Does Your Startup Have a Spending Strategy?

by Karen Firestone DECEMBER 01, 2017

Starting a new business involves a host of challenges, and chief among them is knowing what to spend your money on—and how much to spend. You have to consider salaries, marketing budget, office size, technology services, and on and on.

These spending choices require tradeoffs, so entrepreneurs must first develop a strategy for allocating limited resources across a wide range of available options. Too often, assumptions about the potential market and its clients can cloud our judgement about expenses. Let’s examine two cases, one a former colleague and the other a close friend.

The first is Colin. After managing a sleeve of a successful hedge fund in London for five years, and building ample savings, Colin was ready for his own shop. From past experience, he believed that attracting wealthy clients required high-end office space; so he leased space in a West End office building at a price that would rattle anyone’s teeth.

Colin was sure his revenues would exceed costs within a year, but the large clients he expected never materialized. In fact, he began to notice that prospects would react negatively to the extravagance of his office, décor, and furnishings. So not only were the current fees too weak to support his fixed costs, but future clients were turned off by his apparently excessive tastes.

To address those cost overruns, Colin subleased some space, cancelled a redundant and very expensive trading service, and let one person go. Two years later, his fortune began to turn around as stronger performance helped bring in business, and he finally showed a profit. Looking back, Colin knew that his overspending had nearly cost the firm its life.

Let’s look at another example: Serena had completed her master’s degree in political science at Berkeley, but decided to pursue a longstanding interest in cuisine by turning a vacant storefront in her Oakland neighborhood into a gastro-pub. While her waitressing job in college was Serena’s only eatery experience, she had plenty of enthusiasm and enough savings to start.

The costs soon proved much greater than expected. She hired a consultant and a contractor, who found structural obstacles that were expensive to address. She replaced the first builder, but the second insisted on making even more renovations.  And although her dream gas-fired brick oven was far outside her price range, she bought it anyway.

By the time she opened Candlebar, it was 100% over budget. Serena had run through all her money, and resorted to borrowing from several friends. But she convinced herself, each step of the way up, that the expenses were worthwhile and would eventually pay off. Unfortunately, she failed to break even during the first year, and lost her head chef in a struggle over the menu and staffing.

Hoping to bring in a partner with both cash and expertise, she met with potential investors and business partners, mostly chef/owners of small pubs or cafes. These experienced restauranteurs valued Candlebar well below what Serena had invested. When she expressed surprise, they told her that her place was beautiful and very functional, but her price was far beyond what they would pay: code for “you overspent for the location and construction.” Eventually, Serena had no choice but to sell the business, taking a major loss but learning a lifelong lesson.

These cases show the consequences of overspending. But of course, it’s not always easy to know where to draw the line; underspending can also hurt your new business. A dinghy office without sufficient staff can give the appearance of not having enough business or being cheap. Each cost item comes with expected returns—for example, adding staff means a higher payroll, but also clearer lines of responsibility and a lowered chance of burnout.

Both Colin and Serena should have more carefully and conservatively forecast the timeline for expected revenues and managed their costs accordingly. This would have helped them avoid a cash crunch. They were both naïve to think that creating a high-expense, polished operation would automatically enhance their business. In reality, it only added to the breakeven level, which can kill a new enterprise’s chance of survival.

Let’s look at one last example, this time of two associates of mine, who started with a sensible spending strategy. Jerome and Evan decided to leave their top tier accounting firm and set out on their own. They were realistic about their expenses and budgeted carefully. They leased a third-floor space in a Boston neighborhood, and they hired two people — the minimum they needed — for the approximately twenty accounts they had at launch. While Evan initially wanted to hire a senior partner at a high-end law firm and rent space in a popular office tower, Jerome vetoed these moves as too expensive for the startup period. The potential tradeoff was missing an opportunity or two that a well-connected lawyer or a more dramatic view might bring them, but they agreed that those likelihoods were remote.


Several clients followed them, and within a year, they could afford to add more staff. Prospective customers offered positive feedback about the office space, so they knew it wasn’t over the top or below an expected standard. Jerome and Evan were pleased that they had right-sized their investment in the new entity.

So how do you know what tradeoffs to make when it comes to allocating resources to build a new business? It’s hardly straightforward. But here are some questions to ask yourself to help you overcome your own spending habits and assumptions:

1. What is the impact of your expenses on potential clients? If your goal is to attract and not repel revenues, imagine yourself as walking into your office, surveying your website, or using your app to see how what impressions you take away as a customer — and how you’d feel about the quality of the service.

2. How will your employees react to spending patterns? If your startup spends a lot on office design or executive first-class travel, consider the impression on your staff. If the paintings on the walls are worth more than their annual salaries, they may see themselves as low priority. Think about whether you are providing what they need in terms of technology, benefits, and a comfortable environment.

3. Do your colleagues understand that your spending is meant to benefit everyone? In the early stages of the firm, remember to communicate with your co-workers about key strategy costs that are required to grow the business and how their returns will justify the expense.

4. What is your business’ core competence? How can you focus your spending on that?  For Colin, having a strong research analyst in the conference room would have been more important for his business than Bose speakers. For Serena, in choosing between a better oven or the best table linens, she was wise to go with the oven. And for Jerome and Evan, purchasing state-of-the-art accounting software was money well-spent compared to having a better view of the river.

5. What can you afford to lose? Finally, when you can’t hit breakeven, ruthlessly comb through your costs and consider what is non-essential and what you can live without until revenues climb higher. Do this while there’s still time.

You Can’t Secure 100% of Your Data 100% of the Time

by Shuman Ghosemajumder

DECEMBER 04, 2017

Over three billion credentials were reported stolen last year. This means that cybercriminals possess usernames and passwords for more than three billion online accounts. And that’s not just social media accounts; it’s bank accounts, retailer gift card accounts with cash and credit cards attached, airline loyalty accounts with years of accumulated frequent flyer points, and other accounts with real value.

