Brad Jacobsen, a lawyer from Holme Roberts and Owen, wrote this explanation about Going Dark: 

A client of ours recently learned first hand the significant costs that implementation of the Sarbanes-Oxley Act of 2002 (“SOX”) can have on a small, publicly-held company.  In connection with the review of the company’s Quarterly Report on Form 10-QSB, its chief financial officer unfortunately made an off-hand remark to the outside auditor regarding the company’s internal controls and procedures.  As a result of that comment, the auditors demanded that the audit committee hire independent counsel and conduct a full review of the company’s financial statements – with a materiality threshold (items requiring documented back-up to be provided to the auditors) of only $2,000.  Over the next six weeks the company incurred in excess of $300,000 in legal and auditing fees (not to mention lost opportunity costs and lost management time), filed its 10-QSB late and was threatened with potential delisting by NASDAQ.  The resulting review by the auditors and the audit committee’s independent counsel found no improper or illegal acts by the company and only required that the company make adjustments to its accruals of a net aggregate amount of less than $1,000.  The significant cost incurred by the company for this review nullified its entire third quarter 2006 profit.
 
Like other small business issuers, our client must now seriously consider whether being a public company is in the best interest of its shareholders.  As the deadline for compliance with the costly and time consuming internal controls and procedures requirements for small business issuers nears, many public companies (large and small) are also evaluating the merits of remaining public. 
 
The primary means for a public company to avoid its obligation to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is to “go private.”  While going private can be costly and time consuming, many companies are actually eligible to go private by simply filing a one page form with the Securities and Exchange Commission (the “SEC”), a Form 15.  The filing of the Form 15 without a preceding going private transaction is often referred to as “going dark” and is available to any public company, with a few exceptions, that has fewer than 300 shareholders of record.  The cost to go dark can be as little as $5,000.  While most public companies have more than 300 individual, or “beneficial,” shareholders, eligibility is measured only on the number of shareholders “of record” (not the actual number of individual shareholders).  It is estimated that over 84% of the securities of most public companies are held in nominee or “street name” (not held of record by individual shareholders), thus making the option to go dark available to many public companies.  For example, Huntsman Corporation only has 198 record shareholders and Overstock.com only has 238 record shareholders as of the filings of their last 10-Ks.  It should be noted, however, that there have been recent discussions to amend the Exchange Act rules to require that beneficial (i.e., actual individual shareholders) and not simply record shareholders be included in the count.

The main reason blogs and podcasts became so popular was because of their position and perspective outside of the mainstream media. As corporations have embraced the blog phenomenon, the attraction has diminished for the early adopters that brought us blogs. So what’s next for these tech savvy pioneers? And can corporations and PR professionals follow? Take for instance Second Life. In this computer-generated world, users create their own character for free. For a small amount of real money users can accessorize with new clothing, a car, even a house. That’s where corporations are already getting involved. For example, Toyota offers a virtual version of their Scion for users to purchase in Second Life. W Hotels is opening a virtual hotel, American Apparel sells virtual models of their real clothing for a dollar each (they also offer a 15% discount to real world shoppers if they make a purchase in Second Life), and the Sundance Channel is screening movies.

Second Life is already being used for product test markets (This is how Toyota tested the Scion), and connecting virtual sales to real world sales. So it begs the question, is this the next big thing?

For PR pros and marketers, Second Life presents a new, targeted environment to communicate with. Think of the possibilities! I had a conversation about this with Sprout Marketing’s Director of Interactive, Josh Carr. He posed these possibilities: “Are 3D firms going to become as necessary as Web Design firms? Will there be a land grab for virtual real estate? What about Second Life real estate agents?” I would certainly predict some political messaging as we near the 2008 elections. The possibilities are endless, and stretch the imagination.

I just took a tour of the new Noah’s building in Lindon and I was very impressed.  What an amazing place.

