and 4
Copies Included on PS Form 3541 39,722 24,182
(2) Free or Nominal Rate In-County to 8 usable embryos. A 40-year-old
Copies Included on PS Form 3541 0 0 patient, meanwhile, would typically
(3) Free or Nominal Rate Copies Mailed at Other
Classes through the USPS (e.g. First-Class Mail) 0 0 produce between 4 and 15 eggs but
(4) Free or Nominal Rate Distribution Outside the Mail
(Carriers or other means) 8,401 6,630 end up with fewer than 3 usable em-
E.Total Free or Nominal Rate Distribution (Sum of 15D (1), (2) bryos—and in some cases none. As a
(3) and (4)) 48,123 30,812
F.Total Distribution result, an IVF cycle with eggs from
(Sum of 15C and 15E) 953,596 943,065
G.Copies Not Distributed (See instructions to a 32-year-old woman has a rough-
Publishers #4 (page #3)) 61,040 52,141 ly 50% chance of resulting in a live
H.Total (Sum of 15F and 15G) 1,014,636 995,206
I.Percent Paid (15C divided by 15F times 100) 94.95% 96.73% birth, according to data from the
16. Total circulation includes electronic copies.
Report circulation on PS Form 3526-X worksheet. CDC; the figure drops below 20%
17. Publication of Statement of Ownership for a 42-year-old woman.
7 If the publication is a general publication, publication
of this statement is required. Will be printed in the But there are plenty of skeptics
November 8, 2016 issue of this publication.
Publication not required. and critics. While egg extraction and
18. Signature and Title of Editor, Publisher, Business Manager or Owner freezing is safe in most cases, the re-
Nina La France,
Senior VP, Consumer Marketing & Business Development quired injections can cause swelling
I certify that all information furnished on this form is true and complete. I understand that anyone who
furnishes false or misleading information on this form or who omits material or information requested on and discomfort. In a small number
the form may be subject to criminal sanctions (including fines and imprisonment) and/or civil sanctions of cases complications require hos-
(including civil penalties).
pital care. “Retrieving multiple eggs
The United States Postal Service (USPS) requires that subscriptions purchased by a company or association
for the benefit of any individual be counted as free distribution. The Audit Bureau of Circulations (ABC), involves injections of powerful hor-
which Forbes magazine utilizes for circulation validation, counts these same subscriptions as paid. mones, some of them used off-la-

90 | FORBES NOVEMBER 8, 2016


OLDER FIRST-TIME MOTHERS DECLINING FERTILITY
ON THE RISE PERCENTAGE OF TRANSFERS OF EMBRYOS THAT RESULT IN A LIVE
FIRST-BIRTH RATES, BY SELECTED AGE OF MOTHER. BIRTH, BY AGE OF WOMAN.

12 50%
FIRST-BIRTH RATES PER 35–39 YEARS OLD
10 1,000 WOMEN BY AGE OF
40
MOTHER
8
30
6
20
4
40–44 YEARS OLD
2 10

0 0
1970 1975 1980 1985 1990 1995 2000 2005 2012 <30 30 32 34 36 38 40 42 44 46 >47
SOURCE: CDC. SOURCE: CDC.

bel and never approved for egg extraction,” Marcy Dar- ing the company a sense of mission. “The emotional part
novsky, the executive director of the Center for Ge- is driving what we are trying to do,” says Tia Newcomer,
netics & Society, said in a widely cited critique. “The Prelude’s chief revenue officer, whose husband is a can-
short-term risks range from mild to very severe, and the cer survivor who opted not to freeze his sperm when he
long-term risks are uncertain because they haven’t been was diagnosed at age 18, forcing them to seek the help of a
adequately studied.” Others say the industry is putting sperm donor in order to have children.
profits ahead of safety. And cost is an issue, too, espe- From Johnson’s offices at West in the San Francisco
cially since most of the frozen eggs will never be used. Presidio, which Varsavsky uses as temporary headquar-
In 2014 only 1.6% of babies born in the United States ters, Prelude is developing a marketing campaign that
were conceived through IVF, according to SART, whose promises to focus on education rather than fear. That will
data cover more than 90% of the clinics. include encouraging women and their ob-gyns to test
But in some ways, concerns about the cost miss the more routinely for a hormone, AMH, whose levels can de-
point. Young women don’t freeze their eggs in order to termine the likelihood of infertility. And Varsavsky is plot-
pursue IVF in the future. They freeze them to have the ting to take the company national by partnering with a
option—an insurance policy that unwinds the biologi- network of clinics that will offer the Prelude Method. The
cal clock and lets women pursue career advancement advertising push is expected to begin this month. “The sci-
as freely as men without having to compromise in their ence of Prelude will work,” Varsavsky says. “If we fail, it’s
choice of partner. If those frozen eggs are never used, because we fail in making Millennials to think ahead.”
such is the cost of peace of mind. “I feel totally liberat- Millennials, it should be noted, are known to fixate on
ed,” says Leila Janah, 33, a well-known Silicon Valley so- getting what they want—when they want it. Why should
cial entrepreneur, who recently wrote about her deci- procreation be any different? “One of the changing ele-
sion to freeze her eggs. She says professional women ments in health care is consumer choice, and I think that
often face mixed messages: intense pressure not only Martin is introducing that in the fertility sector,” says
to succeed in their careers but also to “settle down,” Anne Wojcicki, the founder and CEO of genetic-testing
whether or not they have found the right partner. “If we company 23andMe and a friend of Varsavsky’s.
want to promote women’s full participation in the work- One recent academic study asked not whether it is a
force and the world, we need to give them the options to good idea for younger women to freeze their eggs but
have a family when they want to,” says Janah. when was the optimal time to do so. Dr. Tolga Mesen,
the lead author, plugged variables such as rates of mar-
VARSAVSKY IS KEENLY AWARE that Prelude is jump- riage, pregnancy and miscarriages, and even cost, into
ing into sensitive territory. But he’s driven by the convic- a model to determine the probability of success and the
tion that infertility in all its forms—the ability of a woman likelihood the eggs would be used. While most women
not only to have a child but also to have as many as she will never need to freeze their eggs, Mesen said, the
wants—takes an increasingly painful toll on families. Pre- procedure can be life-changing for some patients.
lude—not counting the staff of roughly 100 at RBA and The ideal age to do it? Between 31 and 33. Young
My Egg Bank—remains tiny, with just 5 employees, and enough to make Varsavsky’s seventh startup his biggest, if
almost all of them have been touched by infertility, giv- American women buy in. F

NOVEMBER 8, 2016 FORBES | 91


GoFundMe CEO Rob Solomon:
“We’ll soon be the largest giving
organization in the world, larger
than the Gates Foundation.”
NEXT BILLION-DOLLAR STARTUPS

FREE MARKET
PHILANTHROPY
GoFundMe
is changing the way people give
money to causes big and small, but it is
not a charity or a foundation.
It’s a highly profitable company
with a brilliantly simple business model.

