Roth IRA’s have long offered investors a great opportunity to grow their wealth in a tax free environment.  But, because Roth IRA contributions are subject to strict income limitations, not everyone gets to benefit from its features.  Investors with traditional IRA’s have also historically been constrained to income limits when converting their IRA into a Roth.  The good news is, as of January 2010, there will no longer be income limitations on eligibility for converting a traditional IRA to a Roth IRA.  Should you consider this, and if so why?

Background

As a refresher, traditional IRAs are funded with pre-tax dollars and defer taxes on investment gains until the day you withdraw the funds. When funds are withdrawn from the traditional IRA, they are taxed as ordinary income (your highest tax bracket). Conversely, Roth IRAs, are funded with post-tax dollars but all of the investment earnings grow tax free and avoid taxes when they are withdrawn (assuming it’s a qualified distribution).  Roth IRAs can’t be opened by taxpayers
making more than $176,000 (joint returns) and $120,000 for single taxpayers. Furthermore, conversions of traditional retirement funds into Roth IRAs have not been permitted for households with annual incomes above $100,000.

The Conversion Process

A Roth Conversion is a distribution of assets out of a tax-deferred IRA, such as a Traditional or Rollover IRA, which is transferred into a Roth IRA.  If the converted assets are held in the Roth for the five-year holding period, qualified withdrawals are tax-free. The conversion from the traditional IRA into the Roth IRA is considered a taxable event, and the account holder will generally owe taxes on the distribution in the current year. However, in 2010 only, IRA account holders have the option of applying 50% of the conversion amount to the 2011 tax year and 50% to the 2012 tax year, or applying 100% of the conversion amount to the 2010 tax year. Steep investment losses in many retirement accounts may make that tax hit easier to take, and will guarantee that any market rebound in investment values will never be taxed if funds are switched into a Roth account. Finally, conversions must be fully completed by December 31st to qualify for current year
tax treatment.

Why Bother?

So, what makes a Roth IRA so great?  If you believe that your tax rates will be higher in retirement than they are now, Roth IRA’s can save you loads of future taxes—that can translate into greater wealth for you.  
Let’s use the following example.  You are age 40 and have a $200,000 traditional IRA.  Your plan is to retire at 65.  Your current tax bracket is 25% and you anticipate that you will be in (at least) a 30% tax bracket upon retirement.  We suppose that the tax due upon the Roth conversion is $50,000, is paid with funds available outside of the IRA being converted. Let us also assume an investment tax rate of 15% capital gains rate now and in the future.  Using an 8% expected return on your investments, the after tax net return from your Traditional IRA (with tax savings) would be worth $1,186,411, while the after tax net return from your Roth IRA would be $1,369,695.  That’s a difference of $183,284 by converting to the Roth.

Other Considerations
       
It is always wise to check with your tax or financial advisor before making a conversion.  This is particularly true because executing a conversion may actually bump you into a higher tax bracket.  Because converted assets will be considered taxable income, perhaps a partial conversion may be the answer. Converting only a portion of the assets may allow you to stay in a lower tax bracket, allowing you the flexibility to convert additional assets in future years. Ideally, individuals considering a Roth conversion should have the cash on hand to pay the income tax on converted assets. A partial conversion could help limit the conversion taxes to an amount your client can pay without dipping into IRA assets.
      
Does a Conversion Make Sense for You?

Clearly, everyone’s circumstances are unique and there is no one-size-fits-all answer here.  After all, the decision to convert to a Roth can be influenced by a number of factors including:

•        Your age and longevity
•        Your income tax bracket now and in the future
•        Your expected rate of return
•        Your investment tax rate (ie. capital gains rate)

The decision to convert can be complicated.  If you want to learn more, Morningstar, has written an informative overview of the conversion decision, and also provides a useful conversion calculator to help determine if conversion makes sense.   For many, there is no better moment to consider this.  The time is right for a Roth conversion.  

Cathy Pareto, MBA, CFP®, AIF® is the Founder and President of Cathy Pareto & Associates, Inc. For over twelve years, Cathy has been helping financial consumers and professionals understand the world of investments and finance with a sound, but down to earth money management approach. For over a decade Cathy was a Senior Financial Advisor for another Miami based investment advisory firm, where she managed over $200 million in assets for high net worth clients and retirement plans. She has extensive experience in retirement issues, asset allocation, investment selection, investment management, education planning, estate planning coordination, and asset protection strategies. Additionally, she was an Adjunct Professor and Faculty Coordinator for the CFP® Program at Florida International University’s College of Business.

BY NIRVI SHAH
nshah@MiamiHerald.com

Laptops ready? Take notes: Congress wants it to be harder for the under-21 set to accrue a mountain of credit card debt.