This statistic is alarming, but in fact it significantly understates the scope of the threat. Because of a form of attack called credential stuffing, tens of billions of other accounts are also at risk. Here’s how that attack works. Because most people have many online accounts (a recent estimate put it at 191 per person on average) they regularly reuse passwords across those accounts. Cybercriminals take advantage of this. In a credential stuffing attack, they take known valid email addresses and passwords from one website breach—for example, the Yahoo breach—and they use those same email addresses and passwords to log in to other websites, such as those of major banks.

This represents a completely different type of threat than what the security industry has been prepared for in the past. Investing in all the traditional security in the world to prevent your website from having vulnerabilities will not help if your users’ own bad habits of reusing passwords results in cybercriminals being able to log in to your application just like those users.


Our network statistics at Shape Security show that a typical credential stuffing attack has up to a 2% success rate on major websites. In other words, with a set of 1 million stolen passwords from one website, attackers can easily take over 20,000 accounts on another website. Now multiply those numbers by the total number of websites where users have reused their passwords, as well as the number of data breaches that have been reported, to get a better sense of the threat. Of course, that still only includes the data breaches we know about. And new research from Google indicates that phishing may be an even larger source of stolen passwords than data breaches, making the scope of the problem even larger.

So what needs to change? Cybersecurity teams are working hard to address this problem, of course. Two-factor authentication (where, in addition to your password, you must also enter a code sent to your mobile device to log in to a website) helps. Unfortunately, it has extremely low adoption rates since users find it inconvenient and websites that serve consumers are unwilling to make it a mandatory component of logging in. User education is a long-term industry effort, but educating a society and then creating consistent behavior change is a multi-decade solution to a problem that needs to be fixed now.

A similar problem exists with phishing. Corporations are spending massive resources educating their workforces on the dangers of clicking on untrusted links in emails and text messages, but it’s all but impossible to make 100% of your employees 100% perfect at detecting phishing attempts 100% of the time. This means that it’s just a matter of time and effort for a dedicated attacker to gain access to almost any corporate network.

Companies engage in a repeating cycle of building new services, experiencing public security incidents on them, and then implementing new security controls and protocols, which appear effective—until they are not. One fundamental problem with this repeating cycle is that there is too much “attack surface” for most organizations to defend without unrealistic levels of investment. This means there are too many ways that an attacker can take advantage of any part of the technology infrastructure in most companies to breach them or create harm.

Large enterprises typically operate dozens of security products with growing headcount in all areas of their security organizations. These teams are constantly learning new products, trying to keep up-to-date with new types of attacks, and patching their infrastructure for newly disclosed vulnerabilities. These systems and processes generate more data and work than most teams can process efficiently, which creates predictable rates of success for ROI-driven attackers engaged in schemes like credential stuffing.

The current state of affairs in corporate cybersecurity is similar to how most organizations used to approach much of their IT operations, prior to the advent of public cloud infrastructure. Jeff Bezos has said that the purpose of Amazon Web Services (AWS) was to remove the burden of “undifferentiated heavy lifting” that companies needed to constantly perform to operate their IT infrastructure. The market has validated this value proposition: AWS reported this year that their revenue grew 42% to $4.1B for the second quarter while Microsoft’s cloud business, Microsoft Azure, grew an astonishing 93%.

This same principle is even more important for cybersecurity. Because cybersecurity is so complicated and attacks change so rapidly, it’s untenable to expect every organization in every industry to invest the time and resources to stay ahead of sophisticated cybercriminals. There is also a revolving door of security products they must select, deploy, and ultimately decommission on a regular basis. One chief information security officer of a Fortune 500 company told me that he now asks new security vendors not only how long it takes to deploy their product, but how long it takes to “un-deploy” it, since he expects to only use any new security product for about two years. Clearly, this methodology is not working, as exemplified by the accelerating series of data breaches, fraud attacks, and other security incidents that have been announced over the last decade.

The answer is for companies to approach the problem differently — to improve the efficacy of the entire system. There are examples of such systemic improvements that we can find in other fields. One of the most successful public health interventions of all time was the addition of iodine to salt since 1924. Humans need iodine in their diets, but it’s next to impossible to get enough people to consistently alter their diets to ensure they get enough iodine. Instead of trying to change all of society’s behavior, the system itself was altered to correct the problem more or less invisibly. That doesn’t mean we don’t have public health campaigns and an individual responsibility to eat well and exercise, but it does mean most people don’t have to worry about iodine deficiency anymore.


Similarly, the long-term answer to cybersecurity lies in dividing which cybersecurity challenges should be the responsibility of individual companies from which should come from platforms and services that take responsibility for foundational security. This model allows technology and service providers to make not only necessary, but extraordinary R&D investments to create the best possible security capabilities and practices for all companies. A platform provider spending $1B and hiring from the top of the security talent pool to provide shared capabilities to 100 companies produces far more benefit than those 100 companies spending $100M each on the same “undifferentiated heavy lifting”.

This doesn’t mean that cybersecurity and fraud teams within corporations will shrink or go away—far from it. In fact, cybersecurity has become, and going forward will always be, an issue where even CEOs and boards will be held accountable, so major internal investments are guaranteed. But instead of those teams engaging in the same commoditized activities as the cybersecurity teams in every other organization, they will be able to specialize in those aspects that are unique to their business and leverage their improved expertise to create greater impact in their work.

So will the combination of more effective cybersecurity teams using platforms with foundational cybersecurity built-in provide 100% security? Certainly not. The only way to absolutely guarantee the security of any system is to shut down that system. Instead, practical security is about tradeoffs and ROI. By making a carefully considered distinction between individual corporate responsibilities and platform responsibilities, each can invest more effectively, and we can provide the most security, for the greatest number of users, the vast majority of the time.

