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Chinese Man Pleads Guilty in Copyright Violation Case

January 8, 2013 by Leave a Comment

Nearly five years ago, a Chinese man named Xiang Li registered several domain names, including www.crack99.com, and embarked on an ambitious, and ultimately illegal, venture.

Mr. Li, who was based in Chengdu, paid a network of computer experts to scour the Internet to find commercial software they could “crack,” meaning they bypassed security protocols designed to prevent unauthorized access or reproduction.

Ultimately, Mr. Li offered more than 2,000 pirated software products that could be used as applications in the military, engineering, space exploration, mathematics and explosive simulation, and sold them at a fraction of their retail price, which federal prosecutors said was over $100 million.

Among his biggest customers were an electronics engineer at NASA and the chief scientist at a government military contractor, but his clients also included students, inventors and small-business owners. Mr. Li sold the products for $20 to $1,200, accepting payments by Western Union and MoneyGram, according to government documents.

But Mr. Li’s criminal enterprise officially ended last year when he was arrested by undercover agents. On Monday, he pleaded guilty in Federal District Court in Delaware to one count of conspiring to steal copyrighted software. He faces a maximum of five years in prison.

Mr. Li, who is 36, could not be reached for comment, nor could his lawyer, Mingli Chen. Mr. Li’s wife, Chun Yan Li, was also indicted on charges of participating in the illegal scheme; she remains at large, presumably in China, officials said.

Mr. Li was arrested in June 2011 in Saipan in the Northern Mariana Islands during a meeting that had been arranged by undercover agents posing as American businessmen. The agents arranged the meeting under the guise of picking up their purchase of pirated software, design packaging and 20 gigabytes of proprietary data, and to discuss a plan to transmit cracked software over the Internet so they could resell it to small businesses in the United States.

After the arrest, agents recovered six disks from Mr. Li containing an assortment of data pirated from an unidentified American software company, including military and civilian aircraft image models and a software module containing data about the International Space Station.

Edward J. McAndrew, one of the prosecutors on the case, said Mr. Li’s arrest was among the largest criminal copyright cases to be successfully prosecuted by the government.

Mr. McAndrew and his colleague, David L. Hall, explained in court documents that once Mr. Li obtained cracked software, he would advertise it on his Web sites, which also included www.cad100.net and www.dongle-crack-download.com. Mr. Li’s customers would then wire him money, some of which he deposited in an account at the Bank of China. From February 2008 to June 2011, Mr. Li and his customers exchanged more than 25,000 e-mails about pirated products, according to the government, which obtained a search warrant for his Gmail account.

Mr. Li used his Gmail account to orchestrate more than 500 illegal transactions with customers in at least 28 states and more than 60 foreign countries, according to court documents. Software was pirated from more than 200 manufacturers.

Mr. McAndrew said none of the pirated software obtained by the undercover agents from Mr. Li contained classified material. But Mr. McAndrew said the government could not determine whether any classified material was distributed to other buyers since it did not have access to all the pirated products that Mr. Li sold.

One of Mr. Li’s biggest customers was Cosburn Wedderburn, a NASA electronics engineer, who bought 12 cracked software programs with a retail value exceeding $1.2 million. Another was Dr. Wronald Best, chief scientist at an unidentified government contractor that provides services to the United States military and law enforcement, like radio transmissions, microwave technology and vacuum tubes used in military helicopters. Dr. Best exchanged more than 260 e-mails with Mr. Li to obtain 10 cracked software programs, with a retail value of more than $600,000, prosecutors said.

Both Mr. Wedderburn and Dr. Best pleaded guilty to one count of conspiracy to commit criminal copyright infringement. Both are awaiting sentencing.

Starting in January 2010, undercover agents began buying pirated software from Mr. Li’s Web sites, receiving electronic files with the pirated software or hyperlinks that allowed the agents to download the software from servers in the United States.

In all, the agents paid the Lis $8,615 for the software.

For instance, in January 2010, the agents bought a pirated copy of Satellite Tool Kit 8.0, a software product from Analytical Graphics that has a retail value of more than $150,000. The software includes several functions used by the military and intelligence communities, including three-dimensional warfare simulations.

Mr. Li’s e-mails suggest he was aware of the illegality of his venture, prosecutors say. “I am not a crack production engineers (my job is to collect)(.) This is an international organization created to crack declassified document (s),” he said in a 2009 e-mail. In another he wrote, “I need to use your money to seek the help of experts to cracker master I earn 10 percent of the profits.”

