This busy Tuesday morning, I am persuaded to make a short post provoked by — of all things — a bumper sticker I came across this weekend on the back of a race car ahead of me at Sears Point Raceway (aka Infineon). 

On first read, the bumper sticker alluded to the obvious trade-offs weekend racers must continually make in the delicate balance of speed, performance and safety. More broadly, however, it speaks to the management of risk and reward in a world tightly governed by constraints — constaints made by physical laws (pretty much non-negotiable), those constraints that are financial in nature (what economists would call scarcity), and those having to do with sheer will, nerve, or guts. As the sticker laid bare, one almost never gets all three at one time. Which two one wishes to have at any one point is the ultimate decision a company leader (or race car driver, for that matter) must make, and make time and again.

In the start-up world, the parallels are fairly obvious: Start-ups teams typically eat, breathe and sleep constraints of some form or another. Some believe this need to manage constraints is a rite of passage and focuses the mind of management teams to develop their core products and services without distraction and temptation brought about often by too much available capital, too many idle resources, and too many chefs in the kitchen. As an early mentor — a renown venture investor in his own right — taught me years ago, start-ups rarely fail from being too focused. Indeed, it is often the distraction and the temptation to ‘boil the ocean’ that gets young founders and their companies into trouble. Awash in opportunity, management teams can fall victim to wanting to pursue every initiative, every possible new revenue line item, every new partnership possibility, at the risk of diluting the company’s core focus and value proposition.

Cheap, Fast, Reliable - Pick Two. The key point here (and, hence, the irony) is that most emerging growth companies will ultimately never survive in the long term without possessing all three characteristics in their business model and processes. How to reconcile the Catch-22 depends upon how a management team makes the key early decisions about what is most important to focus on, and when it is most important to focus it there. Does being the low-cost provider make the most sense at launch, or should one launch with a bullet-proof product that is fast and responsive, build a customer beach-head, and then drop prices as volume increases? Then again, will the focus on building a bullet-proof, fast and responsive product take so much development time and so many resources that one will miss the window of entry and end up playing catch-up to a cheaper, inferior product that launched earlier and is now far ahead in terms of users/customers and is rapidly erecting switching costs around that user base? Tough questions.

Clearly, there is no uniform right answer. Each market is different, there are different issues and drivers at play, and one can rarely plot a strategy from a conference room table and execute it by rote without regard to how quickly the sands shift. Management teams (and their advisors and venture investors) must be supremely flexible in the current environment and be able to navigate a world where one rarely has everything one needs when needed. Some technologists are loathe to release any product that is not perfect. Some investors think it’s anathema to launch certain initiatives without a full team in place ready to manage the onslaught of orders, press inquiries, resumes, etc. The truth is that those proclivities on the part of certain leaders and investors are something of a luxury. One reads often in the business and trade press about risk management and personnel management. A less well-trodden subject that is arguably even more relevant for start-up management teams is, for lack of a more pithy term, “constraint management.” How a team manages being deprived of resources for long stretches of time can be the difference between an ultimately successful large enterprise, or another start-up bust. In future posts I will endeavor to spend more time on the issue of the unique stresses start-up founders and their teams must face and overcome in order to be successful. If you have interesting stories of your own challenges and stresses experienced in the pursuit of building your companies, I’d like to hear them.

The--ahem--NEW Dodge Challenger

I’m a car guy.  Always have been. As a penniless student I was one of those people that would make the (false) economy of happily subsisting on a steady diet of Top Ramen and Pop-Tarts if it meant I could pay for that new performance chip on my banged-up 911. But with age comes wisdom, and one reaches a point in life where the Bohemian pleasures of hitch-hiking or crashing on friends’ couches just does not hold the allure and proletarian nobility it once did. It was maybe that or the free breakfasts at Holiday Inn Express. Can’t decide.

In any event, get a car guy to reminisce about early Steve McQueen movies or discuss the plot twists in gear-head classics like Vanishing Point or Dirty Mary Crazy Larry and you’ll be there a while, so get comfortable. Car guys love to wax poetic about vintage horsepower and the evocative shapes and visceral, fry-your-loafers, bugs-in-your-teeth driving experiences inherent in 1960s-70s GT cars. It is perhaps not surprising, therefore, that the auto industry cleverly exploited the graying of the baby boomers by re-issuing versions of its most famous badges - Charger, Mustang, Beetle, Thunderbird, and now, Challenger.

