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The Roundup September 10

Shark Tank logo

Startup success comes from many things, but NEVER from wasting time watching garbage on TV.

I’m not a businessperson in real life, but I play one on TV!

Kevin O’Leary stars on ABC’s new business reality show Shark Tank as one of five executives who vet business ideas pitched by would-be entrepreneurs. O’Leary often delivers the harshest of the business critiques. . . .

That take-no-prisoners toughness is certainly entertaining, but behind the ego and bluster O’Leary’s real life business performance is spotty. All four of the funds run by O’Leary’s asset management company are trailing the market this year. Shares of the company’s oldest fund, O’Leary Global Equity Income Fund, which was launched in 2008, have plunged nearly 24% in the past year. Next, there’s the truth-in-advertising problem: O’Leary calls himself an “Eco-preneur,” but many of the funds’ investments are in coal companies and other large polluters. . . .

For most of the 1990s, he was the president of educational software company Softkey, which he co-founded with fellow Canadian entrepreneur Michael Perik. O’Leary and Perik sold the firm, which they renamed The Learning Company, to Mattel in 1999 for $3.6 billion. But almost immediately the deal turned sour. The Learning Company lost $200 million in the second half of 1999 alone. O’Leary and Perik, who joined Mattel after the merger, left the toy company six months later in a management shake-up. In 2001, Mattel disposed of The Learning Company by giving away most of the division to a private equity firm for free. . . .

Shareholders sued Mattel over The Learning Company deal, naming O’Leary and Perik along with other members of the toy company’s management as defendants. In the complaint, the shareholders alleged that under O’Leary and Perik The Learning Company used “accounting manipulations” to gain market share and drive up the company’s stock price. According to the suit, a sales manager at the Learning Company at the time of the Mattel merger told employees that he “suspected the ‘Learning Company is broke’ and is ‘cooking the books.'” Mattel paid shareholders $122 million to settle the suit. O’Leary and Perik settled as well.

(“TV’s ‘Shark Tank’ Guru: In Real Life, No Business Whiz,” Time, September 10) Anyone who needs to be told that the Jim Cramer’s and Kevin O’Leary’s out there in television land are near and sometimes total frauds should never be allowed in front of a television. The biggest mistake, however, is thinking that Shark Tank in any way resembles the startup funding process or that many of the companies you see on the show would even make it to a VC presentation. The goal of the show, like the goal of American Idol and Britain’s Got Talent, is simply to laugh at people who are in fact taking themselves quite seriously. Mr. Leary and his show is ninety-nine parts Jerry Springer and one part Guy Kawasaki (and that’s being generous). But O’Leary and his show is not entertaining (like Springer) and not informative (like Guy Kawasaki). So, if you want a guilty pleasure, tune in to Jerry Springer tomorrow and find out if the bozo on the seat is really the baby’ father or if he’s been duped by his sleep-around girlfriend. If you want to know how to fund your startup, after you’ve yucked it up on Jerry Springer, turn off the TV and sit down to work. But Shark Tank doesn’t deliver the goods on either front. And O’Leary is a fraud. But you knew that already.

Apple giveth to app developers and Apple taketh away.

iTunes 9 changed the way apps are presented, with a larger scrolling section for new and noteworthy apps and more prominent promotional spots on the App Store main page. This is likely to drive sales for apps that win, or buy, a place in these high-profile areas.

Likewise, the expansion of the top 100 list to 200 and the addition of a “Top Grossing” list expands the potential spotlights that can shine on an app and lift it to prominence and profit. The “Top Grossing” category addresses a long-standing concern about the pressure to make apps that are as cheap and disposable as ringtones. By providing marketing lift to the sort of higher-priced apps that are likely to come from larger development companies, the “Top Grossing” category could become an avenue by which pricier, and ideally more professionally coded, apps see their popularity magnified.

Yet iTunes 9 no longer defaults to browsing by subcategory and no longer shows top apps lists for those subcategories. Though subcategories can be enabled by the user, the default setting tends to dominate. For game developers, this means specific game genres that were once partitioned in different areas now exist in the same area.

“Bad news for game developers — iTunes 9 removed subcategories for games,” lamented an iPhone developer on the Unity3D forum. “So if you were seeing steady sales because you were at the top of a subcategory list, then you might be screwed now. Yup, it’s actually HARDER to find smaller, indie games now.”