One customer asked who did the cracking. “Experts crack,” Mr. Li wrote. “Chinese people. Sorry can not reveal more.”

Article source: http://www.nytimes.com/2013/01/09/business/chinese-man-pleads-guilty-in-copyright-violation-case.html?partner=rss&emc=rss

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You’re the Boss Blog: Can I Afford To Be Optimistic?

January 8, 2013 by Leave a Comment
Thinking Entrepreneur

An owner’s dispatches from the front lines.

It is time to complete the budget for 2013. I now have the final numbers from 2012 to help in the planning/forecasting/guessing game that I have been playing for 35 years. My comptroller reminds me that every year, for as long as she can remember, she has had to reduce my projections by midyear. Great. Is it a shortcoming to be optimistic if you own a company? The answer is yes, and no. At the moment, more yes.

This year did not turn out as I had planned, or perhaps as I had hoped. There was no big recovery in either the economy or in my industry (home furnishings). We did make some progress, but I had budgeted and spent money as if we were going to be in a recovery or growth mode: more people, more inventory, more advertising.

I have lived and navigated through many recessions, and I can tell you that this has not been a normal one. In the good, old recessions, you would have a down year and then recuperate slowly over the next one or two. We are now in year five, and while things have clearly gotten better, we are hardly back to where we were in 2008. The unemployment rate is still high, and most small-business owners I know are still struggling.

And it’s not just the economy. The whole business environment is constantly changing, and it can be especially difficult for a small business to keep up. It is harder to borrow money, Web sites demand attention and dollars to keep them up, inexpensive imports continue to change the dynamics of the marketplace, and the government sideshow of perpetual crises – election, fiscal cliff, debt ceiling — continues to make people nervous. And none of it helps the unemployment rate, which should be of concern to everyone.

Still, it is hard to get anywhere as an entrepreneur without being optimistic. If you’re like me, you eventually begin to develop something of a split personality. When I am playing sales manager, I have to encourage my employees to shoot for ambitious but realistic numbers. I told one of my managers that I feel good about our prospects for next year, and she reminded me that I say that every year. Oops. Another colleague has seen through my rosy glasses. But what am I supposed to do? Ask people to strive mightily for mediocre results? On the other hand, it is also my responsibility to sign off on budgets and then make sure that the numbers are reached. That job is not nearly as much fun, and that’s where the split personality comes in.

So here is my conclusion. We need to make two budgets: one that is reasonably optimistic and another that is reasonably pessimistic. The optimistic one is for sales meetings. But, human nature being what it is, it is important not to surround yourself with yes-men who will sign off on whatever you say when you are feeling good. Send in the accountants! The second budget is the one to use for financial planning and spending.

This year, in my reality-based budget, I’m not factoring in any big turnaround in the economy, and I have reduced expenses in an attempt to ensure an acceptable profit. To me, this represents one of the most important things I have learned from the many ups and downs of building small businesses: the difference between setting goals and making a plan. Goals mean nothing without a plan.

I have also learned that whining and pity parties have no place in entrepreneurship. Misery might like company, but it does nothing to help build a company. Yes, the business environment has gotten more difficult for many small businesses, but that just means that we all need to pay more attention. In sports, when you finish a disappointing season and go home, you have six months or so to ruminate about what went wrong.

When you run a small business, you don’t get time off to think, but you also don’t go home a loser. Instead, you get to hit a reset button on Jan. 1. You get to start the new year with new wisdom, a clean slate, a new plan, perhaps even a new sense of optimism (but mostly a new plan!).

So, my fellow entrepreneurs, I encourage you to do a 360-degree analysis of what you could and should be doing better — and then make a plan to do it. No goals. A plan.

Jay Goltz owns five small businesses in Chicago.

Article source: http://boss.blogs.nytimes.com/2013/01/08/can-i-afford-to-be-optimistic/?partner=rss&emc=rss

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You’re the Boss Blog: This Year in Small Business: Not Impressed!

December 26, 2012 by Leave a Comment
Dashboard

A weekly roundup of small-business developments.

Another year of The Dashboard is behind us, and it’s time to look back at our favorite comments, blogs, opinions and videos of 2012, the ones that had the biggest impact on small-business owners. Enjoy.

Lesson From Sandy Mark Thoma, an economist, offers a lesson learned from the enormous natural disaster: “If inequality and the economic and political power that come with it continue to grow, the belief that capitalism is unfair could become widespread. This, in turn, could bring about the kinds of changes to the market system that free-market advocates fear so much.”