Demographics are only part of the reason. Simply looking at the evolution of car names tells you a lot about the degradation of the automobile from a symbol of power, freedom and often excess to a dull, quotidian appliance. Cars used to have great names: Falcon, Dart, Fury, Cougar, Firebird, Mustang, Charger, Barracuda, Hornet, Starlight. Now we have Elantra, Sentry, Altima, Camry, Sienna, Corrolla, Tercel, Maxima. There’s even a Nissan SUV called the Murano. Murano is a small island off Venice famous for its artisans that produce delicate glass sculptures and figurines. Delicate glass is hardly something you want to equate with a muscular, go-anywhere, do-anything SUV. As Jerry Seinfeld might say, who were the overpaid branding geniuses that came up with that one? That’s almost as bad as the luggage manufacturer that—get this—launched a line of luggage named after Amelia Earhart. Yes, Amelia Earhart luggage. Luggage that honors someone most famous for getting lost and never being found. Braaaavo.

When the Beetle was re-imagined in the mid-1990s, I applauded. Smart thinking on VW’s part, I reckoned. The idea was a simple one: Resurrect the image and nostalgia of that instantly recognizable car that made your company famous–quick!: can you think of any other VW model?– and bring it into the 21st century. It worked wonders for VW. Ford followed suit shortly thereafter with the Thunderbird, although the line between tasteful homage and shameless exploitation was starting to blur. By the new millennium, the Mustang re-appeared and, with its success, the “retro” boom was in full swing. Some automakers that did not choose to resurrect a model from their glory days still played the retro card by simply launching new models that evoked the style and details of earlier road card, often not even their own models. Chrysler’s 300 and it’s PT Cruiser are the most famous and successful examples. The 300’s Bentley-esque front grill and the high waist of 1930s gangster saloons gave the 300 a sleek, slightly menacing stance. A clever marketing push followed and the 300 became (for a while, at least) the ride of choice for rap artists, athletes and urban hipsters.

But, with the Challenger, one must conclude that this trend has decidedly jumped the shark. Too often, what is worth doing is worth overdoing - at least for the Big 3 which have a terrible history of blowing huge strategic advantages by not pivoting quickly enough to address new market realities. GM’s recent shuttering of several SUV and light truck plants is another example of a bloated company not adjusting to changing market conditions. In a $4/gallon world, GM should have been throttling back SUV and light truck production for a while now. Everyone knew this day was coming. Instead, GM continued to stamp them out like CDs. Those blunders will continue to crush the SUV/light truck aftermarket and hurt its dealer network for years to come. How Rick Wagoner continues to hold a job baffles me.

The “new” Challenger epitomizes a troublesome trend of “retro rehash” that I have seen in too many markets now. The fashion and music industries are other segments where the pre-occupation with trotting out new spins on the golden oldies that worked for so long has eclipsed real intellectual work on their part in actually innovating new designs (fashion and apparel) or discovering and promoting new music that is not entirely derivative or referential. Interestingly enough, the woes of the music industry are eerily similar to those of the auto industry. Music industry execs love to whine about piracy, peer-to-peer file sharing, concert ticket prices, and a host of other evils to explain their troubles, but the real culprit is prevalent “me-too”-ism in signing artists and a lack of innovation and creativity on the part of the entire industry. The auto industry–and to a lesser extent, the music and fashion industries–have been for a long time utterly bereft of any real innovation. This “retro” boom is simply the most clear manifestation of this lack of innovation. Why bother creating new products that customers want when you can rest on old ideas that you can simply re-introduce with a little tweaking?

