Speaking at Hosting Con 2009 …

If you’re going to be in the Washington, DC, area this August 10th to 12th, 2009 — and you’re in the hosting, ISP or SaaS business — you owe it to yourself to check out Hosting Con 2009!

I have the honor of moderating a keynote with two very talented experts involving data protection policies in US and EU, one expert from the US Department of Commerce and the other from the European Commission. I will also be giving a seminar entitled, “How to Structure Your Company Now to Sell Later,” which will provide an overview and discussion on those areas a business owner should focus on now, to maximize value for the business years later to maximize the value for an exit.

It’s a jammed-pack conference, full of outstanding speakers and sessions, involving 4 tracks: Marketing & Sales, Emerging Trends, Technology & Operations, and Business Development.

The Inauguration of the 44th President of the United States

I, like many of my fellow Americans (and perhaps, my fellow human beings around the globe), am glued to the news and video streams involving Barack Obama’s inauguration today, on this cold and blistery Tuesday, January 20th, 2009.

I just read a commentary by Donna Brazile, for CNN, entitled “A day to rejoice — and recommit” (located here).

I think she does a marvelous job discussing why this election — and the inauguration of Barack Obama — is so important for so many of us.

For me, she misses an important point, though. For me, Barack Obama is an extremely competent, intelligent and inclusive individual: Precisely the type of individual that is so needed to lead this great country of ours. For me, the color of his skin is absolutely irrelevant. For me, it’s the “content of their character,” that has been so lacking in the White House for so long.

Our country has suffered greatly because of this.

For me, this is an important day, because we have the right individual to lead our nation.

The tears in my eyes aren’t because we have an African-American in the White House, but because we have an extremely competent, intelligent and inclusive leader in the White House.

The tears in my eyes aren’t because we’ve made a huge step forward in civil rights (although I agree, that’s a wonderful icing on an otherwise delicious cake), but because we as Americans see that “competence and character,” not popularity or “moral values,” is the yardstick with which to measure our leaders.

Debunking the Wayback Machine

The Internet Archive (www.archive.org) was founded in 1996 by Brewster Kahle, a search-engine whiz and dot-com multimillionaire at the time, with a dream: “He wanted to back up the Internet.” It quickly became the largest publicly accessible, privately funded digital archive in the world. At the same time of its founding, Mr. Kahle co-founded Alexa Internet in April 1996, which was sold to Amazon.com in 1999.

At the time of the founding of the Internet Archive, there were approximately 50 million or so unique URL’s. In July of 2007, Google claimed that it found approximately 1 trillion unique URL’s on the web, with every indication that growth will continue to explode. Over the years, the Internet has become a significant driver of commerce, increasingly the subject matter of litigation. The Wayback Machine has provided evidence, for plaintiffs and defendants alike, in litigation ever since; and has become a very important tool for attorneys and litigants.

The problem is, most attorneys (and even highly paid expert witnesses) don’t have enough technical experience to truly appreciate the limitations of the Wayback Machine, and often misuse or misinterpret the results of the Wayback Machine.

I was recently hired as an expert witness by a small Internet company, to help defend against a lawsuit from a major music publisher. The case looked absolutely hopeless, as this major music publisher spent an exorbitant sum on an expert witness, who appeared to have created a water-tight case against my client using information provided by the Wayback Machine.

As I read the report of the plaintiff’s expert witness, it became clear to me that the expert witness had absolutely no understanding of the limitations of the Wayback Machine, and as a result, completely misinterpreted the results. Within a few short weeks, I was able to completely discredit the expert witness, thereby undermining the plaintiff’s case (This case is still ongoing, and has not yet reached final disposition).

I am currently working on a paper, which I am calling “Debunking the Wayback Machine,” which will detail the advantages and disadvantages of using the Wayback Machine in litigation. This paper will discuss the technical issues, as well as provide easy-to-follow steps and guidelines on how to carefully examine and apply the results of the Wayback Machine for testimonial purposes. And, most importantly, how to discredit anyone that blindly relies on the results of the Wayback Machine to prove or disprove their case.

Consider the issues.