B Y S U S A N A DA M S

L
 
ate in 2012 Eliza O’Neill, a lively, talkative 3-year-old growing up in
Columbia, S.C., started stumbling over her words. “Something was
just not right,” recalls her father, Glenn, then a procurement manag-
er for a data-storage company. A series of tests brought devastating
news. Eliza had Sanfilippo syndrome, a rare and incurable disease that
would erase her ability to speak, destroy her motor function and kill
her before she reached adulthood.
Desperate, Glenn and his wife, Cara, a pediatrician, discovered that
a hospital researcher was working on an experimental gene therapy
that had shown promising results in mice. But the trial needed fund-
ing. The O’Neills quickly set up a tax-exempt foundation and, at no cost, posted a fundraising appeal on a
three-year-old crowdfunding site called GoFundMe. Anyone moved to contribute could click a big rectangu-
lar “Donate Now” button and share the good deed on social media.
The O’Neills’ funding goal was $1 million. Three years later, spurred by a three-minute video about Eliza
that has been viewed on Facebook and YouTube nearly one million times, 37,000 donors around the world
have given the O’Neills’ foundation more than $2 million via GoFundMe. This May Eliza became the first
child to receive the experimental therapy, and her parents are hopeful her condition will improve. “It’s a
miracle that this happened,” Glenn says.
ERIC MILLETTE FOR FORBES

It has also been very good for GoFundMe, which takes a 5% cut of the money raised on the site. For
hosting the O’Neills’ appeal, it has reaped more than $100,000. GoFundMe is not a philanthropy; it is an in-
creasingly valuable for-profit business prominent on FORBES’ 2016 list of next billion-dollar startups. After
achieving a reported valuation of $600 million in a July 2015 venture capital deal, it hit a growth spurt. In its
first five years before the deal it channeled $1 billion in donations. Then it took just nine months to hit

NOVEMBER 8, 2016 FORBES | 93


NEXT
BILLION-DOLLAR
GOFUNDME STARTUPS

the second billion and only seven last year. The 135-year-old charity, For FORBES’ second annual list of next billion-
dollar startups, we’ve found 25 companies that are
months to move a third billion in where 90% of spending goes to pro-
transforming their industries and showing tangible
donations. For 2016 GoFundMe grams, has only praise for GoFund- results. They’ve already attracted tens, and in some
is projecting revenue of $100 mil- Me’s winning formula. “If GoFund- cases hundreds, of millions in investment capital
lion and an operating profit mar- Me can make money and do good while in the midst of explosive growth. With the help
gin of more than 20%. GoFundMe deeds at the same time,” says Neal of TrueBridge Capital Partners we asked venture
firms to share their best picks, reviewed companies’
is more than twice the size of the Litvack, the organization’s chief
business plans and scrutinized revenue numbers
world’s next-largest crowdfunding marketing officer, “that’s probably a and competitive challenges. (For more about our
site, Kickstarter, which focuses on good thing.” methodology go to Forbes.com.)
artistic projects and new products.

A
Like GoFundMe, Kickstarter takes t GoFundMe’s head- BITSIGHT TECHNOLOGIES Stephen Boyer,
Nagarjuna Venna
5% of the money it raises, though quarters in Redwood Equity raised: $95 million
it doesn’t collect if campaigns don’t City, Calif., 60 staffers in Estimated 2016 revenue: $30 million
Key investors: Globespan Capital Partners, Menlo Ventures, GGV
reach their goals. GoFundMe col- jeans and sneakers spend their days Capital
What it does: Evaluates and rates companies’ security risks
lects no matter what. It also im- the way many other Silicon Valley
poses a 2.9% credit card processing startup workers do, tapping away CHECKR Daniel Yanisse, Jonathan Perichon
Equity raised: $50 million
fee plus 30 cents per donation. at workstations spread out in a Estimated 2016 revenue: $150 million
Key investors: Accel, Y Combinator
GoFundMe’s brass are unapolo- 9,000-square-foot, open-plan office What it does: Provides expedited background checks for new
getic capitalists who see the profit inside a gleaming glass-and-steel hires

motive as perfectly aligning with building set back from a leafy street. CLASSPASS Payal Kadakia, Mary Biggins,
Sanjiv Sanghavi
the company’s objective: getting Meetings happen in conference Equity raised: $84 million
more people to give more money rooms named for successful cam- Estimated 2016 revenue: $180 million
Key investors: Google Ventures, General Catalyst Partners,
more efficiently to a vast array of paigns like Saving Eliza and Ibra’s Thrive Capital
What it does: Helps members book fitness classes at boutique
“personal causes.” Because Go- Chair, which raised $33,000 for a studios
FundMe’s profits directly corre- Kenyan-born high school student
late with how much money it can with cerebral palsy who needed an
persuade others to give away, the electric wheelchair. Solomon, who
business is highly incentivized to has no office and works instead at
increase the total amount people a standing desk next to a window,
donate to others. The one million says the developers and design-
fundraisers pumping away on the ers are devoted to “optimizing for
site run the gamut from the Cure conversion.” That includes refining
Sanfilippo Foundation to disas- the website’s user interface to make
ter relief for victims of the August it more likely to drive donations.
Baton Rouge floods (6,400 GoFund- Those who start campaigns can
Me campaigns have raised $11.2 share them across multiple social
million) to a couple who want help media platforms with a few clicks.
paying for their Prague honeymoon. A mobile app lets campaign orga-
“Nobody’s been able to really nizers create videos from photos on BOXED Chieh Huang, Jared Yaman, Christopher Cheung,
William Fong
harness the power of the people to their phones, and the company is Equity raised: $133 million
Estimated 2016 revenue: More than $100 million
raise funds,” says CEO Rob Solo- working on a tool that will enable Key investors: DST Global, GGV Capital
mon, 49, a UC Berkeley grad who live video streaming. What it does: Offers bulk-size packages of consumer goods
à la Costco, but customers order via app or online and have
grew up in Manhattan and Miami GoFundMe has big expansion them delivered directly. “I was basically trying to solve a problem
that I myself have,” says Chieh Huang, 35, Boxed’s cofounder and
while his activist mother protested plans. It opened a Dublin office in CEO. “I grew up in the burbs and every other weekend would
anti-gay-rights proponent Anita July to service Ireland and the U.K. go to Price Club. And then I was in the city and didn’t have a car
anymore. Am I just supposed to get ripped off?” Huang—a serial
Bryant. “A for-profit in this space It’s up and running in Canada and entrepreneur who sold his previous startup, the gaming com-
will perform better than a non- Australia and hopes to open in sev- pany Astro Ape, to Zynga—and his cofounders didn’t make much
of a splash when they started Boxed in his suburban New Jersey
profit. You need a modern Internet eral European countries Solomon garage in 2013. But the New York City company has grown
rapidly since then, with customers in urban, suburban and rural
company to do that.” GoFundMe al- isn’t ready to name. Annual dona- areas across the country, increasing revenues from $8 million
ready channels more than twice as tions will hit between $5 billion and two years ago to more than $100 million this year. Huang says,
“Consumer packaged goods are one of the biggest drivers of the
much as the Red Cross, which col- $7 billion by 2020, he predicts. economy, and are only 1.5% online. How crazy is that?”
lected contributions of $604 million The vast majority of GoFund-