How a Fast-Growing Startup Built Its Sales Team for Long-Term Success

by Frank V. Cespedes and David Mattson DECEMBER 04, 2017

It’s common for leaders of sales teams to focus almost exclusively on short-term tactics and current operations while failing to think and act in a way that supports the longer-term needs of their businesses — and it’s hard to fault them. Sales teams must meet the immediate needs of their customers, respond issue by issue and account by account, and meet quarterly goals. As one sales manager noted, “In this job, if you don’t survive the short term, you don’t need to worry about the long term.”

The biggest problem with a short-term approach is that managers develop blind spots around crucial processes such as recruiting, hiring, and training and development.

These blind spots are especially prevalent in growing firms where a common rationalization —“I know those issues are important, and I’ll get to them when the quarter closes and things settle down” — often shapes management’s attention. But ignoring talent processes and strategies can have unintended consequences and stall one’s scaling efforts. There are ways to avoid these blind spots, however.

Splunk, a San Francisco-based B2B software firm, is a case in point. Founded in 2003 with $40 million in venture capital funding, Splunk was among the first companies to target the “big data” space. It had no track record to point to when targeting and interacting with top talent during its early years, and indeed no recognized industry to point to. This situation soon necessitated a creative approach to recruiting, hiring, and training. During the critical early years, moreover, there was a big internal debate at Splunk about allocating time and resources to these activities. Many felt that money and time were best devoted to other activities, ranging from R&D to trade shows.

Here are some insights on how Splunk avoided the blind spots as it scaled.


Any business process is only as good as the people involved. Recruiting — an uncertain and expensive process — is no exception, especially in sales where differences in individual performance are stark. The best salespeople generate orders-of-magnitude more than their average peers: from three to ten times more, depending upon the sales context. Talent matters.

“For recruitment…” says Bart Fanelli, Splunk’s Vice President of Global Field Success, “[w]e set our sights on talent from companies already operating at the level we want to operate at.” That’s a process which requires leadership time and resources, not just a speech about talent at an off-site. So if you’re a $50 million company and your goal is to grow to $250 million, consider targeting hires from firms operating at that level or higher. And to do that, you must make recruitment and hiring an ongoing part of the management culture, not only an HR responsibility.

Interviewing and Hiring

Managers are excessively confident about their ability to evaluate candidates based on personal interviews. Across job categories, there is almost no correlation between interview performance and on-the-job performance. In fact, some studies indicate that interviews can hurt in selection decisions: the firm would have been better off selecting at random! This danger is prevalent in sales. Choosing for an activity where talent varies widely often leads to a cloning bias: many sales managers hire in their own image and assume sole personal control of the interviews.

Better results occur when companies complement a manager’s assessment with multiple interviews with diverse people (to off-set the cloning bias), establish a structured process (so comparisons can be made across common factors), and emphasize behavioral criteria (because gut-feel does not scale). This approach is best supported by simulations, assessments, onboarding programs, and other means that technology is making less costly. But the real constraint remains management’s commitment to establishing, communicating, and keeping up-to-date a clear hiring process.

Splunk developed profiles that specified skills and capabilities relevant to each role. They also established certain behavioral elements, which, in management’s view, were important across roles. For a field sales position, for example, Splunk specified skills that managers could look for and discuss in the applicant’s work history during interviews—e.g., forecast accuracy, messages to relevant market segments, and other categories.

Behavioral elements refer to the on-the-job choices that people make. For instance, is the candidate coachable? Does he or she interact with others without giving a sense of being entitled to special treatment? Do they work hard without being offensive or disruptive in a negative way with others?

Fanelli notes, “We believe both types of screening criteria—skills are applicable to the specific job and culturally-compatible behaviors that we seek in all of our people—are equally important. We all own the culture and I don’t believe that any company can make a habit of hiring brilliant jerks.”


As Splunk grew, these profiles were updated, refined, and became the focus of quarterly reviews. After hiring, sales managers were accountable for coaching and developing their people based on the elements specified in the profile. “Our assumption,” Fannelli explains, “is that if we understand our business, if we get and keep the profiles right, and if we execute the process consistently, we will succeed. The quarterly reviews help to prevent the common scenario where down the road management is sweeping up broken glass due to performance or interpersonal behaviors.”

Processes like this create a healthy mindset. You’ll soon realize that there is only a finite universe of great people out there, and that, in order to land them, you’ll need to improve upon and fine-tune your approach to interviews and hiring. And, hopefully, you’ll learn that great recruitment practices create a multiplier effect: creating a network of good hires generates referrals to more good hires.

Training and Development

Blindness can be a degenerative organizational malady. Many companies, as Fanelli puts it, “reduce their field of vision by following a hire-and-forget approach.”

In a given year across industries, over a third of firms do not train salespeople at all, and common practice has training budgets increase when sales are good and decrease when sales are tough. This approach is not only (in a time-honored phrase) bass-ackwards; it also makes it hard to determine cause and effect. Effective sales training, like most useful development, cannot be a single event. People need reinforcement, periodic upgrading, advice on adapting their skills to new circumstances, and motivational help.

A key is to focus training and development on an analysis of current sales tasks and put in place a process that gives reps, their managers, and leadership timely feedback as they move forward on performance goals.

To scale, you must control what you can control. In Splunk’s case, as Fanelli notes, “we kept a certain leader-to-contributor ratio in mind to make sure the first-line sales leader can train contributors on the desired skills. We track this quarterly, looking at training and coaching with the same attention that we use to review ‘the numbers’ because the effectiveness of our first-line leaders is the gateway to the performance we want to see in sales outcomes.”

Any sales force is composed of people with different temperaments, capabilities, and learning styles. To be effective, coaching and development must adapt to the individual and be updated. A regular review cadence in the sales organization drives the process up the chain and makes it an ongoing developmental tool. “The first-line review process,” says Fanelli, “connects quarterly to every manager in the field. The second-line review (a review of those who manage and review the first-line managers) focuses on a broader set of skills, happens annually, and goes into more depth than the quarterly process.”