Post-Election Advice Politics aside, J. Jennings Moss creates a list of opportunities for small businesses as a result of the November elections, including Big Data: “This sector would have boomed regardless of who won the White House. But it might get an extra boost with the return of Obama, who created the job for a chief technology officer on his first day in office in 2009.”

Start-Up Angle The best take on the 2012 start-up scene is Adam Fletcher’s nine signs you’ve become a start-up hipster, including: “You use the word social at least 15 times a day. A true ‘stipster’ understands that for any business to succeed it must be ‘social.’ Exactly what social means, stipsters aren’t sure, but it probably involves a crude Frankensteining of Twitter, Quora, Facebook and cats that look like Hitler.”

Best Videos The best videos of the year include Pat Stansik’s description of what it’s like to turn 24 years old, the executive chef of McDonald’s showing us how to make a Big Mac, and a touching display of kids supporting a classmate with cerebral palsy.

Way to Manage This employee-management advice comes from Mark Lengnick-Hall, a professor with the University of Texas at San Antonio College of Business, who says that we should manage our teams to be like the San Antonio Spurs: “Create a sense of shared purpose and interdependence. The Spurs constantly stress passing the ball and making plays as a team. They are all committed to one goal: coming together as a team. Businesses, too, need to create an overarching goal that brings employees together in a common pursuit.”

Advice for Naming a Product Tom Grasty, an entrepreneur, offers three tips, including: “Make sure the domain name is available. Because you never know which domain extension is going to be the next one to take off, my advice is to purchase as many domain extensions as possible. I know .cc (the domain for the Cocos Islands) may seem completely unnecessary today, but the last thing you want to do is be held hostage by some domain squatter who had the foresight to buy your domain before you did.”

Social Media Lessons David F. Carr offers seven lessons he learned from social business leaders, including one take-away from Ford Motor: “Let business drive technology, not the other way around.” And Gaz Copeland’s helpful suggestions on how to look stupid in 140 characters should not be missed.

Look Into the Future Are you familiar with self-healing concrete, counterintuitive metamaterials or deflexion? If you’re preparing your business for the future, you should be. And these are just a few of the cool technologies on the way, according to this report from Ilya Leybovich.

Thoughts on Retail No matter what kind of business you run, you should read Shashi Bellamkonda’s “thoughts while having a pedicure,” including: “Reach out to potential customers through your existing customers. Maybe a sign that says, ‘Your partner or spouse will love us too. Bring them in!’”

Tweet of the Year I have no interest in making the most money in the world. I have an interest in having the most people at my funeral. — @garyvee

Going Mobile Chris Gaylord’s reports on how cookie sales are soaring for the Girl Scouts is a great example of the impact that mobile technology can have on any small business, even a nonprofit organization.

Getting Ready for Crowdfunding An accountant, Jim Brendel, explains the promise of crowdfunding: “It’s a hot topic for businesses because they are always looking to raise capital. Now several funding portal Web sites have risen to fill the crowdfunding void. Anyone, even if not incorporated, will be able to use crowdfunding. It is only limited by the attractiveness of your idea and your ability to present it.”

Reality Check Erica Douglass offers insights on the harsh realities of being an entrepreneur: “To really succeed, you have to have the guts to not listen to basically anything that’s popular in our society. If you have weak goals, you won’t be motivated to work on them. And if you’re scared of criticism, you won’t make it.”

Boss of the Year My favorite small-business story of the year is Caine’s Arcade, which is about a 9-year-old who spent his summer building an elaborate cardboard arcade inside his dad’s used auto-parts store — and a community that came together to make his day. The video “has inspired millions and launched a movement to foster creativity and entrepreneurship in kids.”

Living Well Leo Babauta explains how: “Want little, and you are not poor. You can have a lot of money and possessions, but if you always want more, you are poorer than the guy who has little and wants nothing.”

In Conclusion This author, however, thinks President Obama and McKayla Maroney best summed up the year for me and my small business. Here’s to a more impressive 2013!

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

Article source: http://boss.blogs.nytimes.com/2012/12/26/this-year-in-small-business-not-impressed/?partner=rss&emc=rss

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You’re the Boss Blog: N.F.I.B. Suffers the Post-Election Blues

December 13, 2012 by Leave a Comment
The Agenda

How small-business issues are shaping politics and policy.

The news from the National Federation of Independent Business on Tuesday was grim, very grim indeed. Confidence among small-business owners — or, more precisely, among a certain subset of small-business owners — dropped precipitously in November, as gauged by the organization’s Small Business Optimism Index. And the reason for the pessimism, said the N.F.I.B.’s chief economist, Bill Dunkelberg, was clear: President Obama won re-election.