94 | FORBES NOVEMBER 8, 2016


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BILLION-DOLLAR
GOFUNDME STARTUPS

Me’s campaigns drive themselves media. At the time, PayPal didn’t COLLECTIVE HEALTH Ali Diab, Rajaie Batniji
Equity raised: $150 million
with little input from the staff. As a have the capacity to divide pay- Estimated 2016 revenue: $15 million
Key investors: Founders Fund, Google Ventures
result, the company operates with ments among multiple parties, What it does: Sells health insurance software to companies
remarkable efficiency, maintaining which meant the partners couldn’t
FRESHDESK Girish Mathrubootham
a head count of just 165 (there’s a extract a per-donation fee. During Equity raised: $95 million
69-person customer-service team their lean first year Damphousse Estimated 2016 revenue: $65 million
Key investors: Accel, Tiger Global Management, Google Capital
in San Diego that returns e-mail and Ballester tried to persuade What it does: Sells cloud-based customer-support software
queries within five minutes). On charities to use the site on a sub- FUZE Steve Kokinos, Derek Yoo
average, each employee produces Equity raised: $200 million
scription basis and built market Estimated 2016 revenue1: More than $150 million
$606,000 in revenue. (In 2015 each share by offering the service free. Key investors: Bessemer Venture Partners, TCV, Summit Partners
What it does: Consolidates various types of enterprise communi-
of Amazon’s 230,000 employees In 2009 they got a break when cations (including voice, video and messaging) in the cloud
produced $464,000.) PayPal made it possible to split GIGSTER Roger Dickey, Debo Olaosebikan
A handful of competitors are transactions; the resulting revenue Equity raised: $12.5 million
Estimated 2016 revenue: $30 million
challenging GoFundMe with a stream enabled them to continue Key investors: Andreessen Horowitz, Y Combinator
What it does: Connects companies with freelance software
revenue model they think will be growing organically without developers, designers and project managers
more appealing to donors. Instead outside financing. In 2010 they re- GOFUNDME Brad Damphousse, Andy Ballester
of charging a fee, they have a “tip branded the site as GoFundMe. Equity raised: At least $300 million
Estimated 2016 revenue: $100 million
jar,” where they ask donors to Then, in late 2014, John Locke, a Key investors: Accel, Greylock Partners, TCV
give extra to cover the sites’ costs. 32-year-old partner at the Palo Alto What it does: Runs a crowdfunding website for personal causes
(see p. 92)
Five-year-old YouCaring, in San venture firm Accel, was invited
HOTELTONIGHT Sam Shank
Francisco, logged just under $300 through Facebook to donate to a Equity raised: $81 million
million in donations over the past Estimated 2016 revenue: $60 million
GoFundMe campaign for a schol- Key investors: Coatue, Battery Ventures, U.S. Venture Partners
two years, according to its presi- arship fund named for a friend’s What it does: Offers last-minute bookings through a
mobile app
dent, Dan Saper, who says 80% of brother who had died serving in
donors add an average 6% tip. In Iraq. Locke was intrigued, but it
2014 Indiegogo, a San Francisco- took him more than four months
based crowdfunder that focuses on to persuade Damphousse and
entrepreneurs, introduced a no-fee Ballester to meet with him. As
site now called Generosity, which negotiations progressed, Locke
channeled an estimated $30 million ran a survey of 300 people, asking
to personal causes last year while them which site they’d use if they
asking donors for a tip of up to 15%. wanted to raise funds for a personal
Another site, Detroit-based Crowd- cause. Ninety-five percent named
Rise, charges 5% to 6.8% but asks GoFundMe. “The business had
donors to contribute extra to cover gotten further along than Brad and
costs. Mostly a site for charities like Andy ever thought possible,” says
UNICEF, it runs celebrity-led fund- Locke. The founders agreed to step
raisers and serves as a platform for aside and sell a majority stake.
people who collect contributions Damphousse and Ballester sit
DOPPLER LABS Noah Kraft, Fritz Lanman
for nonprofits when they partici- on GoFundMe’s board but stopped Equity raised: $50 million
Estimated 2017 revenue2: $100 million
pate in events like the New York talking to the media after the Wall Key investors: Acequia Capital, The Chernin Group, Wildcat
City Marathon. Street Journal ran a story saying Capital Management
What it does: Makes a miniature computer for your ears that it
It took a while for GoFundMe they were “reaping a fortune” on hopes will become as ubiquitous as the iPhone. The new device,
to find its formula. Its San Diego- the transaction. The Journal didn’t called Here One, which Doppler is preselling for $299, allows
wearers to get information (running commentary during a base-
based cofounders, Brad Damp- mention a sum, but the reported ball game, for example), adjust noise (for sleep or to hear better)
and generally augment aural reality. “We want to put a computer
housse, 34, and Andy Ballester, 35, $600 million valuation meant the in every ear,” says Kraft, Doppler’s 29-year-old CEO. “It is the
are first-time entrepreneurs who founders got at least $300 million most organic place to put a piece of technology.” The company
was born when Kraft, who has a background in film and music,
joined forces in 2008 to launch a before taxes. Solomon says they met Lanman, 35, a well-known tech investor with interests in
self-funded website called Create- “didn’t want people to know about Square and Pinterest, and they started talking about making
bionic ears that would both enhance sound and look cool. To test
afund, where people could post the money.” the market, San Francisco-based Doppler started with a simple
earplug, called DUBS (retail price: $25), that reduced volume
personal fundraising drives and As part of the deal Locke and while preserving the quality of the sound. The company immedi-
promote them through social Accel, early investors in Facebook, ately sold 300,000 units.
1
ANNUAL RECURRING REVENUE.
2
2016 REVENUE ESTIMATE UNAVAILABLE.
96 | FORBES NOVEMBER 8, 2016
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BILLION-DOLLAR
GOFUNDME STARTUPS