In the end, I think the “new” Challenger is as doomed as was its original namesake. Auto buffs will remember that what ultimately buried the 1970s Challenger was the one-two punch of a gas crisis and performance figures that did not break any new ground. The original Challenger simply debuted too late. By the time production ramped up, the muscle car boom that began in the mid-1960s was well on its way out. The 1973 oil shock was just the final stake through the heart. With the new Challenger, the similarities are ominous. $4 gas is killing the appetite for big, raw, powerful vehicles. Heck, even GM itself is considering selling the Hummer–the epitome of the brutish, thirsty, muscular SUV–and Ford has already sold Aston Martin, Jaguar and Land Rover. Perhaps now, the automakers, the music execs and the fashionistas will begin thinking more about innovation and how their very existence will likely depend on it. There simply aren’t any more bodies to exhume. Old wine in new bottles is simply not a sustainable strategy.

Let me start by first saying that I generally like conferences. They are often a great way to connect with colleagues and service providers to the venture business that I typically only interface with sporadically during the year — and even then, often via email, conference call or through some other quasi-technologically enabled medium. That said, conferences can be a time sink. I also find the ”content” at these affairs to be on the wane, particularly those events targeted at venture industry professionals and the businesses that service them. Put bluntly, the modern venture industry conference is hewing dangerously close to becoming an irrelevant echo chamber. There is simply too much filler, too many of the same faces every year saying versions of the same thing at every conference, too much marginalia, too many self-congratulatory tributes, too many resume recitations and thinly veiled fundraising pitches. Not enough self-reflection, not enough contrarian thinking and challenges of conventional approaches, not enough panelists challenging others about basic market assumptions and predictions. Not enough mea culpas.

I realize conferences are not intended as exorcisms of past demons, or a recitation of misdeeds, or of great deals missed, or of lousy investments green-lit. Indeed, who would want to attend such a thing, much less to do so at $3,995 a pop? But a true “trade” conference, as opposed to an emerging company forum like DEMO or TechCrunch50, are supposed to be opportunities to convene an industry to network, re-connect, combine on opportunities, address industry challenges, and sometimes commiserate on the state of the profession. If a trade conference strays too far from that mission, it ceases to become an assemblage of the industry’s top professionals to meet, discuss and network and risks becoming just another ‘pay-to-play’ trade show . 

Trade conferences have some work to do to re-invigorate the medium and re-establish its relevance in an industry clearly going through some re-calibration and re-inspection. I am confident the main conference exhibitors can meet the challenge, but doing so relies heavily on the assumption that they realize there is a problem.

Last week the 19th annual IBF Venture Capital conference convened in San Francisco. Not surprisingly, some of the bullishness evident at recent conferences was replaced by a more cautious, measured perspective from the attendees and panelists. While I would say there are few “new” ideas to emanate from these affairs, having esteemed colleagues articulate in front of 200 people what you have been noodling with in your head for the past few months helps underscore one’s intuitions about what is occurring in the venture business and how the industry needs to respond.

As is my custom, I like to scribble notes from panel discussions and keynote addresses when I come upon a pithy observation or insight. Rather than prefacing these remarks with context, I am simply presenting them here as uttered, without elaboration. Many speak for themselves and, surprisingly, retain more power when they stand alone, without comment or context.

From an “Investing in a Downturn” panel:

- “Money is a proxy for time, so make damn sure your company has enough cash to make it through the downturn. If a dollar does not absolutely need to be spent, don’t spend it right now. Spend for growth, nothing else”

- “There is always a bull market somewhere. The US market is tough, but the dollar is very weak and international opportunities abound. Have your portfolio companies look abroad for opportunities to sell their products and services.”

- “We are definitely entering a period of longer hold times (for venture investors.) Manage your fund and fundraising accordingly”

- “There is a lot of foreign capital in China, Korea, the UAE and elsewhere looking for a home. They will begin competing with venture investors for venture deals. They already are.”

- “Every portfolio company CEO and every VC needs to take a long-term view now. We must re-emphasize capital efficiencies”

- [For VCs] “Try to work with syndicate partners that will be around to support the portfolio company through the downturn. Work with firms that have a reputation for hanging in there in the tough times. Reputation is key.”

- “Make sure the board and the investors are properly communicating with one another”

- “Make sure the board’s investors are ‘walking the plant floor’ - i.e. they really know what’s going on at the company and who the people are at the company, not just grabbing a sandwich and Coke at the board meetings and not even getting to know the name of the receptionist.”

