What It Means When the Fed Changes Interest Rates

Posted on December 19, 2007
Filed Under Finance & Economics, Global Issues | Leave a Comment

The Federal Reserve has been changing “interest rates” over the past few months and most people I talk to don’t know what that means or how it works.  Here is a simple explanation.

First, a basic understanding of commercial bank regulation is needed. 

Banks are required to have a certain amount of reserves in the form of vault cash or non-interest bearing reserves held with the Fed.  This is reserve requirement is determined by each banking institution’s liabilities and assets, as well as the Fed, but is typically around 10%.  That means that if a bank wants to lend out $100 it only needs $10 in the vault to do so. 

Fundamentally this doesn’t make sense since a bank should be able to provide cash to all depositors should the need arise.  However, it is not likely that ALL depositors will demand all of their money at the same time (known as a bank run).  This happened during the great depression, and is exactly why the commercial banking system is so heavily regulated today. 

Regulators go to great lengths to ensure trust in the banking system, in order to prevent another massive bank run.  The mechanisms used to provide trust in the banking system are:

  1. Reserve requirements
  2. A lender of last resort (the Fed)
  3. Depository insurance (FDIC insured bank accounts, typically up to $100,000)

The “interest rates” that the Fed can change relate to the rate banks charge each other to meet Reserve Requirements (Federal Funds Rate) and the rate the Fed charges as a lender of last resort (Discount Rate).

At the end of each day, some banks have funds in excess of their reserve requirement, and some banks have funds that fall short of their reserve requirements.  The banks that fall short only have two ways to meet reserve requirements each night.  They can either borrow from another bank (at the Federal Funds Rate), or borrower from the Federal Reserve (at the Discount Rate).

The Federal Funds Rate is the market driven interest rate charged by banks on overnight loans to satisfy reserve requirements.  The Discount Rate is the rate that is charged by the Federal Reserve as lender of last resort.

The Fed can only set a specific rate for the Discount Rate.  It cannot set a specific rate for the Federal Funds Rate.  This is because the Federal Funds Rate is a market driven rate set by supply and demand.

So, what exactly does it mean when the Fed lowers or raises interest rates?  It means one of two things.  First, it could mean the Fed is lowering or raising the Discount Rate, which is what it charges to banks on loans.  Second, it could mean that the Fed is lowering or raising the Federal Funds TARGET Rate.

It is important to understand the nature of the Federal Funds Target rate.  The Fed cannot just make up a number and require all banks to lend at that figure.  What it does is set a target range for the actual market-driven Federal Funds Rate, and then it uses Open Market Operations to move the actual rate closer to the target rate.

This can be confusing but makes a big difference when we talk about the Fed changing “interest rates.”

This was crucial to understanding the interest rate decisions made by the Fed immediately after the Credit Crisis in August.  After the Credit Crisis, the headlines all said the Fed lowered “interest rates.”  But which one?  The actual Federal Funds Rate set by the market was unusually high, which signaled that banks were less willing to lend their capital to other institutions (because of a higher risk of doing so).  But instead of changing the target Federal Funds Rate, the Fed changed the Discount Rate.  The discount rate is higher than the Fed Funds rate, and has a stigma attached to it (no banks want to borrower from the Fed because it is seen as a sign of insolvency).  Thus, the lowering of the discount rate was largely ineffective. 

The implications of the Credit mess were still largely unknown, and the Fed was still concerned about inflation, so it decided to lower the DISCOUNT Rate, and not the Federal Funds Rate, which did not solve the problem.  But since most people didn’t understand this difference in rates, they did not understand the actual implications of this “rate change.”  Even some investment bankers I know didn’t get this.

In the following weeks the Fed finally changed its target for the Federal Funds Rate, but although the target was changed it didn’t initially matter.  There was still a large spread between the target rate and the actual rate.  And in subsequent weeks when the Fed continued to lower the Fed Funds target rate, the market rate was a few hundred basis points below the target because of all the liquidity the Fed pumped into the market!

The above is a wonderful example of the importance of understanding the distinction between the Federal Funds Rate (target and actual) and the Discount rate.  It was useful in interpreting the decision of the Fed after the Credit Crisis, and it will be important in determining the implications of the Fed as we move into 2008 with an uncertain economy.