brought in TCV, early backers man competition; Emily Dunagan, INVISION Clark Valberg, Ben Nadel
Equity raised: $135 million
of Netflix, as well as Greylock an 18-year-old entrepreneur, raised Estimated 2016 revenue: $40 million
Partners, also an early investor in $6,670 to buy a convection oven and Key investors: FirstMark Capital, Tiger Global, Accel, Iconiq Capital
What it does: Makes collaborative-prototyping software for web-
Facebook. Together the VCs picked a freezer for her bakery; and Tara site and app developers.
Solomon, then a venture partner at Ritter collected more than $5,000 OPENDOOR Eric Wu, Keith Rabois, JD Ross, Ian Wong
Accel, to run GoFundMe. He had to pay for stomach surgery for her Equity raised: $110 million
Estimated 2016 revenue: More than $50 million
been a manager at Yahoo during dog, Mavis, who had eaten a pile of Key investors: Access Industries, GGV Capital, Khosla Ventures
What it does: Provides a new way of buying and selling homes
its growth years before turning rocks. (In an appreciative update,
around SideStep, an early travel Ritter wrote, “People are SO freak- OWLET BABY CARE Kurt Workman, Jordan Monroe,
Zack Bomsta, Jacob Colvin
search engine that sold to Kayak. ing generous.”) Equity raised: $15 million
Estimated 2016 revenue: $20 million
Then at Groupon he managed the GoFundMe’s biggest category is Key investors: Azimuth Ventures, Eclipse, ff Venture Capital, Eniac
daily-deal site’s expansion from 100 medical expenses, which accounted Ventures
What it does: Makes smart baby-health monitors
employees to 7,000. He says he de- for $400 million of the $1.5 billion
PROCORE TECHNOLOGIES Tooey Courtemanche
cided to leave Groupon before the raised in the past year. Only a small Equity raised: $129 million
company’s management troubles fraction of GoFundMe donations, Estimated 2016 revenue: $55 million
Key investors: Bessemer Venture Partners, Iconiq Capital
made headlines and its stock those that go to foundations like What it does: Offers cloud-based construction management
tanked. At Accel, he says, he was in software
Cure Sanfilippo, have 501(c)3 status
no hurry to run another company and are tax deductible. The average RUBICON GLOBAL Nate Morris
Equity raised: $96 million
but couldn’t pass up the opportu- GoFundMe campaign raises only Estimated 2016 revenue: More than $300 million
Key investors: Goldman Sachs, Wellington Management
nity presented by GoFundMe. “I $1,000, and a new one posts every What it does: Connects waste haulers and customers using a
was just blown away by what was 18 seconds. cloud-based platform

happening,” he says. “I couldn’t be- It’s Pfeiffer’s job to filter RUBRIK Bipul Sinha, Arvind Jain, Soham Mazumdar,
Arvind Nithrakashyap
lieve the number of campaigns and through the flood of campaigns Equity raised: $112 million
the sheer numbers of people on the and pick the ones to amplify. He Estimated 2016 revenue: $50 million
Key investors: Greylock Partners, Lightspeed Venture Partners
platform.” and his team of seven pitch feel- What it does: Provides cloud data-management software
good GoFundMe stories daily

A
s soon as the deal closed, to national and local media and
Solomon moved the promote them on social channels.
company’s headquarters In September the team pushed
to Silicon Valley so he could recruit “Fidencio, the Paleta Man,” a
talent. President and chief product Chicago campaign started by Joel
officer David Hahn, 36, who’d spent Cervantes, a Good Samaritan
nine years at LinkedIn before join- who felt sorry for an 89-year-old
ing Greylock, was one of the first named Fidencio Sanchez, who had
hires. Solomon also recruited chief returned to work selling popsicles,
technology officer Ujjwal Singh, or paletas, from a pushcart after
43, from Google, and landed Dan his daughter died. The story was
Pfeiffer, 40, straight from the White covered by hundreds of news out-
House, where he had served for six lets, including the Chicago Tribune
years as a senior communications and ABC News, which featured a
advisor to President Obama. Pfeif- widely shared photo of Sanchez
fer turned down multiple offers stooped over his cart. Within GUARDANT HEALTH Helmy Eltoukhy, AmirAli Talasaz
Equity raised: $200 million
from other companies to head up weeks Paleta Man had raised more Estimated 2016 revenue: $30 million
Key investors: Khosla Ventures, Lightspeed Venture Partners,
communications at GoFundMe, he than $384,000. OrbiMed Advisors
says, because of “the real alignment What it does: Offers a simple blood test to cancer patients who
How do GoFundMe’s donors want to avoid the pain and risk of invasive tumor biopsies. The
of building a business and making know that campaigns like Paleta company’s “liquid biopsy,” on the market since 2014, makes use
of DNA fragments from cancerous tumors that are present in a
an impact on the world.” Man are real and not a fraud staged patient’s blood. The test monitors the progression of the disease
At times that impact can seem by a couple of actors with props and detects gene mutations that suggest which drugs should
be used in treatment. Though dozens of other companies are
random. In September, for ex- and a camera? Danny Gordon, 37, offering similar tests, CEO and cofounder Eltoukhy, 37, says that
Guardant dominates the field with a 95% market share. Based
ample, Tony Brown of Austell, Ga. a Stanford law grad and former in Redwood City, Calif., it has a head count of 190 and growing.
raised $2,046 to pay for a friend to marine who heads up GoFundMe’s Guardant’s test has a $5,800 list price but negotiates with
patients’ insurance plans. To date, he says, Guardant has sold
compete in the Chattanooga Iron- 20-person trust and safety depart- 30,000 tests.