A new federal law affects credit card holders — and those who want cards — of all ages. But because several provisions don’t take effect until February, this could be the last semester of truly easy credit for many college students.

“I don’t want to say credit cards are evil,” said Cathy Pareto, a certified financial planner in Coral Gables. “But targeting that demographic has long been an abusive practice. [Credit card companies] take advantage of the naïvete of teenagers.”

Read the whole article here.

Cathy Pareto, MBA, CFP®, AIF® is the Founder and President of Cathy Pareto & Associates, Inc. For over twelve years, Cathy has been helping financial consumers and professionals understand the world of investments and finance with a sound, but down to earth money management approach. For over a decade Cathy was a Senior Financial Advisor for another Miami based investment advisory firm, where she managed over $200 million in assets for high net worth clients and retirement plans. She has extensive experience in retirement issues, asset allocation, investment selection, investment management, education planning, estate planning coordination, and asset protection strategies. Additionally, she was an Adjunct Professor and Faculty Coordinator for the CFP® Program at Florida International University’s College of Business.

(from “Busy but Balanced”)
By Mimi Doe, Author of: “Busy but Balanced” and founder of http://www.SpiritualParenting.com

The University of Michigan recently conducted a survey. They wanted to study what effect money had on people’s lives. Three of their findings:

What do people worry about most? Money! What makes people the happiest? Money! What makes people the unhappiest? Money!

Money, and our issues around money, are full and deep and intense and often impenetrable. We all have a story to tell about our money dance.

Mary, a single mother of two, was brought up by her grandmother because her own single mother couldn’t support them. She lives with the fear of losing her daughters as a result of her unsteady income. One father of three battles his demons with money–demons passed along to him by his father. When he was thirteen-years-old his father went bankrupt and lost the farm that had been in the family for generations. As this boy grew up, he had anxiety around money issues and avoided risks of any kind.

We may not inherit money but we do inherit an approach to money from our family of origin. Let’s take responsibility for our prosperity consciousness, our money mentality, so we can blast away the wall that’s keeping abundance from us. When we are alert to our old money programming we can rewrite the script. Not only will our kids get a healthier example but, by becoming aware of money’s role in our childhoods, we can tame old images and fears. We can choose, today, to allow and accept prosperity into our lives.

Balancing Tips

• Be aware of how you speak about money to your children: “We can’t afford this” or “I’ll never have enough.” Is there guilt associated with spending? “I’ve spent a lot of money on your piano lessons, so keep practicing.”
• Give your kids responsibility for using their own money early on. It helps them maintain a balanced perspective on value. My daughter loved special frozen drinks from a local coffee shop. I began to feel the expense wasn’t worth the treat and suggested she use her own money. “It’s totally not worth $3.50″ was her wise response. We concocted our own drink at home.
• Take a look at what you might be trading for money–time with your kids, self nurturing, pursuing a dream. Is there a way you could scale back your expenses to spend time on what you value now?
• Money is a balance buster for many of us. We don’t know the best way to manage the money we earn and haven’t made the time to learn. Get a grip on family finances by setting up a system for paying bills on time (I like the Quicken software program), saving for college and retirement (automatic savings plans are pure magic), handling debt (find a professional to help you create a plan), and meeting your financial goals (you’ve got to make these goals before you can meet them). Once you are in control of your money, you won’t feel thrown off balance.
• Are you avoiding taking responsibility for money because it illicits feelings of fear, stress, scarcity? Schedule a time each month when you and your partner can review your current financial situation. Create goals and strategies. Is saving for your child’s college tuition just a dream? Even if it’s an old coffee can for collecting change, just making the dream concrete opens the way for the flow of money.
• Eliminate debt and find exhilarating freedom. Debt can be an anchor around our “financial psyche”–dragging us down in all areas of our lives. Create a debt repayment plan and move on with your life.
• Prosperity is more than just money – it’s a way of thinking. Open your mind and heart to receive all the abundance the universe is waiting to shower upon you today.

Who is Mimi Doe

Ladies Home Journal called Mimi Doe “a parenting guru” and she has appeared on Oprah. She holds a Master’s Degree in Education from Harvard.

Mimi is the author of the just released, “Busy but Balanced: Practical and Inspirational Ways to Create a Calmer, Closer Family” (St. Martins Press)

Link: http://www.amazon.com/exec/obidos/ASIN/0312272219/qid=1012258913/sr=1-2/ref=sr_1_10_2/104-7406789-8620740

Sign up for her free newsletter at: http://www.SpiritualParenting.com

This week’s browseworthy links:

1. I’m a fan of any message that encourages people to pursue their passion. Steve Job’s commencement speech to Stanford University graduates this year delivers an inspiring message. Click here for the full text. My favorite quote:

Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

2. Mind over matter…Love this post on how mental chaos keeps us from having the success we dream of. The article Can Chaos Lead to Success suggest that we create chaos when we allow contradictory thoughts to have a tug of war, example: I will get my dream job vs. I should just be happy where I am. Great notes on the importance of shooting down negative thoughts before they take root and spread like weeds in our minds.