Splunk uses a variety of good practices that have helped it avoid common blind spots in sales as it’s grown. But our intent is not to suggest that all companies should do what Splunk does. Markets are different, strategies vary, and so specific practices will and should vary. The lesson is that, once you get beyond lip-service about talent, any company must be worthy of talent by making core processes like recruiting, interviewing, and development a real priority in daily practice. As Aristotle emphasized a long time ago, “Excellence is a habit.”


A little-known digital currency surges 70% after teaming up with firms like Microsoft

Ryan Browne@Ryan_Browne_

A digital currency has added more than $3 billion to its market value after the firm behind it said it was teaming up with a number of big tech firms, including Microsoft and Samsung on a "data marketplace."

Called IOTA, the cryptocurrency saw a spike on Sunday evening, rallying just over 70 percent in the last 24 hours, according to data from industry website Coinmarketcap. Its price soared to an all-time high of $2.54 at 8:29 a.m. London time, up 71 percent from Sunday's price of $1.48. It is now the fifth-largest digital asset by market capitalization, dethroning altcoin Dash.

The rally followed an announcement by the IOTA Foundation, a German non-profit firm that oversees the virtual currency, last Tuesday, that it had partnered with the likes of Microsoft, Samsung and Fujitsu on a blockchain-based marketplace that lets them sell data.

David Sonstebo, IOTA's co-founder and CEO, said data is "the new oil," and that the marketplace project is letting firms sell data to incentivize them to share this data that would otherwise be wasted.

"At present, up to 99 percent of this precious data gathered is lost to the void," he told CNBC in an email. "IOTA incentivize sharing of data through its zero fee transactions and by ensuring data integrity for free on the decentralized distributed ledger."

He added that the marketplace is currently a pilot project, and that examples of data being shared included weather and air quality data.

IOTA 'a sleeping giant'

Sonstebo said that the cryptocurrency's surge in price was due to its approach to blockchain technology and partnerships with established firms.

"IOTA's seemingly 'out of nowhere' explosive growth can be traced back to the fact that it has been somewhat of a sleeping giant," Sonstebo said.

Cryptocurrency to be worth trillions: Union Square Ventures  4:21 AM ET Fri, 1 Dec 2017 | 01:49

"IOTA has resolved the three major issues of blockchain — fees, scaling limitations and centralization — and built up real-world partnerships and projects with world-leading companies since 2015."

Sonstebo added that the cryptocurrency's growth was also owed to its increased publicity.

"Unlike the overwhelming majority of projects in this space, IOTA has not done any paid promo, so now that there's a steady stream of these large news stories the major technological advantages become known to the wider audience," he said.

"I believe this is the reason for the rally, as well as the fact that IOTA just entered China and Korea, which are naturally huge markets, meaning a lot of new people buying."

'Blockless' blockchain

A blockchain is a massive, decentralized database that records cryptocurrency transactions. Its original use-case was as the ledger for all bitcoin transactions.

But IOTA's open-source blockchain platform differs to mainstream blockchain networks which use encrypted "blocks" to record those transactions.

These fintech execs think blockchain will transform the financial services  5:31 AM ET Wed, 11 Oct 2017 | 02:31

Instead the firm's digital ledger, inspired by internet of things technology, is "blockless," and allows users to make transactions on the network for free.

Bitcoin, the world's largest cryptocurrency, has been faced with several splits this year due to frustration over the speed and cost of transactions. Users currently have to pay bitcoin miners a transaction fee to add transactions to the blockchain.

People within the bitcoin community have been pushing for an upgrade to the blockchain to increase block size and speed up the process of mining.

Although the upgrade was shelved in November, some went ahead with the creation of a new bitcoin offshoot called bitcoin diamond.

Bitcoin hits all-time high above $11,700 as recovery accelerates

Evelyn Cheng@chengevelyn

In a massive rebound from a 20 percent plunge last week, bitcoinsurged Sunday to a record high above $11,700.

The digital currency hit an all-time high of $11,773.83, up 8 percent on the day, according to CoinDesk. That's 30.5 percent, or nearly $2,753, from a low of $9,021.85 hit Thursday.

The rapid recovery is the latest in bitcoin's wild swings. The cryptocurrency had crossed the closely watched $10,000 figure Tuesday and topped $11,000 Wednesday, only to drop more than $1,000 in a few hours amid high trading volume that exchanges initially struggled to keep up with.

Bitcoin one-week performance


Source: CoinDesk

On Monday, Nov. 27, former Fortress hedge fund manager Michael Novogratz predicted on CNBC's "Fast Money" that bitcoin could "easily" be at $40,000 at the end of 2018. But Novogratz said Tuesday at CoinDesk's Consensus Invest conference that cryptocurrencies like bitcoin are "going to be the biggest bubble of our lifetimes."

Bitcoin trading in Japanese yen accounted for about 58 percent of trading volume, while U.S. dollar-bitcoin trading accounted for about 23 percent, according to CryptoCompare.

The bitcoin offshoot, bitcoin cash, also jumped nearly 13 percent Sunday, to $1,606.06, according to CoinMarketCap. Digital currency ethereum rose more than 3.5 percent to $480, CoinMarketCap showed.

Bitcoin's rapid gains mean that twins Cameron and Tyler Winklevoss, founders of the Gemini digital currency exchange, are likely the first well-known bitcoin billionaires. The twins together had $11 million in bitcoin at $120 a coin in April 2013. With bitcoin above $11,700, that holding is now worth just over $1 billion.

F.C.C. Plan to Roll Back Net Neutrality Worries Small Businesses

By TIFFANY HSU NOV. 22, 2017

David Callicott needs to be online to run his small company, GoodLight Natural Candles in San Francisco.

Dozens of orders from wholesale customers like Whole Foods and Bed Bath & Beyond are relayed online each day to fulfillment warehouses, which send out Mr. Callicott’s paraffin-free candles. The GoodLight website accounts for 15 percent of its sales, which could reach $1.5 million this year; the e-commerce behemoth Amazon makes up another 10 percent. And many of the company’s business documents are stored in cloud-based data centers.

But the costs of doing business on the internet may be about to rise.

