Wall Street Journal: the coming collectable car crash

posted by Ian Wyatt | November 26, 2008

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Yesterday, the Wall Street Journal published an article titled "A Rough Ride in Collectible Cars" on the same day as my blog post about a visit to Ferrari and Lamborghini in Italy, and slowing market for collectable cars. The Wall Street Journal article points out some recent examples of the slowing market for collectable cars, including recent auctions on Monterey and the sale of actor Steve McQueen's Porsche, which sold for just over $100,000, well below the sale estimate.

If you're a car lover and interested in how the financial crisis is impacting collectable cars, this article is a great read. Click here for the Wall Street Journal article.

Maranello, Italy: Home of Ferrari and Lamborghini

posted by Ian Wyatt | November 25, 2008

Posted in Travel | Comments (1)

On our recent honeymoon to Italy, I convinced Carrie to take a couple days in Bologna. Bologna is known for its rich Italian food, some of the best in the country. You may be familiar with Bolognese pasta, which takes its name from the region.

Within a short drive are to of the best known Italian sports car companies, Ferrari in Maranello and Lamborghini in Sant'Agata Bolognese. We spent one day of our honeymoon checking out these amazing cars and the places they are designed, manufactured, and tested before being sold to the wealthy exotic car owners throughout the world.

First stop was Galleria Ferrari, the official museum of Ferrari, a 2,500 square meter exhibition for cars new and old, ranging from the old classics to the brand new models, including an extensive collection of race cars and memorabilia.

For anyone who loves sports cars, the Galleria is an amazing visit. Enzo Ferrari started the car company in 1947, focused on producing world class, 12-cylinder race cars. The company has since evolved into the epitome of Italian cars, producing great race and road cars. I've loved Ferrari since I was a teenager with car posters on my wall, and a visit to Ferrari was simply an amazing experience. Unfortunately, a factory tour is only available to current owners, which restricted us from arranging a visit (apparently Ferrari knows where every single car every produced is located, and arrangements months in advance by your local dealer are required).

Second stop was the Lamborghini museum. The museum itself was much smaller, with only about 20 cars on display, including many prototype cars which have never been produced. The history of Lamborghini is also rich, although not as in depth as Ferrari. The number of models ever produced is much smaller, as is the total number of units sold.

We were fortunate enough to be able to tag along on a factory tour for an extra 20 euros each, as a Diablo owner from the Netherlands happened to be going on his tour at the same time. The cars go through 25 assembly stations where they spend 45 minutes at each station. All are custom built, with everything from the exterior color to the stitching on the leather seats being selected by the owner. Each car goes through 150 hours of manual assembly. Current production cars include the Murciélago (~$250,000) and the less expensive Gallardo (~$150,000). The cars look amazing, with great color combinations, huge V10 and V12 engines, and impressive performance.

Outside the factory, there are roughly 25 new cars that are recently completed and being tested. While cars are tested on a factory race track, all are also driven on the roads outside Maranello, where the cars are driven to test the real driving experience of the Italian country roads.

As a kid, I always loved the Italian sports cars. A visit to these places will turn any car lower into an Italian car enthusiast and aspiring Ferrari owner. Unfortunately, they are so damn expensive.

The bad news (or good news, for aspiring owners?) is that the economy U.S. economy is bad, and the global economy is slowing quickly. Certainly the effects of the economy are weighing on new automobile sales, and the used car market must also be suffering.

In the December issue of Sports Car Market magazine, Ferrari historian, race driver, and broker reports that "six months ago we received one or two calls or emails a day from people who wanted us to help them to market and sell their Ferraris. Today we receive half a dozen calls or emails every day, and the number is growing." Another article from the November issue of the same magazine titled "Highs and Whys in Monterey" ended with "...Ferraris are not cars, but commodities, and their value is a reflection of the ever-changing economic world in which they change hands. As in all markets, it's simply a case of supply and demand. Right now, the supply is ramping up and the demand is winding down."