Ad-Supported Napkins

Posted on December 14, 2007
Filed Under Business & Entrepreneurship, Ideas | 1 Comment

Giving away things for free has proven to be a profitable business, when the ‘free stuff’ is supported by ads.  A couple of days ago I stumbled upon a great new business startup that capitalizes on this idea.

Napads.com gives away free napkins to its approved list of high profile bars, lounges and nightblubs.  The napkins are ‘free’ because they are plastered with high quality advertisements from liquor companies, movie studios and credit cards vendors.  The bars and nighclubs win because they don’t have to pay for napkins anymore, the advertisers win because they get to increase their brand awareness by getting in front of consumers while they play.  And, of course, Nap Ads wins since it is the transaction broker in the deal.

This business model first took hold online, by giving away high quality content for free and then selling relevant advertising.  Google certainly made progress in this arena, but the popularity of Adsense is beginning to fade.  The ads are boring and often times are poorly targeted.  The algorithm needs work. 

However, despite the nature and maturity of internet marketing, the same ad-supported ‘free stuff’ business model holds a tremendous amount of opportunity in the real world.  And Ad Supported Napkins is a wonderful demonstration of this. 

Right now the company is only operating in Manhattan, NY in a select list of bars, but this idea would work in almost any major city.  The 18-35 year old demographic is exactly who the big liquor companies are targeting, and they are located all over the world.  I think it would be fun to take this idea one step further and bring in local companies to advertise, which would be much more effective than direct mailings and flyers.  In fact, I think this idea would be a perfect fit for the Capitalism Cafe, where the lunch still isn’t free, but the napkins are!

Low operating costs, high margins and win-win.  The possibilities are endless.

The American Anomaly: Stocks Don’t Always go up in The Long Run

Posted on December 11, 2007
Filed Under Business & Entrepreneurship, Finance & Economics | Leave a Comment

Occasionally I will mark up really great articles I have read and make a note to go back and read them again.  Usually these articles totally disrupt my worldview and will make me rethink old ideas.  Today I went back into an old publication of the Economist and found a real gem.

It is conventional wisdom in America to put some money in the stock market and then forget about it.  Certainly, as the professionals are known to say, stocks will appreciate in the long-run.  And this wisdom seems to be supported by solid evidence too.  If you take any 20-year period in the US, you will find that Wall Street has delivered positive real returns.

However, what is interesting is that the wisdom doesn’t hold up in other countries around the world.  Consider the following:

The American stock market is truly an anomaly and it is incredible to think that this wisdom has consistently held up.  Is it because our citizens have access to freer markets and have more liberty, which allow innovation to thrive?  Perhaps part of the explanation in Japan has to do with the relatively low level of entrepreneurship in that country.

Malcolm Gladwell on TED: What We Can Learn From Spaghetti Sauce

Posted on December 10, 2007
Filed Under Business & Entrepreneurship, Ideas | Leave a Comment

I have been listening to The Tipping Point by Malcolm Gladwell on audio book this week. Gladwell is a masterful story teller, has written a few bestsellers including Blink and inspired the book Made to Stick. So, needless to say when I found his talk on TED today I was excited to hear what he had to say.

Notice how he draws you in with small curiosity gaps with his story? He promises wise insight and begins telling of seemingly insignificant things (diet Pepsi and pickles). He makes you want to listen to the very end so he can satisfy your curiosity. In The Tipping Point he explains why the childrens show Blue’s Clues was so enormously successful, more so than any other childrens show before it. It is because it leads with clues that little kids can understand. He calls this the stickiness factor, which of course inspired the authors of Made to Stick. He uses the same concept to make his TED talk sticky too. And it is well worth the eighteen minutes.

Lessons from Steve Jobs: The 2005 Stanford Commencement Address

Posted on December 7, 2007
Filed Under Business & Entrepreneurship, Leadership, Psychology | Leave a Comment

In 2005 Steve Jobs gave the commencement address at Stanford University and in he told just three stories.  It is one of the most insiprational speeches I have ever heard, and it comes from a guy who has changed the way the entire world operates.  What is fascinating is not that he made mistakes (like the rest of us) or did things unconventionally, but rather his attidude as he looks back on life.  Here is a quote from the first story he told:

I dropped out of Reed College after the first 6 months, but then stayed around as a drop-in for another 18 months or so before I really quit. So why did I drop out?