Noah’s is a very versatile multi-use building. On the first floor you find a basketball court that can be converted into a reception hall, a catering room and racquetball courts. On the second and third levels their are tons of multi-use conference and recreation rooms. The rooms are filled with flat panel TV’s, bar, stereo system, couches, pool tables, computers and much more. On the roof is an open air pavilion for summer parties but in the winter it converts to an ice skating rink.

Noah’s is completely automated and controlled from a command center in Peoa, Utah. That means they have no on site staff - its all controlled with camera’s and door access codes. Very impressive. All the reserving of space happens right on Noah’s Web site. I was amazed at how cheap they rent space. You could throw a private ice skating birthday party for only a couple of hundred dollars and have the place for an entire evening. It’s about 25% cheaper than most wedding reception halls in Utah and much nicer if you ask me. The place has everything. Noah’s is the ultimate place for off site corporate meetings.

Noah’s is having an open house today through Friday from 3 pm to 8 pm. I highly encourage you to swing by and check it out.

Also, check out this report from KSL on Noah’s.

(disclosure: this is not a paid ad for Noah’s - I really like the place but one of their employees is my neighbor) 

Microsoft will launch its Windows XP successor next week dubbed Windows Vista on Jan 30. Key features include a newly skinned GUI, better search (allegedly), new multimedia creation tools such as Windows DVD Maker, and "completely redesigned networking, audio, print, and display sub-systems." That's about it.

The thing is, my PowerBook has been doing all of this since 2001's release of Mac OSX. It's a much better OS than any I've seen, though I currently use XP on my desktop. To upgrade to Vista, most computers 1-2 years old don't support the minimum requirments like a graphics card to run Vista, hence, it should be at least a few hundred dollars to upgrade, not to mention the hassle and time spent in reloading all of your programs (something Apple does out of the box).

So the technologist in me wants to buy and install it right away just to see if it stacks up, and if it can significantly improve the operating system experience. The skeptic in me tells me it wont do anything better than OSX, a trusty browser, or even XP does. And I wouldn't have to worry about upgrade headaches and additional costs. Will you be buying Vista next week?

The press release may be the most antiquated, overused and least understood tool in public relations. While it is a necessity for public companies to disclose information, far too many executives and even PR professionals incorrectly believe the press release is the primary vehicle for garnering media coverage.

The truth is many journalists view the hundreds of releases they receive each day as “historical record.” I was recently discussing this topic over lunch with a prominent broadcast journalist who confirmed this theory when he said “Don’t PR people understand when we receive a press release, even a meaty release, our first thought is all of our competition has the same information. If I am looking to do a feature, I like to have a scoop. It typically has to be really big news for us to do a significant story as a result of a press release.”

Several months ago we were given a lead on a new business opportunity with a financial institution which was looking for a new marketing partner. When we discussed public relations, the vice president of marketing informed us “we already have someone who writes press releases.”

If a company’s goals are simply disclosure and/or SEO, someone who simply writes press releases will suffice. Effective public relations that gets results requires a seasoned team or professional who understand and can position news, have strong media contacts, and know how to individually tailor pitches through the right channels.

When we took on a national fashion company, their previous public relations company had done little more than send out monthly press releases. While these press releases did get decent pick up on news Web sites, this blanket approach at PR was missing key messages and failed to reach the target audience. In working with this apparel company, we have implemented community relations campaigns, arranged for fashion shows on popular morning talk shows in several markets, and developed strategic relationships with both fashion editors and fashion influencers at local, regional and national publications. While press releases remain a part of the overall public relations plan, it is a minimal tactic that simply adds to our overall strategy.

The one constant in the media and public relations industries is that practices are constantly changing requiring organizations and communications professionals to adapt in order to harness the powerful influence of the media. If your approach to public relations is a press release program, it may be time to rethink your approach.

Every entrepreneur wants to be successful. Everyone knows to carefully consider their product or service, their marketing plans and who they are going into business with (partners and/or employees). The biggest risk of your business failing, however, may be your customers. The tendency of many start-ups and small businesses is to take whatever customers they can get. However, failing to carefully choose your customers can be the death nail of your business.