100 | FORBES NOVEMBER 8, 2016


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GOFUNDME STARTUPS

ment, says only 0.1% of fraudulent people who get to mount effec- SERVICEMAX David Yarnold, Athani Krishna,
Hari Subramanian
campaigns succeed. To police cam- tive fundraising drives without the Equity raised: $204 million
Estimated 2016 revenue: $60 million
paigns, GoFundMe, together with help of an established charity. One Key investors: Meritech Capital Partners, Premji Invest
its payment processor, WePay (Go- Sunday morning in January before What it does: Sells cloud-based service management software
for field-service workers
FundMe left PayPal in 2011), verifies she’d had her coffee, Marseille
SISENSE Eldad Farkash, Aviad Harell, Guy Boyangu, Adi Azaria
the identities and bank informa- Allen, 37, a probation officer and Equity raised: $94 million
tion of campaign recipients. In the Wellesley College alum who lives Estimated 2016 revenue: $50 million
Key investors: Bessemer Venture Partners, DFJ Growth
thousands of cases where organiz- in Flint, Mich., where the water What it does: Sells business intelligence and analytics software
ers raise money on behalf of other had been poisoned by lead, spent SUMO LOGIC Christian Beedgen, Kumar Saurabh
Equity raised: $160 million
people, GoFundMe releases funds fewer than ten minutes setting up a Estimated 2016 revenue1: More than $50 million
only when it’s certain the money GoFundMe page so she could buy Key investors: Greylock Partners, DFJ Growth, IVP
What it does: Helps companies analyze digital data in real time
will go to the intended recipients or and distribute bottled water. She
TALKDESK Tiago Paiva
to organizers with close personal included a cellphone shot of a Flint Equity raised: $24 million
connections to them. fire hydrant spewing brown water, Estimated 2016 revenue: $30 million
Key investors: 500 Startups, DFJ, Salesforce Ventures, Storm
Gordon adds that social media is and within 36 hours she’d raised Ventures
What it does: Makes cloud-based call-center software
a powerful check, since donors can more than $1,000.
comb through organizers’ Face- Though Pfeiffer’s crew didn’t TENABLE Ron Gula, Jack Huffard, Renaud Deraison
Equity raised: $280 million
book postings, which reveal wheth- promote Allen’s campaign, it gained Estimated 2016 revenue: $125 million
Key investors: Accel, Insight Venture Partners
er organizers and recipients are traction. CNNMoney covered it, What it does: Makes network-security software for businesses
who they say they are. In October and Allen was interviewed by a YAPSTONE Tom Villante, Matt Golis
GoFundMe added another layer of local TV news show. In late Febru- Equity raised: $50 million
Estimated 2016 revenue: $235 million
protection for donors. If a donor ary a fellow Wellesley alum, Hillary Key investors: Accel, Meritech Capital Partners
What it does: Handles online payments for vacation homes and
uncovers evidence of misuse or Clinton, posted on Facebook about multifamily apartment rentals
deception, GoFundMe will refund it. In April Allen wrote an op-ed in
up to $1,000, and if the organizer the Detroit Free Press, imploring
fails to give funds to the campaign people not to forget Flint. Ultimate- Scott Crouch
beneficiary, GoFundMe will donate ly, she raised more than $50,000 to
up to $25,000 to the right person. hand out bottled water, filters and
Gordon also enforces GoFund- baby wipes.
Me’s terms of service. The site Shortly after she set up her
won’t host campaigns that pro- campaign, Allen asked GoFundMe
mote hate, terrorism or intolerance to waive its 5% fee. “I said, ‘This
relating to ten criteria, including is about giving people water,’” she
race and gender identity. But those recalls. The fee was non-negotiable,
criteria can be difficult to inter- but GoFundMe ran a contest to
pret. Last year a campaign set up award $10,000 to the most suc-
by staffers at TheBlaze, a news site cessful Flint GoFundMe drive, a
started by conservative media per- generous gesture and one that also
sonality Glenn Beck, raised more drove more Flint campaigns and
than $840,000 for the owners of an more revenue to GoFundMe. Allen MARK43 Scott Crouch, Matthew Polega, Florian Mayr
Equity raised: $41 million
Indiana pizza place who temporar- won the contest and donated the Estimated 2017 revenue2: More than $15 million
ily shut down their business after $10,000 to a local nonprofit, Shelter Key investors: General Catalyst Partners, Spark Capital
What it does: Helps police departments run more ef-
being criticized for telling a local of Flint. ficiently and effectively with software and data analytics.
TV station they would not cater a Why wouldn’t GoFundMe waive While a student at Harvard, Crouch started Mark43 with
a few college buddies. The New York-based company’s
gay wedding. “At the end of the day Allen’s fee? “We provide a platform software helps cops enter arrest and incident reports
faster and gives them critical information about whether a
we’re a neutral platform,” Gordon that receives more traffic than any suspect is likely to be armed and dangerous. While it’s not
says. More broadly, he says, “Go- other fundraising platform in the easy getting police departments to change, Mark43 signed
up the Washington, D.C. metropolitan police department
FundMe allows us to be agents of universe,” says Solomon. “It’s all last year and more recently added those in Camden, N.J.
change in our own communities; it about how much these campaigns and Jersey City, N.J. In June, Mark43 won a bid over more
established competitors to supply five departments in Los
democratizes empathy.” yield for the campaign donors.” Not Angeles County. Crouch, 25 and a member of the 2015 class
of the FORBES 30 Under 30, says, “We are seeing a turn-
Indeed, many GoFundMe to mention how much they yield for ing point where departments are so unhappy about what
campaign organizers are ordinary GoFundMe. F they’ve got.”
1
ANNUAL RECURRING REVENUE.
2
2016 REVENUE ESTIMATE UNAVAILABLE.
102 | FORBES NOVEMBER 8, 2016
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Seminole Gaming
chief executive
James Allen outside
the Seminole Hard
Rock Hotel & Casino
in Hollywood, Fla.
He’s as serious
as a heart attack
about building the
Seminoles’ fortune.

CREDIT TK

104 | FORBES NOVEMBER 8, 2016


How the Seminole Tribe of
Florida went from being a band of
outcasts living in the Everglades
to the multibillionaire owners of
an iconic global brand.

The
Alligator
Wrestler
and the
Casino Boss
BY LAUREN GENSLER

J
im Allen has been up since 3 a.m. leaving voice mails
for himself at the office and is now weaving through
the flashing slot machines and blackjack tables on
the floor of the Seminole Hard Rock Hotel & Casi-
no in Hollywood, Fla. With a reporter in tow, he is
recounting how a Native American tribe managed
to beat out 72 bidders, including private equity gi-
ants and multinational hospitality companies, to acquire the rock ’n’
roll restaurant, hotel and casino company a decade ago under his di-
rection. “At first the tribe thought maybe I had lost my mind and gone
crazy,” Allen says.
Crazy like a fox. The hard-charging 56-year-old has helped cre-
ate unimaginable riches for the 4,100-person Seminole Tribe of Flori-
da as chairman of Hard Rock International and chief executive of the
tribe’s gambling operations. What’s immediately clear when you meet
JAMEL TOPPIN FOR FORBES

Allen is that he’s unapologetically hands-on. Walking through the


hotel, one employee points out a large black octopus chair in the lobby
bar and jokes he can’t believe Jim wanted that there. Allen shrugs this
CREDIT TK

off and brags that he’s behind every design detail down to the “admit
one” tickets on each new roll of toilet paper in the rooms. He explains