The case could be made for leveling if not declining prices for Italian exotics in the coming years. Think of all the Wall Street bankers or real estate millionaires who took their less than hard earned cash to purchase the latest great sports cars. Certainly, many of these individuals will be unable to afford such purchases in the coming years. And at the same time, existing owners and collectors who are getting older (and poorer) may be looking for liquidity. Selling a Ferrari or two may yield the desired cash in a difficult market.

With collector cars, specifically Ferraris, seeing their values soar in recent years, it is now surprise that they slowing global economy may be hurting sales of these exotic cars. While those truly collectable Ferraris (those in the +$1 million range, of which there are many) may remain more stable, I have to believe that the market for mid to lower end Ferraris including many models from the 70s and 80s including the Dino, Mondial, 308, 328, 348, 355, and Testerossa will be falling substantially in the coming months and years as supply outstrips demand.

I have to wonder if the bubble for collectable cars will be bursting soon after the housing market in the United States. Maybe when the stock market comes back to life and my investments recover in a decade or two, I'll look to buy a 1980s Ferrari Testerossa at a bargain price. Even if it doesn't gain in value, at least I'll have a lot of fun driving the back roads of Vermont.

More photos in the Photo Gallery.

Deloitte Technology Fast 500 Names Business Financial Publishing #66 Fastest Growing Company

posted by Ian Wyatt | November 23, 2008

Posted in Business Financial Publishing | Comments

Business Financial Publishing was recently named to the Deloitte 2008 list of the fastest growing companies. Rankings are based on percentage of fiscal year revenue growth over five years, from 2003–2007. Business Financial Publishing grew 3,791 percent during this period.

While it is nice to be recognized and receive this award based upon our past performance in the years leading up to and through 2007, I recognize that 2008 is proving to be a much more challenging year than last year. While Business Financial Publishing is unlikely to be receiving similar awards for our performance in 2008, I hope we can remember these significant achievements of our past, and lay the groundwork for similar growth and recognition in the years to come.

Click here for the Business Financial Publishing press release announcement.

Click here for more information on the Deloitte 2008 Technology Fast 500.

Sequoia Capital Presents Doom and Gloom: R.I.P Good Times

posted by Ian Wyatt | November 11, 2008

Posted in Venture Capital | Comments

Over lunch today with Daniel of the Vermont Center for Emerging Technologies, we were talking about Zappos and their plans to cut 8% of their workforce. Daniel mentioned that TechCrunch had posted the 56-page Powerpoint presentation that was shared with all portfolio companies of the Silicon Valley venture capital firm Sequoia Capital, a major backer of Zapos.

If you haven't seen this presentation, check it out by clicking here now (note that you can watch the presentation in full screen as well, as the images are small).

As Sequoia Capital points out, the crux of the problem is that the housing crisis is spreading rapidly to other areas of the U.S. economy, as homeowners are facing foreclosure, and even those in good standing are no longer able to borrow against the inflated value of their homes. Additionally, consumer savings has been negligible or non-existent for several years. Consumers in this country are tapped out on their lines of credit, meaning their spending is grinding to a halt. As consumer spending declines, the economy is slowing, and people are losing their jobs and unemployment is rising. Sequoia sees three significant area of its investment portfolio facing increased challenges and market contraction: advertising, e-commerce, and mobile.

Sequoia's message to portfolio company CEOs:

1) Manage what you can control (spending, growth assumptions, earnings assumptions)
2) Focus on quality
3) Lower risk
4) Reduce debt

In order to survive the downturn, companies must:

1) Must-have product
2) Established revenue model
3) Understanding of market uptake
4) Consumers' ability to pay
5) Assessment vs. competitors
6) Cash is king
7) Need for profitability

The presentation finishes "Get Real or Go Home".

Also interesting from the venture capital world is an email from well known Google (Nasdaq: GOOG) angel investor Ron Conway to his +100 portfolio companies. Click here to see that email on TechCrunch as well.

I think the major takeaway is that Silicon Valley venture capital firms continue to fear for the worst, and prepare to weather the storm. Small businesses such as ours need to continue to trim fat from the business model and get ready for a prolonged downturn in the U.S. economy. Many small and nimble firms such as ours will weather the storm and emerge as stronger growth companies on the other side. However, our business six months or one year from today is likely to look very different.