Over the years I have found several warning signs that should be considered. While any one of these may not disqualify a client, when two or more are present alarm bells should go off in your head.

Beware of the apparently successful client. Be aware of the client who shows up driving an expensive luxury car, lives in a very large house and wears fancy clothes. These things may be a sign of someone who is very successful. They also can be a sign of someone who is so leveraged that they will not be able to pay your bill. If they are running a small business, it may also mean that they are bleeding the company dry. If they are showing off their money – make sure you get some of it up front.

Beware of the RUSH. Occasionally a client will walk in the door who needs a large amount of work done in a hurry. While this can be a golden opportunity to build loyalty, it should also raise red flags. Why does the client need the work done in a hurry? Did the client simply put off doing something until it was an emergency? If so, you may have just accepted a client who is going to drop things on you at the last minute and expect you to move mountains to solve their problems. Rush projects increase the likelihood of mistakes and decrease your quality of life. Additionally, they can interfere with existing relationships if you have to delay servicing established customers.

Beware of the missing checkbook. If a potential client has taken the time to set up an appointment with you, expect that they will bring some method of payment. If they don’t have money to meet your retainer, down payment, etc., make sure that you get that money before you begin substantial efforts. This is particularly important if red flags 1 and 2 above are present. A rush project without money upfront usually means you will have a hard time collecting. As soon as the work is done, so is the desire to pay for it.

Beware of the unhappy client. While dissatisfaction with competitors may lead clients to your door, any client who freely complains about your competitor is likely to do the same about your business once the work is done. Additionally, the client may be complaining to cover the fact that the client was fired by your competitor.

Beware the client seeking a discount. People seeking a discount will often approach new or small businesses hoping the business will need the work and will do it at reduced rates. Such clients may promise to refer you to all of their friends or claim to have a substantial amount of work with your competitor’s that they will transfer over if things go well. Often, these are simply rationalizations to get a lower price.

If a client is unwilling to pay your normal rate, consider if you really want them as a client. If the discount is based on alleged large volume of work, structure your agreement so that the discount will become effective once the large quantity of work is received. Thus you are not giving a discount for someone who is only inflating the amount of work they need long enough to get you to lock yourself into a rate which you may only provide to your best clients. If you want to do work for the client even at discounted rates, consider some other benefit you may receive – some of their product perhaps – to justify the discount. This may help avoid problems if full pay clients learn of the discount.

Beware the big corporation. Large corporations can make very lucrative clients. They can also crush a small business that is not set up to deal with them properly. Many corporations take a while to pay. I have worked for Corporations that paid net 120 days. If you need a check from today’s work to pay tomorrow’s payroll, you should probably pass on the large corporation until you have the financial resources to cover the delay. Also, remember that sometimes big companies go bankrupt too. Make sure that you can survive losing the client and any outstanding invoices without going under.

Trust your gut. Above all learn to trust your intuition. If a client feels wrong, they probably are. If you need to take the client anyway, get a retainer and set clear boundaries on the work which you will be doing so that the client does not consume your resources and leave you high and dry.

Taking on the wrong client can be devastating for a company especially if it takes you too long to realize you have been had. A small company usually cannot afford to do tens of thousands of dollars of work or ship a substantial amount of product to companies only to be left holding an unpaid bill. If you need to take the client consider the following:

1. Get money up front. If any of the red flags are raised get a substantial portion or all of the money up front. If the client is not willing to pay you part now, they may be just as unwilling to pay you in full after you have completed the work. Life is too short to work for clients who do not pay.

2. Get a personal guarantee. Some small businesses will attempt to leverage on their service providers and suppliers. Once the work is done, they condition payment on the success of their own venture. The supplier effectively becomes a passive investor with no upside. If the company does not have the funds to pay you right now and you want to do the work, have the person requesting the work personally guarantee payment. Also, do a credit check on that person to see if nonpayment is a habit.