These limitations can have profound impacts on what is delivered from the Wayback Machine, and my paper discusses these impacts in depth. For your consideration, consider these two examples I have personally witnessed in the past year:

• In one example, the Wayback Machine has archived a particular website for years. When referencing that website from several years ago, the Wayback Machine contains all the web pages including a form. The form, however, references an actual script that sits on today’s website (i.e. the script, itself, is not backed up on the Wayback Machine). Therefore, when one accesses the form from the Wayback Machine, it gives the false impression that when you hit “submit,” you’re getting the results from several years ago. This is incorrect, because when you hit “submit,” the Wayback Machine sends the query to the existing website, therefor you’re getting today’s information. This is a difficult concept to grasp, and made all the more difficult in litigation, because most expert reports contain mere screen shots, when a careful examination of the underlying links, data and information provided by the Wayback Machine is needed to properly assess the accuracy and relevance of that information to the case at hand.
• In another example, the Wayback Machine had archived some, but not all, images of a particular website. When viewing a backed up website through the Wayback Machine, you see a complete web page but when you carefully examine the links, you find that not all the images represented have been backed up. A few of the images — and in this case, a very important image — continue to be referenced from the existing website. When you have anything coming from outside the Wayback Machine, it is not archived information. Thus, subject to changes and manipulation over time. In this case, the image in question was key to a case: It provided specific information about the company that a plaintiff attempted to use in litigation.

In conclusion, I believe it’s attorney malpractice to let the opposing side use the results from the Wayback Machine in litigation (or to influence settlement or the outcome of a case) without consulting with an expert who can carefully examine and scrub the results provide by the Wayback Machine.

Stay tuned for my paper. If you have any questions or are dealing with a matter that involves evidence provided from the Wayback Machine, please feel free to contact us at your earliest convenience.

2008 Quote of the Year

“I know we loose money for each one we sell, but we’ll make it up on volume…”

You can lead a horse to water, but you cannot make it drink.

Non-Compete Agreements: They Can Work

One of the biggest concerns I hear from many business owners, is the fear of key employees walking away with customers. I’ve talked with employees at many companies, and it’s clear: These people believe any client they work on is “their customer,” they are free to take “their customers” away from their employer, and they don’t believe non-compete agreements are enforceable.

I just cringe for these business owners, who have such individuals in their employ. Sure, they are busy, but make no mistake about it — they are working for themselves and there is zero loyalty — these employees will leave you in an instant if they think the grass is greener elsewhere.

Aside from being completely wrong on all accounts, these employees have little knowledge or respect for the difficulty and sheer effort it takes to open, run and successfully manage a profitable business. It’s the business owner that invests in marketing and signs the advertising contracts. It’s that same owner who doesn’t sleep at night, trying to figure out how to keep the lights on, the clients coming through the door and the paychecks issued. Client loyalty is key to the success — and long-term viability — of any business.

How can you prevent former employees from stealing your clients? The answer is, a well-crafted non-compete and non-solicitation agreement.

The laws vary from state-to-state, jurisdiction-to-jurisdiction. There are ways to write bad (i.e. unenforceable) agreements, and there are ways to write great (i.e. enforceable) agreements. The best way to obtain a great agreement, is to hire a local attorney familiar with such matters — the money you spend writing such an agreement will pay for itself in dividends.

Do you even have agreements in place with your employees? If not, you have no excuse! Start now!

Don’t give courts reasons to invalidate your agreement. Make it fair and reasonable. This means take ownership of what is yours — the client — and don’t unduly restrict your employees from being gainfully employed elsewhere. Avoid:

• Geographic restrictions - even limited ones can pose problems
• Blanket restrictions - everyone has a right to work, so don’t prohibit someone from earning a livelihood
• Unlimited restrictions - always reasonably time-bound the restriction (i.e. 1 year)
• Non-solicitation only - everyone tries to get around this, by creating the circumstances where “I didn’t solicit them, they called me!”
• Punitive damages - courts seldom award punitive damages, especially for employee contracts; so they just help to instill the belief that your non-solicitation agreement is egregious, unfair and unbalanced

Every good non-compete agreement should, at a minimum:

• Define Confidentiality and require employees to honor the confidential information of your business
• Define “Client” and “Client List,” and make it clear they are owned by company and are to remain Confidential and Trade Secret
• Indicate that employees (including “whether as an individual for its own account, or for or with any other person, firm, corporation, partnership, joint venture, association, or other entity whatsoever, which is or intends to be engaged in the same line of business as YOUR COMPANY, or in such other business competitive with YOUR COMPANY,”) may not solicit, interfere with, or entice away any clients (or employees) of your company, for a reasonable period of time (i.e. 1 year)
• Indicate that employees (with language above) after their employment ends at your company, may not service, or perform services for, any Client, for a reasonable period of time (i.e. 1 year)
• Require employees to acknowledge that the restrictions will not create an undue hardship, not prevent them from competing in an independent business, and agree they are subject to a restraining order and/or injunction if they violate the agreement
• Require “reasonable enforcement costs and expenses” to be paid by employee, if they violate the agreement
• Contain the standard clauses of severability, survival, waiver of breach and assignment

Note that if you are presented with employees who are bringing their own clients, and you want to acknowledge the clients they bring, my advice is to create an “attachment” that has the actual names of the clients you want to exclude from the agreement. The employee should specifically indicate who such individuals are.