From an “Early Stage Investing” Panel:

- “This is great time for early stage investors because a lot of what we do has little to do with exogenous factors. Because such factors have little bearing on getting a company to build its first product, the downturn often means less froth, less distraction, less competition for talent and resources, and more time and attention to focus on building a young company”

- “In terms of deal flow, the downturn means fewer entrepreneurs, but better entrepreneurs. The ‘born’ entrepreneurs are still going to launch companies and find good partners; the entrepreneurs that are not as talented or driven will likely stay in their corporate jobs fretting over getting laid off, not trying to launch start-ups.”

- “We are seeing a renewed focus on disruptive business models as opposed to disruptive technologies. An example of a disruptive business model is one where a company is leveraging a spin on a large market that an incumbent can’t accomplish itself without cannibalizing its own business.”

- “Spending cash for eyeballs is totally dead as a business strategy right now”

- “Capital efficiency is tossed around liberally with regards to early stage investing, but it applies to all stages of venture capital, not only early stage.  Great consumer internet companies, in particular, have launched with very little money and developed into powerful businesses. Companies that require a lot of money at the outset may still become great companies, but rarely make good venture investments”

And finally, most sobering of all…

- “VCs need to embrace the current market, not complain about it. They must adjust their investment models to the market. They can’t have it both ways: They can’t complain to their LPs that the market is unattractive and not invest and still expect to collect management fees on capital not being managed.”

Time was (and that time was not all that long ago) that the departure of a recognized general partner/managing director at a similarly recognized venture firm would be a buzzworthy 2-3 day story within venture circles.  Turn that “departure” tale into one where the departure involved that same investor joining a competitor firm and tongues would be wagging for some time.

In just the past few days, word has come out of the NVCA annual meeting that not one, but at least four, well-known and well-respected GP-level investors have left their respective firms to — in most cases — join a rival firm. If not unprecedented, this revelation certainly strains my memory to recall anything remotely similar in recent years. To be sure, partners retire. Other times, particularly when a firm has suffered poor returns or during a market downturn, partners are sometimes asked to, ahem, ”make other career arrangements.” This is often so the firm can retrench or reposition itself; it can also just be because of a strategy shift or because there has been internal rancor in the partnership for some time and, as such, a decision was reached to make a change.  

Regardless of the particular circumstances, in virtually all cases there have been carefully planned transitions and sealed lips on where things went off the rails in these investor-partnership relationships. “Smiles and handshakes all around” is often the party line.

While I send my best wishes to all those investors who have recently moved to new firms, I do ask myself whether this is a harbinger of things to come in the industry. To state that many partnerships have been under strain in the past year is to state the obvious to anyone with regular dealings in this industry. Conventional thinking has long held that continuity is critical in investment partnerships. I think that belief is going to be strained. It is a truism that many limited partnerships, when considering an investment in a venture fund, look at the continuity and ties of the investment team. This is particularly the case when you are talking about venture funds that typically have a 10-year life. That said, with this spate of recent departures — and the community’s response to them by taking the news in stride, for the most part — one has to wonder whether we are entering a new period in the venture community where “moving across the street” from one firm to another much in the traditional style of investment bankers or corporate attorneys will become the norm in the venture community. I don’t have a crystal ball here, but I am anxious to hear other people’s viewpoint.

The deal that so many thought HAD to be done went belly-up in the wake of face-saving gestures and last-minute posturing. In the end, many analysts close to the 3-month drama are coming around to the idea that this was doomed to begin with. The Ballmer-Yang tango was simply too caught up in the always flammable combination of ego, desperation and klieg lights.  

AllThingsD’s Kara Swisher gets the nod for breaking the story and, if that was not enough, following up with a thoughtful, well-researched rundown of the tick-by-tick events, along with a good autopsy on where things really went off the rails here.

My preliminary take on it is that what ultimately killed this acquisition was a combination of puzzling strategic missteps (Ballmer), growing internal rancor at MSFT that began to pollute the combination, pride (Yang), and hubris and miscalculation (Yang and Ballmer). In the final analysis both parties were about $5 Billion away. That fact alone would not have (and should not have) tanked the deal. So, clearly, in the final analysis this was not about money. If Microsoft really wanted to move forward it would have countered Yang’s $37 figure and a medium would have been found, in my estimation. It chose not to do so because, in my view, by that time too much distrust and animus had crept into the water supply and things became irretrievably broken.

