text:
Click here to download a PDF worksheet of "Assessing the Maturity of Your Processes."
Click here to download a PDF worksheet of "Evaluating the Maturity of Your Enterprise."
Business has embraced process management as a way of life. New and controversial when I first described the concept 17 years ago in the pages of this magazine (see "Reengineering Work: Don't Automate, Obliterate," HBR July–August 1990), the process-based approach to transformation is now used routinely by enterprises all over the world. Few executives question the idea that redesigning business processes—work that runs from end to end across an enterprise—can lead to dramatic enhancements in performance, enabling organizations to deliver greater value to customers in ways that also generate higher profits for shareholders. In virtually every industry, companies of all sizes have achieved extraordinary improvements in cost, quality, speed, profitability, and other key areas by focusing on, measuring, and redesigning their customer-facing and internal processes.
Sadly, however, casualties litter the road. Since 2000, I have personally observed hundreds of companies try to rejuvenate themselves by creating or redesigning business processes. In spite of their intentions and investments, many have made slow or little progress. Even businesses that succeeded in transforming themselves have found the endeavor arduous and harrowing. All change projects are tough to pull off, but process-based change is particularly difficult. Contrary to widespread assumptions, designing new business processes involves more than rearranging work flows—who does what tasks, in what locations, and in what sequence. To make new processes work, companies must redefine jobs more broadly, increase training to support those jobs and enable decision making by frontline personnel, and redirect reward systems to focus on processes as well as outcomes. As if that weren't enough, enterprises also have to reshape organizational cultures to emphasize teamwork, personal accountability, and the customer's importance; redefine roles and responsibilities so that managers oversee processes instead of activities and develop people rather than supervise them; and realign information systems so they help cross-functional processes work smoothly rather than simply support departments.
In most of the companies I studied, executives were floundering. They realized that they needed to change many things to harness the power of processes, but they were unsure about what exactly needed to be changed, by how much, and when. Their uncertainty was manifest in hesitant decisions and confused planning, in endless debates and unproductive discussions, in unwarranted complacency and equally unwarranted despair, in errors and rework, in delays and abandoned efforts. People kept asking one another questions such as, Did we start with the right thing? How do we know we are making progress? What will the organization look like when we finish? Moreover, executives, especially when they work in different functions, often disagree about the factors that aid process-based transformations. Each has a pet idea based on his or her expertise. Like the six blind men and the elephant, one focuses on technology, another on human resource issues, a third on organizational structure, and so on, creating confusion and conflict. Managers also have a tendency to swing from wild optimism that developing new processes will be painless to unremitting gloom that the task is hopeless. Without knowing what they must concentrate on and when, executives have been unable to master the science of transforming business processes.
Five years ago, I started a research project in conjunction with the Phoenix Consortium—a group of leading companies with which I work closely—to develop a process implementation road map. My aim was to create a framework that would help executives comprehend, plan, and assess process-based transformation efforts. Over time, I identified two distinct groups of characteristics that are needed for business processes to perform well and to sustain that performance (see the exhibit "The Process and Enterprise Maturity Model"). One set of features applies to individual processes. These process enablers determine how well a process is able to function over time. They encompass the comprehensiveness of a process's design, the abilities of the people who operate the process, the appointment of a top-level process owner to oversee the process's implementation and performance, the match between the organization's information and management systems and the process's needs, and the quality of the metrics that the company uses to measure process performance. My research shows that not all organizations are equally prepared to put these enablers in place. Companies that are able to do so possess important enterprisewide capabilities: Their senior executives support a focus on processes; their employees greatly value customers, teamwork, and personal accountability; they employ people who know how to redesign processes; and they are well organized to tackle complex projects.
The Process and Enterprise Maturity Model
Together, the enablers and capabilities provide an effective way for companies to plan and evaluate process-based transformations. I presented the model's first version to the Phoenix Consortium's members in 2004, and they tested and revised it extensively. In 2006, I finalized the framework, which I call the Process and Enterprise Maturity Model (PEMM). In the following pages, I discuss the five process enablers and four enterprise capabilities in detail. I also show how companies that use PEMM can take the task of process transformation out of the arena of intuition and mystery and subject it to measurement, evaluation, improvement, and replication.
Can Your Processes Deliver High Performance?