Record Unemployment Hits Small Businesses

posted by Ian Wyatt | November 10, 2008

Posted in Economy | Comments

The U.S. economy continues to show signs of prolonged weakness with a report last week from the U.S. Labor Department that 240,000 jobs were lost during the month of October, bringing unemployment to a 14-year high of 6.5%. The negative report for October follows worse than expected job losses of 284,000 in September (versus an estimate of 159,000).

Small businesses have long been considered a driving force in the creation of new jobs fueling economic growth. However, along with the thousands of jobs being eliminated at major corporations throughout the country, small businesses are also holding back on new hires and looking for positions to be eliminated.

Small businesses such as my company, Business Financial Publishing, haven't been immune to the suffering economy. Many small businesses, while entrepreneurial and high growth during the good times, have had to cut back as a result of the economic slowdown and collapse of the financial markets. Unfortunately, many small businesses have been impacted by reduced spending and tightening budgets at larger companies. While we may not be directly impacted by the tightening credit markets, our customers are. And the consequence of this is less spending on all things ranging from R&D to advertising and marketing.

In a 2008 survey of companies included in the Inc. 500 by Inc. Magazine, all of the companies indicated that they planned on increasing their employee headcount in the next year. I suspect like us, many of these great growth companies have put the brakes on their growth plans.

While we included ourselves among those Inc. 500 companies that had ambitious growth plans for 2008, we are now in the unfortunate position of being forced to eliminate three full time positions in the last few weeks in an attempt to reduce our costs and bring expenses in line with our declining revenues. While these decisions have been difficult, our need to sustain a healthy business have forced us to proactively confront issues related to our cost structure.

I'm hopeful that 2009 will bring renewed interest and recovery for the financial markets. 2008 has proven a more challenging year than expected, but I'm confident that we have a great team in place to help get us back on the path of growth and prosperity.

Barack Obama Tax Increase

posted by Ian Wyatt | November 5, 2008

Posted in Financial Markets | Comments

Yesterday Barack Obama won the election for U.S. President, and will become the first African American to lead our great country. It has been a remarkable campaign and election, and this historical outcome is something we will remember for the remainder of our lives.

I got some great feedback to my blog post from Monday titled "Why Barack Obama’s Tax Plan Hurts Small Businesses, Entrepreneurs, and the Economy." I've posted their emails to me as anonymous posts to the blog. Check out the comments section by clicking the title of that blog post, as my friends have some interesting thoughts and feedback. I'll take a moment in this post to respond to some of the key issues.

A couple comments focused on taxation of companies that file as S-corporations. At the end of the year, the net income from a S-corp that has not been invested during the year is considered income to the shareholders. This income flows directly to the taxable income of the owners. Whether the owners actually take this money from the company as an owner draw and move it into their personal accounts, or leave it in the corporation's accounts, the income is taxable as personal income at the individual's personal income tax rate. Therefore, even if the company earns income which the owner intends to retain in the company for investment in the next tax year, that income is taxed.

Few small business owners have the best interests of the economy and job growth at heart when making decisions. But all consider their own best interests. Growing a company and increasing its revenues and income is in the small business owner's best interest. Why? Because they earn more. But the consequence of a small company's growth is job creation and economic activity that benefits other companies. So regardless of whether or not we think the business owner earns more income with lower taxes has the best interest of the U.S. economy in mind when making decisions, he or she clearly does have his or her own best interests in mind. And those interests will guide the business owner to make intelligent decisions about their investment of capital to grow their business and increase their net worth (or to make other decisions about where their money is spent or capital invested). And even if they don't reinvest in their own business, but instead buy stocks, build an addition on their home, or spend that money on a new BMW, isn't that activity also stimulating the economy and / or generating tax revenue for Uncle Sam?