It started before I was born. My biological mother was a young, unwed college graduate student, and she decided to put me up for adoption. She felt very strongly that I should be adopted by college graduates, so everything was all set for me to be adopted at birth by a lawyer and his wife. Except that when I popped out they decided at the last minute that they really wanted a girl. So my parents, who were on a waiting list, got a call in the middle of the night asking: “We have an unexpected baby boy; do you want him?” They said: “Of course.” My biological mother later found out that my mother had never graduated from college and that my father had never graduated from high school. She refused to sign the final adoption papers. She only relented a few months later when my parents promised that I would someday go to college.

And 17 years later I did go to college. But I naively chose a college that was almost as expensive as Stanford, and all of my working-class parents’ savings were being spent on my college tuition. After six months, I couldn’t see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. It was pretty scary at the time, but looking back it was one of the best decisions I ever made. The minute I dropped out I could stop taking the required classes that didn’t interest me, and begin dropping in on the ones that looked interesting.

It wasn’t all romantic. I didn’t have a dorm room, so I slept on the floor in friends’ rooms, I returned coke bottles for the 5¢ deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. I loved it. And much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on. Let me give you one example:

Reed College at that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn’t have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can’t capture, and I found it fascinating.

None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, its likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do. Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.

Again, you can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something - your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

What is the lesson from all of this?  For me, it is two fold.  First, never underestimate the importance of luck.  And second, do everything you can to make more dots.

How To Have Smarter Children

Posted on December 5, 2007
Filed Under Psychology, Science & Technology | Leave a Comment

Scientific America reports on a series of studies that test two theories on intelligence and the results are very actionable.  The first theory on intelligence is that people are just born smart.  The second is that brilliance is a learned trait. 

Several years later I developed a broader theory of what separates the two general classes of learners-helpless versus mastery-oriented. I realized that these different types of students not only explain their failures differently, but they also hold different “theories” of intelligence. The helpless ones believe that intelligence is a fixed trait: you have only a certain amount, and that’s that. I call this a “fixed mind-set.” Mistakes crack their self-confidence because they attribute errors to a lack of ability, which they feel powerless to change. They avoid challenges because challenges make mistakes more likely and looking smart less so. Like Jonathan, such children shun effort in the belief that having to work hard means they are dumb.

The mastery-oriented children, on the other hand, think intelligence is malleable and can be developed through education and hard work. They want to learn above all else. After all, if you believe that you can expand your intellectual skills, you want to do just that. Because slipups stem from a lack of effort, not ability, they can be remedied by more effort. Challenges are energizing rather than intimidating; they offer opportunities to learn. Students with such a growth mind-set, we predicted, were destined for greater academic success and were quite likely to outperform their counterparts.

The results of the people who take the latter perspective are astounding.  Consider the data from tracking the results of students who took on increasingly harder challenges:

Such divergent outlooks had a dramatic impact on performance. At the start of junior high, the math achievement test scores of the students with a growth mind-set were comparable to those of students who displayed a fixed mind-set. But as the work became more difficult, the students with a growth mind-set showed greater persistence. As a result, their math grades overtook those of the other students by the end of the first semester-and the gap between the two groups continued to widen during the two years we followed them.

Thanks to Marginal Revolution for the heads up.

Literature, Moral Leadership and Harvard Business School

Posted on December 4, 2007
Filed Under Books, Business & Entrepreneurship, Leadership | Leave a Comment

Following up on my last post on literature, leadership and billionaires, I found a relevant interview in the latest Working Knowledge from HBS.  The interview is with Sarah Jane Gilbert, a faculty member at Harvard Business School, who recently developed a new course on moral leadership.  What’s so interesting about this course is that it isn’t based around the traditional business case study.  Instead, it is based around great works of literature.