3. I stumbled across a great blog this week for anyone considering transitioning from employee to entrepreneur: Under 30 CEO. Top reads: 10 Do’s and Don’ts for Aspiring Entrepreneurs and How to Become a Fearless and Successful Entrepreneur.

4. If you are a new manager  or need to sharpen your management skills, check out Management Craft. I stumbled onto this site following a link to  a post on How to Handle Complaints (for managers). Great places to start – try these two categories: Podcasts and Webcasts and Breakthroughs. I found myself wishing for more of the Ask Lisa category. Be sure to scan this blog’s blogroll for other great sites to add to your browsing list.

5. One of my pet peeves is unnecessary unproductive meetings. Before you complain about the next meeting, take a look at these tips from Seth Godin in his post Getting Serious About Your Meeting Problem. My favorite tip #8:

Create a public space (either a big piece of poster board or a simple online page) that allows attendees to rate meetings and their organizers on a scale of 1 to 5 in terms of usefulness. Just a simple box where everyone can write a number. Watch what happens.

As “The Career Makeover Coach”, Tai Goodwin is on a mission to help ambitious individuals reinvent their professional lives by centering on their passion and purpose. Holding as a core belief that we are all called to divine purpose and gifted with a unique passion, Tai uses a results driven, spiritually grounded approach to help clients create career paths to support the lifestyle they desire. Whether it’s helping people go from embittered to empowered professionals or making the transition from employee to entrepreneur, Tai is committed to helping clients tap into their own potential for brilliance. Tai has been empowering others through teaching and coaching for over 14 years. A gifted and insightful communicator, Tai holds a Bachelor of Science in Elementary Education from Drexel University and a Master of Science in Education from Capella University. She has completed ASTD’s (American Society for Training and Development) Coaching Certificate program and is pursuing professional coaching certification through the International Coach Academy. Originally from Philadelphia, Tai currently lives in Delaware with her daughter. She is currently working on her first book: Reclaiming Your Brilliance: Seven Ways to Take Your Life from Bright to Brilliant.

Web site: http://www.careermakeovercoach.com

I was on a teleconference today with some very bright business owners, and the message I heard loud and clear was that marketing can really suck. As in – suck you dry. But also, of course, it can be an awfully unpleasant thing (that you keep procrastinating) on your to-do list.

I personally have encountered marketing becoming a daunting and unpleasant activity, but I can also say that it doesn’t have to be that way. Here are three things you can do to improve how you feel about your marketing:

1. Remember that it’s like exercise – it’s critical that you do it, but sometimes it takes about 10 minutes to “warm up,” but, even still, you might be counting the minutes until it’s finished.

2. Remember that what feels like “rejection” or “being ignored” isn’t personal. It’s not about you – it’s really about the person you’re trying to reach not thinking they need what you’re marketing right now. Regroup and try again.

3. Remember that the marketing activities with the greatest impact are not the expensive ones. Remember what I said about exercise? Well, a lot of us try to motivate ourselves to exercise by spending a lot of money on fancy outfits and tools. In the end, you could put on a decent pair of shoes and just go for a walk. Marketing is the same way. Just get out and do it – you don’t need a lot of money to succeed!

Virginia Ginsburg is an entrepreneur and business & marketing consultant who delivers strategic, affordable marketing services through her company accordionmarketing. She also writes a blog called Body > Mind > Business, which discuses the connection between business health and personal health, and the struggles she faces in pursuit of work-life balance. Virginia has an MBA from the University of Southern California and is currently (slowly) pursuing a Ph.D. in Psychology at UCLA. She has more than 12 years of experience as a senior marketing consultant, and has served as a trusted partner, coach and consultant to more than 100 sole proprietors, partnerships and corporations. 
Virginia lives in Santa Monica, CA with her husband and daughter. As part of her passion for working with entrepreneurs, Virginia is actively involved in small business development projects in the U.S. and in developing countries.

I remember the days fondly, late July and early August. The “Back To School” magazine issues would come out and I would sit poolside for weeks deciding what heavy sweaters and pants could squeeze their way into my south Texas closet. This is a distant memory, of course, because school is in the past, but the “Back To School” Fall issues are still alive and well. The amazing advertisements, full of heavy sweaters, make-up, and pants that I won’t be able to wear until February, though,  may soon be a distant memory as well.

Zuma Press 

Not only do teens and tweens get ready for the new season by devouring magazines, but so do grown-ups. So, there is no surprise that with the news of a worsening economy, that advertising sales have gone way down for a number of very popular poublications, W, Harper’s Bazaar, Cosmo, and Self.