“Something bad happened in November — and based on the N.F.I.B. survey data, it wasn’t merely Hurricane Sandy,” Mr. Dunkelberg said in a news release accompanying the report (pdf). “The storm had a significant impact on the economy, no doubt, but it is very clear that a stunning number of owners who expect worse business conditions in six months had far more to do with the decline in small-business confidence.”

The indications of pessimism in the Optimism Index, which is drawn from the N.F.I.B.’s monthly Small Business Economic Trends survey, were myriad. More businesses anticipated lower, rather than higher, sales in the next quarter. More owners think it will be harder to get loans. And the share planning capital investment in the next three to six months fell. Most jarringly, as The Times noted Wednesday, the net percentage of business owners who expected business to improve over the next six months — that is, the share of respondents who predicted improvement less the share who anticipated decline — fell to negative 35 percent, down 37 points from October’s very modest, but positive, reading.

Of course, there is good reason for any business to be concerned about 2013 — many economists agree that if the simultaneous tax increases and spending cuts scheduled to take effect at the beginning of the year (the “fiscal cliff”) aren’t averted or adjusted, the country will plummet into another recession. But here’s something to keep in mind about the N.F.I.B.’s measure of despair: The survey is not a random sample of small-business owners; it is a random sample of small-business owners who are N.F.I.B. members. And as you might imagine, that is a fairly self-selected lot.

The N.F.I.B., after all, has been known to take strong conservative positions on economic issues, even when those positions seem to conflict with its members’ tangible self-interests. (N.F.I.B. officials say that most small-business owners share conservative views about the role of taxes and government, but some — those who vote Democratic — just aren’t as emphatic about it.) Although an N.F.I.B. spokeswoman, Cynthia Magnuson-Allen, said that the organization has never polled its members on their party affiliation, it is understood by many in Washington to be a Republican constituency. In the Congressional elections last month, the N.F.I.B. endorsed 307 candidates, of which 303 were Republicans. Of those, 48 of 279 candidates for the House lost, and 16 of 24 Republicans lost their Senate races.

It is not entirely surprising, then, that for N.F.I.B. members, November offered little reason to be thankful.

Article source: http://boss.blogs.nytimes.com/2012/12/13/n-f-i-b-suffers-the-post-election-blues/?partner=rss&emc=rss

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You’re the Boss Blog: How Are You Using Data Analysis to Improve Sales?

December 12, 2012 by Leave a Comment

“We can only offer a limited number of wines,” said Kim Kooren,owner of Velvet Palate. “So we offer choices that are geared toward their preferences.”Marilynn K. Yee/The New York Times “We can only offer a limited number of wines,” said Kim Kooren,owner of Velvet Palate. “So we offer choices that are geared toward their preferences.”

Today’s Question

What small-business owners think.

A small-business guide we’ve just published highlights a Web site, Velvet Palate, that sells artisanal wines that are made in small quantities around the world and typically not stocked in stores. Written by Julie Weed, the guide explains how Kim Kooren, co-founder of Velvet Palate, is employing sophisticated data collection and analysis to improve sales of those wines.

Before starting Velvet Palate in January, Ms. Kooren worked for an online media company that analyzed how effectively subscription offers and other marketing tools attracted new customers. Velvet Palate’s e-commerce software, Magento Enterprise, tracks sales, of course, but it also identifies tiers of customers, including those who have bought repeatedly, those who have bought once but not returned, and those who have visited the Web site but not made any purchases. This allows Ms. Kooren to pursue the groups in different ways. To entice one-time buyers to return, for example, she might offer free shipping for a limited time. “I try different ideas and see what kind of response I get,” she said.

This kind of analysis can increase sales, according to Peter Fader, a professor of marketing at the University of Pennsylvania’s Wharton School, because it allows companies to aim their offerings and even to design products to meet the needs of their customers. By observing past behaviors, businesses can more accurately predict which customers will visit again, what products will interest them and which special offers will appeal to them.

Which data-analysis tools have you tried? Have they worked?

Article source: http://boss.blogs.nytimes.com/2012/12/12/how-are-you-using-data-analysis-to-improve-sales/?partner=rss&emc=rss

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You’re the Boss Blog: Could You Run a Business With a Former Spouse?

December 5, 2012 by Leave a Comment

After they divorced, Valerie Calistro and Augie Ribeiro were told they should not work together.Wendy Carlson for The New York Times After they divorced, Valerie Calistro and Augie Ribeiro were told they should not work together.