A proposal on Tuesday by the Federal Communications Commission would undo so-called net neutrality rules that barred high-speed internet service providers from adjusting website delivery speeds and charging customers extra for access.

Without those regulations, GoodLight and other smaller businesses fear they may not have a level digital playing field to compete against deep-pocketed industry giants that could pay to get an edge online.

“For such an analog product, we’re heavily reliant on the digital world and the internet for our day-to-day operations,” said Mr. Callicott, who helped found the company nearly eight years ago and now works with three other 

full-time employees. “The internet, the speed of it, our entire business revolves around that.”

The regulations, established by the F.C.C. in 2015, have heavyweights on both sides of the debate. Internet giants like Google and Amazon say that net neutrality preserves free speech; telecom titans like AT&T and Verizon warn that the existing rules put a chokehold on free-market commerce. In a blog post on Tuesday, Comcast’s chief executive, David N. Watson, wrote that his company “does not and will not block, throttle, or discriminate against lawful content.”

Internet service providers say that the proposal would lead to a better variety of services for online customers and more innovation in the industry.

For small businesses, a rollback could fundamentally change how, and whether, they do business. Many started online or turned to e-commerce to expand their thin margins.

“Things are already difficult enough as it is for a small businesses,” Mr. Callicott said. “You’re busy enough just keeping your company running, trying to grow and succeed or just stay alive, that you don’t have the resources or the time to contemplate how to prepare for something like this.”

In the United States, 99.7 percent of all businesses have fewer than 500 employees, according to government statistics. Of those, nearly 80 percent, or more than 23 million enterprises, are one-person operations.

More than a quarter of small firms said they planned to expand their e-commerce platforms in 2017, according to the National Small Business Association.

David Callicott runs a small company, GoodLight Natural Candles, in San Francisco. “For such an analog product, we’re heavily reliant on the digital world and the internet for our day-to-day operations,” he said. “The internet, the speed of it, our entire business revolves around that.” CreditPeter Prato for The New York Times

In August, the American Sustainable Business Council and other small business groups published an open letter to the F.C.C. on behalf of more than 500 small businesses in the country. Weakening or undoing net neutrality protections would be “disastrous” for American businesses, according to the letter.

“The open internet has made it possible for us to rely on a free market where each of us has the chance to bring our best business ideas to the world without interference or seeking permission from any gatekeeper first,” the groups wrote.

Many entrepreneurs worried that, without net neutrality provisions, internet providers would wield their increased power to control how businesses reach consumers.

Online consumers are a demanding crowd. Research from a Google subsidiary suggested that visitors who have to wait more than 3 seconds for a mobile site to load will abandon their search 53 percent of the time.

Critics of the F.C.C. proposal say internet service providers could manipulate traffic speeds to establish a “fast lane” of sorts or cap or block access to certain sites, charging fees to lift the restrictions. Small enterprises would struggle to pay, leaving them at a commercial disadvantage, they said.

Independent contractors like Clayton Cowles, who works in upstate New York, could also be vulnerable.

Mr. Cowles draws the text for comic book publishers including Marvel, DC and Image, and has worked on Batman, Star Wars and other popular series.

Each month, he pays Spectrum, his internet service provider, $90.70 for the company’s most powerful service package, which is supposed to allow him to send enormous digital documents within seconds. Instead, his files sometimes take 15 minutes to be delivered, he said.

A more deeply deregulated Spectrum is one of his “greatest fears,” he said.

“They pretty much have a monopoly,” he said. “I’m stuck with them.”

Changes in net neutrality regulations could also affect the freelancers, franchisees and temporary workers who earn a living doing piecemeal work in the so-called gig economy. Nearly a quarter of American adults made money last year using digital platforms to take on a job or a task, selling something online or renting out their properties using a home-sharing site like Airbnb, according to the Pew Research Center.

A pay-for-play internet system could also be problematic for Codecademy, an education company founded in 2011. Its services include courses on tech-related subjects like data analysis, website design and coding language — all conducted online.

But Zach Sims, the company’s chief executive, said that students, many of whom are aspiring entrepreneurs, would suffer most.

“They’ll perceive it as an unfair playing field,” he said. “As every industry is upended by tech, the barrier to entry is knowing what technology is and how to implement it, but this adds another level of confusion, making the hurdle even higher for normal businesses to participate.”


7 Reasons It May Be Time to Rebrand Your Business (INFOGRAPHIC)

Dec 1, 2017 by Michael Guta In Marketing Tips 0

A new infographic from the Visme blog points out seven instances when it is time to rebrand. Even if these seven examples don’t apply to your particular business, take a look at your logo, fonts, color schemes and other design features to make sure you are keeping up with your particular industry.

Don’t think logo and branding are as important for small businesses as for large enterprises? Consider this. Visme observes, “90 percent of all information transmitted to our brains is visual.  People remember 80 percent of what they see but only 20 percent of what they read.”

Reasons to Change Your Company Brand

Here are the seven reasons for rebranding your business.
1. If your business merges with another one, this is one of the best times to rebrand the new company. Your new rebranding should showcase the best aspects of both companies setting the stage for the future.
2. When you acquire a business, the process mat be the same as in the case of a merger. However, in this instance, the company doing the acquisition has the power to keep the existing brand or create a new one by combining both companies.
3. When  you hire a new company boss or even a new marketing head, this can result in new branding strategies.
4. If for whatever reason your brand is associated with something that is negatively impacting salesor other parts of business operations, it is time to rebrand.
5. When you believe your logo may only be attracting a certain kind of audience or demographic, it might be time to rebrand. By choosing the right color, font and design, you can be more inclusive and attract more people.
6. If you have outgrown the mission of your company when you first started, it is time to let your customers know how you have grown. Let them know your services, products, customer engagement, availability and more has improved.
7. If your logo was designed a long time ago, take a look at it with fresh eyes by hiring new designers to see what they can come up with. Consider how Starbucks, Apple and BMW have continued to evolve. As a small business, you should do the same to stay relevant.