3. Condition discounts on objective standards. If a client seeks a discount because they have a large volume of work or will be a loyal customer, consider basing any discount on some objective standards. For example, a company will start to receive a 10% discount on the bill once they have ordered 1,000 widgets or have $50,000 worth of work done. This way a discount is not provided to someone who may be exaggerating their work simply to negotiate better terms.

4. Take a lien. If you sell products to a company, talk to your business attorney about UCC filings so that you can reclaim the product if payment is not made. If you are a service provider, draft your contract so that you have a lien on any work which is not paid for. While the work may not be of much value to you once it is completed, the threat that you will repossess the work done for the client may give you a bargaining chip if the client does not pay.

Obtaining good clients takes time. Bad clients waste your time. If your clients don’t pay, you only have an expensive hobby.

For regular readers, you'll recognize that one of my favorite topics is taking companies private in the current market environment.

Last Spring our firm, Thorpe Capital Group, did a fairness opinion related to the sale of a public company that had gone dark.  The law firm representing the company was Holme Roberts & Owen. 

On Thursday, Holme Roberts will be presenting a workshop on going private and going dark, the process of legally suspending all of the responsibilities associated with being a public company, without buying back the shares from the public shareholders. The firm has asked me to take a few minutes to talk about fairness opinions.

If you would like to attend, even though I'll be presenting, you are welcome to come.  Details are here. 

You have heard the assertion: “Research faculty do not care about teaching.” We have all heard this at some point. I heard it as an undergraduate, and it made sense to me. I had a lot of extraordinary professors as an undergraduate, so this was an assertion that was untested until I got to graduate school. I had the unusual experience of going from undergraduate to Master’s to Ph.D. all at one university, and so I became very familiar with the work of all my teachers over the years. Big surprise: the very best teachers were outstanding researchers who were known worldwide as innovative thinkers and articulate scholars.

Now that I have worked in universities for nearly 30 years, I understand why faculty research matters. Faculty doing research are at the forefronts of their fields, engaging with businesses and their professional colleagues in the development of the management techniques and business practices that will ultimately be adopted worldwide. This engagement with the future of business practice is something they take into the classroom and share with their students, helping them learn not only how business is conducted today, but also how it is changing and why it is changing.

I have colleagues who were involved in developing the U.S. accounting regulations governing options, who are serving at the SEC and are immersed in the investigation of companies who have backdated options, and another colleague who is serving as an expert witness on lease financing in an international bankruptcy involving a major hedge fund. Other colleagues are writing articles covered by the New York Times and Wall Street Journal, while another colleague was on the team that investigated Enron and was also the principal academic consultant on the conversion of the New York Stock Exchange to decimal denominated trading. A whole group of colleagues are studying teamwork and productivity in medical research teams, and they are actively engaged in consulting with a number of major research centers on the organization and management of research efforts that are targeting some of the most devastating human diseases. These are big issues, and the people who work on big issues are doing research that has something to say when it comes time to develop regulations, develop standards for industries, inform the courts in litigation, and serve as expert consultants to firms. If they can explain something to a corporate board, under cross examination, or to a regulatory body, chances are they are good in the classroom, too.

There is another small irony that defies conventional wisdom: Great teaching informs great research. This is why great research universities are great teaching institutions. When faculty teach, they learn. The act of explaining something to someone, especially a complex topic, is a learning experience. The questions students ask help faculty formulate their own thinking, and the explanations a faculty member provides in a classroom turn into research ideas that can be pursued and refined in the course of business research. Astute faculty understand they learn in the process of teaching, and they engage their teaching in a way that contributes research ideas and exposes their students to the future of management practice. Great teachers make great researchers, and vice versa. And the very best faculty understand the connection between the two.

This matters for students because it is the difference between preparing for a job and preparing for a career. Faculty who are engaged with their fields of study are working on the future of business, and their students are going to learn not just about current practice, but also developing practice. Few new business school graduates are jumping into positions of great responsibility. It is the new graduate’s ability to understand the future and contribute to the firm’s success over the course of a career that determines advancement into leadership positions.