Some of the loss in print media ad revenue can be contributed to the shift in readership from print media to digital media, but that’s not the entire picture. Digital ad revenue has also fallen, some sources are even quoted as saying that it’s the biggest drop in all around ad sales since the dot com bust of the early 2000s. While this paints a pretty grim picture for those of you who rely on the media for your bread and butter, it’s not all bad news,  Bill Wackerman, senior VP-publishing director at Glamour and Conde Nast Bridal Media said that some in the industry believed things would be a lot worse by now. ” …business has stabilized. The reality is that it’s not as grim as one would have it. Most of the brands that were in September last year are there again. It’s just the volume has decreased.”

The thing is, ad sales are directly related to the retail world and how you and I shop on a daily basis. It’s the long and the short of it. It’s a vicious recession circle that we’re living in. That’s basically what Lou Cona, senior VP at Conde Nast said, ”The reason why you’re seeing these negative numbers posted is not because there’s a problem with our magazines or any other magazines. It’s because our clients’ businesses are impacted at retail. Circulation is up, readership is up, engagement is up.”  Just get ready for a skinnier issue of your favorite magazine come September!

For information on specific numbers and who has seen the sharpest drop in ad-page sales read the complete article at Advertising Advantage by Nat Ives.

Ashley Shute spends eight hours a day working as a blue jean and t-shirt wearing community organizer in San Antonio. The other 16 hours are dedicated to dreaming about and shopping for the latest luxury fashions. Her style icon is Jacqueline Kennedy; classic, clean, and always professional. You will never find a fake bag in her closet and she wants a collection of Manolo Blahnik shoes before she turns 30.

By Jacqueline Marcell
(Impressive Press, April 2001) $17.96

I grew up with a “Jekyll & Hyde” father who was wonderful most of the time, but when he’d get mad he’d explode in a screaming, pounding-his-fist rage. It was never directed at me, I was the golden child, but I watched his temperament change like a light-switch as he’d yell at my mother and brother. We would cower and walk on eggshells trying not to upset him. After my parents retired, my mother had a heart attack and he took care of her for 11 years, refusing all help, despite my constant efforts to hire caregivers who he would throw out. When my mother nearly died from an infection caused by her own waste because he had not kept her clean and taken her to the doctor, I had to step in despite his loud protests.

I started to experience his rages at a heightened level over things that seemed so illogical and irrational. When he took two filthy hand towels out of the trash and threw them at me, accusing me of throwing out all their things, I was stunned and sobbed my heart out to have him turn on me. I thought it was just more of his bad behavior of a lifetime, getting intensified by my mother’s near-death illness and the stress of caring for her for so long without help.

I reported his illogical behavior to the doctor but whenever she saw him, he’d act so normal, so darling, so in control, I couldn’t get help with medications. He was able to act completely sane when he needed to. I didn’t find out until much later that he had told the doctor that I was just after his money and that she shouldn’t pay any attention to me. She knew him for twenty years and didn’t know me very well, as I lived four hundred miles away.

It took me a year to solve it on my own, riding a roller coaster of emotions as some days he’d be my loving dad and so normal, and then all of a sudden something would set him off and he’d go into a screaming tirade calling me every nasty name he could think of. As I tried to make safety changes to my parents home and help them, he threw me out and even choked me over adding HBO to his television for a caregiver who had requested it, even though he had previously given his permission. The police were called and he was 5150′d to a psychiatric hospital for a 72-hour observation.

When he got to the psych unit, he was so adorable, so normal, they released him, telling me they couldn’t find anything wrong with him. After four episodes of violence, and 40 caregivers later, I had to threaten the psychiatrist with a lawsuit if they released him and he came home and hurt anyone. They finally held him 2 weeks (called a “5250″)and reported that he couldn’t learn very well and that his memory was slipping. It was so intermittent, he was able to act normal most of the time, and was still able to hide his life-long temper tantrums.

I finally found help when I got him to the Alzheimer’s Association’s best recommendation for a geriatric dementia specialist who did extensive neurological tests and CAT scans and found that my father had the beginning of multi-infarct vascular dementia and that he’d had numerous tiny strokes and a possible secondary dementia: Alzheimer’s. Once I found doctors who understood the complexity of his brain chemistry, we were able to manage it with medications for the dementia (Aricept and later Exelon), aggression (Risperdal), and depression (Zoloft).

After much experimentation with combinations and dosages, the brain chemistry was properly balanced, without having to zombie him out. Then I started behavior modification on my eight-five year old father. By using “tough love” and “reward and consequences”, he learned how to behave and control his temper most of the time, even with the onset of dementia. When he is on good behavior he gets rewards of praise, affection, attention, and extra dessert works good too. When he is asserting his life-long need to control and boss people around, he gets negative consequences: no dessert, minimal communication, no attention, no affection. He has finally learned that there is no “pay-off” for pounding his fists and screaming and yelling. He will not get his way… period, and no one cowers. We walk away 100% of the time.