Today’s Question

What small-business owners think.

Agostinho Ribeiro and Valerie Calistro met in law school. As a small-business guide we have just published reports, their relationship blossomed in the early ’90s at a law firm where Mr. Ribeiro was essentially the chief executive. They got married in 1998, and soon after, Ms. Calistro took a more active role in running the company’s operations. Together, they built the business into what is now a 50-person operation with an emphasis on civil litigation. It became their baby.

But while the business grew, their marriage fell apart. They divorced in 2006, and suddenly, the former spouses had to make a choice: Should they continue running the business together or should one of them leave? “People said, including both of our lawyers, that we shouldn’t work together,” Mr. Ribeiro said. “But we talked in an office for two hours and decided we should try to make our business relationship work.” Perhaps surprisingly, they are still working together, and they say the firm is doing well.

Written by Bryan Borzykowski, the guide notes that this situation is more common than many realize — the Census Bureau estimates that 3.7 million businesses are owned by a husband and a wife — and it offers suggestions for divorced business owners who want to try to make the best of a difficult situation.

Do you think you could continue to run a business with a former spouse?

Article source: http://boss.blogs.nytimes.com/2012/12/05/could-you-run-a-business-with-a-former-spouse/?partner=rss&emc=rss

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Bucks Blog: Catching Up on Retirement Savings

December 1, 2012 by Leave a Comment

Paul Sullivan writes this week in his Wealth Matters column about a defined-benefit plan aimed at small-business owners in their 50s who have saved little for retirement. The plan allows them to make annual contributions of as much as $255,000. The owners can then deduct that money as a business expense, resulting in a significant tax savings.

The plan works only if the business owner has a lot of money to put aside each year. But it certainly deals with an issue affecting a lot of people in their 50s and 60s who have not put aside a lot of money for retirement and are trying to figure out ways to catch up.

If you are among those people, what are your retirement saving strategies? Or are you simply planning to work a lot longer?

Article source: http://bucks.blogs.nytimes.com/2012/11/30/catching-up-on-retirement-savings/?partner=rss&emc=rss

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Obama and Boehner Circle Each Other on Budget Impasse

November 9, 2012 by Leave a Comment

Mr. Obama, in his first formal remarks since the night of his re-election, said he would open discussions with Congressional leaders next week to seek a compromise, and then, before an applauding crowd of supporters in the White House’s East Room, defended the “detailed plan” that he campaigned on — including higher taxes on the wealthy.

“I’m not wedded to every detail of my plan. I am open to compromise. I am open to new ideas,” he said. “But I refuse to accept any approach that isn’t balanced.”

“We have to combine spending cuts with revenue, and that means asking the wealthiest Americans to pay a little more in taxes,” he said, calling for Congress to immediately extend existing tax rates for 98 percent of taxpayers.

Mr. Boehner, citing a “cordial” conversation with the president on the morning after the election, said that he was “hopeful that productive conversations can begin soon so that we can forge an agreement that can pass the Congress.”

But he insisted, as the Repulicans put it throughout the campaign, that “the problem with raising tax rates on the wealthiest Americans is that more than half of them are small-business owners.” He added, “Raising tax rates will slow down our ability to create the jobs that everyone says they want.”

Their dueling appearances seemed almost like a reprise of the debates over tax proposals, which were the sharpest point of division in the presidential election.

Asked if the results of the election had weakened his hand, Mr. Boehner said: “There is a Republican majority here in the House. The American people re-elected the Republican majority.”

Indeed, his hands are tied partly because members of his party still have a wary eye on the electoral landscape. Senator Mitch McConnell of Kentucky, the Republican leader and a crucial player in the budget talks, is up for re-election in 2014 and may resist any deal that could foster opposition back home.

But many members of Congress clearly see recent events as creating an opening in the postelection session of Congress, when some retiring and defeated lawmakers could have a freer hand on voting for legislation, absent political consequences. Republicans were weakened by losing seats in both the House and the Senate, while Democrats are eager to move to issues like immigration, which animated Latino voters and helped deliver victory on Tuesday.

“The conditions are there to act,” Senator Bob Corker, Republican of Tennessee, said on Thursday. “I think the environment is different now.”

One reason is that if Washington were to remain in complete gridlock, all tax brackets would revert automatically to those under President Bill Clinton and spending would be cut automatically across the board – the abrupt changing of economic gears known as the “fiscal cliff” because of its likely economic effects.

