Author Archive: Gary Kinman

August 6, 2009

Punishing Success

Let’s say you worked for years to become a world class athlete. As a kid, you were in the gym while other athletes were at the movies. You were in the weight room on Saturday nights when no one else was there. You shunned pizza and soda in favor of grilled fish and fresh fruit. By the time Letterman hit the evening airwaves, you were well into restorative sleep. You were out the door for your morning runs while other athletes snoozed. As a result of all this, now you perform at an elite level and are very successful at your sport. Suddenly, you find that there are people who have a vested interest in helping you maximize your athletic potential. Your coaches, your managers, and companies who pay you to endorse their products all want to see you do your best. Why? Because doing your best helps them be more successful.

So, they provide you with all the things you need to maximize your potential. You get the best training gear and training regimens. You get the best nutrition. You get the right amount of rest. All these things help you maximize your potential. Thus the relationship is a nice symbiotic cycle – the more success you experience, the more success your coaches, managers, and endorsement companies experience. Win-win. Makes sense, right?

So, imagine the silliness if your coaches, managers, etc., made the decision that because you were so fortunate in your success that you had to “give back” almost half your resources to train the athletes who loafed, stayed out late, partied and gorged on pizza. Because you’re such a hard-working and smart athlete, you don’t need all those resources to participate adequately in your sport, they rationalize. Consequently, you don’t hit your potential, your coaches and managers don’t distinguish themselves, and endorsing companies don’t call you. You then feel that you’ve been punished for your hard work and success.

Sadly, much of our government policy falls under this flawed logic. The IRS just released their latest income tax stats for the year 2007. For that year the top 1% of earners paid 40.4% of all income taxes collected. We all know that right now we’re coming out of a recession and we really folks to invest in businesses and hire people to get the economy moving. So how do the 2007 numbers compare to, say, the 1980’s? During the ‘80’s, we managed to shake off the “stagflation” of the ‘70’s and get the economy rolling again. It was during this time that many technology juggernaut companies were spawned – Microsoft being a good example. So, how much of the income taxes in the ‘80’s were paid by the top 1% of earners? The average for the 10 years from 1980-1989 was 22.2%.

Let’s do some quick math. $1.116 trillion in income taxes was collected in 2007. Of that, $455.3 billion was paid by the top 1% of earners. If they paid 22.2% as in the ‘80’s, they would have paid $247.8 billion in taxes, and right now we’d have $207.5 billion MORE dollars invested in our economy. That would be quite a stimulus package! Our current policy punishes success and chokes off fuel from our economic engines while we’re trying to climb out of a worse recession than we had in the ‘70’s. Not smart.

Some may think that this would simply mean that our government deficit would be $207.5 billion higher. This is not the case at all. These folks that make up that top 1% didn’t get there by being lazy or not putting their money to work. I know some folks in that group, and they WANT to put their money to work! I know one gentleman who had to be told some legal docs for a deal could not be prepared over the weekend because Christmas was on that weekend. These folks are like the world class athlete I mentioned above – by and large they’re disciplined and hard-working. Their money will build new businesses and create more jobs, and the government will collect far more revenue from this new economic activity than it would give up in collections from these top 1% folks. Think about it – how many of us have ever been hired by a “poor” person? Instead of punishing economic success, we should encourage it!

Bottom line, if government policy were to make sense, it would encourage these folks to maximize their economic potential and find the correct balance of revenue to collect and yet still promote economic growth. What would we prefer? That the government collects 50% of $1 trillion or 30% of $2 trillion? Hint: 30% of $2 trillion is a WAY better deal.

At SoftLayer, we think very differently about things. We simply do not punish our customers for succeeding. We empower them to be more successful – why? Because if our customers succeed, we succeed. We get this.

Can we prove this? Perhaps a look at how customers vote with their feet is an indicator. For the past few months, SoftLayer has seen the lowest percentage of customers terminating business with us in our history. If we punished our customers for their success, they would go elsewhere.

June 10, 2009

Medieval Financial Techniques in the 21st Century?

Recently I had the chance to attend the annual Beyond Budgeting Round Table (BBRT) conference to help me keep up on my CPE credits. Those darn accounting licenses have to be maintained, ya know.