The next piece of the puzzle was to get him busy by going to Adult Day Care with my mother. By having daily mental stimulation, physical exercise, proper nutrition and social interaction, he finally had a reason to get up in the morning. Now instead of being a “sundowner” and up all night reeking havoc, he is tired out all day with fun activities and will sleep through the night, which allows everyone else to sleep also.

After turning around a seemingly impossible situation, I decided to write a book about it to help others who are trying to manage “challenging” elders. The result: Elder Rage or, Take My Father… Please! How to Survive Caring For Aging Parents.” Written with a humors tone, people learn to identify the earliest warning signs of dementia, which are very intermittent. Life-long behavior patterns start to get distorted.

I stress that the use of medications can slow the dementia down from progressing as fast as it would otherwise, keeping a loved one in Stage One an extra 2-4 years. Statistically families wait four years before reaching out for help, usually after a crisis, but by then the loved one is already in Stage Two, which requires full-time care. This is going to cost a lot of money and heartache.

Having Long-Term Care Insurance is the answer for the financial impact of caring for someone with dementia. Once there is a record of “memory loss” in a person’s medical chart, Long-Term Care Insurance will be denied.

By being sensitive to the early warning signs, getting to the right doctors, getting the right combination of medications and understanding that demented does not means stupid, many of these disruptive behaviors can be managed. The bottom line message is that there can still be a good life after a diagnosis of dementia if it is properly managed medically and behaviorally.

Ten Warning Signs of Alzheimer’s Disease
Reprinted with permission of the Alzheimer’s Association of Orange County.

1. Recent memory loss that affects job skills.
   It’s normal to occasionally forget assignments, colleagues’ names, or a business associate’s telephone number and remember them later. Those with dementia, such a Alzheimer’s disease, may forget things more often, and not remember them later.
2. Difficulty performing familiar tasks.
   Busy people can be so distracted from time to time that they may leave the carrots on the stove and only remember to serve them at the end of the meal. People with Alzheimer’s disease could prepare a meal and not only forget to serve it, but also forget they made it.
3. Problems with language.
   Everyone has trouble finding the right word sometimes, but a person with Alzheimer’s disease may forget simple words or substitute inappropriate words, making his or her sentence incomprehensible.
4. Disorientation of time and place.
   It’s normal to forget the day of the week or your destination for a moment. But people with Alzheimer’s disease can become lost on their own street, not knowing where they are, how they got there or how to get back home.
5. Poor or decreased judgment.
   People can become so immersed in an activity that they temporarily forget the child they’re watching. People with Alzheimer’s disease could forget entirely the child under their care. They may also dress inappropriately, wearing several shirts or blouses.
6. Problems with abstract thinking.
   Balancing a checkbook may be disconcerting when the task is more complicated than usual. Someone with Alzheimer’s disease could forget completely what the numbers are and what needs to be done with them.
7. Misplacing things.
   Anyone can temporarily misplace a wallet or keys. A person with Alzheimer’s disease may put things in inappropriate places: an iron in the freezer, or a wristwatch in the sugar bowl.
8. Changes in mood or behavior.
   Everyone becomes sad or moody from time to time. Someone with Alzheimer’s disease can exhibit rapid mood swings from calm to tears to anger for no apparent reason.
9. Changes in personality.
   People’s personalities ordinarily change somewhat with age. But a person with Alzheimer’s disease can change drastically, becoming extremely confused, suspicious, or fearful.
10. Loss of initiative.
    It’s normal to tire of housework, business activities, or social obligations, but most people regain their initiative. The person with Alzheimer’s disease may become very passive and require cues and prompting to become involved.

HOW IS ALZHEIMER’S DIAGNOSED?

There is no single diagnostic test for Alzheimer’s Disease. Instead, AD is diagnosed by comparing a series of test results and exams including: a thorough medical history, assessment of mental status, physical exam, neurological exam, lab tests including an EEG and brain scan, such as a CT, MRI, PET, or SPECT, psychiatric and other exams. A diagnosis of Alzheimer’s disease through this evaluation is considered 80-90% accurate. The only way to be absolutely certain is through an autopsy.

Launching a new company or business division? A new award-winning book by Wayne McVicker, co-founder of dotcom roller coaster Neoforma, offers some been-there-done-that advice that can help you keep your cool in the midst of the maelstrom.

Start-ups can be scary. Whether you’re heading up a new division of an established corporation or launching your own small consulting firm, uncertainty comes with the territory. So many variables are involved-from business and societal trends to employee personalities to competitor attacks to investor pressures-that your new creation will take on a life of its own. You might as well try to raise a predictable toddler. Still, according to entrepreneur Wayne McVicker, there are some common threads and overarching principles that transcend time, place, and type of business.