The nonpartisan Congressional Budget Office underscored the stakes in a report Thursday that framed Washington’s dilemma. It said that if automatic spending cuts went into force and all the Bush-era tax cuts expired, the nation would slip into recession next year and unemployment would rise to 9.1 percent, from October’s rate of 7.9 percent. But simply canceling those deficit-reduction measures would risk a financial crisis that would make matters worse, the report said.

The report suggested that allowing the Bush-era tax cuts to expire for households earning more than $250,000 a year — favored by the White House and its Democratic allies, but strenuously opposed by Congressional Republicans — would have relatively modest economic effects.

Congressional aides said that on a conference call of House Republicans on Thursday, a number of lawmakers spoke up to say they needed to give their leaders breathing room and avoid brinkmanship.

“I don’t want to box myself in,” Mr. Boehner said on Friday. “I don’t want to box anybody else in. I think it’s important for us to come to an agreement with the president. But this is his opportunity to lead.”

But the forces arrayed against a budget deal remain powerful, and the gap between the parties — at least in their public postures — is wide. Liberals, backed by Senator Harry Reid of Nevada, the majority leader, say Social Security should not be part of any deal.

“House Republicans must end their intransigence on tax cuts for the very wealthy and sit down on a bipartisan basis to finish the work of this Congress,” said Representative Sander M. Levin of Michigan, the ranking Democrat on the House Ways and Means Committee, where tax legislation is written.

Mr. Boehner said that “by lowering rates and cleaning up the tax code, we know that we’re going to get more economic growth.”

“It’ll bring jobs back to America,” he said. “It’ll bring more revenue.”

But a second Congressional Budget Office report released Thursday threw cold water on Republican beliefs that a simplified tax code that lowered income and payroll taxes and closed loopholes to make up for lost revenue would substantially close the deficit by increasing economic growth. Such a plan would raise about $100 billion a year by 2020, far less than what Democrats say is necessary, the report said.

There are other pressing and potentially costly matters facing the lame-duck Congress, too. One is an extension and overhaul of farm programs, including emergency relief for the drought, which persists over much of the nation’s middle.

Another is providing federal assistance to the states hit hard by Hurricane Sandy, a bill that could easily come to tens of billions of dollars.

Then there is the looming deadline for raising the debt ceiling, a matter that may prove hard to untangle from the related questions of spending and taxation.

“It is an issue that is going to have to be addressed, sooner rather than later, ” Mr. Boehner said on Friday.

The Treasury Department expects the country to hit its debt ceiling, a legal limit on the amount the government is allowed to borrow, close to the end of the year. That would give Congress only a matter of weeks to raise the ceiling, now about $16.4 trillion, before sending financial markets into a panic.

In 2011, Congressional Republicans would not raise the debt ceiling without a broader agreement to cut the country’s deficit and set it on a better fiscal path. The impasse over finding spending cuts and tax increases to do that led to the creation of the automatic spending cuts that loom on Jan. 1, the same time the Bush-era tax cuts were also set to expire.

Reporting was contributed by Jonathan Weisman, Jennifer Steinhauer, Annie Lowrey and Helene Cooper.

Article source: http://www.nytimes.com/2012/11/10/us/politics/obama-and-boehner-circle-each-other-on-budget-impasse.html?partner=rss&emc=rss

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You’re the Boss Blog: What You Need to Know About Merchant Cash Advances

October 31, 2012 by Leave a Comment

Joe Maguire: Ami Kassar. Joe Maguire: “I haven’t lost my shirt yet.”

Searching for Capital

A broker assesses the small-business lending market.

Every morning, before I start my day, I stop for a cup of coffee and a bagel near my office. I have to choose between the local Dunkin’ Donuts franchise and Maguire’s, a boutique sandwich shop. Invariably, I pick the sandwich shop. I know the owner, Joe Maguire, and I like to support him. Also, his coffee is great.

Mr. Maguire has owned the shop for almost a year. He knows his customers by name. I often see him at the back of the store loading products onto the shelves after a trip to Costco or helping with a breakfast run.

“How are you doing, Joe?” I ask.

“Hanging tough, Ami,” he replies with a smile. “I’ve almost survived Year 1, and I haven’t lost my shirt yet!”

As I walk to work, I feel good about my choice as a consumer, but I don’t feel great about how our banking system is treating Mr. Maguire and millions of other small-business owners like him. The life of a small retailer is tough these days, and there are few signs that it’s getting easier.

What, for example, are Mr. Maguire’s options if he wants to get a loan to increase or expand his business? What happens if the radiator goes out and needs to be replaced, or if the oven blows up in the back of the kitchen? What happens if there is a bad winter and sales slow unexpectedly?