My two decades of experience with business processes have taught me that form influences function—that is, process design determines performance. By design, I mean the specification of which people must perform what tasks, in what order, in what location, under what circumstances, with what information, and to what degree of precision. Certainly, companies can use techniques such as Six Sigma and TQM to ensure that employees execute processes correctly. However, redesigning processes is often the only way to improve their performance dramatically. Doing so eliminates many of the nonvalue-adding activities that are the source of costs, errors, and delays and helps companies come up with process innovations (see my article "Deep Change: How Operational Innovation Can Transform Your Company," HBR April 2004).
Although process redesign is no longer the terra incognita it once was, one issue stubbornly persists: Most companies tend to overlay new processes on already established functional organizations. However, the appurtenances of a traditional organization—such as job definitions, performance measurement systems, and managerial hierarchies—don't always support high-performance processes. For instance, senior executives might encourage managers to create a cross-functional process but then prevent them from altering the company's performance measurement system appropriately. That's shortsighted. The revamped business process needs employees to focus on a broad, common outcome; if the organization measures performance as it has always done, it will reward people for focusing on narrow, functional goals. How can the process live up to its potential under those circumstances? Companies will invest in retraining employees to work in a new process, but they balk at footing the bill for helping people understand how the process works as a whole. If employees don't know the context in which they work, they will be prone to making decisions that aren't in the best interests of the entire process. Similarly, leaders will try to create processes without altering managerial responsibilities. That's problematic, too. A high-performance process extends across functional boundaries, so a senior executive must supervise it. Without such a person, the process won't gain traction within the organization.
How can a process live up to its potential if an organization measures performance as it has always done and rewards people for focusing on narrow, functional goals?
While studying organizations that were implementing new processes, I kept track of their errors of omission. I also analyzed the various factors that were necessary to sustain business processes. I tested both lists over several years and winnowed them down to the five characteristics that I find are essential for any process to perform well. A process must have a well-specified design; otherwise, the people performing it won't know what to do or when. The people who execute the process, the performers, must have appropriate skills and knowledge; otherwise, they won't be able to implement the design. There has to be an owner, a senior executive who has the responsibility and authority to ensure that the process delivers results; otherwise, it will fall between the cracks. The company must align its infrastructure, such as information technologies and HR systems, to support the process; otherwise, they will impede its performance. Finally, the company must develop and use the right metrics to assess the performance of the process over time; otherwise, it won't deliver the right results. These enablers give a process the potential to deliver high performance.
The enablers are mutually interdependent: If any are missing, the others will prove to be ineffective. A weak owner can't implement a strong process design, poorly trained performers can't carry out the design, a bad design cannot optimize the process metrics no matter how well thought-out they are, and so on. A process that is missing an enabler might deliver results in the short term through superhuman performance or executive intervention, but those results won't last. Of course, having all the enablers in place doesn't guarantee that a process will perform well; for instance, the mere existence of a process design doesn't mean it's a good one.
I have witnessed repeatedly how missing enablers can derail processes. At a well-known electronics giant, for example, a team designed a new order-fulfillment process and conducted a successful pilot. However, the process owner didn't have the authority to force unit heads to implement it, so the effort floundered. In another instance, a major consumer goods manufacturer created a new process and trained its workers to perform new jobs. However, it didn't educate them about the overall process. As a result, some employees made decisions that inadvertently created problems for colleagues, which hurt performance and morale and forced the company to abandon the effort. In yet another case, a pharmaceutical manufacturer transformed its sales and marketing processes but didn't make the effort to realign its metrics and reward systems. That sent conflicting signals through the organization, elicited inconsistent behavior from employees, and eventually derailed the project.
What makes overhauling processes particularly tricky is the fact that these enablers are present in organizations at different levels of intensity, so they vary in the degree to which they support a process. For instance, the question is seldom as clear-cut as whether or not organizations appoint process owners; many companies, after doing so, don't give the process owners the authority to implement all the changes that are necessary to make processes work. I've identified and defined four levels of process enabler strength (P-1, P-2, P-3, and P-4), each of which builds on the preceding level, as shown in the exhibit "Assessing the Maturity of Your Processes." In the case of performers, for instance, the P-1 level denotes that employees are merely aware of the process and its metrics. At the P-2 stage, people must be able to describe the process and where they fit into it. At the P-3 level, employees can express how their work affects the company's performance. Finally, at the P-4 stage, performers must know how their work affects customers and suppliers. The stronger the enablers, the better the results the process can deliver on a sustained basis.
Assessing the Maturity of Your Processes (with downloadable PDF worksheet)
Click here to download a PDF worksheet of "Assessing the Maturity of Your Processes."