Both sides lost, in my view. Who ends up the bigger loser remains to be seen, of course. If Yahoo! CEO Yang wants to package this to his troops as some kind of victory, it is a Pyrrhic one at best.  Options for the company are still about as unpalatable as they were before this entanglement, perhaps even less so depending on what happens to YHOO stock next week. Some have opined that MSFT has $50 billion now burning a hole in its pocket, but acquisition targets are few and largely complicated in their own right. Some small properties might be acquired (Twitter? Digg?) but they will be, by and large, at the margins and not game-changing in any dramatic sense. A big move is what is required here, and there are not that many big moves left on the chessboard.

In any event, one oddity to come out of this all was Yang’s implication that Yahoo would embark upon a kind of ’scorched earth’ policy in the event MSFT went hostile. That, in and of itself, is not unusual in M&A discussions of this magnitude. What was surprising, however, were the steps Yahoo! planned to take to muddy the waters so severely that MSFT would almost have to reject the transplant were the acquisition to proceed in a hostile fashion. The spitefulness of doing something that only makes sense so as to hurt another suitor was remarkable.

Reminds me of an old joke (with some modification for political correctness purposes) about a group of jungle explorers who are captured by cannibals. The cannibals bind the explorers and place them in a bubbling cauldron back at the campsite as young cannibals dance around them rejoicing. The cannibal chief approaches the explorers and informs them that they are to become dinner. The explorers’ skin will then be used to make canoes. The “good news”, says the chief, is that the explorers can choose how they wish to die. The first explorer, a Frenchman says, “I will take zee sword.” The chief hands him a sword. The Frenchman stands up and says, “Vive la France” and runs himself on the sword. The next explorer, a Brit, says “I will have the pistol.” The chief hands the Brit a pistol. The explorer stands up and says, “God Save the Queen,” and shoots himself dead. The third explorer, a New Yorker, says “I will take the fork.” Puzzled, the chief hands the explorer a fork. The explorer begins stabbing himself profusely with the fork, drawing copious amounts of blood and revolting all who are witnessing it. The chief says to the New Yorker, “why are you doing this?.” The explorer replies calmly in his thick Tony Soprano-esque accent, “So much for your f___ing canoe”.

This is firmly in the Only-In-Silicon-Valley column and is strictly meant to be all in fun: A reporter at a well-recognized periodical called me recently to remark on the odd and disproportionate appearance of exotic and super luxury automobiles on Fridays in the Valley — particularly on and around Sand Hill Road. She wanted my venture perspective on it all. I told her I’d need to do some more in-depth research to get to the bottom of things. And, while I was on the subject would her newspaper push through a requisition order for a lease on a Ferrari 599, preferably Rosso Corso with Tan interior, so that I might better be able to infiltrate the herd unnoticed. The phone went dead. 

Seriously though, in what some folks are saying (tongue firmly in cheek) is a new rite of Spring in the tech world, the highways and byways of Silicon Valley seem bumper to bumper with sleek Italian and German machines on Fridays…and, typically, only on Fridays. What do fast-rising venture capitalists, successful entrepreneurs and senior tech executives drive to work Mondays through Thursdays, you ask? Toyota Priuses, Hybrid Ford Escapes and other fairly nondescript, often eco-friendly, econoboxes.

So, on this lazy and balmy spring afternoon, as you nip out of the office for that critical 3pm coffee reboot, scan the parking lot. If you are seeing more Rosso Corsa than red, more Exeter Blue than Blue, and more Titanium than Grey, you’ve got a Casual Car Friday office. Spring is definitely here. Pass the margaritas. Gran Centenario Anejo, rocks, no salt.

Loosely translated, this Latin maxim means “He who remains silent is understood to consent.” As maxims go, it will not be compared anytime soon to Google’s “Don’t Be Evil”, but the power of such a creed — the power to motivate, inspire, etc — at an emerging company can be significant.