If you have an employee who doesn’t want to sign such an agreement, then you have some interesting information: They intend to steal clients from you the minute the relationship doesn’t work for them. Do you really want such employees in your organization?

EBay beats Tiffany, but TM law is very much alive and well …

The Wall Street Journal announced today that EBay Wins in Fight Over Tiffany Counterfeits.

eBay finally wins one, and it’s about time. EBay (and other e-commerce companies) won decisively against Tiffany and other trademark holders, which are trying to hold Internet companies liable for the sale of counterfeit goods. The issue involves burden of policing trademarks on the Internet, and Tiffany argued that eBay doesn’t do enough to police its network. The court held that eBay removes content once notified by Tiffany, which is the extent of its legal burden under US Trademark Law. Tiffany wanted eBay to police its network regarding Tiffany trademarks, much as it does prohibiting firearms.

Technically speaking, it wouldn’t be a problem for eBay to police its network as Tiffany desires. The problem is, it creates a slippery slope for eBay in several ways. First, by doing this for Tiffany, it would create a precedent for eBay to do it for all valid trademark holders (or at least those who requested this from eBay). Additionally, it suggest some form of liability to Tiffany, should eBay make mistakes. Finally, such action would cause a disservice to eBay’s customer base, as there are valid holders of Tiffany products. For example, I happen to have a couple of silver cufflinks from Tiffany, and if I want to sell them, I should be able to do so without seeking some form of permission from Tiffany.

It sounds like Tiffany isn’t going to give up. I expect them (and other significant trademark holders) to seek additional rights at the federal level. The problem is, they are overstepping their bounds, and definitely infringing on my rights as a holder of Tiffany goods should I desire to sell them. If we give rights to trademark holders to hold eBay, Craig’s List and the classifieds liable for counterfeits, I will no longer have an opportunity to sell my old Dell laptop, my Logitech mouse, iPhone, Tiffany earrings, my wife’s Louis Vuitton purse, etc, etc, etc.

Don’t think for a minute, that trademark holders are powerless with this decision. It simply reinforces the burden of policing the trademark (i.e. monitoring where your trademark is being used), and once a trademark holder identifies (or thinks they’ve identified, even if they are wrong) improper use of their trademark, an Internet company would be wise to immediately respond to any notice received by taking down the offending material. Otherwise, it becomes an easy case for contributory trademark infringement against your company.

When I was COO & Corporate Counsel for FatCow Web Hosting, I received numerous trademark infringement claims against our customers. The problem for us, is that our 30,000+ customers hosted their websites with us, some websites having many thousands of pages or products, with only one page or product containing the offending material. As a company, we can’t go in and modify a customer’s database to remove the one row (or page) containing the trademark problem. We have to take down the entire website. Therefore, it was our policy to contact the customer first, apologize about the predicament we were in as a hosting company, and explain the options to our customer. Often, those options were:

• Remove the offending material (usually within 72 hours);
• Resolve the matter with the complaining party;
• Obtain a court-order to keep your website up; or
• Have us take down your entire website.

More times than I can remember, I would receive a call by either the customer or their attorney, demanding that we leave the website up and basically trying to plead their case to me as though I’m a trademark judge. Unfortunately, in US Trademark Law, there is no safe harbor for an Internet company or ISP against contributory trademark infringement claims by a valid trademark holder. This means, as an Internet company or ISP, you must take down any material that is alleged to infringe a valid trademark otherwise you risk exposing yourself to a contributory trademark infringement cause of action, which will be difficult to win given the notice you were provided by the original complaint and the fact that you derive revenue from your customer.

In other words, Tiffany didn’t lose anything in this case against eBay. Trademark law is still alive and well for trademark holders.