So if you are creating a logo for the first time or rebranding your business, make it one people find pleasing. It will be easier to remember. And if they remember the logo, they will remember your business.

EEOC Earns First-Ever Title VII Court Win In LGBT Discrimination Case

3 Things Employers Need To Know About Landmark LGBT Ruling


The federal watchdog agency that oversees federal antidiscrimination law just scored a milestone victory when a judge awarded $55,500 to a telemarketer who alleged to have been forced off the job because of sexual orientation discrimination. The November 16 decision brings to an end one of the first cases brought by the Equal Employment Opportunity Commission (EEOC) on the theory that Title VII – the federal law prohibiting job discrimination based on “sex” and other protected classes – also prohibits LGBT bias. It also marks the first time that a lawsuit brought by the EEOC on this theory has led to a successful judgment, and should serve as an eye-opener for employers across the country.

Here are three things that every employer should know about this decision.

  • The Judge Would Have Awarded More Money If The Law Allowed

Dale Massaro worked as a telemarketer for Scott Medical Health Center in Pittsburgh for barely a month before, according to the court’s findings of fact, he was forced off the job due to anti-gay harassment. Almost immediately after he started in late July 2013, his direct supervisor began harassing him due to his LGBT status through derogatory comments, gay slurs, and intrusive questions about his personal life and relationships.

Massaro reported the harassment to the owner and CEO, Gary Hieronimus, but his report was met with resistance. According to the court’s findings of fact, the owner refused to take action and informed Massaro that the supervisor “was just doing his job.” The harassment continued, and Massaro felt he had no choice but to quit his job to escape the mistreatment. After his August 2013 departure, the EEOC took up the case on his behalf and attempted to resolve the matter. After those attempts were unsuccessful, the agency filed suit alleging a Title VII violation. The EEOC filed the lawsuit on the same day it also brought another LGBT discrimination claim against a separate employer, marking the first time the agency attempted to enforce Title VII so as to cover anti-gay workplace discrimination. While that other case resolved several months later, Massaro’s case continued through the federal court system.

After the employer failed to offer a proper defense, the court granted a default judgment in Massaro’s favor and held a hearing to determine the amount of damages to award. Judge Cathy Bissoon was prepared to award compensatory damages for emotional pain, suffering, and mental anguish in excess of $50,000, and an additional $75,000 in punitive damages to punish the employer and deter future similar conduct. However, Title VII’s statutory limit for these types of damages for an employer of Scott Medical’s size (fewer than 101 employees) prevented Judge Bissoon from awarding more than $50,000. She also granted Massarro $5,500 in back pay for a total award of $55,500. The message, though, loud and clear from the judge, was that she wished she could have awarded more money to Massaro because of Scott Medical’s conduct.

  • An Unenforced Policy And Lack Of Training Were The Employer’s Undoing

Although the conduct alleged in this case is shocking, some of the more surprising elements include the manner in which Scott Medical handled its human resources responsibilities. According to the court’s findings of fact, the employer had a comprehensive employee handbook that contained a thorough anti-harassment policy, including a specific mention prohibiting harassment based on sexual orientation. However, Massaro was not permitted to read or obtain a copy of the policy, which made the contents all but worthless. And, of course, as evidenced by the findings discussed above, this portion of the policy was not enforced due to the owner turning a blind eye toward Massaro’s allegations.

Moreover, the employer never offered training to its workforce about the anti-harassment and anti-discrimination elements of the policy. The owner admitted that he did not train the offending supervisor on the policy, and he could not identify anyone else who would have provided such training.

This case presents a stark example of a very simple concept: your policies are only worthwhile if you disseminate them, train your supervisors on them, and enforce them.

  • Courts Are Still Split On The Issue, But The Tide Appears To Be Turning

The state of the law is in flux when it comes to the question of whether Title VII covers claims of LGBT discrimination. For years, none of the federal appellate courts would step out on a limb and conclude that the federal antidiscrimination statute should be read that broadly. That changed in April 2017 when the 7th Circuit became the first federal court of appeals in the nation to rule that sexual orientation claims are actionable under Title VII in the Hively v. Ivy Tech Community College case. Shortly before that decision, however, the 11th Circuit Court of Appeals refused to extend Title VII’s protections to cover LGBT discrimination in March’s Evans v. Georgia Regional Hospital case.

That sets up a clear circuit split, and invites the Supreme Court to wade into the conflict to resolve the matter once and for all. The justices are currently considering whether to accept the Evans case for review, and it is possible that they could take up the matter this term and issue a final ruling by June 2018. Until then, however, employers should be sure to follow state laws (which may permit LGBT discrimination and harassment claims), be aware of federal courts that may be willing to follow the 7th Circuit’s example, and be wary of the EEOC. There are many avenues for employees to bring sexual orientation discrimination claims, which highlights the need for strong zero-tolerance policies, consistent enforcement of those policies, and comprehensive training to all of your managers.

OSHA Extends Date for Electronically Reporting Workplace Injuries and Illnesses

Author: Robert S. Teachout, XpertHR Legal Editor

November 28, 2017

Employers covered by federal workplace safety recordkeeping regulations have an additional two weeks to electronically file their 2016 injury and illness data. The Occupational Safety and Health Administration (OSHA) has extended the date by which employers must electronically report their Form 300A data through the agency's Injury Tracking Application (ITA) to December 15, 2017.

In its announcement, OSHA said it extended the deadline to give "affected employers additional time to become familiar with [the] new electronic reporting system" that was rolled out on August 1, 2017. The agency developed the ITA following the adoption of final rules in May 2016 regarding injury and illness data collection and recordkeeping. The rule requires certain employers to electronically submit injury and illness information they already are required to keep under existing OSHA regulations.

The delayed filing date applies to employers with 250 or more employees covered by the recordkeeping regulation and establishments with 20-249 employees in certain high-risk industries. The larger companies will be required to submit information electronically from all 2017 forms (300A, 300, and 301) by July 1, 2018, while the smaller employers will only need to file their Forms 300A. Beginning in 2019 and every year thereafter, the information must be submitted by March 2.