These words were scrawled on a yellowed piece of Legal pad paper and taped to the door of the Frigidaire in the office pantry at my first company. The author never revealed him or herself and, frankly, it never really mattered. The motto became a defining statement for our company in the months to come. People would mutter it under their breath at board meetings when difficult decisions had to be made and not everyone was clearly on board (but few voiced their opinions to the contrary.)

The point was a simple one, and one that was particularly poignant at a company founded and run by then-twenty-somethings who were doing things for the first time (and often doing it badly): Speak up. If you are uneasy with decisions by superiors you need to voice that. Too often in early stage companies, people nod when they should ask questions; people are mute when problems are beginning to surface; and people avoid confrontation when a confrontation is exactly what needs to occur.

Forget about what it says on the business cards. CEOs at start-up companies — particularly the first kind ones — are often terrified every moment of the day with what to do. They have been told enough times by self-help manuals and pop psychology business books, however, never to project that uncertainty or insecurity for fear it will unsettle the troops and telegraph weakness. This is sometimes decent advice, but too often it brings unwelcome outcomes. The net result is that people swagger and feign confidence when they should be asking for help and guidance. True, sometimes it’s best that that help come from outside the company — from board directors, investors and advisors — rather than from employees and direct reports, but sometimes even that external help is too late to save a company. Too many promising companies have run aground because a proud founding team waited too long to seek help. They then make the all-too-familiar and fatal mistakes of (1) surpising their board with bad news — NEVER a good idea; and (2) they wait so long that the board can rarely do much to save the company once the problems are finally aired openly.

I raise this issue now for a few reasons. There has been an unpleasant rash of reports in the business news and international wires recently about former CEOs CYA’ing themselves over earlier deeds at their former companies, or about now-retired military men and former cabinet officials airing their views on military misteps in the Iraq matter. What is oddly convenient is the timing of these revisionist histories. Regardless of one’s opinion on the Iraq War, as one example, the time to raise issues is at a time when those opinions could have been of value. Watching Jack Welch second-guess GE’s Jeff Immelt, or hearing Paul Volcker castigate Alan Greenspan over Greenspan’s swipes at Ben Bernanke is distasteful and sophomoric.

Unfortunately, the venture/start-up community is not immune from such CYA behavior. The old saw that JFK re-popularized after his own Bay of Pigs fiasco, “success has a thousand fathers, but failure is an orphan,” could be elaborated upon to suggest that failure may not have a thousand fathers but it can have a thousand Monday Morning quarterbacks who have strongly held opinions about why the failure occured. The catch, however, is that those opinions come with 20/20 hindsight and were never aired when it could have helped matters.

The message inherent in this post, for early stage founders, is to do your best to instill at your companies a strong sense of openness and communication that is unfettered by policies or reporting bureacracies or misaligned incentives that would impede candor from those you need input from. Don’t just issue the standard ”my door is always open” drivel. Make it a part of the culture. Succeed in creating that kind of enterprise and you will find problems when they can be nipped in the bud and not stamped out in a flurry of litigation months later when an irate and blind-sided board has to step in. 

Friday morning I had an exchange with a delivery van driver that seemed to set the course for much of the day’s thinking around the state of the media business, content migration, and overall advertising-based revenue models.  In truth, it was a brief conversation — mostly consisting of nods, grunts and gestures — and one that would not normally interrupt the flow of a workday. On this occasion, however, it directly touched on a sensitive gripe of mine that I had been having trouble finding a succinct way of articulating.

The driver was merely trying to do his job. I found myself, oddly enough, trying to prevent him from doing that job. His job? Delivering new Yellow Pages phone books to my home. (Another set had already arrived at the office earlier that morning.)

He was insistent. I was more insistent. He backed off and sheepishly removed the stack of books from my front stoop and back onto his van. Apparently, I had not been the only one to stymie his delivery rounds that foggy San Francisco morning.