“I can’t stress enough how important it is to pay particular attention to commonsense keys to the development of a strong corporate culture,” says McVicker. “They are the rocks in the shifting sand. The problem is, the whirlwind nature of a start-up makes it difficult for many entrepreneurs or professionals to stay focused on them. You get distracted. You second-guess your decisions. Fear takes precedence over logic. You allow yourself to be swayed by others. And often, even though luck plays a role in the success of any start up, it’s failing to follow the tried-and-true principles that hurts or even destroys a new operation.”

McVicker certainly speaks from experience. And he traces that experience in his upcoming book, Starting Something: An Entrepreneur’s Tale of Control, Confrontation, & Corporate Culture (Ravel Media, 2004, ISBN: 1-932881-01-8, $22.95). The book follows McVicker’s journey as the co-founder of Neoforma, the first health care-dotcom-B2B-e-commerce company, which opened its doors in 1996.

By the time of its IPO in 2000, Neoforma had grown from the seed of a good idea into a publicly traded company worth $3 billion. Yet there was trouble ahead. Within four months, the company was in deep trouble, laying off good people and watching its stock value plummet. McVicker “made a few hundred million and lost a few hundred million” . . . just like that.

While Neoforma still exists, McVicker has little connection to it. Yet the lessons he learned from that experience will always be with him. And part of the reason he wrote his book is to share those lessons with others who might benefit from seeing how the commonsense principles that everyone “knows” can be affected during the tumultuous realities of “starting something.”