Mr. Maguire probably cannot turn to a bank. He has two strikes against him: he hasn’t been in business for at least two years, and, unless he is one of the lucky few with equity in their houses, he has no collateral for a loan. The bankers aren’t interested in the coffee urns or the coolers holding Snapple.

If Mr. Maguire is lucky and gets good advice, he may find one of the few banks that still offer unsecured Small Business Administration Express loans up to $50,000. The good news is that if you can get one of these loans, the rates are reasonable. The flip side is that Express can still take a few weeks and lots of paperwork, and Mr. Maguire may not have time to wait.

In this situation, he may well turn to one of the merchant cash advance lenders that are having a field day in today’s economy and that will promise Mr. Maguire unsecured money in just a few days. The lender will review Mr. Maguire’s recent merchant processing statements, bank statements or both, and then make what is often a tempting offer. In Mr. Maguire’s case, the offer might be an immediate $20,000 in exchange for $25,000 of future receipts.

It sounds tempting because the owners figure they can get $20,000 immediately, and it costs only $5,000. Think about it, though. The $5,000 is 25 percent of the amount they’re borrowing, and it’s actually even worse than that. Considering that most of these loans have to be paid back within six months, the actual interest rate may be more than 50 percent. That is a lot for any small-business owner to swallow. The lenders can get away with the high rates because they are careful not to call these transactions loans. They say they are buying a piece of a company’s future revenue.

If you are in the market, here are some things to consider:

Insist on seeing all of the fees upfront, and make sure you understand every one of them.

Make sure you understand the terms. Some of these loans involve a daily fixed amount taken from your account; others take a percentage of your credit card sales every day. A lender, for example, might demand 10 percent of your daily credit card receipts until you have paid back the agreed-upon amount. Don’t focus on the 10 percent figure — that is not the rate you are paying. I had to explain to one client that his effective interest rate was more than 90 percent.

Insist that the cash-advance company provide at least a projected annual percentage rate, or A.P.R., for your loan. This makes it much easier to compare the advance with other options. In addition to an S.B.A. Express loan, there may be business credit cards or equipment leases available to you at better rates.

Shop around. The cash-advance business is competitive. Make sure you’re getting the best possible rate.

The sad reality of today’s credit markets is that many small businesses have no choice but to consider these types of loans. In our work at MultiFunding, we often find that there is no better option. Still, whenever I am forced to put a client into one of these high-rate loans, I think about Mr. Maguire and the struggle he is facing to build his business, as well as his crew of four employees who count on him. Yes, the merchant cash advance lenders and the hedge funds that back many of them are filling a need in today’s market. But there has to be a better way.

Ami Kassar founded MultiFunding, which is based near Philadelphia and helps small businesses find the right sources of financing for their companies.

Article source: http://boss.blogs.nytimes.com/2012/10/30/what-you-need-to-know-about-merchant-cash-advances/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Case Study: Starting Over After a Cyberattack Shuts Down the Business

August 30, 2012 by Leave a Comment

Case Study

What would you do with this business?

Peter Justen: Daniel Rosenbaum for The New York Times Peter Justen: ” I had known him for more than 15 years.”

Last week we wrote about the situation faced by Peter Justen, chief executive of MyBizHomepage, after the company’s former chief technology officer set in motion a series of crippling cyberattacks against the company’s Web site.

Once valued by its investors at $100 million, MyBizHomepage was founded in 2006 by Mr. Justen as a way to help small-business owners access financial metrics that can help them run their companies. But then, apparently angered by Mr. Justen’s decision not to sell the company, the chief technology officer tried to start a competing company. When Mr. Justen found out, he fired the officer along with two co-conspirators. And that’s when the cyberattacks began. They rendered the site all but useless, and Mr. Justen struggled with what to do next.

In February 2009, Mr. Justen and his board concluded that they would have to take the site offline, which would effectively close the business and saddle board members like Joe Silbaugh, who had invested more than $1 million, with a devastating loss. “We essentially had no choice because we no longer had a product,” Mr. Justen said. “We also decided to be up front about the decision and explain what happened along with an apology. When bad things happen you can hide under the rug and hope it goes away or you can go public with it and take the teeth out of the tiger. Some people were understanding while others were not.”

The decision did not please the company’s vendors, some of whom quickly filed suit over unpaid bills. But many of the company’s channel partners, who helped distribute the product, decided to stay on. “They told me they liked our product, and they were going to stick with us,” Mr. Justen said. “In tough times, you really get to see who your friends really are.”