Each class is dedicated to debating and drawing lessons from a powerful work of fiction, biography, autobiography, or history. The literature we read spans 2,000 years, covers 8 countries and all of the continents, and continually challenges students to expand their understanding of the world and their place, as future leaders, in it.

Clearly there are benefits to reading literature.  Billionaire business titans who have enormous libraries laud the benefit of learning how to think.  A well thought out and well written situation allows the reader to really explore the characters in the story, as well as the situation at hand. 

One benefit derives from the literature itself. Through the novels, plays, short stories, and historical accounts students are brought much closer to life as it is really lived, certainly closer than in lecture learning and even closer than in a case discussion. That’s because the authors lay out for us the full context of a situation: the fast friendships, bitter enmities, strong ambitions, and confused goals that the characters must navigate. This feels like reality to us-it’s how we live and experience the complexity of our own lives. So through literature, the study of moral leadership becomes a very real hunt for clues for how to confront situations that we believe we could encounter ourselves.

What else makes literature a better teacher than case studies and business gurus?  How about the fact that we know the outcome, there is an emotional and empathetic component, and we can actually debate, and thus refine and articulate, our perspective:

A second benefit of working with literature is that we know what happens. Unlike a case, which always ends with an action question, “If you were Ms. X, what would you do?”, in literature we get to see “the rest of the story.” Because we are searching for examples of moral leadership, we want to understand the impact of characters’ choices on the situation they found themselves in, and on themselves and others. Literature presents us with cause and effect, with action and result, and through the characters’ stories we can learn about the dangers, or rewards, of acting in certain ways.

A third benefit is that literature presents us with characters we care about. We don’t necessarily like them all, and in fact some of the most powerful texts present characters who generate strong emotional reactions. We are puzzled, or enraged, or inspired, or feel desperately sorry for what happens to these characters, and through these emotions the characters live inside us, sometimes just for the length of time it takes to read and discuss their story, but often for much, much longer. That means that the lessons we take from the stories become part of us, a very deep and personal learning that helps students get closer to a goal that many bring to the course: to not just learn about moral leadership, but to prepare to exercise it in their own lives.

But the real power of the integration comes from the fact that students engage with the literature through active discussion and debate. The stories force students to consider and articulate their own moral positions, the judgments they make of the characters and their actions. Most of us treat our own moral views as both obvious and self-evident-the only reasonable response that could be taken. Students are continually surprised and amazed by how differently they each think about the characters’ choices. They hear arguments and interpretations that cause them to challenge their own views. And by repeatedly going through a process of analysis, interpretation, judgment, and debate, they hone their skills in moral reasoning and their understanding of their own moral priorities.

What I love about this is that by looking to literature for moral leadership, we can move outside of the business world.  If morals are universal truths, then seeing them played out in contexts other than business is perhaps the best way to recognize, and thus define authentic moral leadership.

What Billionaire Business Titans are Reading and Why Poets Make Better Leaders

Posted on December 3, 2007
Filed Under Books, Business & Entrepreneurship, Leadership, Psychology | 1 Comment

Page one of Today’s Wall Street Journal has a fascinating story about Phil Knight, the founder and now chairman, of Nike, Inc.  And what’s so interesting about Mr. Knight has little to do with how he built the industry titan Nike, or about his time as CEO.  Last spring, the billionaire businessman nonchalantly sat in the back of a creative writing seminar at Stanford University as a mystery man.  He wore a black blazer and white Nikes and said his name was Phil.

As the days passed, the man’s identity gradually came into focus. The instructor “made several vague allusions to Phil taking off in his private jet,” recalls André Lyon, an English major enrolled in the class. And tales about Michael Jordan found their way into the man’s literary discourse.

After a couple of weeks, a rumor began to circulate that the old dude in the Nikes was Philip H. Knight, the billionaire founder of the world’s largest sportswear company.

And ‘Phil’ wasn’t just some weird dude in the back of the classroom either.  He not only fully participated, but he also hung out with classmates in his down time:

Mr. Knight was, however, a full participant in the class. His homework assignments, circulated to classmates, show a candid passion for words. “Write sensuously. Words have feeling,” he advised in a short essay dated April 25, 2006. “The simplest use of words can often have the greatest power.” Students in the weekly sessions remember debating Mr. Knight about themes and characters in novels like “Kiss of the Spider Woman” by Manuel Puig and Edward Schwarzschild’s “Responsible Men.”