I was pleasantly surprised at the conference that SoftLayer was already doing the crux of what this group preaches – namely, that assembling an annual budget and trying to live by it is a colossal waste of time!

One speaker pointed out that budgeting originated back in medieval times long before the Industrial Revolution. During those days, the feudal system was the order of the day. Landowners allowed people to live on their land and raise crops. Once per year, when the harvest came in, the landowners received payment from the people living on the land in the form of a share of the crops or a share of the gold for which the crops were sold. Since the landowners were paid once per year, they had to plan how to make their annual payday last for a whole year. You guessed it – this plan was called “the budget.”

Unfortunately, most companies and organizations today use this horribly outdated financial management technique to run their business in the fast-paced information age economy of today. In most cases, this just flat doesn’t work.

For example, one of the speakers was the CFO of a very large healthcare organization. He said that back in the days when they produced an annual budget, there were 240 budget managers that spent 90 days of full-time effort to produce the annual budget. That equates to 60 man-labor years of total time to produce that budget. If you assume that each of those managers averages $50K per year in compensation, the cost of producing that budget is $3 million. What’s worse is that the CFO said it was worthless before the final version was printed because it was built on stale fundamental assumptions that were several months old.

Once these obsolete documents are produced, they become static financial contracts. They limit spending for each department, and this isn’t always a good thing. Some departments may see some fantastic market opportunities develop halfway through the year, but they can do nothing to take advantage of them because they would exceed their budget. On the other hand, some departments can be allotted too much money, so they go on wasteful spending sprees at year end to be sure and use up their budget or else lose that funding next year. People often ask for permission to exceed budget, but usually no one gives back any unused budget dollars. Even worse, management compensation is often tied to these obsolete financial contracts. Business schools are awash with case studies of bad business decisions that were made to maximize bonus compensation in relation to the budget.

From the beginning, SoftLayer realized the futility of producing an annual budget. In the rapidly developing business of web hosting, the landscape can dramatically change much more quickly than an annual cycle. So we implemented the policy of maintaining a rolling forecast that is updated to the best of our current knowledge each and every month. This practice has served us well, and is one of the “best practices” adopted by the BBRT.

Another best practice recommended by BBRT is to maintain multiple forecast scenarios that factor in macroeconomic possibilities. Then as reality develops, you have a better handle on the tactics to implement because you now know what most of these decisions should be in advance. At SL, we will be implementing the multiple scenario practice over this summer.

April 25, 2009

Facebook and Geezers

Last week, more rumors about the valuation of Facebook were flowing. So, is Facebook the real deal? Or will it go the way of the CB radio “social networking” experiment in the 1970’s?

Last weekend, I attended an event that indicates that Facebook has more staying power than those old CB radios. It was a quasi high school reunion. Since a lot of graduates of Brownwood High School (my alma mater) wind up in the Dallas-Ft. Worth area, a 2-3 hour drive away from Brownwood, we had a get-together in Grapevine, TX for Brownwood High grads living in the area.

At the event, the oldest grad I bumped into was from the Class of ’81 and the youngest I saw was from the Class of ’90. Yes, there’s a “19” in front of those graduation years, making the age range of people I saw between ages 37 and 46 years of age. I won’t disclose where I fit in that group, but in the world of Facebook, we’re all pretty much “geezers” I imagine.

I wish I had counted the number of times I heard Facebook mentioned at the party on Saturday night. Many times people told of who they had found on Facebook that couldn’t make it to the party. Some of the comments I overheard went like this:

“I saw those pictures of your kids on Facebook. Man they’ve grown!”

Q: “So, is that crawfish boil you posted on Facebook an annual event?”
A: “Yeah, it got kinda wild this year.”

“You said in your Facebook status a while back that your daughter got hurt. How’s she doing now?”

You get the drift, I’m sure. Most everybody there in this age range was active on Facebook and was already connected to several in attendance on Facebook. Since the event, I’ve received friend requests from folks I saw, and I’ve also sent out a few friend requests.

After we all made it home early Sunday morning (hey we’re not THAT old – at least we think we’re not), the Facebook fun continued. My email account pinged all day letting me know I’d been tagged in a photo here, someone commented on a photo there, etc. Yes the cameras were out Saturday night, and the contents of those cameras got uploaded, tagged, and commented upon all day Sunday. In fact, I was tagged in one photo that had the caption “Brownwood High School geezers from class of __.”

