The May Report: 10/29/2011: I don’t ask you, the readers, to do something very often, but today I have to ask you to watch a six minute and one second video of Vivek Wadhwa, director of research at Duke University’s Center for Entrepreneurship being interviewed on Bloomberg: Vivek says that the market valuation of Groupon should be in the $2B to $3B range, far from the $10B or $11B they are planning, and that with proper nurturing, Groupon could be worth $5B in a couple of years, He outright calls it a” scam,” citing the unusually small float which jacks up the price and the games that will be played with the secondary market; One thing he points out that I had not really considered is that the investment houses are experts at this kind of slight of hand which leaves the average investor holding the bag — so the price may not cave on day one or two, but just wait three months and it will be down 30-40%; I am very serious about writing that book — I should have written one on divine interVentures and marchFIRST and of course Efoora, but on Groupon, I will carpe diem; I’ll still keep an eye on pishers like Chris Tomes, Len Bland, Al Wasserberger, Terry Howerton, etc., and we’ll even swat flies like Neil Kane, Jeff Willinger, Nancy Sullivan — you know the drill — but mostly I need to bear down on the research for the book

Editor and publisher: Ron May, ron@themayreport.com, ronaldmay@aol.com, www.themayreport.com , 773-525-3944.

If you missed an article, go here: www.tmronline.com/A55951/tmrarticles.nsf/vwFullNewsletter

Louis Brandeis: “Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants.”
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please contact Backlinks Company www.BLcompany.com
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The case of Dan Camphausen v. Doreen Schweitzer and Ron May is now over since federal judge Amy St. Eve granted the defense’s Motion for Summary Judgment on September 26, 2011 and it was not appealed after 30 days.

The credit goes to Judge St. Eve of course and toJeff Becker of Swanson, Martin & Bell who did the tedious work to create the Motion for Summary Judgment which requires one to list all the facts of the case and provide supporting documentation.

While I disagree with the approach that Dan’s lawyer Chris Gallinari took, especially his decision to make it a defamation per se case, rather than per quod, and beyond that, the decision to make the per se claim hinge on the false accusation of committing a crime, rather than the per se claim of impugning Dan’s competence — an issue Gallinari triffled with but then dropped — I believe that overall, Gallinari handled the case competently and professionally.

Dan Camphausen, in my opinion, is a jerk. He hired the Bellows and Bellows law firm and the law firm did all the work right through the reply to the Motion for Summary Judgment. They represented Dan at nine depositions, even when Dan was out in Nevada gambling or whatever he does.

But guess what?

Dan stiffed the Bellows law firm to the tune of $20K or more.

Bellows has an attorney’s lien against Dan, but what I want to see is that all litigation lawyers in Wisconsin, Illinois and Nevada refuse to take Dan as a client because he’s a deadbeat and in my opinion his promises ain’t worth much.

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TABLE OF CONTENTS

The Scoop section:

– Robert Pritzker, co-founder of The Marmon Group, dies at 85

– Vivek Wadhwa Calls Groupon’s Planned IPO a `Scam’

– Sam Hamadeh of PrivCo (sam@privco.com) called Groupon a Ponzi scheme, and that was also a Bloomberg interview

– This is from April 21, 2000 and every day I intend to print old items from the TMR archives about Eric Lefkofsky and Brad Keywell, Starbelly and HA-LO and other firms they’ve been tied to so that people get to know the history

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The Scoop section:

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Robert Pritzker, co-founder of The Marmon Group, dies at 85

Chicago Tribune: Robert Pritzker, co-founder of The Marmon Group, dies at 85
ronaldmay@aol.com
X
Reply
from Thomas Bennett tomrbennett@yahoo.com
to ronaldmay@aol.com
date Sat, Oct 29, 2011 at 12:40 AM
subject Chicago Tribune: Robert Pritzker, co-founder of The Marmon Group, dies at 85
signed-by yahoo.com
hide details 12:40 AM (1 hour ago)
Ron:

FYI. Robert Pritzker passed-away. This is coming on the heels of Mr. Robert Galvin passing away as well. Obviously a big void has been created in Chicago’s business community with the recent passing of both Chicagoan’s.

www.chicagotribune.com/business/breaking/chi-robert-pritzer-cofounder-of-marmon-dies-at-85-20111028,0,6839180.story

TRB
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Vivek Wadhwa Calls Groupon’s Planned IPO a `Scam’

www.washingtonpost.com/business/wadhwa-calls-groupons-planned-ipo-a-scam/2011/10/29/gIQAe0uyQM_video.html

Wadhwa Calls Groupon’s Planned IPO a `Scam’

Oct. 28 (Bloomberg) — Vivek Wadhwa, director of research at Duke University’s Center for Entrepreneurship, talks about Groupon Inc.’s planned initial public offering. He speaks with Emily Chang on Bloomberg Television’s “Bloomberg West.” (Source: Bloomberg)(Bloomberg)

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Sam Hamadeh of PrivCo (sam@privco.com) called Groupon a Ponzi scheme, and that was also a Bloomberg interview

Sam Hamadeh of PrivCo (sam@privco.com) called Groupon a Ponzi scheme, and that was also a Bloomberg interview

www.bloomberg.com/news/2011-08-23/hamadeh-compares-groupon-to-a-ponzi-scheme-video.html

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This is from April 21, 2000 and every day I intend to print old items from the TMR archives about Eric Lefkofsky and Brad Keywell, Starbelly and HA-LO and other firms they’ve been tied to so that people get to know the history

04/21/00

Scoop

David Friedman, a Starbelly competitor who negotiated with them, goes on

Date: 4/20/2000 5:56:24 PM Central Daylight Time
From: david@greatways.com (David Friedman)
To: BShifrin@loanmarket.com (Bonnie Shifrin)
CC: ron@themayreport.com, cicba@aol.com (Brian Abrams), naomia@greatways.com
(Naomi Abrams), ronaldmay@aol.com

Ron,
A good friend of mine turned me on to your site recently (which I find very informative and well done), primarily because of the Starbelly stuff. I have not registered for your list service as of yet but will as soon as I get a chance.

I am a direct competitor of Starbelly/Ha-lo and we were in negotiations to merge with Starbelly about 90 days before the Ha-Lo deal came about. We have been in the ASI business for about 10 years and are about $7MM in annual sales, which for the industry puts us in the top 100 nationwide out of over 14,000! We are about 5 years old compared with most our size at around 10-20 years.

We are now 3 companies, One an ASI Distributor (Corporate Imaging Concepts), which assumed all of the sales staff and administrative staff of my distributorship on 3-31-00 and now occupies my office space in Northbrook. The second company is a technology and administrative services company (Tricon Resources International) and the last a full scale fulfillment and distribution facility (KMA logistics). They are all separate companies that work closely together to provide turnkey web based solutions for online e-commerce. Naturally the ASI marketplace is a great fit for our technology, but we service all kinds of industries as well. We also have some other dot.com plays that integrate with and compliment this strategy. If you are interested, some of the sites that are operational are:

www.e-employeestore.com
www.tri-mall.com
www.tri-mall.com/ trimall/general/index.asp

I am giving you my credentials because when I read these postings, I take them with a grain of salt if I do not know the credentials of the author. Whether you publish them or not, I could care less. However, I have no problem going on record with my comments. We will be looking for 1st round VC in the next 60-90 days.

We walked away from the table with Starbelly having developed our own e-commerce solution, and did not buy into their model, but in the process got a pretty good peek at the inner workings. I was dealing directly with Brad and Eric, then eventually with some top managers (Rick Rosenbloom and Steve Schrier). In all fairness to the Starbelly team, when we walked away it was mutual, but at one point I was offered the position of VP corporate sales (the primary division). My partners were offered positions in management as well, along with stock options and the whole 9.