Some of the numbers I included in my original post were incorrect, and didn't include some of the tax breaks that Barack Obama has proposed for small businesses creating jobs. I think the more than the new president can do to give small businesses a break and stimulate the economy, the better off we will all be. But I don't believe that raising taxes on people earning greater than $250,000 will stimulate the economy, and historical evidence shows that it will in fact have a negative effect on growth and job creation, two things that I feel are necessary to help pull the U.S. economy out of the current downturn.

I agree that given the many mistakes of the Bush presidency, the U.S. government needs to increase tax revenues. Unfortunately, the U.S. taxpayer has to pickup the bill for the mistakes of the last eight years. I recognize that generally speaking, those people earning greater than $250,000 are better able to afford higher taxes. But at the core of my argument for not raising the highest marginal tax bracket is the fact that historically, decreasing the highest marginal tax rate (and tax rates across the board, for that matter), stimulates the economy and actually increases overall tax revenues. It will be interesting to see what Barack Obama does to to taxes in this country once he takes office in 2009.

Why Barack Obama’s Tax Plan Hurts Small Businesses, Entrepreneurs, and the Economy

posted by Ian Wyatt | November 3, 2008

Posted in Financial Markets | Comments (7)

Election day is tomorrow, and I've been meaning to weigh in on Barack Obama's tax plan and what I believe it means to small business owners and entrepreneurs across the United States. Let me start this off by stating I'm a big fan of Barack Obama. As an independent voter, I'll likely vote for him in tomorrow's election for a whole lot of reasons beyond this one issue, where I find fault with his judgment on what is best for the U.S.

At the crux of the Barack Obama tax plan is a tax cut on the +95% of the American population who earn less than $250,000. This group of the population would see the following tax cuts: $500-per-worker tax credit for people who earn less than $150,000 and do not itemize. $4,000 credit per child in college. And seniors who earn less than $50,000 would pay no federal income tax.

Barack Obama would like to have every American thinking that anyone earning over $250,000 a year is fabulously wealthy, and therefore can afford greater taxes without consequence (and that it is their responsibility to pay more). $250,000 in annual income is a lot, and puts these households in the top 5% of income earners in the country.

The problem is that many of those people in this country who earn greater than $250,000 are small business owners. Lets take a hypothetical small business called Widget Factory. Widget Factory is a sole proprietor LLC (a very common business formation for small businesses) owned by Joe (not Joe the plumber). Widget Factory has annual sales of $3 million. Joe is paid a healthy, but not excessive CEO salary of $150,000. After expenses, Widget Factory earns a profit of 15%, or $450,000. The company is successful, and has grown over the years creating lots of jobs.

As a sole proprietor LLC, Joe is taxed on his regular income. But with an LLC that files as a S-corporation (again, very common), the income from the company flows directly to Joe's personal income tax, and is taxable as personal income. So Joe's taxable income is $600,000, not $150,000. Even if Widget Factory retains 100% of its income for future investments such as a new factory or salaries for new employees, Joe must pay taxes for Widget Factory on his personal income tax return.

Under the current tax law, Joe would pay 33% on income between $164,550 and $357,700, and 35% on income above $357,700. His total federal tax bill is $181,575. Under Barack Obama's tax plan, Joe would pay 39% on all income above $250,000. Assuming that his taxes on all income below $250,000 remained the same, his new federal income tax bill would be $197,729 ($61,229 on the first $250,000 of income, plus 39% X $450,000 = $136,500). His federal income taxes increase by $16,154 under Barack Obama (note that my back of the envelope calculation doesn't take into account all the other intricacies of the tax plan from Barack Obama).

But that is only the start of the increased taxes. Barack Obama also plans to apply a social security tax on all income above $250,000. As a small business owner, Widget Factory pays 7.5% of his social security, and he individually pays the balance. But since Joe owns the company, he is essentially picking up the entire tab. So on the $450,000 in income above $250,000, Joe pays another 15%, or $67,500.

Joe the small business owner will see his taxes increase $83,654 under Barack Obama. I'm not suggesting that we should feel sorry for people earning over $250,000 per year. Assuming that the average Widget Factory employee earns $40,000, this $83,654 that will now go to the government could have instead paid the annual salary for two new employees.