As far as Facebook goes, I’ll bet stories like this occur all over the country by the thousands. Provided that Facebook keeps its financial house in order, they’re here for the long haul I think.

So, what’s the connection to SoftLayer here? Easy. We have a lot of customers who provide apps on Facebook. The infrastructure for those apps is hosted at SoftLayer. Consequently, we’re big cheerleaders for Facebook and the apps that run upon it. Go go go!

April 14, 2009

EVA, Cloud Computing, and the Capex vs. Opex Debate

So far in 2009, there’s been a fair amount of discussion pro and con regarding the financial benefits (or lack thereof) of cloud computing. It’s very reminiscent of the whole “do-it-yourself” or “outsource it” debate. Blog posts like this and articles like this are samples of the recent debate.

One thing I have not yet seen or heard discussed regarding cloud computing is the concept of EVA, or Economic Value Added. Let me add at this point that EVA is a registered service mark of EVA Dimensions LLC and of Stern Stewart & Co. It is the concept of economic income instead of accounting income. SoftLayer subscribes to software from EVA Dimensions LLC. Get more info here.

For you to buy into the premise of this post, you’ll have to be sold on EVA as a valuable metric. Bottom line, EVA cleans up the distortions of GAAP and aligns all areas of the business so that more EVA is always better than less EVA. Most other metrics when pushed to extremes can actually harm a business, but not EVA. Yes, even bottom line GAAP net income when pushed to an extreme can harm a business. (How that can happen is fodder for another blog post.) Several books have been written about EVA and its benefits, so that’s too much to write about in this post. This is a good summary link, and for more info you can Google it on your own. And if you do Google it on your own, be warned that you may have to wade through links regarding Eva Longoria and/or Eva Mendes .

Part of the Cloud computing debate revolves around “capex vs. opex.” Specifically, this involves paying for IT infrastructure yourself using capital expenditures (“capex”) or employing Cloud computing and buying IT infrastructure with operating expenditures (“opex”). Geva Perry recently said, “There is no reason to think that there is a financial benefit to making an OpEx expense vs. CapEx expense. Period.” I disagree. When you look at this in terms of EVA, whether you use capex or opex can make a big difference in creating value for your business.

Let’s look at the effect of switching capex to opex on EVA. Coca-Cola is a company that employs EVA. Years ago, they decided to ship their beverage concentrate in single-use cardboard containers instead of reusable stainless steel. This made GAAP measures worse – profit and profit margins actually went down. But EVA went up by making the move from capex to opex. How can this be? Grab something caffeinated and check out some numbers here if you dare.

OK, that’s all fine. But how would shifting IT spending from capex to opex affect EVA? Glad you asked. Last summer, I modeled some full-fledged financials to illustrate financial benefits of outsourcing IT vs. doing it yourself. I’ve taken those and added the EVA calcs to them. Take another swig of caffeine and check them out here and here.

Assuming that EVA is a worthwhile metric (and I think it is), moving capex to opex is possibly a very good financial decision. Any questions? As always, your mileage may vary. Model carefully!

April 2, 2009

We Need New Small Businesses

It is often said that small business is the backbone of our economy. According to the U.S. Small Business Administration, small business employs half of all private sector employees. Over the past decade, small business has produced between 60 and 80 percent of net new jobs. We need small businesses to prosper and lead us out of the economic mess in which we find ourselves.

I track growth in domain names every week. I think it indicates how quickly new small businesses are being formed. After all, what business can you think of today (large or small) that does not have some sort of web site? I can’t think of any. One of the things on any small business start up checklist today is the web site. Hence, most all of them register a domain name.

So what’s been happening with growth in domain names? Lately, it’s not too pretty.

Chart

With all the talk lately about stimulating the economy, one of the best ways to do this would be to encourage the formation of new businesses.