NOVEMBER 8, 2016 FORBES | 105


FORBES

SEMINOLES

that his late arrival that morning was


Country singer, alligator
due to a spot check of the men’s bath- wrestler and on-again, off-
room, after which he was asked to again chief of the Seminole
look into an employee squabble that Tribe of Florida Jim Billie is
widely considered to be the
took him out to the parking lot. father of Indian gambling.
“I’m serious as a heart attack,”
says Allen, who’s actually had two
heart attacks and bypass surgery in
the past three years and still routinely
pulls 16-hour days. “Some people talk
about it, some people make excuses,
some people get it done. I prefer the
latter category.”
Though he doesn’t have a drop
of Seminole blood in his veins, Allen
may well be the single best champion
of indigenous peoples since Franklin
Delano Roosevelt enacted the Indi-
an Reorganization Act in 1934, which
sought to conserve and develop trib-
al lands and culture. But unlike so-
cial programs mandated by the feder-
al government, Allen’s improvements
are purely the result of the pursuit
of profit. At the behest of the Semi-
noles he presides over an expanding,
privately owned global business that
spans 71 countries and owns 168 Hard
Rock cafes, 23 hotels and 11 casinos.
Including franchisee sales, system-
wide revenue is slightly more than
$5 billion. Another 25 Hard Rock ho-
tels are in the pipeline—from Dallas to ida amounting to more than $1 billion Tribe member Tina Osceola, 49,
Dubai to Shenzhen—and the company over the past five years. remembers a time when selling tribal
just acquired the rights to the flagship And for the Seminole people? souvenirs to tourists sustained many
Hard Rock Las Vegas. In November Today every man, woman and child in of its members but now credits gam-
New Jersey voters will decide wheth- the tribe receives biweekly dividend bling riches with paying for her un-
er Allen can build a Hard Rock Casino payments totaling about $128,000 a dergraduate and graduate school ed-
with 4,000 slot machines, 2,000 table year. Indeed, by the time a Seminole ucation. “Allen never stops,” she says,
games and a giant guitar out front child today turns 18, she is already a “and, frankly, I don’t want someone
adjacent to MetLife Stadium in the multimillionaire, thanks to tribal trusts who stops.”
Meadowlands just a few miles from that prevent children or their parents
Manhattan. from touching the funds until adult- CHIEF EXECUTIVE Jim Allen is the
And though the Seminoles are hood. Applying industry multiples to man who made millionaires out of the
guarded about the information they the Seminoles’ hospitality and gam- entire Seminole Tribe of Florida, but
share with outsiders, it’s clear that bling businesses would put the tribe’s the tribe’s longtime, controversial, alli-
their rapid expansion in the hospitali- net worth at about $12 billion, includ- gator-wrestling chief, James Billie, de-
ty and gambling industry under Allen’s ing some 81,000 pieces of pop music serves even more credit for sparking
JAMEL TOPPIN FOR FORBES

stewardship has created a money ma- memorabilia—stuff like Michael Jack- the entire $33 billion Indian gambling
chine that generates operating prof- son’s red leather jacket from the “Beat industry to begin with.
its estimated at $1.5 billion per year. It” video and John Lennon’s hand- It’s just after lunchtime, and Billie
That’s enabled the tribe to send reve- written lyrics to “Imagine”—valued at ambles into the air-conditioned lobby
nue-sharing checks to the state of Flor- more than $100 million. of the gleaming, four-story Seminole

106 | FORBES NOVEMBER 8, 2016


says it’s someone calling to ask for a his native Miccosukee tongue.
$30,000 loan. That’s why he no lon- Billie’s Rambo-with-a-heart repu-
ger visits people on the Seminoles’ six tation helped him get elected chief in
Florida reservations. All they want is 1979. On his first day in office some-
money, he says. “Maybe it will be my one handed him a stack of papers
political demise, I don’t know,” says describing something called high-
Billie, who, as chief, has had at his dis- stakes bingo. It claimed that through
posal discretionary funds estimated to gambling the tribe could make $3
be in the tens of millions annually. It’s million in six months. “That was a
a prescient statement. At the end of lot of money back then, so I thought
September tribal members filed a re- maybe we should try it,” he explains.
call petition, vaguely citing various is- To finance the venture, he borrowed
sues with Billie’s policies and proce- funds from an associate of the orga-
dures. The four other leaders in the nized-crime figure Meyer Lansky,
tribal council unanimously voted to according to a Pennsylvania Crime
remove Billie from office. Commission report in 1992.
It isn’t the first time Chairman Bil- Soon crowds of locals and snow-
lie has been ousted. He led the tribe birds were flocking to the Seminole
from 1979 to 2001 before being voted Tribe’s 1,200-seat Hollywood bingo
out amid sexual harassment allega- hall. Gambling was illegal in Flori-
tions (the charges were later dropped) da, and the county sheriff promptly
and charges of financial malfeasance. threatened to shutter Billie’s budding
(Billie later said his removal was due to operation. Instead of backing down, he
bad blood over his increased scrutiny defiantly led his tribe to court and won
of council member spending.) Then, a landmark case in 1981, asserting the
after a decade in exile, he was elect- sovereign status of Indian nations in
ed chief again in 2011 and reelected in such matters. Congress gave its stamp
2015. Billie vows to run again, in the of approval to tribal casinos with the
next election. Indian Gaming Regulatory Act of 1988.
He is, after all, a genuine folk hero. Today 234 Native American tribes are
Born a “half-breed” in 1944 on a chim- hauling in $33 billion a year from gam-
panzee farm in Dania Beach, Fla., bling, according to the Indian Gam-
Tribe headquarters built on an old pig where tourists would pay to gawk at ing Industry Report, and they all have
farm in Hollywood, greeting people both the apes and the Indians, Bil- James Billie to thank.
with a fist bump. In just a few weeks lie tells of how he was taken from his Billie rarely drinks and doesn’t gam-
Billie, 72, will be ousted as chief of the mother as an infant to be drowned in ble, but he’s passionate about flying
tribe for the second time in four de- the canal, only to be rescued by a trib- planes and helicopters and has a repu-
cades. But for now it’s a warm day in al matriarch. After his mother died, tation as a womanizer with a penchant
August, and he’s just arrived from his when he was 9, Billie learned to wres- for telling off-color jokes. His life phi-
home on the nearby Brigh-
ton Reservation on one of the
tribe’s red, yellow and white “Some people talk about it, some
helicopters. Clad in a short-
sleeve polo, Under Armour
make excuses, some get it done.
sweatpants and his favorite
penny loafers, he stops to visit
I prefer the latter,” Allen says.
with the members of the tribe
in his office before settling in at the tle alligators for tourist tips. In his losophy mirrors his approach to busi-
head of the table in a dimly lit, win- early 20s he enlisted in the U.S. Army ness: It’s easier to ask forgiveness than
dowless conference room. and served two combat tours of Viet- to beg for permission. For example, in
When his phone rings (the ring- nam. He eventually became a touring 1980, a mass Seminole grave was dis-
tone is the ding-ding-ding of a slot- country singer with such hits as “Big covered in Tampa, right where the city
machine jackpot), he ignores it and Alligator,” which is laced with lyrics in had planned to put a parking lot. Bil-