Employers in the following states, which have not adopted the electronic filing requirement in their OSHA-approved State Plans, do not have to electronically file 2016 Form 300A injury and illness data:

  • California;
  • Maryland;
  • Minnesota;
  • South Carolina;
  • Utah;
  • Washington; and
  • Wyoming.

State and local governmental establishments in Illinois, Maine, New Jersey and New York also are exempt from using the ITA to submit their data. However, the final rule requires OSHA State Plan states to adopt substantially identical requirements to the final rule's requirements within six months after publication.

Bitcoin Futures Could Trigger a Lehman-Style Collapse, Billionaire Warns

Bitcoin prices soared to a new high last week on the news there will be a futures marketfor the currency starting on Dec. 18. But not everyone is optimistic.

According to billionaire Thomas Peterffy, CEO of the brokerage giant Interactive Brokers (IBKR, +1.88%), there’s a small but very real possibility that a futures market for the volatile crypto-currency will cause the financial system to buckle and trigger a crisis similar to 2008.

Peterffy told Fortune he’s relayed his concerns, which he described in a full-page letter in the Wall Street Journal, to the head of the country’s commodities regulator, but was told the agency can’t do anything to slow down the launch of the new bitcoin products.

Clearing Houses Pose ‘Lehman’ Style Risk

When banks loaded up on too many worthless mortgage-backed securities, it triggered a series of insolvencies in 2008 — most notoriously at Lehman Brothers — and a full-blown financial crisis. Could bitcoin set off something similar?

Peterffy, who is one of the world’s richest men and is known as “the father of high speed trading,” believes a 2008-style chain reaction could arise from the bitcoin futures market. He fears the soon-to-be-launched futures contracts, which are intended to allow traders to hedge the price of bitcoin in the same way they do barrels of oil, lack adequate guardrails.

The focus of his fear is the clearing houses that settle futures contracts, and serve as backstops in the event one of the parties defaults on their obligation. If the price of bitcoin falls dramatically (as it has done in the past), the clearing houses could be left holding the bag for traders that bought contracts on the assumption the price would increase — and can’t cover the shortfall.

While Peterffy says larger clearing houses could absorb this risk, he fears smaller ones might not. In the worst case, they would burn through their liquidity trying to cover bad bitcoin bets, and be unable to cover their obligations to clear futures contracts for other assets.

“The issue is they’re putting bitcoin in the same basket as U.S. Treasuries, stock index futures, and all the really serious products,” said Peterffy.

He’s not reassured by the fact the exchanges that will offer the futures contracts, CME Group Inc. (CME, +0.83%) and Cboe Global Markets (CBOE, +0.67%), will ask customers to post an usually high margin requirement of 35% for bitcoin. Peterffy says that price swings above that range will lead to defaults, and force clearinghouses to turn to the market to cover their position, which will in turn cause bitcoin prices to fall further.

A bitcoin-related liquidity crisis at smaller clearinghouses is not probable, Peterffy says. But if there is such a crisis, he warns it would quickly contaminate the rest of the financial system.

“My fear is in the unlikely event something like that happens, we’ll have something like Lehman Brothers — or worse,” he said.

For more on bitcoin, watch Fortune’s video:

Explaining the Swings in Bitcoin’s Price

Bitcoin has been on a tear since the start of 2017. But according to Fortune’s Jen Wieczner, the cryptocurrency’s due for a downturn.

Mark Zurack, a finance professor at Columbia University, believes Peterffy is sincere in his concerns but doesn’t think the a clearinghouse crisis will materialize. He does, however, worry about bitcoin’s volatility combined with the fact it is not tethered to any real-world asset.

“Let’s say bitcoin crashes and goes down 75% in a day. It’s possible,” said Zurack. “The tricky thing about bitcoin futures is there isn’t any real bitcoin to move around to settle the futures.”

Meanwhile, Peterffy worries the regulator charged with overseeing the new futures market, the U.S. Commodity Futures Trading Commission, has been too quick to bless an untested product.

Regulator’s ‘Hands Are Tied’

The push to introduce bitcoin futures, Peterffy says, is being egged on by exchanges that are anxious to seize a first-mover advantage in what is likely to be a very profitable market. He believes CME and Cboe’s rush to be first led them to self-certify with the CFTC without preparing for a worse case scenario.

Under CFTC rules, exchanges can introduce new financial products — including futures contracts — so long as those products comply with a series of principles published by the regulator. Since the bitcoin contracts proposed by CME and Cboe meet those standards, the CFTC had to allow them to go forward.

“I spoke to [CFTC Chairman Christopher] Giancarlo, and he said his hands are tied,” said Peterffy.

He added Giancarlo told him the agency did not have the power, under the self-certification process, to impose either of the two safeguards he proposed in his Wall Street Journal letter: Limiting bitcoin clearing to large clearinghouses, or requiring bitcoin futures contracts to be cleared apart from other assets.

According to Peterffy, the CFTC should not have allowed the self-certification to go ahead, and instead introduced a rule-making process, including a 60-day comment period, to oversee bitcoin futures.

A CFTC spokesperson, meanwhile, responded to questions about the process by directing Fortune to a fact-sheet about bitcoin products it published on Friday. The sheet reads in part:

“Staff has assessed potential risk of defaults in these futures contracts […]. Based on analysis of different stress scenarios, staff estimates that any potential impact will not be significant […]. CFTC staff will continue to monitor potential risk factors closely and work with the [exchanges] to ensure that the health of the clearing system is maintained.”

A person familiar with the agency also told Fortune that the CFTC is in regular contact wit the CMO and Cboe, and has been advising them for months about how to structure the futures contracts to comply with principles. The person added the agency currently believes the bitcoin futures market will be too small to pose a systemic risk to the financial system, and that it can revisit its decision if such a risk starts to materialize.