Some would argue that we need to fix the credit market mess to help banks be able to lend to small business startups. This couldn’t be further from the truth. How many small businesses do you know that started with a commercial loan from a bank? I cynically say that banks do not want to loan to businesses until the business can survive without need of a bank, and that was true even before the credit crisis. This was certainly true in SoftLayer’s case – when the founders were preparing for launch in late 2005, there wasn’t a bank anywhere that would touch the SoftLayer business plan. What I’m saying is that the credit crisis isn’t that much of a barrier to small business startups. Passionate entrepreneurs will find a way to get going.

But all the passion to start one’s own business doesn’t go very far in the face of the real barriers to starting a business. One of the real barriers that an entrepreneur must overcome is tax issues. Do they begin as a sole proprietor? A partnership? An LLC? An “S” Corp? Should they incorporate? All of them have different tax implications. All of them have to deal with either income taxes at the personal level or corporate level. Some have to deal with self-employment taxes. Others must deal with 941 taxes. Then there are state and local tax issues, such as the margin tax if you’re in Texas. And don’t forget sales taxes and property taxes either.

One of the strategies that allowed the Internet to cement itself in our society during the 1990’s was this: just let it develop without taxing it. Without that burden, the Internet took off like wildfire.

Ergo, if we’d like a bunch of new small businesses to get going, let’s ease up on the tax burden on new startups. This would cost the government hardly any money at all. Think about it – businesses that don’t yet exist do not pay any taxes. Workers that are not yet employed do not pay any taxes. Currently unemployed workers do not pay income taxes, except for a pittance on unemployment benefits. So allowing new businesses to form and employ workers and transact business “tax-free” for a defined start-up period would produce an EXPLOSION of small business startups.

How long should this tax free period be? Per the SBA, if a new business survives 4 years, they have a great shot at surviving long term. So why not give all new business startups a tax holiday for four years as they establish themselves? Can you imagine how big the tax base would grow as these healthy, strong 4-year- old businesses begin paying taxes?

It seems that the biggest issue facing our new President and his administration is how to pay for all the things they’d like to do. Let me suggest that expanding the tax base is the best way to grow government revenues, as opposed to increasing the rates on the current tax base. Allowing a flood of new businesses to take root and grow our tax base may be the best way to fund our growing public budgets.

Naturally, SoftLayer would be more than happy to assist these new businesses with our enterprise class data center outsourcing services so that the new businesses focus on their business plan – not their IT overhead.

December 5, 2008

Circular Technology

This weekend I took my son and two of his classmates to a Dallas Stars game. With three 15 year old boys in the car, I simply did the driving and listened to the conversation. Of course the conversation was broader than just the three of them. They all had cell phones, of course, and each one was texting several other friends as they conversed together. So as near as I can tell, the conversation encompassed about a dozen people – three of whom were in my car.

Here’s a snippet of the conversation:

“I hate the auto-correct feature on my iPhone. Whenever I try to type in abbreviations, it changes it to something I don’t want.”

“They fixed that in the latest software update. Here, let me turn that off for you.”

“Cool. Thanks!”

“I like my Blackberry because it has buttons I can actually mash. I can enter text without having to look.”

“What do you think about the new Blackberry Storm? How would you enter text without looking? I mean the screen clicks but there’s no buttons.”

“Hey, why don’t they make a phone where you can enter text with voice recognition? Then you could just speak your words into the phone, they pop up as text on the screen, and the only button you have to push is ‘Send’.”

“Well, if you’re gonna talk into your phone, why don’t you just call them?”

Suddenly, the technology has come full circle. LOL!

As SoftLayer prepares its cloud computing offerings for market, I think the same thing is going on. Technology is coming full circle.

When I first started making my living in technology in the late 1980’s, I was a programmer. Anyone remember COBOL? The software company where I worked had a mainframe that they leased from IBM. They didn’t own it. Each employee was connected via terminal – a gargantuan metal monochrome monitor with a clacky metal keyboard that weighed probably over 100 pounds and could withstand a bomb blast complete with a cable that could also be used to dock a cruise ship. The company paid for its IT needs based on CPU time. Naturally, we were motivated to write programs that minimized CPU usage in the mainframe. All of our applications and corporate email were connected to a central IT source.

After the mainframe, standalone desktop machines began popping up. Then they began to be connected with Token Ring or Novell networks and the client/server architecture was born. When the Internet came along, these machines on people’s desks made the phenomena of Cyber Monday possible.