I began thinking about the interchange. I was, in effect, rejecting the delivery of something I had not ordered, was not consulted about, did not offer consent over, and, in fact, did not want. It occurred to me that this was a fairly recent phenomenon. I did not recall many occasions in the past when I was faced with this “opt-out” dilemma. I then realized that this was becoming an increasingly common problem. Searching for supporting data for my emerging hypothesis, I popped the lid of my blue recyclables bin and, eyeballing it for a brief moment, gauged that some 30-40% of its weekly contents consisted of “free” local papers and other media that I, too, had not requested nor been consulted about. Pulling on that thread long enough I quickly saw therein a troubling parallel for what many startup business models were predicated upon — “pushing” content versus having it “pulled” by qualified consumers — and what the implications were for overall valuations for companies adopting this precarious approach.

Think for a moment about the Yellow Pages. Put aside, for the time being, the usual knocks you hear - i.e., it’s a dead business, the internet has disintermediated it, it’s just for the geriatric set now, etc etc. Those arguments, while valid, miss my central point. At its core, the Yellow Pages business is focused upon driving viewership which, in turn, drives its advertising rate and its core revenue model. Yellow Pages prints up half a million books so they can be delivered to half a million homes so that Yellow Pages can tell advertisers that the advertiser’s 1/4 page ad will be in half a million books in half a million homes. End of story. What’s left conveniently out of the discussion is the true value of the penetration of that advertisement to that audience. How valuable is each recipient of the Yellow Pages and how does that translate into revenue for Yellow Page advertisers?

In effect, by accepting the Yellow Pages, I become one of that audience. I, for one, would be a terrible customer for Yellow Pages advertisers and, I fear, a fairly typical one. My last three editions of Yellow Pages books are propping up a bookcase in my garage (2004 edition), forming a backstop to a trapdoor in the tool shed (2005) and supporting a TV in the home gym (2006), respectively.  And yet, my receipt of Yellow Pages books each year makes me a “viewer” or “user” as Yellow Pages is defining it and, therefore, I, in a minuscule way, have an impact on what Yellow Pages is charging its advertisers to “sell” to me.

Who, then, is maintaining the statistics for the average annual use of the Yellow Pages in a home that accepts copies of its books, at no charge, and still uses it to find local plumbers, personal injury attorneys, and pizzerias that deliver? Virtually any layperson with even a modest exposure to current web technologies would quickly surmise that, all things being equal, ”effective” Yellow Pages usage in any given home has declined, perhaps precipitously, since the emergence of the what we now consider the modern internet.

For decades, in traditional publishing a consumer’s (or, in this case, a reader’s) value to an advertiser was fairly easily gauged. These readers ’subscribed’ to a publication. There was a cost associated with receiving that publication. That cost, even a nominal one, served to “qualify” that lead for an advertiser. That reader, if you’ll permit the analogy, was clearly interested in, say, outdoor pup tents because he was a subscriber to Field and Stream magazine, paid $19 a year to receive 12 issues of the publication, and renewed each year for the past five years. The cost of the subscription was the “entry cost”, or the glue that cemented the relationship and loyalty of that reader to the content matter and the advertisers whose wares mirrored that magazine or periodical’s affinity or area of interest. Simple enough to understand

Now, however, that model is pretty much on life support, if not dead outright. Magazines are being given away in offers and promotions (i.e. trade in your expiring United Mileage Plus miles for these ten magazines, etc) or sold at subscription prices that barely cover shipping and production. The “entry cost” has effectively evaporated to nothing and along with it, the true underlying value of the “readership” figures these magazines, newspapers and periodicals use to support their advertising rate cards. Who is asking the tough questions, then?

Renowned psychology professor and controversial author Robert Cialdini, in his excellent book Influence, uses psychological principles to explain what most laypeople understand common-sensically: people tend to place a low value of that which they acquire with little effort or at little cost. Media, in all its forms, has become so ubiquitous and free that “readership” or “viewership” has little consequence as a gauge of potential revenue. As I see it, for the purposes of venture-backed companies “pushing” content in this way, what needs to happen is a more structured, formalized means of more realistically and effectively gauging the value of viewership, readership, etc in a world where increasingly there exist no “qualifiers” or “entry costs” for consumers to receive the content and engage with the companies providing the service. If you believe that premise, then you must also believe the premise that customer loyalty for these same companies must be at a level far below what we would consider typical or expected for these types of companies in the recent past. Customer “loyalty” for media-based companies, then, (as we have long understood the notion) must be in decline at a frightening rate.