Ignoring advice from his lawyers, Mr. Justen, who also had invested heavily in the company, decided not to declare corporate bankruptcy because he did not want to give anyone the opportunity to purchase the company’s intellectual property. He also turned down multiple offers to leave the company and take salaried employment. Rather, he asked his original investors to support him in rebuilding the company from scratch. “We held a shareholder meeting and I told them I would kill myself in trying to restore the company to what it should have been,” said Mr. Justen, who also liquidated his 401(k) and his children’s college funds and invested the money in the company. “Fortunately, they gave me that chance.”

Mr. Justen spent the next two years rebuilding the company, which is now called Five Plus. It features an online subscription software package that synchronizes with a company’s QuickBooks software and presents an easy-to-digest version of critical financial figures such as accounts payable, accounts receivable, cost of goods sold and cash on hand. The new software also embraces social media technology, enabling users to connect with each other and to compare their financial results with those of their industry peers.

While the new business is up and running, Mr. Justen said he and the business remain under cyberattack. In one instance, he was forced to fend off a denial-of-service attack against the new site that attempted to redirect his customers to a site where fraud claims against Mr. Justen and the company’s investors (including Mr. Justen’s 87-year-old mother and deceased father) had been posted. Mr. Justen said he continues to work with the United States Secret Service in attempting to track down the former chief technology officer.

After this case study was published last week, the unnamed former employee contacted The New York Times and identified himself as James Bird. He denied that he had been on the lam and offered an address in Santa Monica, Calif., where he said he is living. While asserting that Mr. Justen owes him $25,000, Mr. Bird acknowledged that he had in fact hacked the MyBizHomepage site.

Mr. Justen discussed the experience — and responded to reader comments — in a brief interview that has been condensed and edited.

You have said that you discovered after the attacks that Mr. Bird had been living off the grid — no driver’s license, not paying taxes. Didn’t you have to have his Social Security number to pay him?

Yes, we paid him as a contractor and did have a Social Security number for him. But what are you going to do with it? He doesn’t use it for anything we could track him with. He doesn’t have credit cards or bank accounts. He paid cash for everything, including his car.

Why didn’t you run a background check on him before hiring?

I had known him for more than 15 years. I was like a mentor to him. He came over to our house for dinner six times a month and played with my kids. He was a very talented software engineer and I highly trusted him.

Why was he upset after the sale of the company didn’t go through? What was in it for him?

He had stock options in the company that would vest over different triggers or events, like a sale. He was in line to make a substantial amount of money.

Were you surprised that two of your senior officers went along with Mr. Bird?

Yes, I was quite surprised. One of them had worked for me for three years as a trusted financial adviser. I think they just got caught up in the drama of it all. I terminated all three individuals on the same day.

Do you think Mr. Bird had help in sabotaging the company?

Yes, I think all three of them worked together. Jim did the technical stuff and the other guys did the rest. They went to our clients and told them they were starting a new company and that Peter’s company had failed. They would even pull up the site, which Jim would then crash, as proof.

What lessons do you draw from this experience?

I realize I made many mistakes and I have learned a number of things from this experience. Inspect what you expect and trust but verify come to mind. A big lesson I learned was to separate business from personal. I let my personal emotions cloud my better business judgment.

What do you say to the readers who asked why you didn’t conduct a security audit on the system?

When you’re a start-up, you have to make some tough calls about where to spend your money. You throw nickels around like they’re manhole covers. At the time, there didn’t seem to be any reason for us to spend $70,000 to verify something that didn’t seem to be a risk. Jim was a cyber security expert. Our software was rock solid against attacks from the outside. I just never expected someone I trusted so much and had known for so long to do what he did from the inside. That’s why with our new system, no one else has all the keys to the kingdom and we keep multiple copies of our backup code in different locations. We’ve taken as much precaution as is humanly possible to make sure this doesn’t happen again.

What did you do to protect your customers once you knew the system had been hacked?

The customer information was never a target. As part of our design, we never collected any personal data on our customers like bank account information. That was part of our design. All we collected was data like company revenues and receivables. But it wasn’t connected to any personally identifiable information.

Were you surprised by the reactions of readers?

I’ll admit that I thought some of the comments must have come from people who have never stepped foot in the arena and tried to start a company — people who never shed blood, sweat and tears trying to build something. But when you hear from customers who tell you that what you built helped save their company, that’s what makes it all worthwhile.

Article source: http://boss.blogs.nytimes.com/2012/08/29/starting-over-after-a-cyberattack-shuts-down-the-business/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,
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