Now according to Lance, everything is “cloud cloud cloud cloud cloud.” SoftLayer’s cloud offering will allow our customers to keep all their applications and corporate email in one central IT source which the customer will not own, i.e., “the cloud.” It will be billed on a usage basis. The more the customer uses, the more he/she will be billed. The computing power can be instantly scaled up or down as needed. Just as I was motivated to be efficient in CPU usage in the 80’s, companies will be able to control costs on the fly by adopting efficient use of cloud resources.

This sounds a lot like the late 1980’s to me. But I never dreamed that that beast of a machine in the room down the hall could ever be called “the cloud.”

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November 7, 2008

Tax Policy as Pricing Strategy

One of the big items up for “spin” and a little debate in this Presidential election is the tax policy proposed by each candidate. We’ve heard accusations ranging from tax breaks for wealthy CEOs to socialist welfare where money is taken from the rich CEOs and given to the non-taxpaying poor under the guise of a “tax cut”. The word “fairness” gets thrown around a lot and now Joe the Plumber may get a record deal out of all this.

Absent any fiscal discipline by the government (and I have never seen this from either political party), it’s clear that the government needs more money or else it will run deficit spending until we’re all bankrupt. Therefore, tax policy should be nothing more than a pricing strategy to maximize government revenues. Taxes are essentially the government’s pricing structure for their offerings of goods and services (roads, law enforcement, subsidized student loans, etc.)

The problem is, if cutting a particular tax or tax rate will actually bring more revenue to the government, it will be criticized for whatever group “benefits” from the lower rates, regardless of how much better off the government treasury will be.

Yes, it is possible to bring in more revenue and profit by reducing prices. It is a very, very common practice in the business world and we employ this practice at SoftLayer. Consider this scenario:

You sell a product that cost you $50 to build.

At $100, you can sell 1 unit per month. Here is your revenue and profit calculation:

$100 x 1 sale = $100 revenue – $50 costs = $50 profit

Now, if you cut the price 20% to $80, you can sell 2 units per month. In this case, here is your revenue and profit calculation:

$80 x 2 sales = $160 – $100 total costs for 2 units = $60 profit

So, most people would think that $60 in your pocket is better than $50. By cutting the price, you have made more money.

What if you could sell 3 units if you drop the price to $60? Let’s take a look:

$60 x 3 sales = $180 – $150 total costs for 3 units = $30 profit

Because you only keep $30 profit, in this case the BEST price for your product is $80 because at that price you maximize the profit that you keep.

Likewise there are ways to increase government revenue by cutting tax rates. Let’s say we want to tax more dollars from the rich and give to the poor – fine. The paradox is that the way to get more tax dollars from the rich is to cut their tax rates. Really, I’m not crazy – Congress itself has reported this fact.

Business people know that if you raise your prices, people’s behavior will change and they will buy lower volume of what you sell. Even with must have items like gasoline, as the price rises, people find ways to use less of it, even if using less is inconvenient because you have to get up earlier to carpool.

By the same token, if taxes go up, those who are exposed to those taxes will change their behavior and reduce their exposure to those taxes. As a result, the government can actually collect less money by raising taxes.

Every time we set a price or run a special deal here at SoftLayer, we are well aware of this fundamental law of supply and demand. When we need to move units on a particular item, we will reduce the price.

I only wish our government would apply the same principle when pricing its products and services with tax policy – not because I want to pay less in tax but because I want the government to maximize its profit and avoid burdening our children and grandchildren with unmanageable government debt.

-Gary

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October 6, 2008

My Take on the Financial Crisis

The Congressional debate over the infamous $700 billion bailout plan this week reminds me of what two guys down the hall in my college dorm once did. They both wanted something that they couldn’t afford – a Domino’s Pizza.

These guys colluded and ordered a large pizza – about $7.50 back in the Dark Ages of my college years. One of them presented the Domino’s driver with a check (tip included) for $8. It was a hot check and both guys knew that they didn’t have enough in both their accounts combined to pay for the pizza.

Back then, banks did not immediately process checks electronically and you could play the “float”. It took 3 or 4 days for your account to have funds disappear after you wrote a check, but when you deposited a check, the bank would immediately allow those funds to be drawn against other checks coming in. Don’t try this today, boys and girls. It’s not the same nowadays.

