Money Buzz 04/02

How number-crunching could predict business success, a solution to low-worth stock options, and the value of "Patriot Bonds"
Magazine Contributor
4 min read

This story appears in the April 2002 issue of Entrepreneur. Subscribe »

Data Delirium

Could you be growing faster if you spent more time crunching numbers? The answer: maybe. According to a November 2001 PricewaterhouseCoopers survey, one-third of CEOs of fast-growth companies say they don't spend enough time reviewing indicators such as cash flow and total company sales. The 9 percent who do spend too much time on the numbers also spend 16 percent more time on the job-and their businesses have grown twice as fast over the past five years.

But some experts say poring over numbers is a waste of time. "Why should they be involved in day-to-day minutiae?" asks Dennis Hoppe, president of Hoppe Management Concepts, a small-business consulting firm in Rochester, New York.

"I've learned to despise bean-counting," says Robert Sherman, president of Mortgage & Financial Personnel Services in Calabasas, California, who works 50-plus hours a week. While he keeps an eye on cash flow, Sherman insists that serving the client always comes first. "If we're not doing that, then numbers don't mean anything," he says.

Patriotic investing

Two years ago, the government would have had trouble giving away savings bonds. But with the struggling market and investment products short on returns, safe havens for savings are looking attractive. The U.S. Treasury Department has responded to that need-and to the patriotic fervor of the post-9/11 climate-by offering a new Series EE bond named the "Patriot Bond." Like other Series EE bonds, it sells for half the face value.

Interest is exempt from state and local income taxes and compounds semiannually for up to 30 years. At 4.07 percent, the bond is a better buy right now than the government-issued I Bond, according to Daniel Pederson, president of The Savings Bond Informer Inc., and author of Savings Bonds: When to Hold, When to Fold, and Everything in Between (TSBI Inc.). Because it's tax-deferred, "you're going to be better off compared to a money market," he says, but you have to hold it for five years or pay a three-month interest penalty. Also, Patriot Bond proceeds are not earmarked solely for the military effort. "So don't buy it just because it's called the Patriot Bond unless you want warm fuzzies," says Pederson. "But as an investment, the Patriot has some merits of its own."

The Price Is Right

It's painful enough to watch the market drag your once high-flying stock down into the $2 to $4 rubble. Worse is knowing your employees' options are so far underwater they couldn't be detected by a Navy sub radar. The question remains: What to do about it? Companies are increasingly coming under fire for straight options repricing, both from shareholders and Wall Street analysts who say it rewards poor performance. The company also gets hit with a charge to earnings, which small businesses can't afford.

One alternative that's gaining popularity is the six-months-plus-one-day exchange program. The company can cancel existing options, wait six months and one day, and then reissue new ones at the current strike price-without the charge to earnings. Though many investors frown on the practice as repricing without consequences, experts contend it's a good alternative for businesses-particularly in the tech sector-desperate to hold on to their employees.

It worked for Netopia, an Alameda, California, Internet infrastructure company. In May 2001, its stock was trading at less than $10, and employees were holding $48 options. The company offered the six-and-one program but limited it to options above $10. Says president and CEO Alan B. Lefkof, "That gave employees the right incentive but was not dilutive, and the interests of shareholders, management and employees were well-aligned."

C.J. Prince is a writer living in New York City who specializes in business topics.

Contact Sources

Hoppe Management Concepts Inc.
(800) 724-3525,

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