(“iPhone Developers See Sales Slump After App Store Changes ,” Information Week, September 10) Just yesterday, Olga Kharif posted a little piece on Business Week’s Tech Blog asking if Genius will fix the AppStore as far as developers are concerned. The AppStore has, oh, somewhere around 65,000 apps for sale and adds some 8,000 new or updated apps each week. Only the fanboyest of Apple fanboys can keep up with this, so the AppStore is rapidly becoming and elephant graveyard of dreams for developers. The Genius recommendation engine promises to make the bottomless disappearing hole of the AppStore somewhat less bottomless, as well as the changes to listing top apps, but other changes have tanked sales for certain apps by 50% of more. I’ll call it the AppStore shuffle — some people who are winning get shuffled to the back and some people who are losing get shuffled to the front. It seems, however, that the ones being shuffled to the front are the big companies rather than the middle school kids and other shoestring appsters. Trust me. As the iPhone gains market share and the AppStore continues to balloon, expect the front of the line to be dominated by the big companies while the appsters play with their toes somewhere miles to the back of the line.

And speaking of iPhone apps, have you ever thought of advertising on one?

More companies are advertising on iPhone apps as the mini programs gain popularity. For publishers like The New York Times and the Associated Press, offering ad units within their iPhone news readers is a natural extension of digital inventory.

The New York Times offers banner ad inventory within its iPhone app, as well as a recently introduced interstitial ad option.

“It is a full-screen ad that takes advantage of the uniqueness of the iPhone,” said Robert Z. Samuels, director of mobile products at The New York Times. “When served, it allows the user to touch, tilt or shake the phone to interact with the ad.”. . .

Brands can also buy space on the AP’s iPhone inventory based on relevant topics. For example, a marketer can purchase media to run alongside sports articles or entertainment articles, but not business or politics.

(“AP and NYT find marketers warm up to ads in iPhone news apps,” DM News, September 10) The staff here at Shoestring Venture — especially Steve and I — are hard at work on the second edition of our book, Shoestring Venture: The Startup Bible, as well as a half-dozen additional books in the series. Believe it or not, we are currently expanding our section on Web advertising to include mobile advertising, which includes handy pointers and resources for advertising on the iPhone. While the DM News article, as you can imagine if you’re a regular reader of DM News, focuses on the biggest advertising bruisers on the block, there are plenty of opportunities for shoestring entrepreneurs on a tight budget to take advantage of iPhone apps to spread the word. Watch for the Shoestring Venture app coming out in a couple months!

Credit cards were a bum deal. Now that Congress has regulated them, you’d have to be insane to use one.

Under the new law, issuers can’t raise them without 45 days’ notice. But there’s a loophole: The rules don’t apply to variable-rate cards, with rates that float up and down. That’s why companies are moving more consumers into such cards, whose rates are likely to soar from their record lows. Researcher (RATE) estimates variable-rate cards will account for 75% of all cards this year, up from 65% in 2008.

C.D. Reimer of San Jose was switched to a variable card last month. At the same time the issuer, Barclaycards, upped his rate to 26.99% from around 16%. . . .

Starting in February, lenders won’t be able to charge consumers a penalty when they go over their credit limit. To make up for the lost revenue, issuers are coming up with a host of other penalties. Fifth Third Bank (FITB) started levying a $19 tariff if a borrower doesn’t use the card for 12 months. . . .

Citigroup (C) and JPMorgan Chase (JPM) added annual fees to some products, targeting customers who pay off their balances.

(“Dodging Credit-Card Reform,” Business Week, September 10) Charging borrowers a fee if they pay off their balance? Interest rate hikes of 10%? These aren’t lenders, they’re looters. About twenty years ago, consumer credit companies got out of the business of lending to good borrowers and into the business of bilking bad borrowers. The new regulations promised to put a crimp in that business and return the industry to its saner days. But the children of this generation, as they say, are more cunning than the children of light. Here’s the shoestring venture law: if you’re serious about starting your own business, stop using your credit cards. You only borrow money on fixed, contracted terms. Would you sign a contract with a home remodeler in which the contract stated that the home remodeler (not you) could change the amount of work done and the price whenever he feels like it? Would you sign a contract to buy a home if the contract stated that at any time the seller could change the contract and take back all or part of the home at any time? Or come back in two years and ask for more money? Credit card companies are the only businesses in the world for which a contract is never a contract, but more like a temporary guideline. Anyone who would do business with these guys needs their heads examined.

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