So, the second guy wrote a check for $8 to the first guy who waited two days and then deposited the check. Consequently, the check to Domino’s got paid to Domino’s. Then, the first guy (who wrote the check to Domino’s) had to write another check for $8 to the second guy so that his hot check to the first guy would be covered. Two days later, the second guy has to write another hot check to the first guy to cover his prior hot check to the second guy.

These guys kept covering each other’s hot checks for a couple of weeks until they got another paycheck from their part time jobs. Then one of them finally convinced the other to cough up $4 cash. At that point an $8 check was allowed to clear successfully and the original cost of the $8 pizza was effectively split between the two.

There are a lot of parallels between this story and the current credit market mess that we face. Let’s say that “Joe Homebuyer” wants a house that he can’t afford. “Bob the Broker” finds the money for Joe to buy the house and signs Joe up to a payment plan where the payments jack up to an unbearable level in three years. Then Bob the Broker sells the loan to “Riskmanager Randy” who hedges his risk and buys credit default swaps from “Issuer #1” to cover himself in case the homeowner can’t handle the unbearable payments that are coming. Then Issuer #1 buys credit default swaps from “Issuer #2“ to cover himself in case he ever has to pay Riskmanager Randy for the credit default swaps that Riskmanager Randy bought. Issuer #2 covers himself by buying credit default swaps from “Issuer #3”. Issuer #3 buys credit default swaps from “Issuer #4”. And the chain continues. And what’s worse is that all these Issuers sell far more credit default swaps than they can pay for should they all come due.

All in all, it’s like a bunch of folks getting together to cover each other’s hot checks. But rather than $8, the credit default swaps amount to something like $62 trillion. And now that Joe Homebuyer can’t make the unbearable payments, Riskmanager Randy has found that Issuer #1 can’t pay out on the credit default swaps. This has started $62 trillion worth of dominos (no pun intended) toppling and now we’re betting that $700 billion taxpayer dollars can work like the paychecks that came to the guys in the pizza scam above and stop the collapse.

I’m really glad that the hosting business model is pretty simple at its core. Provide gear, connectivity and services to customers who pay you monthly to use it. If the customers don’t pay, simply turn them off and sell it to someone who will pay. There is no need for hedging. No credit default swaps. No dominos ready to collapse.

The hosting business is certainly not without risk. We hedge electricity risk with UPS units and generators. We hedge bandwidth risk by using a portfolio of providers. But these hedges are tangible, not some nebulous financial market derivative outlined on a sheet of paper.

Bottom line: don’t stretch to get something that you know you can’t afford. Even if it’s a pizza.

-Gary

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September 5, 2008

I Have a Crush on Sarah Palin

Let me begin by saying I don’t want to turn our company blog into something political and suggest how you should vote. I still haven’t decided myself for whom I will vote. Full disclosure – I haven’t voted Republican since I cast a vote for Reagan in 1984, when I was first old enough to vote.

But hey, Sarah Palin is a former state champion basketball player and sportscaster who competed in beauty pageants and enjoys hunting and fishing. What’s not to like here? Of course, I don’t want to raise the ire of her husband, Alaska’s “First Dude” Todd Palin. I mean, he’s won a 2,000 mile snowmobile race four times, and the one time I know of that he finished fourth, it was because he broke his arm along the way but still finished the race. First “dude” indeed!

Sarah Palin appears to have a background to which I can relate. She and her family are neither Ivy League educated elitists nor entrenched Washington DC insiders. From what I’ve read, she and her family deal with many of the issues that everyday folks deal with: transporting kids to their activities, going to church, running a small business, balancing a two career family, sending a son off to the military and to battle, raising a special needs child, and handling a teenage pregnancy situation. From this list of things, this family can identify with millions and millions of other families.

What I like most about Sarah Palin is that she and her husband have small business in their background. When asked why they eloped, husband Todd said they had a bad fishing year and thus had no money for a wedding. They understand the ups and downs of small business because they’ve lived it. Consequently, she has been cognizant of supporting small businesses in her policies.