There are two problems.

First, small businesses typically lead the charge in job creation. The more the government taxes these small businesses, they less capital they have available to do things like invest in infrastructure and hire employees. The less they invest in these things, the slower their growth becomes. In turn, their profits (future taxable income) grows at a slower rate. And as their growth slows, they are less likely to hire more employees (or may hire fewer). This means there are less new jobs, and fewer people to participate in the economy (and be taxed).

Second, studies have demonstrated that increasing the highest marginal tax rate does two things. It results in slower growth rates for the economy (since the government is taking capital away from businesses), and it results in lower overall tax receipts. This has been seen in European countries including Ireland and Russia. The opposite was also in the United States, following the Bush tax cuts (lower taxes = higher growth).

Historically, lowering the highest marginal tax rate increases growth, creates more jobs, and increases overall tax receipts. Sounds like a proven recipe for success. It is not a zero sum game of taking money from the rich to fund the government's spending. There are consequences to increased taxation, and unfortunately, the resulting slower growth coupled with fewer new jobs won't help to bolster the already struggling U.S. economy.

So why DOES Barack Obama want to raise taxes on those earning more than $250,000? Not in order to pay the upcoming bills for new government spending (he could do that by maintaining or lowering the highest marginal tax rate). It is unclear to me, and seems that this aspect of Barack Obama's economic plan may be flawed and is based upon the assumption that all people earning more than $250,000 are very wealthy, and have the responsibility to pay incrementally more in taxes.

If Barack Obama is elected, which I believe he will be, and he passes his tax reforms (which I believe he will, with Democrats controlling the House and Senate), taxes for profitable and successful small businesses throughout the country will increase. The result will be lower investments by these businesses, and the creation of fewer jobs here in the U.S. (and perhaps a greater need to outsource by small businesses in order to increase profit margins). And the economy may continue to suffer.

Hopefully once elected, Barack will reexamine the potential real negative consequences of a tax increase.

As one of my business advisors said to me last week, Barack Obama's plan is "trickle up poverty, not trickle down economics."

Back from Italy, and back to work

posted by Ian Wyatt | November 2, 2008

Posted in Travel | Comments

My new wife Carrie and I are now back from a great three week honeymoon that took us on a tour throughout northern Italy. Out travels took us to Venice, Bologna, Florence, Siena, Porto Ercole, and Rome. It was an amazing three weeks of visiting city sites, touring the Tuscany countryside, and relaxing at the beautiful coast on the Mediterranean Sea. With warm people and outstanding food, and wine, combined with an amazingly beautiful countryside and historically impressive cities and art makes Italy a top vacation spot in my book. I am however ready for a no-pasta diet after three weeks of consuming Italian food every day, at every meal.

I'm now back in the United States following our wedding and honeymoon, and am getting back into the swing of things at work. The past four weeks have seen significant losses in the stock market, and this has been having a negative effect on our business at Business Financial Publishing.

I have been monitoring the financial markets during my trip abroad, and was in regular contact with the Business Financial Publishing leadership team in Washington, DC discussing the impact of the financial crisis on our business. Last week brought some big gains to U.S. stocks, and the election on Tuesday will likely eliminate a certain amount of uncertainty that is weighing on the market as a whole. So long as there is a decision on Tuesday, I believe the markets will fair better, and the worst may be behind us. While the financial markets may have bottomed and could be on the road toward recovery, the underlying fundamentals that led to the current financial crisis (sub prime mortgages, over borrowing by consumers, high oil prices, declining home prices) remain in tact, and are unlikely to be solved in the coming weeks or months. I believe these are deep rooted issues that may take one or more years to filter through the economic system and see some sort of resolution, regardless of the actions taken by this and the future administration in Washington DC.

It is good to be back at work catching up on the rapidly evolving economy, stock market, and business environment. It is likely to remain a challenging business environment for weeks and months to come, but I would rather be on this side of the Atlantic working with my great team to overcome these challenges.

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