NOVEMBER 8, 2016 FORBES | 107


FORBES

SEMINOLES

lie worked out a deal to swap his tribe’s


sacred burial grounds for an alterna- TRIBAL TRINKETS
tive location not far from Interstate 4, Thanks to Hard Rock, the Seminoles have amassed some 81,000 pieces of pop
where he promised to rebury his an- music memorabilia worth north of $100 million. Below are some of their standouts.
cestors’ remains. Little did the Tampa
officials know that Billie would also Ringo Starr’s drum kit from the 1960’s, now in
turn the site into another gambling NYC’s Hard Rock in Times Square.
hall. The Seminole Hard Rock Hotel &
Casino Tampa now accounts for 40%
of the Seminoles’ $2.2 billion in annual
gambling revenues.
During his reign as Seminole
chief Billie enjoyed considerable
riches, including a 47-foot yacht and
the use of a small fleet of helicop-
ters and planes, one of which was a
jet once owned by Philippine dicta-
Michael Jackson’s leather
tor Ferdinand Marcos. As hundreds jacket from the “Beat It”
of millions of dollars flowed through music video.
the tribe over the last four decades,
tribe members and their employ- him during a chance airport meeting. then I thought Hard Rock was gonna
ees have been accused of everything “I waved to him, and he didn’t wave be good, not great,” he says. But then
from tax fraud and money launder- back,” says Billie, who walks with a again, he had only just begun to deal
ing to being connected to organized cane after a stroke but still brims with with casino manager extraordinaire
crime. During one court proceeding the machismo that led him to lose his Jim Allen.
in 2002 a tribal council member ad- right ring finger while wrestling an al-
mitted that he personally spent $57 ligator at age 55. ONE GLANCE AT James Francis
million over three and a half years. But just around the time the Semi- Allen in his tieless blue suit and his
“I bought [Lexuses] for everybody,” noles were breaking ground on their slicked-back gray hair and you know
he said. Billie himself has also been a new Hard Rock properties in Holly- he was born to be a big-time casino
target of law enforcement, including wood and Tampa, Billie was forced boss. He is the product of a working-
the FBI, but nothing has ever stuck, out amid tribal turmoil. Billie spent class family from Atlantic City, N.J.
and Billie has never been criminal- the next decade building traditional When he was 13 years old, he persuad-
ly indicted. Luck has played a role. In thatch-roofed chickee huts and help- ed the pizzeria owner at the end of his
the early 1980s he shot, skinned and ing to raise his two young children, street to give him a job even though he
ate an endangered Florida panther whom he had with his third wife, wasn’t hiring. The owner took a lik-
(whose flavor he jokingly likens to a Maria, never dreaming that his Hard ing to him and enlisted him to wash his
mix of manatee and bald eagle) near Rock deal would bear such fruit. “Back Mercedes-Benz every day—a job Allen
his home on the Big Cypress Reser- took so seriously that he me-
vation. But after a game warden mis- ticulously applied mink oil
handled evidence, the jury became “I bought Lexuses to the leather interior and
deadlocked and Billie walked. spent an hour polishing each
The tribe’s connection to Hard for everybody,” wheel on Saturdays. He then
Rock began in 2000 when a Baltimore
real estate developer, the Cordish Cos.,
said one tribal got a job as a cook at Bally’s
Park Place casino to help out
presented Billie with several licensing council member his family, which was strug-
options for the two gargantuan hotels gling financially. When Al-
and casinos Cordish was building for who spent $57 len’s dad died from cancer in
the tribe in Tampa and Hollywood. It 1979, he recalls, bill collectors
was down to a choice between Jimmy million over three phoned the house so often
Buffett’s Margaritaville and the Hard
Rock Cafe. Billie chose the latter be-
and half years. that friends and family were
advised to let the phone ring
cause, he says, Buffett once dissed twice, hang up and call again

108 | FORBES NOVEMBER 8, 2016


Lady Gaga’s vinyl dress and
Jimi Hendrix’ Gibson headpiece will be on display at
Elvis Presley’s gold piano, a Hard Rock in Shenzhen.
Flying V guitar.
bought for $610,000 and
destined for Tampa.

Madonna’s bustier from


her Blonde Ambition tour, Beyoncé’s crown from the
at the Boston Hard Rock. “Haunted” music video.

if they wanted someone to answer. “I estate magnate Sol Kerzner he opened gally permissible Class II machine.
was committed 100% at the youngest Mohegan Sun in Connecticut and At- In other words, under the hood these
of ages to say that will never be me,” lantis in the Bahamas. were bingo drawings. Connected by a
Allen says. Allen was hired by the Seminoles in central server, players would be com-
Allen never accomplished much 2001. Under his direction, the beautiful peting for prizes against other players
in terms of formal schooling, but he new $400 million properties in Hol- at Seminole casinos rather than play-
worked harder than anyone else. At lywood and Tampa opened in 2004. ing against the house. Most players,
Bally’s he was promoted to cook and There was one big problem, though. even seasoned ones, would be none
drew management’s attention when he Under the Indian Gaming Regulato- the wiser.
helped figure out how to use a kitchen ry Act, the casinos couldn’t have black- “This was monumental,” says Brad
cost-management software program jack, baccarat, slot machines or any Buchanan, who spent 13 years with the
that proved difficult to master. After he other lucrative “Class III” games until tribe as its chief financial officer before
was promoted to the office job of menu they got permission from the state. retiring last year. “Jim will drill and drill
analyst, the executive chef demand- Bingo, which is considered Class and drill until he hits the concrete, and
ed that he return to the kitchen. Allen II because players are pitted against when the drill bit breaks he will replace
managed to do both jobs, earning dou- each other rather than the house, it with another and keep going.”
ble-time pay. was already well established on the Thanks to Allen’s genius, the two
In 1985 he moved down the board- Seminole reservations in Florida, but casinos were soon among the most
walk to Hilton as a purchasing man- then-governor Jeb Bush had no in- profitable in the country. By 2006
ager. Donald Trump took over the terest in allowing full-on gambling in the tribe had become the single big-
property after Hilton was denied a his state. It would take years, and in- gest Hard Rock licensee and was fork-
gaming license, and Donald’s then- volve fending off a challenge from ing over $21.5 million a year in licens-
wife, Ivana, deeply impressed by Allen, Senator Marco Rubio (R–Fla.), be- ing fees to its British parent compa-
personally urged him to stay with the fore the tribe would come to an agree- ny, Rank. From Allen’s vantage point,
company. Over the course of eight ment with the state allowing Class Rank was taking advantage of the Sem-
years, until 1993, Allen held various III gambling. So in 2003 Allen bold- inoles. The deals were structured for
management positions in the Trump ly circumvented regulations by per- hotels, not casinos. “If you think of a
organization and eventually helped suading several gambling manufac- busy hotel, it’s doing $10 million or $15
oversee the operations of Trump’s turers to create a brand-new type of million a year,” Allen says. “A busy ca-
three Atlantic City casinos. From there slot machine that had the look and sino does $20 million to $70 million a
Allen went on to open and manage ca- feel of sophisticated Las Vegas-style month.”
sinos in New Orleans for Hemmeter Class III slot machines but were ac- In late 2006 he persuaded the tribe
Enterprises, and for South African real tually using the same math as a le- to pay $965 million to buy Hard Rock