What all this noodling means, to my mind, is a need for investors and management teams to apply greater rigor in analyzing what “viewership” or “readership” really mean to emerging web companies in the internet/content/Web 2.0 sphere where valuations are too often driven in large part by user traffic, content and services are being “pushed” to drive user metrics rather than being pulled by paying customers, and there exist little or no switching costs. We have already seen some “value realignment” in the social networking sphere (see my earlier piece, $15 Billion Folly regarding Facebook) and we will likely see a good deal more carnage as most social networking sites still struggle with the ‘hot new club’ problem or fall victim to it (Friendster, anyone?)

As goes the famous Chinese curse, “may you live in interesting times.” Yes, indeed, things are definitely getting interesting around here.

As the Tom Hanks character, Capt Miller, says in a pivotal scene in Saving Private Ryan, “We are in uncharted waters here, and things have taken a turn for the surreal.”

Predictably, the finger-pointing regarding the mortgage bailout/credit crisis mess is well underway–even while the fallout is far from over and office pools on which Wall Street lion is next to fall (Lehman? Citi?) rivals the betting pools on some March Madness brackets. Perhaps fittingly, certain Wall Streeters whose banks were elbow deep in subprime mortgage CDOs are now adopting the “blame the victim” strategy as a way to allay their own damning culpability.

Wall Street firms in general, and Bear Stearns in particular, were never considered soft and fuzzy places of employ. As more than one former Bear banker recalled to me, Bear Stearns was a place where stabbing in the back was not only OK, it was rewarded. How ironic that the firm legendary for its sharp elbows and tough love demeanor (remember their refusal to help in the 1998 Long Term Capital Management bailout, anyone?) is now whining that, in effect, the bald-pated devil by the name of Ben Bernanke made them do it.

As Dennis Millermight say, I don’t want to go off on a rant here, but…This latest argument emanating from the economists at Bear Stearns is unmitigated gall.

John Ryding, Bear’s chief economist, and his cohorts argued in a recently released report that the Fed’s fast-and-loose monetary policies were squarely to blame for the housing crisis and–by extension–for the fall of the house of Bear. Mr. Ryding is a bright fellow. I actually know him personally and have enjoyed more than a few adult beverages with him at any number of overpriced Manhattan hotel bars discussing all manner of subjects. But, on this issue, he is clearly overreaching.

Yes, it’s fairly evident that Fed policy–principally under Greenspan, although Bernanke was a Fed governor during the relevant period–did stoke the housing and credit bubble. It can also be persuasively argued that the Fed dragged its feet on taking away the punch bowl once the froth starting appearing with earnest in 2004-2006. Blame can also be squarely placed on both political parties for either blocking legislation to regulate predatory lending or simply not enforcing existing laws and oversight responsibilities. No matter. The unravelling has begun.

What’s positively laughable is that these Bear economists are making the argument that the Fed is responsible for the egregious risks their bank and its affiliated hedge funds took–even while the sub-prime market was clearly beginning to buckle. Other Wall Street banks may have sipped from the same glass but they had the foresight to back away and maintain proper exposure. Losses are now being sustained throughout Wall Street’s pedigreed firms, but not to the extent that they have been at Bear Stearns as to wreck the legendary firm. Bear Stearns doubled down, pure and simple. It took enormous risks. Had those risks paid off, I doubt there would have been any appetite among the Bear Stearns partnership to share those spoils with the US taxpayers. Now that those bets have imploded, it is the US taxpayer (through a complex arrangement worked out in the JPMorgan deal) that will be on the hook for as much as $29 Billion. That’s Billion with a “B.”

 I’ll search my files from other equally comical excuses in US business lore, but it won’t be easy.  Heck, I’ll even settle for run-of-the-mill excuses. The infamous case of the woman suing McDonalds because her coffee was too hot comes to mind, but it’s not nearly good or ironic enough. How about, “sorry I totalled your Lamborghini, Dad, but you made the garage too easy to break into and I am young and impressionable.” Actually, that’s not all that funny–happened to a friend of mine.

In any event, all manner of crises bring out creative finger-pointing but these from Bear Stearns may represent a new level of cowardice, hubris and gall. Bravo, gentlemen. Braaavo.