I did some pretty good due diligence and it was not too hard to get the skinny on these guys. Let me give you my inside track on some of the comments I read the past few days:

First, Starbelly’s Brad is a master promoter. His main job was to raise the money and he has set himself up very nicely as the front man. He is a Michigan boy from the same hometown as Linden, but absolutely no relation as far as my sources (which are pretty solid) say. As for the Sam Zell thing, he was an intern at Equity one summer and as far as I know that is the extent of his close personal relationship with Sam. However, the media over-reports things on a regular basis, so who knows where the rumors started. Let me say one thing, these kids (I a seasoned 33 year old veteran) are pretty damn bright, both of them. Michigan law, a decent bloodline and some good old fashioned hard work have given them a good start in life. They also assembled a pretty solid management team, but I never was sure who was running the technology. None of the top guys seemed to know much about it, I have a hunch it was mostly outsourced with the VC capital.

Brad and Eric purchased Brandon apparel in about 96 or so. It was previously located in Wisconsin. Linden hooked Brad up with Rick Rosenbloom (who ended up with Ha-lo by way of the CCA merger in 98) and they hit it off. That’s the extent of the tie to Linden and Halo.

Brandon is located in the same building as Starbelly and as far as I know there is no other company, the decorating capacity is all part of Brandon. This building was the former Demco building and was equipped with a pretty good infrastructure that made for a nice plus when Brandon took over the distressed space. At the time of our negotiations Brandon and Starbelly were the same thing. Different legal entities but operationally Brandon was processing 90% of the volume, the intention was always to operate them together and eventually just fold Brandon into Starbelly. Brandon’s revenues for 99 were about $20MM according to Eric, and Starbelly did about $1.5MM in actual sales for 99. Therefore, the sales figures were rolled together for the purpose of the acquisition, John Kelley needed something besides a website to sell to Wall Street.

The entire Starbelly model was tied to the delivery system built for Brandon, and at the time of our discussions, according to Eric (Lefkofsky) Brandon was not doing very well. I was in their facility several times and even walked through the paper flow and manufacturing processes during the discussions.

There is no question that Brandon and Starbelly were operating off of a combined platform, with Brandon’s logistics set to deliver Starbelly’s technology. THE FULFILLMENT WAS ABSOLUTELY DONE THROUGH BRANDON!

Halo has its own distribution facilities, but I see no reason why they would not use Brandon. Even if Brandon is in debt, their cash will retire the debt and the infrastructure is already built. Unless there are some serious legal issues going backwards, I can’t see why this would be a sticking point of any kind. My guess, Brad wants to BK Brandon and keep the $13MM so Halo now has to backtrack to show an arms length transaction with Brandon with the SEC. Or Brandon’s creditors are already forcing the BK and they are threatening the deal. This is just a guess and I’m way out on a limb here, no facts!

As for the web strategy, they are invested in the interactive model which allows the customer to go online and literally build a promotional product online and get real time costs. This is a brilliant tool and nobody is doing it. However, I believe the reason nobody is doing it is because it’s not going to work.

Anyone who can build this product for a few hundred grand (even if it is not a practical tool that anybody will use) is out of their mind. They are on an Oracle 8i database and have a robust scalable interactive program that probably cost about $3 million to build, including mistakes and re-do costs. They are integrated into an AS/400 system and have plenty of other bells and whistles as well.

The corporate world is not ready to spend 2 hours on the computer building their promotions, they want a rep to come in and present ideas that conform to their needs. This is the way it is with most marketing and advertising firms, too much customization to let a computer do all the work. You cannot take a high touch delivery vehicle and move it to a high tech one at the snap of a finger. The clients need some hand holding, in my opinion, about 2 years worth here, and in the end there will always need to be a human interaction for the creative side. By the time corp America is ready for the tool it will cost 1/2 as much to build a better mouse trap!