Though notably older than his fellow students, Mr. Knight soon became a popular fixture on the Stanford campus, known for hosting after-class gatherings at Palo Alto bars with his wife, Penny, before taking a private jet back to his home outside Portland, Ore. “He’d always pay,” recalls Mr. Stillman.

The New York Times ran a great piece back in July on CEO’s and books too, and it reveals that they don’t spend most of their time reading the latest business guru’s.  Thier libratries were methodically built around great works of literature.

Serious leaders who are serious readers build personal libraries dedicated to how to think, not how to compete.

And apparently literature majors make better managers than business majors:

Poetry speaks to many C.E.O.’s. “I used to tell my senior staff to get me poets as managers,” says Sidney Harman, founder of Harman Industries, a $3 billion producer of sound systems for luxury cars, theaters and airports. Mr. Harman maintains a library in each of his three homes, in Washington, Los Angeles and Aspen, Colo. “Poets are our original systems thinkers,” he said. “They look at our most complex environments and they reduce the complexity to something they begin to understand.”

No wonder why these billionaires guard their libraries more than their sex lives and bank accounts.  Phil Knight is a perfect example:

Few Nike colleagues, for example, ever saw the personal library of the founder, Phil Knight, a room behind his formal office. To enter, one had to remove one’s shoes and bow: the ceilings were low, the space intimate, the degree of reverence demanded for these volumes on Asian history, art and poetry greater than any the self-effacing Mr. Knight, who is no longer chief executive, demanded for himself.

The Knight collection remains in the Nike headquarters. “Of course the library still exists,” Mr. Knight said in an interview. “I’m always learning.”

Deceptive Advertisments, Why Maslow Was Wrong and How to Motivate People

Posted on December 2, 2007
Filed Under Books, Business & Entrepreneurship, Finance & Economics, Psychology | 1 Comment

Typically, when a marketer appeals to a person’s self interest, the advertisements that result are deceptive and schmucky.

The ads end up promising enormous benefits for minimal costs:

According to the authors of the book Made to Stick there are ways to appeal to self-interest and not sound deceptive. Remember Maslow’s Hierarchy of Needs?

Maslow’s pyramid was incredibly insightful in that it described the needs people strived to meet. However, Maslow was wrong in thinking that a person started at the bottom of the pyramid and worked his way up. Subsequent research has shown that people actually pursue all of these needs simultaneously. And this is HUGE for marketers. There are actually different categories of self-interest that appeal to humans, and they can all serve to motivate certain behaviors. Typically, when we talk about “self-interest” we are talking about the Physical, Security and Esteem layers. Occasionally, marketers will invoke the Belonging layer if the message is touchy-feely, but not many marketers or managers will venture beyond these categories.

If this idea that people pursue all of the layers of Maslow’s Needs simultaneously is true, then there is tremendous potential in invoking, and fulfilling, these other needs. And certainly the narrowly defined idea of self-interest as wealth and security isn’t the whole story. If it were, then people wouldn’t serve in the armed forces. It is fascinating how you can move beyond this traditional idea of self-interest in order to motivate people.

Let’s look at a related concept to help shed some light on the whole story of self-interest:

“A related idea comes from James March, a professor at Stanford University, who proposes that we use two basic models to make decisions. The first model involves calculating consequences. We weigh our alternatives, assessing the value of each one, and we choose the alternative that yields us the most value. This model is the standard view of decision making in economics classes: People are self-interested and rational. The rational agent asks: “Which sofa will provide me with the greatest comfort and the best aesthetics for the price?” Which political candidate will best serve my economic and social interests? The second model is quite different. It assumes that people make decisions based on identity. They ask themselves three questions: Who am I? What kind of situation is this? And what do people like me do in this kind of situation?

Notice that in the second model people aren’t analyzing the consequences or outcomes for themselves. There are no calculations, only norms and principles. Which sofa would someone like me - a Southeastern accountant - be more likely to buy? Which political candidate should a Hollywood Buddhist get behind? It’s almost as if people consulted an ideal self-image: What would someone like me do?”