A spokesperson for CME pointed to the exchange’s public comments on the risk issue, and told Fortune the exchange will put the proper risk measures in place.

“We’ve said before that we recognize bitcoin is an emerging market and, without a doubt, there are issues to work through. CME is implementing a variety of risk management tools such as margin levels, position and price limits, and credit controls to appropriately manage the risk of listing and clearing Bitcoin futures,” said the spokesperson.

Two weeks ahead of the launch of the bitcoin futures contract, the currency’s prices remained near all-time highs. Early Monday, one bitcoin was trading around $11,500.

Tax Reform and Small Businesses

On November 28, 2017, SBA Administrator Linda McMahon joined Senate Republicans at an event to highlight issues faced by small businesses relating to tax reform. Highlights from the discussion include Senator John Cornyn’s mention of changing “pass-through” taxation for S Corporations, as well as Senator Deb Fischer discussed her proposal for a 25% tax credit on paid family leave for small businesses, which she said is geared toward helping hourly workers. Also in attendance at this event were representatives from several business associations. Archived video footage can be viewed here.
There are varying opinions on whether current tax reform efforts would achieve the Committee’s mission and help small businesses. On November 20th, Senate Small Business Committee Democrats released a statement of opposition to the Republicans’ tax plan, which you can find here.
Some opponents of the tax plan, including Senator Ron Johnson (R-WI), claim that the bill prioritizes traditional corporations over “pass-through” businesses, which some say would hurt small business in favor of big business. Further, recent polls have shown that Americans favor individual tax breaks, but do not support corporate tax breaks. More information can be found here.

What’s in and what’s out in NDAA?

According to an article from Set-Aside Alert, there are new rules to expand HUBZones and to increase micro-purchase and simplified acquisition limits. There are also new restrictions on agencies from getting credit for small business contracts, and the SCORE program for small businesses did not get reauthorized, and a senate proposed provision to lower the employees-living-in-HUBZone requirements to 33% was dropped. Those are just a few of the latest developments in the National Defense Authorization Act for Fiscal 2018 (NDAA). 
A conference of House and Senate members has negotiated a final version of the NDAA. The Conference Report version of the bill can be found here. For more information see the Set Aside Alert Vol. 25, No. 23, 2

Will NDAA’s “Amazon” market hurt small business?

According to an article in the same Set-Aside Alert, even though the latest version of the National Defense Authorization Act for Fiscal 2018 (“NDAA”) waters down the so-called ‘Amazon’ provision, its still presents a potential threat to GSA Multiple-Award Schedule contract holders, many of which are small businesses. 
Section 846 of the NDAA authorizes the development of one or more e-commerce platforms for commercial items that could be purchased by the Defense Department. The newer version requires substantially more market and legal research in order to fulfill the requirements of the section. The NDAA says that GSA must assess the impact on small business set-asides and GSA schedule holders. However, specialists are warning small business GSA schedule holders to monitor the marketplace carefully because it could have major repercussions on them. 


If the Federal Watchdog Office Works for Contract Protestors, Why the Decline?

According to an article posted in the Federal Contracts Report, several reasons could explain the decrease in bid protest filings in 2017 despite an “effectiveness” rate showing that the Federal Watchdog office regularly provides relief to contractors.
There has been a 7% drop in filing bid protests in fiscal 2017—from 2,789 to 2,596—and there are various reasons available as likely explanations; including but not limited too, the disqualification of overly enthusiastic protestors, raising the minimum contract value threshold for valid protests, and reliance on the U.S. Court of Federal Claims.
This drop occurred despite the GAO’s 47% effectiveness rate for protestors. The rate comes directly from instances in which protestors convinced: 1) the GAO to sustain a protest; or 2) an agency to fix a procurement error with corrective action. With the effectiveness rating remaining constant over the last two fiscal years, and its gradual increase over the previous five fiscal years, it appears that contractors are becoming more selective when deciding when to file a protest. For more information see the Federal Contracts Report Vol. 108, NO. 19, 474-475.


Can a Captive Insurance Company Help You Keep Your 8(a) Certification?

November 17, 2017

By David J. Medalia

At the beginning of 2017, the Protecting Americans from Tax Hikes (“PATH”) Act went into effect. One of the changes implemented by the Act altered how small and medium-sized business owners can use captive insurance companies (“CIC”). A CIC is an insurance company that is owned by the business itself either solo or along with other businesses that have the same insurance needs, rather than owned by a third-party provider. The CIC is a favored device of small and medium-sized business owners, because of special tax treatment the IRS allows to certain CICs.


Pursuant to the PATH Act, if a CIC receives $2.2 million or less in net premiums annually (the cap was previously $1.2 million), then the CIC is not taxed on the premiums received, but instead only on investment income earned from those premiums. Additionally, the business owner who pays those premiums gets to deduct them from his or her taxable income as an ordinary business expense. That means a business which otherwise would have $2.2 million of taxable income could deduct that sum, reducing taxable burden or even triggering a taxable loss to be carried back and forward to other tax years. Moreover, the dividends that the CIC pays out to its shareholder beneficiaries are taxed at capital gains rates, which are lower than ordinary rates. 


CICs, if structured properly, may also be a tool for Section 8(a) owners to comply with SBA’s total assets test, which states that the individual upon whom eligibility is based may not have total assets exceeding $6 million. Total assets include the value of the business and the individual’s principal residence. Section 8(a) program participants with successful businesses may find it difficult to comply with the total assets test, especially if the individual upon whom eligibility is based owns 100% of the company. Consequently, removing cash from the company and putting it into a CIC can help lower the company’s total assets and thus help an 8(a) owner keep his or her certification. However, caution is warranted since, depending on the way the CIC is structured, SBA could find that the companies owning the CIC are affiliated, which may create size issues. Further, there are tax considerations which must be considered before investing in a CIC. 

ABOUT THE AUTHOR: David Medalia is a new associate at PilieroMazza who focuses his practice in the business and corporate group. He may be reached