NOVEMBER 8, 2016 FORBES | 109


FORBES

SEMINOLES

International from Rank, financed hospitality sector, the numbers are just Seminoles’ casino business and has a
with $500 million in debt. “When we so much greater and, frankly, so are the small equity stake in Hard Rock Inter-
looked at the brand and how much we margins.” national estimated to be worth about
had riding on it,” Buchanan says, “we Casinos are also high on Allen’s pri- $75 million.
wanted to make sure it ended up in the ority list, but they are harder to pull off In the 15 years since Allen arrived,
right hands.” quickly because of politics. In 2013, for Seminole tribe members’ annual divi-
instance, voters in Massachusetts re- dends have risen from about $30,000
THERE IS NOTHING rock ’n’ roll jected his proposal for an $800 million a year to an estimated $128,000, plus
about Hard Rock’s operations under hotel, casino and entertainment com- access to free private school and col-
Allen. Almost immediately he attacked plex, and in 2015 Wisconsin governor lege tuition, universal health care and
the cafes’ menus, nixing subpar ingre- Scott Walker rejected a plan to build elder care. All are offered employ-
dients like frozen burger patties. Un- a similar complex in partnership with ment with the tribal government, and
dercover employees known as “mys- the Menominee Tribe. The fate of the the reservations are dotted with over-
tery diners” were dispatched to main- Meadowlands Hard Rock Casino will size houses and late-model cars. The
tain quality control. “I don’t want to be put before New Jersey voters in No- unceasing flow of wealth has not been
say anything bad about Rank, but they vember. without its downsides, however: Drug
were operating for quarterly prof- Hard Rock sometimes takes a sliver and alcohol abuse remains a problem,
its,” says Gary Epstein, a lawyer who of equity in its hotel and casino deals, and a low percentage of adults have a
worked on the acquisition. such as its 16% stake in the Meadow- college education. Fewer young peo-
While the cafes still account for lands venture, but like other icon- ple are interested in traditional trib-
most of Hard Rock’s $665 million in ic brands it mostly relies on partner- al crafts or events like the Miss Sem-
revenue, Allen struggles with the fickle- ships and other people’s money for inole pageant or alligator wrestling.
ness of the casual dining business, and rapid global expansion. Hard Rock In- And since anyone with 25% Seminole
the company is saddled with a tour- ternational represents the tribe’s big- heritage can qualify for a dividend,
ist trap image. In the first half of 2016 gest effort to diversify away from its the tribe faced a rash of “dividend ba-
same-store sales at the cafes fell 1.9% in seven Florida casinos. Unfortunate- bies” until about four years ago, when
North America and 5.4% in Europe. ly, the tribe’s exclusive right to black- Chief Billie halted payments to those
Allen’s big push is into hotels. jack, baccarat and other casino table under 18.
Lots of them. He has already opened games, where the player bets against It’s becoming even more vital that
16 properties; another 25 are in the the house, technically expired in Flor- the Seminoles learn to manage and
works, and he sees room for at least ida in 2015, and the tribe is currently live with their riches, as the amount
50 more in short order. Each is more suing the state in federal court over its of cash flowing into tribal coffers will
audacious than the last: a sprawling failure to negotiate a renewal. likely increase. Today not a penny
beach-front hotel in Cancun, a foray Allen, who calls during his lunch of members’ dividends comes from
into the Middle East with a 101-story break after four hours of testimony in Hard Rock International, which is
worth an estimated $1.6 bil-
lion. Almost all of the tribe’s
Tribe member dividends have risen to $525 million in annual divi-
$128,000 per year, plus access to free dends flows from the Semi-
noles’ seven Florida casinos,
higher education and health care. which are worth an estimated
$10.4 billion. Allen says he has
set up Hard Rock not only for
Dubai skyscraper and a 372-room Tallahassee, is already focused on his growth but also for an eventual IPO,
hotel in Berlin overlooking Check- next project: Hard Rocks west of the should the tribe desire it.
point Charlie. That’s not even counting Mississippi. “This is the first time in 30 Allen’s employment contract ex-
the 100 hotels under a different brand years the brand is 100% controlled by pires in 2018, but even with the unpre-
name that he is quietly planning to one company,” says Allen, who drives dictability of Seminole politics, his re-
open in China. a royal-blue Maserati and lives in a $10 newal seems a certainty. “The business
“It’s not that we’re abandoning million waterfront mansion in Fort has really taken off since my arrival,”
cafes, we’re just expanding our hori- Lauderdale with his yoga-instructor he says. “Whenever I do leave, I want
zons,” Allen says. “When you look at wife. For his efforts, Allen earns an un- them to be able to say that was one
the revenue you can generate in the disclosed salary and bonus from the white guy that was honest.” F

110 | FORBES NOVEMBER 8, 2016


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THOUGHTS

On Great Ideas
“Every now “With the
technology at
and then, our disposal, the
maybe once in a possibilities are
hundred cases, unbounded. All
a new idea turns we need to do
out to be on the is make sure we
keep talking.”
mark, valid and —STEPHEN HAWKING
wonderful.”
—CARL SAGAN

“THE MIND IS A TOOL,


A MACHINE, MOVED BY
SPIRITUAL FIRE.”
—FYODOR DOSTOEVSKY
“Kilgore Trout’s
“Many ideas grow better when
transplanted into another mind than
unpopularity was
in the one where they sprang up.” deserved. His prose
“IF I HAVE DONE
—OLIVER WENDELL HOLMES JR.
was frightful. Only THE PUBLIC ANY
“ONE THOUGHT FILLS IMMENSITY.” his ideas were good.” SERVICE, IT IS
—WILLIAM BLAKE —KURT VONNEGUT DUE TO PATIENT
THOUGHT.”
—ISAAC NEWTON
“One of the greatest
pains to human nature is
the pain of a new idea.”
—WALTER BAGEHOT

“Be less curious about


people and more
curious about ideas.”
—MARIE CURIE
FINAL
“The power of vested THOUGHT
interests is vastly exaggerated “You cannot help
“ONE MAN THAT HAS A compared with the gradual the kind of brains
MIND AND KNOWS IT encroachment of ideas.” you were born with,
CAN ALWAYS BEAT TEN —JOHN MAYNARD KEYNES
but you can help the
MEN WHO HAVEN’T “YOU ARE BRINGING SOME STRANGE IDEAS kind you go through
AND DON’T.” TO OUR EARS, AND WE WOULD LIKE TO life with. And that’s
NEWSCOM (5)

—GEORGE BERNARD SHAW


KNOW WHAT THEY MEAN.” what counts.”
—ACTS 17:20 —B.C. FORBES
SOURCES: PHYSICS AND POLITICS, BY WALTER BAGEHOT; YANKEE FROM OLYMPUS: JUSTICE HOLMES AND HIS FAMILY, BY CATHERINE DRINKER BOWEN;
THE GENERAL THEORY OF EMPLOYMENT, INTEREST AND MONEY, BY JOHN MAYNARD KEYNES; THE APPLE CART, BY GEORGE BERNARD SHAW;
THE MARRIAGE OF HEAVEN AND HELL, BY WILLIAM BLAKE; SLAUGHTERHOUSE-FIVE, BY KURT VONNEGUT.

112 | FORBES NOVEMBER 8, 2016


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