Twelve Things to Keep in Mind When Starting Something

1. Be who you are. If you aren’t true to yourself, your company’s culture will suffer. So will you. A recurring theme during Neoforma’s early days was determining how to present the company to potential investors. Investors wanted to hear that McVicker and his partner, Jeff Kleck, planned to pursue fast and furious growth for their company. McVicker wanted the growth to happen in a more “organic” way. “We argued about whether it was right for us to project an image of ourselves as a very large corporation selling hundreds of millions of dollars of software and services a year,” he writes. “We didn’t doubt that this was possible, but frankly, we would have been quite happy to sell a few million dollars’ worth of software a year.”
2. Hire for culture first, experience second. If someone feels wrong, they are. However exhausting and distracting hiring is, don’t delegate it until after the first hundred employees-and then only very carefully. Early on in the process of staffing Neoforma, McVicker learned the value of listening to his gut. He extended a job offer to a man named Isaac. McVicker disliked him but felt that he had the necessary experience. After some “aggressive and abrasive” negotiation, Isaac accepted the offer, but made Neoforma wait two months-and then quit the first day. McVicker writes about his rage: “This guy hadn’t felt right from the beginning-even though he sounded right. I had focused on his computer skills-which can be learned-instead of more important and innate qualities-like an arrogance, born of insecurity-that would have made him difficult to work with, even if he’d stayed.”
3. Communicate empowerment. In the maelstrom that is a young company, it is easy for employees to feel helpless or isolated. All employees powerfully influence a company’s success and direction. Let them know they are valued and their voices are heard-often and in many ways. Don’t waste the potential of any employee. “By far the most common, frustrating, and damaging issue I had to deal with in those days of frenzied growth was disempowerment,” writes McVicker. “Within this dynamic, unstable environment, employees were convinced that their voices were not being heard. No matter how much we tried to ensure that they were empowered and had access to me and other executives, many felt undervalued. They flooded into my office, yelling, crying, and pleading.” What McVicker learned from this phenomenon, he says, was simply this: “Don’t underestimate the importance of communicating empowerment to your people. It’s one of the most critical functions of a leader.”
4. Learn to release, without letting go. When you delegate (and you must) you can neither control every detail nor allow the idea to get diluted. Make your plan clear and monitor progress regularly. If you hired well, everything will work out. The saga of Larry and Emma, two employees hired in 1998, underscores the paradoxical “releasing without letting go” principle. McVicker told them to take control of their respective departments. Taking this directive to the extreme, they began disregarding his requests and suggestions. When he discussed this behavior with them, they went behind his back to complain. Fearing that he was being a “control freak,” McVicker allowed Larry and Emma to continue their behavior. “In retrospect it’s clear that I should have nipped the situation in the bud,” he reflects. “Not only were they ignoring what I wanted, but they were creating a culture of division and closed doors. Clearly, this was not the culture I wanted for our company.”
5. Balance is not always found in the middle. Make and communicate clear decisions. Changing a position is better than not having one. In 1999, Neoforma needed to cut some projects. One project on the table, which McVicker loved, was a capital equipment solution code-named Picasso. In a classic leadership dilemma, McVicker had to determine whether to make the popular decision to cut Picasso and alienate the people who had remained loyal to his original vision for the company, or make the less popular decision to keep Picasso alive and alienate the others. “In an attempt to be fair to everyone, I came up with a weak compromise that satisfied and inspired no one,” he writes. “We’d keep the Picasso program going, but only allocate it just enough to stay alive. Sadly, my half-hearted decision conveyed uncertainty. The effect was immediate and deeply disheartening.”
6. Do one thing well, then do it better. Then, while you are still improving the first thing, consider doing one, and only one, related thing well. And so on. Neoforma had a powerful catalog and messaging system on its website that was used by thousands of medical professionals. Then, in the interest of expanding their reach and potential, the team decided to “add a few new features.” These features ended up overwhelming Neoforma’s resources to the point that they completely obscured what was good about the site. Traffic dropped precipitously overnight from tens of thousands of visitors per day to hundreds. “We had tried to be everything to everyone-all at once” writes McVicker. “In the process we turned our innocent, obedient child into an adolescent monster. On the surface, it looked much larger and more grown-up than it had been before, but it was raw and unstable underneath.”
7. Regularly wear your customers’ clothes. Most entrepreneurs come from the industry they are trying to serve, but when confronted by the challenges of starting or running a business, they quickly lose touch with the customer experience. One of the features the Neoforma website was known for was its state-of-the-art virtual reality tour of medical facilities. To create this technology, Neoforma and a firm called Be Here Corporation spent days photographing the interior of the Center of Advanced Medicine (CAM) in Chicago. McVicker found that the task gave him and his team a valuable sense of purpose. “Even though we had all worked in health care to varying degrees, we had only an abstract idea of the potential impact Neoforma could have on real people in real hospitals,” he writes. “The creation of this virtual tour solidified our connection to the real thing and gave us a renewed sense that what we were doing wasn’t just good for business-it might actually be important.”
8. The unsatisfied customer is the most important customer. Therein lies all opportunity. In the early days of Neoforma, McVicker was showing off his new website to his father-in-law, a dentist. His father-in-law checked out the feature that allowed visitors to send e-mail inquiries to vendors, but couldn’t see the value since writing an e-mail and waiting for a reply would be slower than a quick phone negotiation. He added that if he could send messages to several vendors at once, that would be a timesaver. So, McVicker sent a specification to the developer that weekend, and by the end of the next week, Neoforma had implemented the new feature. “At its peak, twenty thousand messages a week were being sent from buyers to sellers,” writes McVicker. “We knew that we had significantly improved the lives of many people. I felt very good about that, even though it hadn’t been my idea.”
9. Never let your competitors drive your business decisions. Stay focused. If your competitors come up with something good, your customers will let you know. Right before Neoforma’s IPO, CEO Bob Zollars received a call from the CEO of major competitor Medibuy. The CEO informed Zollars that WebMD was not going to renew its agreement with Neoforma when it expired later in the year, but was instead going to go with Medibuy. Zollars recognized the Medibuy/WebMD deal as a “transparent ploy” designed to “take some wind out of our sails.” “Had Bob not rationally analyzed that the WebMD deal was worthless, he might have been tempted to pay an exorbitant fee to renew the agreement to keep it out of the hands of the competition,” says McVicker. “And he might have been knocked off balance by the notice of cancellation on the day before our IPO. Instead, Medibuy paid an inordinate amount of money to steal a worthless deal from Neoforma-not in an attempt to help themselves, but to hurt us.”
10. Never let your investors drive your business decisions. They are usually smart and can be intimidating, but they aren’t as familiar with your business as you are. Their viewpoint is short-term; yours should be long-term. Pressure from investors was a problem McVicker faced constantly. From campaigning to change the logo to insisting that Neoforma hire certain people, they relentlessly made their opinions known. Perhaps the most painful example of this pressure was when later-in-the-game venture capitalists insisted upon a participating preferred clause. Basically, this meant that if the company were sold, the most recent investors would get their money first-in fact, they would be guaranteed a multiple of their original investments before any money was distributed to earlier investors. This issue caused a major rift between McVicker, who favored compromise, and his partner Jeff Kleck, who was totally opposed to the clause. Kleck eventually agreed to a compromise, but harmony was lost. “As much as I had disagreed with the inflexibility of Jeff’s position on the funding round, I did agree with him on one thing-my new partners, the VCs, were certainly not my friends,” writes McVicker. “I had allowed them to manipulate me into putting my fear of losing everything above my loyalty to a friend.”
11. Listen to all advice, but trust what you know. As you confront frequent obstacles, you may begin to question your core beliefs. Don’t. Be patient. Ideas that require customers to change behavior often take ten or more years to implement. In the midst of their fundraising activities, McVicker and Kleck hired a Stanford Ph.D. and MBA named Sasa to create their business plan. Sasa was insistent that Neoforma should emphasize the health care supplies market (which the founders knew little about) over the equipment market (which they knew very well). Though he had misgivings, McVicker capitulated. “After two months of work, Sasa delivered a hefty document that defined our long-term business plan,” he writes. “I never even read the whole thing. I was much too busy, and I knew the plan reflected where the company could go, not necessarily where I thought it would or should go.” This documented shift away from the founders’ core expertise triggered a very subtle division between them and their customers, and, perhaps more importantly, their company.
12. Enjoy yourself. It is very easy, during the inevitable times of monetary starvation and market inertia, to lose sight of how much fun it is to create something new and useful. In Starting Something, McVicker describes his slide into depression, anxiety, and marital distress that, ironically, accompanied Neoforma’s rise to success. He eventually began working with a business consultant with an unconventional background who got him to dig into the emotional issues that he was trying so hard to keep superficial. To McVicker’s surprise, he found that such an experience wasn’t unusual. “It was not until years later that I would read disclosures by several well-known executives describing the bouts of extreme depression that they had suffered,” he writes. “I didn’t hide under my desk for hours at a time, as one had, but I certainly would have welcomed the idea that such an escape was possible. It would have helped to know earlier that I wasn’t alone after all, that it is okay to admit limitations and seek help.”