Comcast may receive financial penalties for managing its TCP/IP traffic

The Sacramento Business Journal had an article today discussing how the FCC Chairman is recommending punishment to Comcast for “violating commission principles meant to protect consumers’ access to the Internet.” In particular, Comcast started regulating BitTorrent Inc. file-sharing traffic in June 2008, and has been accused of creating network changes that have disrupted some users of Vonage VoIP phone service.

I’m both a Comcast and Vonage user, and I’ve never experienced any trouble with Vonage myself, although I’d raise hell with Comcast if they tried to interrupt the ports or connectivity associated with my Vonage use. Vonage is a great service, and I cannot recommend it enough. Internet VoIP is definitely the wave of the future. It’s inexpensive, flexible, highly configurable and most importantly, portable. I can keep my old phone numbers, no matter where I am on the Internet. I can also have phone calls routed just about anywhere.

What this points out, though, is that ISP’s must be ever more careful how they define services for their customers, as well as how they manage their networks. In the past, ISP’s have often had to make hard decisions in impacting one or more users’ access to the Internet, in order to save or protect the overall network. For example, in Comcast’s case, they are trying to manage overall network performance by reducing BitTorrent filesharing traffic.

In today’s ISP market, we market the value of the service by how fast it is, like when an ISP advertises “6 megs.” Consumers don’t appreciate the different between upload versus download speeds, although there are signs this is changing. ISP professionals will tell you that “6 megs” is really not telling the whole story, since it’s a measure of throughput not overall data transfer. If all customers on an ISP’s network fully utilized their full throughput (i.e. all “6 meg” customers transferred a full “6 meg” upload and download all day and night, 24×7), their networks couldn’t handle it. Every ISP’s network assumes customers utilize only a tiny fraction of their overall bandwidth allocation.

The better approach for an ISP, would be to state upload and download speeds, as well as put a monthly or daily cap on data transfer. This would help ISP’s manage their network, when you have heavy users, as well as provide a mechanism to tier access, therefore providing an ability to charging more for the “heavy users.”

Is the small ISP going the way of the Dodo?

I had lunch today with a the owner of a very well-respected ISP here in New Mexico. He is a very likable fellow, very technical and works very hard at keeping his customers happy.

The problem is, his business isn’t growing.

For years, he benefited from high double-digit growth rates in net residential and commercial accounts. This past year, his net growth rate for new accounts is around 5%. He blames it on the economy, acknowledges a deficiency in marketing, and feels that all he needs to do is offer a new backup storage service to get folks enticed to do business with him.

The truth of the matter is far more sinister. His business, like all small ISP’s, is in risk of extinction. The large players, like Qwest and Comcast, are now competing in a deregulated marketplace. They aren’t giving ISP’s the same access to their networks as before. They are bundling services, and throwing in Internet service as a loss-leader.

His people are disenfranchised. They lost that “spark” that keeps them motivated and going that last mile for customers. It’s a downward death spiral, and it will take some serious changes to turn the business around and compete effectively in this new marketplace. He is stymied, and falling back to what he knows best: Introducing new technical features that will have little appeal, especially when ISP-neutral solutions are readily and inexpensively available.

What he needs to do is:

• Refocus on customer service, and delivering a customer support experience that far surpasses what the big-boys can provide.
• Create a corporate proforma, with realistic goals on number of accounts and value-added service purchases.
• Create monthly financial reports that can be disseminated to the company (and public).
• Publish a monthly executive dashboard of business metrics, to help employees better understand how the company is doing and what is needed to grow.
• Provide the same suite of services the big boys provide, that are easier to use, better and more cost effective. At a high-level, broadband capable voice, data and TV. Also, he should include (at a minimum) email, DNS, web hosting, automatic virus protection and spam filtering, and optionally filter out adult content.
• Finally, he needs to offer services the big boys simply cannot. Because his customers are local, he could offer free “computer checkups” and disaster recovery for clients. He should leverage his local access to clients.

Over the course of the next month or so, I’m going to publish articles that offer specific examples and explain how to create the various tools for the small ISP: Proforma, proper financial reports, executive dashboard, exit strategies, broadband network strategies, etc. Stay tuned!

Michigan legislators: stupid is, as stupid does

Michigan, without fully appreciating the ramifications to small business, decided to recently join the growing list of states placing restrictions on gift certificates. The justification is always consumer protection. (See Gift Cards and Gift Certificates Statutes and Recent Legislation for more information about various state laws).