Policies toward small businesses are important to me because small businesses are our bread and butter here at SoftLayer. That is who we serve – small businesses who need enterprise class IT infrastructure and services but are too small to provide them on their own. Though we are larger than most of our customers, SoftLayer still fits in the small business category. Hey, we came from 10 guys with a dream and no revenue for 6 months – you can’t get any more “small business” than that! The small business culture still permeates this place and I hope it always will. When I send out some sort of metrics report to the management team, it usually kicks off an email thread of smart-aleck remarks while we review the metrics.

Just so that I give equal time to both sides here, Barack Obama has outlined some specific policies that will affect small businesses. Along with 40 million others, I watched Obama’s historic speech at the Democratic convention. There were several things that I liked therein, such as his desire to develop new alternative energy sources. But when he talked about helping small businesses, I wonder if he’s out of touch with us because he said that he will eliminate the capital gains tax for small businesses. Well, SoftLayer is responsible for and pays a LOT of taxes (sales taxes, franchise taxes, property taxes, income taxes, etc.) but we have never paid a penny of capital gains taxes. Unless a small business running a small real estate or money management operation, small businesses do not have capital gains. They’re not putting cash into stocks and bonds and holding them to sell them at a later gain – they’re putting the cash into payroll and operating expenses and advertising and capital expenditures to keep their business alive and growing. Word to Obama – if you want to help small businesses, please eliminate a tax that we actually pay!

I am totally in favor of policies that truly help small businesses. You are our customer base and whatever helps you helps us. Consequently, we are very focused on serving your small business. We want to help you establish the best IT cost structure for your needs as well as take away the headache of IT infrastructure so that you can focus on your core business more effectively. Just talk to Steven, Mary, Amanda, Arielle, Chris, Doug, Daniel, Laura, Michael (either one of them), Patrick, Justin, Don, Mathew, or John. They’ll treat you right.

Again, I haven’t decided who to vote for yet. But if I select a Republican candidate for the first time in 24 years, I won’t necessarily say that I voted for John McCain – I’ll say I voted for Sarah Palin!

-Gary

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July 27, 2008

What if SoftLayer Managed Inventory and Demand Like Apple?

Quick Answer: It would be disastrous!

Consider Apple's rollout of the iPhone 3G. Full disclosure: I'm trying to get my hands on one of those new iPhones, but as yet I have been unsuccessful.

When the first iPhones rolled out in June 2007, it was understandable that Apple had no idea how many to produce in advance of the launch. It was a product that moved the smart phone concept forward in several ways, but it wasn't perfect. Also, buyers set it up at home on their own using iTunes, so the buying process was simple. Get in, pay up, and get out. The long lines moved quickly. There were rumors of overproduction based on realized demand. I bought one for my wife's birthday at the 2007 release. Buying it and setting it up was easy.

This year is very different. Because of aftermarket hacking, you are required to activate and set up the phone with AT&T service in person this time around. So if you want to jailbreak the iPhone 3G, you'll have to pay a cancellation fee to AT&T. There is no get in, pay up, and get out. The buying process is running 20 to 30 minutes at this point, and Apple and AT&T are selling TONS more phones than at last year's rollout. Stock outs are occurring everywhere. But yet, Apple is still selling them on a first come/first served basis. Yes, you can prepay at an AT&T store, but they're quoting a minimum 10 business day wait for your phone.

It would make complete sense if a few months before the launch date, folks could have logged in, paid a deposit, reserved a phone, and set up a time for activation. Apple could have better anticipated demand and tailored phone production and store staffing accordingly.

Suffice it to say that SoftLayer does not manage inventory and customer demand like Apple. We strive to anticipate demand and arrange our inventory and staffing accordingly. We do our best to find that balance to keep our inventory lean so as to not waste money on maintaining unused product, yet have enough on hand so that our customers' businesses can be scalable. In other words, when you need another server or two or two hundred, we've got ‘em for you – and ready for you to use in a few hours, tops.

Yes, you can order enough servers for us to require a few days to call in a shipment. But that would be quite a large order, and you can rest assured that you wouldn't be a nameless "first come, first served" patron.

Bottom line, if we treated the customers who want our services as Apple does their iPhone customers, we'd have a lot less of them. That's customers, not iPhones.

-Gary

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