Although McVicker is adamant that following tried-and-true principles is no guarantee of start-up success, he also points out that guarantees aren’t what drive the entrepreneur in the first place.

“There are rewards, many rewards, inherent in creating something new,” he says. “You meet fascinating people and form complex relationships. You learn something every day. You get that intense feeling of accomplishment that comes only from running on pure passion and adrenaline. There is nothing like conceiving a new idea and bringing it to fruition. Of course, much like having a child, you can’t predict with certainty how that child will turn out. But regardless, parents are seldom sorry they had the child. That’s the lesson I most want to convey with my story.”

# # #
About the Author:
Wayne McVicker is an architect and entrepreneur. Having co-founded Attainia, he has served as an executive there since its inception in 2001. He has 25 years of experience in the design, health care, and IT industries. McVicker’s five-year-long wild ride as co-founder, board member, and president of Neoforma (NASDAQ: NEOF) is the basis for his book. He lives with his wife and two sons in Silicon Valley, California. For more information, please visit www.startingsomething.com.

Starting Something won the 2004 DIY Book Festival Book of the Year Award. In the late September press release announcing the winners, Bruce Haring of DIY Convention stated: “McVicker perfectly captures the excitement, strategy, and struggles of building his own venture, a battle which DIY artists and entrepreneurs face on a daily basis. For perfectly capturing that quest, McVicker wins our top honor.” For more information, please visit www.diyconvention.com.

About the Book:
Starting Something: An Entrepreneur’s Tale of Control, Confrontation, & Corporate Culture (Ravel Media, 2004, ISBN: 1-932881-01-8, $22.95) is available at bookstores nationwide and all major online booksellers.

Tiffany Bass Bukow is the CEO & Founder of the #1 Personal Finance Website for Women and Families – www.msmoney.com. My life mission is to help people and the world thrive through creating companies that provide money, career and life skills education.

Here’s a great story published by Rolling Stone (of all magazines), on how Goldman Sachs has engineered every major market manipulation since the Great Depression.

In Rolling Stone Issue 1082-83, Matt Taibbi takes on “the Wall Street Bubble Mafia” — investment bank Goldman Sachs (click here to read the whole story). The piece has generated controversy, with Goldman Sachs firing back that Taibbi’s piece is “an hysterical compilation of conspiracy theories” and a spokesman adding, “We reject the assertion that we are inflators of bubbles and profiteers in busts, and we are painfully conscious of the importance in being a force for good.” Taibbi shot back: “Goldman has its alumni pushing its views from the pulpit of the U.S. Treasury, the NYSE, the World Bank, and numerous other important posts; it also has former players fronting major TV shows. They have the ear of the president if they want it.” Here, now, are excerpts from Matt Taibbi’s piece and video of Taibbi exploring the key issues.

Here’s the author, Matt Taibi, in his own words, summarizing his piece. Check out the video here.

Cathy Pareto, MBA, CFP®, AIF® is the Founder and President of Cathy Pareto & Associates, Inc. For over twelve years, Cathy has been helping financial consumers and professionals understand the world of investments and finance with a sound, but down to earth money management approach. For over a decade Cathy was a Senior Financial Advisor for another Miami based investment advisory firm, where she managed over $200 million in assets for high net worth clients and retirement plans. She has extensive experience in retirement issues, asset allocation, investment selection, investment management, education planning, estate planning coordination, and asset protection strategies. Additionally, she was an Adjunct Professor and Faculty Coordinator for the CFP® Program at Florida International University’s College of Business.