Both houses in the State of Michigan approved bills amending Michigan law to (1) limit expiration dates to five years or more, and (2) require unclaimed funds to escheat to the state. See the Senate version of the bills, Bill 387 (S-2) and Bill 388 (S-2), covering Michigan’s Consumer Protection Act and Uniform Unclaimed Property Act, respectively.

They were scheduled to take effect on April 1, 2008, but it doesn’t yet appear (as of the writing of this blog article) that they have been signed by the Governor.

What is truly mind-blowing, and shows the depth of ignorance of Michigan’s legislators, is the fiscal analysis performed. They actually say:

FISCAL IMPACT

Senate Bill 387 (S-2): Any additional costs associated with enforcing the Michigan Consumer Protection Act or promulgating any new rules to implement it due to this proposed change should be absorbable [sic] within the Office of Attorney General’s existing budget.

Senate Bill 388 (S-2): The bill would have no fiscal impact on State or local government.

No fiscal impact??!? From a state with the nation’s highest unemployment rate in 2007??!? They would have looked less stupid by saying “should not have any fiscal impact.” What they missed, is the impact to small business, and the further erosion of the economic viability of that tax base.

Michigan is a state that needs jobs. The residents are leaving in droves, with “the likely consequence of a moribund economy that has pushed thousands more people into poverty.” Consumer protection is always a laudable goal, but laws like this — with no rigor in the financial impact of their legislation — indicate that Michigan will experience a significant, long-term decline in its economic base. I can’t think of a better indicator for businesses and homeowners to sell!

I’m guessing that legislators like to look at the large companies, like Walmart, Best Buy, Circuit City, etc, when constructing consumer protection laws. The problem is, being able to sell, expire, recognize and keep the revenue from gift certificate sales are critical to many groups of small businesses. Their survival depends on it, and it’s the small business that pays an inordinate amount of local taxes and employs a large percentage of the population. It’s small business that struggles to survive, especially in the economically depressed State of Michigan.

A good employee is like a three-legged stool

You cannot beat three legs on a stool. Otherwise, it’s next to impossible to maintain the proper balance and center-of-gravity.

It’s useful to think of a three-legged stool, when thinking of employees. Like legs on a stool, each employee needs at least three high-level attributes to maintain the proper balance within a company and the right center-of-gravity. They are:

1. Hard skills - Those skills necessary to do the fundamental job hired for (i.e. answer the phone, analyze financials, run the computer, balance the books, etc).
2. Soft skills - The knack for friendliness and courtesy. Saying “hello, please, thank you and goodbye,” along with the ability to communicate well (i.e customer service skills).
3. Culture fit - Possessing the same work ethic and desire for growth as the company.

It’s easy to focus on hard skills only … “She is GREAT at doing what is needed!” We so appreciate when someone is an outstanding fit for what’s needed, that we forget about two other important features of what makes an employee great within a company: the soft skills and fit within the culture.

Soft skills are important. This is a no-brainer for those positions with customers interaction. Customer-facing employees must be friendly, courteous and represent the company in its best light with customers. After all, customers represent the life-blood of a company: revenue. However, if everyone — including the bookkeeper — maintains strong soft skills, you promote, propagate and maintain a fun, positive and healthy workplace environment, which makes it even easier for the customer-facing employees to maintain great relationships with the customers.

Soft skills include communication skills, and are often overlooked. If an employee cannot articulate him or herself clearly, they will experience difficulties with representing others and the company, problem solving and/or conveying information. They will delay or neglect filling paperwork, time sheets, follow-up cards, etc, if they have trouble writing.

When I see otherwise great companies with great products or services having trouble with customer retention, I almost always find companies whose employees have little or no soft skills. Customers like to be liked, and like to associate with others who are friendly, helpful and courteous. Unfriendly employees, who appear preoccupied or generally lack sincerity, will push customers away and they will never come back.

As it relates to culture fit, consider two different business owners: The first is an A-type personality, who works hard toward a 5 years exit strategy. The second owner could care less about making a profit, and cares dearly about promoting a healthy lifestyle. Is it possible for the same great employee to be successful in both companies?

If, as an owner or manager, you’re constantly working overtime, are you going to be okay with a nine-to-fiver? Or, do you need someone who is willing (without asking) to burn the midnight oil?

Individuals who bring a balanced mix of hard skills, soft skills and culture fit, will be far superior, happier and longer-lasting, than individuals who possess only outstanding hard skills, and lack in the other areas. A hard skills only employee will ultimately lead to frustration and a quick turnover–in that employee, as well as customers.