You will get a lot of bar-mitzvah moms ordering 10 shirts and there is no profitability in the one-off commodity business. Decorated products are less cost effective to produce in small quantities than just about any product I know.

The corporate catalogs, which is where we have focused, on the other hand, is a much different animal. Anyone who downplays it is a sucker! After the investment in the upfront technology (about $250K) it costs about $1000 to put up a program. What the technology does is give the little guy a chance to compete. But technology is built to be leveraged, at $600MM in sales Halo is less than 3% of the market. The real play is making the software available to the other 14,000 distributors so they can compete with Halo and retailers as well as to the corporations and let them buy the stinking product from their uncle’s brother’s cousin if they want. Starbelly considered this but I doubt Halo is. Besides, they are too big and nobody would buy from them.

As Halo transforms to a brand Marketing organization, they are going to have a rough time becoming a dot.com if they expect to keep the technology for themselves. The technology is adaptable to retail, wholesale and distribution channels of al sorts, Halo is just using it to sell product. This is a good strategy, but it’s not going to bring the multiples that pure dot.com companies are getting. The Starbelly deal is an attempt to woo back Wall Street, and John Kelley may have jumped in too quickly on this one. His first major acquisition since taking over for Lou and he bet the ranch, gutsy move! Kelley is supposed to be a star, but what the hell does he care, it’s not his money.

Where Kelley will succeed, maybe by accident, is in moving the lucrative industry standard commission split form about 50% of the PROFIT down to about 20%-30%. As technology streamlines the information, the sales reps who get 50% are becoming much less valuable. Sell the company store and hire a customer service rep to handle the orders. You have a captive audience and the customers will file into your business if the web site does not have what they want, and if it does…. everyone is happy.

This limits the ongoing value of the sales rep and allows for their replacement. Those who resist the technology, like some of the ones that worked for me, will lose their clients over the next few years. Before moving on as a distributor, I already had most of my sales force below 40% commission, and falling from there. For me it was a few bucks, for John Kelley and Co, a few million! This won’t give them a dot.com multiple but it might help them meet earnings for a change.

As for the Brandon debt, I cannot confirm your hunch, but I can tell you that’s exactly what happened to us. Focus on the technology and neglect the core business, before you know it debt needs to be restructured to stay alive because nobody is minding the store. Everyone is in the parking lot looking at the sparkling new delivery truck and a bunch of high school kids steal all your candy.

I do know that between angel and VC the debt was pretty much going to suck up the $19MM in cash, and I am sure your idea of retiring the debt was on the money as well. Our debt was a lot less than $13 million and we are struggling to pay it off at this point. That’s why we downsized the ASI distributorship and let the staff move over to CIC. Now we can focus on being a dot.com company (not a high tech ASI distributor) with a product for the ASI industry as well as many others. We plan to deliver it via ASP technology and lease it for a fee. We also then offer the fulfillment and distribution (or not).

I would not count on a comment from Brad! He is way to smart to stumble into that hole and too close to the finish line to look back. I wonder often if the deal will close, I think everyone is in a tough spot here, Halo is being watched by the street very carefully and if they back down on this it might tank them. They fell under $5 per share a few months back and came up with the Starbelly deal, in my opinion, to save their skin.

If your hunch and mine is correct, you have 2 desperate players each looking for the other to save their ass. It just might work, but if it doesn’t, look out cause it will fall HARD.

Some other players in the field to watch (none of them in Chicago except
us) are:

www.ecompanystore.com/

www.e-logo.com

www.promonium.com/

www.madetoorder.com
www.e-employeestore.com
All of these guys (except our e-employeestore) are building the technology
for themselves in an attempt to sell more product. None of them are selling
the technology.

That’s one insider’s scoop, I look forward to the continued reports.
Sincerely,
David Friedman
Chairman/CEO
Tricon Resources International

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END OF REPORT