Now consider this example of firefighters and popcorn poppers:

“Even John Caples, the mail-order copywriter [who is famous for writing deceptive ads similar to the ones above], admits that there are powerful motivations outside the narrow self-interest. He tells a story about a marketer who was promoting a new educational film on fire safety that was intended to help firemen. This marketer had been taught that there are three basic consumer appeals: sex, greed, and fear.

The marketer’s instinct was that greed would work best in this situation. He came up with a couple of ideas for free giveaways that would persuade firemen to check out the film. He began calling local units to figure out which giveaway would have the most appeal. When he called, he would describe the new film and ask, ‘Would you like to see the film for possible purchase for your educational programs?’ The universal answer was an enthusiastic ‘Yes!’

The second question tested two versions of his greed appeal: ‘Would your firefighters prefer a large electric popcorn popper or and excellent set of chef’s carving knives as a thank-you for reviewing the film?’

The first two calls yielded definitive answers to this question: ‘Do you think we’d use a fire safety program because of some #*$%! Popcorn Popper?!’”

The firemen are clearly making a decision not based on the rational self-maximizing economic model, but a much different model based on identity. Firemen don’t need to be motivated with trivial gifts to save lives. That is schmucky. After all, they are firemen, and that is what firemen do -save lives. It is still important to appeal to their self-interest, just not their self-interest as it is narrowly defined. They are much more concerned (and thus motivated) with having their other needs met (Esteem, Learning, Self-actualization, Transcendence).

So, what do we take away from this? The traditional perspectives of self-interest are important, but it makes for a limited palette. As the authors of Made to Stick so adequately say:

“It is like always painting with one color. It’s stifling for us and uninspiring for others.”

This concept could prove very interesting if applied to other fields of research too. It could shed a lot of light on the mystery of rationality that behavioral economics is trying to solve, by helping to explain why people don’t always act in a rational self-maximizing manner. It isn’t because they aren’t rational, but rather because we have too narrow a definition of rationality.

At any rate, I think this idea hold a tremendous amount of power.

Ted Leonsis, Vice Chairman of AOL on Entrepreneurship

Posted on November 29, 2007
Filed Under Business & Entrepreneurship, Ideas, Leadership | Leave a Comment

The latest issue of Knowledge at Wharton talks about Ted Leonsis, the keynote speaker at the recent Wharton Entrepreneurship conference.  Leonsis started his first successful company at age 24 and later sold it for $60,000,000 and later he realized money was not the metric to measure success with, but rather how much good you are doing. 

He has some interesting thoughts about the future of business and media and the role of the consumer:

Meet the new consumers of the new media age. They want things to be better, faster, cheaper and, even more important, free.

“This new consumer is very, very different from [the ones] we dealt with before,” said Ted Leonsis, vice chairman emeritus of AOL, who is considered an Internet pioneer and whose business portfolio over the years includes an impressive array of online companies. It doesn’t matter what business you’re in — restaurant, real estate or financial services, he added. “We’re living in a world where consumers have taken control of everything.”

And I am also encouraged by his thoughts on entrepreneurship in today’s world:

Being successful with an online business is all about being smart with math and algorithms, Leonsis noted. “Marketing isn’t just to people anymore. You have to market to algorithms.” Also, “the basic unit of life in this world is the pixel and every pixel matters on a page.” The ability to cross promote is a powerful benefit of the Internet, he added, citing Amazon.com’s algorithm-driven marketing effort that alerts customers who bought certain book titles to other titles they might also like.

Leonsis, who stepped aside this year from day-to-day operations at AOL, said that “while it’s never been easier to launch a new world-class business,” entrepreneurs need to know that the pace is dizzying. It used to be that investors wanted 40% annual rates of return, but now, “if you can’t grow 25% month over month, we don’t think you know what you’re doing.” If a startup doesn’t take off fast, “you fall behind very, very quickly.”

Leonsis ended his talk on entrepreneurship on a wistful note: “I wish I was 25 again,” he said. “I think it’s the greatest time to be an entrepreneur.”

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