There are certainly wonderful faculty at many institutions who are dedicated to effectively teaching their students about current practice. They are often very good teachers, and they care about their students. But where is the preparation for a career that will last decades? Yes, the new graduate will develop a refined understanding of the professional track over a few years, but how fast will this person advance relative to someone who was prepared for intellectual leadership coming out of school?

Engagement matters in education. Students who are engaged through student activities, study groups, and specialized study opportunities like the University Venture Fund learn more, they build better professional networks, and they get better jobs. Similarly, faculty who are engaged are better teachers and they are better researchers.

Here are links to a couple of sites that rank schools based on faculty research. Notice how many “brand names” are at the top of the list. Great research and great faculty do go hand in hand.

The Arizona State University site ranks finance departments worldwide. You can select the time period you are interested in, but check out the top 50 for 2002-2006, the last five years.

The University of Texas at Dallas published a worldwide ranking of faculty research in 2005 that includes the top 100 universities based on faculty publications in leading business journals. The top 50 is, again, the brand names you hear about on a regular basis as the best places to go for a business education.

Whether studying genetics, semiconductor design or business, students who are preparing for a career want to acquire, and should expect to acquire, knowledge that will put them at the forefront of their professions and prepare them to lead over decades. The work the faculty do as scholars matters for the education they provide their students, and it just happens to also make them better teachers in the same way that a commitment to teaching makes them better scholars. If you are going to spend years, or just a year, getting an education, make sure you are getting the best available education. It is a career you want, not just a job.

Later.

Every woman business owner in Utah and even those who are thinking of starting a business, you need to read this study! Amazingly, Utah has five cities in the top ten. Peter Horan at All Business talks about why:
“Our study was unique because, we let our audience decide what criteria are most important in terms of geographic location. The results are fascinating. The typical hot economy metros that make these types of lists are absent and four of the five metropolitan areas in Utah are in the overall top ten,” said AllBusiness.com CEO Peter Horan. “We found that women entrepreneurs say they are looking for a balance of factors that show a strong geographic tendency to be found in the Rocky Mountain States, with 13 of the 30 metros ranked by size being located there. Additionally, college towns like Iowa City, IA, Boulder, CO, and Logan, UT dominate the list of small and medium metros, which shows the strong connection between academic research and business development in a knowledge-driven economy.”

To look at the study and learn more, go to the following links.

http://www.allbusiness.com/3776361-1.html

http://www.allbusiness.com/3776543-1.html

Bill Reichert, one of the partners at Garage Technology Ventures (yes, partners with Guy Kawasaki) has written a very good article on “Pitching to Investors.” Not only does he talk about the content that you should include in your slide, he also gives valuable tips on the delivery of your presentation.

From all of the pitches we have seen at our SpeedPitching events, I’d have to say that he is very accurate. There really is an art to pitching to an investor and I would make sure to prepare yourself well before your meeting.

Speaking of SpeedPitching events, we had one in Utah a few weeks ago. The companies that presented were some of the best I’ve seen. Here’s a list:

• AlphaSpine: (voted top presenter). Next generation of spinal implants
• OnCampusSports: ESPN meets Facebook. Provides an enterprise solution for college intramural programs across the nation.
• WorldVitalRecords: Next generation of online genealogy communities.
• TagJungle: Relevancy search for the blogosphere.
• WikiReview: Compilation of subjective reviews about any product or service.
• ClearPlay: Parental filtering of regular DVDs.
• LibertySmart: Optimizes employee health care benefits while saving the employer money.
• SHS Franchising: Franchising company that helps homebound seniors with necessary tasks & projects.
• Power-Glide Foreign Languages: Selling online language courses to individuals and institutions.
• Thorogen: Engine that shows significant improvements in fuel efficiency and emissions over standard engines.

Because of the demand from investors (and the fact that the quality of deals is constantly increasing), we have decided to host our events every other month in 2007 (in Utah). If you want to read blog posts from others about the speedpitching events, you can go here, here, or here.