The enablers' strengths determine how mature a process is—that is, how capable it is of delivering higher performance over time. If all five enablers of a process are at the P-1 level, the process itself is at the P-1 level; if all five enablers are at the P-2 level, the process is at P-2; and so on. If only four out of the five enablers rise to a particular level, however, the process cannot be said to have achieved that level; it will belong to the one below. In particular, if any enabler is so weak that it doesn't meet even the P-1 level, the process is by default at P-0. That's the natural state of affairs when organizations haven't focused on developing their business processes, and at this P-0 level, processes work erratically. At the P-1 level, a process is reliable and predictable; it is stable. At P-2, a process delivers superior results because the company has designed and implemented it from one end of the organization to the other. At the next level, P-3, a process delivers optimal performance because executives can integrate it, where necessary, with other internal processes to maximize its contribution to the company's performance. Finally, at P-4, a process is best in class, transcending the company's boundaries and extending back to suppliers and forward to customers.
The exhibit displays the four levels of process maturity, with the rows showing the enablers and the columns indicating the strength levels. (There are 13 rows because I broke the five enablers down into more finely grained components.) Companies using this table to evaluate the maturity of their processes find it effective to treat the propositions regarding the enablers (the cells of the table) not as true or false statements, but as largely true, somewhat true, or largely untrue. Where quantitative assessments are possible, largely true means that the statement is at least 80% correct, somewhat true suggests that the statement is between 20% and 80% correct, and largely untrue means the statement is less than 20% correct. Executives often color the cells green, yellow, or red, respectively, depending on their responses. The green cells indicate the things that aren't impeding a process's progress and don't need a great deal of focus; the yellow cells show areas where the company has considerable work to do; and the red cells represent roadblocks that keep the process from achieving a higher level of performance. Companies usually face red cells when they are ignoring problems or handling them the wrong way, and so, they must tackle them urgently.
Let me show you how useful it can be for managers to know the state of a company's process enablers. In 2004, Michelin launched a process redesign effort to help increase customer focus and reduce costs. At the time, the global tire manufacturer's order fulfillment process forced customers to deal with multiple departments and to go back and forth repeatedly with the company. To tackle the problem, Michelin created a new high-performance process, which it named Demand to Cash (D2C). A year later, a streamlined process design—which provided large customers with single points of contact, with personnel who knew them, and with accurate information—was ready. During pilots, executives found that in some cases, the new process slashed the order fulfillment time from four hours to 20 minutes.
Michelin decided to deploy the new process in 30% of its North American operations by 2006 before rolling it out across the entire region. The company's process redesign team had learned from my research that before it could implement a new process that would deliver superior performance—that is, a P-2 process—all its enablers had to be at the P-2 level. When the team, led by the process owner, undertook an assessment to confirm that was the case, it found that the human resource systems that supported the new process were below P-2. Michelin hadn't redefined managers' jobs and the scope of their activities clearly enough. Before rolling out the new process, the company kicked off a series of workshops to clarify managers' new roles and departmental charters and to align them better with the D2C process.
Michelin's enabler analysis also suggested that the D2C process might run into trouble because performance-improvement projects had proliferated in the company. Senior executives therefore placed the process owner in charge of all the projects that affected the D2C process to ensure that they wouldn't interfere with its execution or companywide rollout.
Is Your Enterprise Ready for High-Performance Processes?
In order to develop high-performance processes, companies need to offer supportive environments. They must possess or develop organizational capabilities in four areas: leadership, culture, expertise, and governance. First, a company's senior executives must be committed to the business process approach. Redesigning processes requires extensive organizational change that often provokes resistance down the line. This can sink efforts that don't have the backing of senior executives. Second, only organizations whose cultures value customers, teamwork, personal accountability, and a willingness to change will find it possible to move forward with process-led change projects. Business processes, which cut across functions, must be operated by people with those values. Third, businesses must have some people with skills in, and knowledge of, process redesign; this is not work for amateurs or improvisers. And fourth, enterprises must be sure to have ways of governing projects and change initiatives if they don't want chaos and conflict to bog them down.
Unless all these capabilities are in place across a company, it will be impossible for the organization to institutionalize the enablers and sustain the performance of its processes. Executives may be able to force some enablers into place even if the capabilities aren't present, but the performance of their processes won't endure. Organizations need basic competence in all the enterprise capabilities to get started on process redesign projects; they need greater competence if they are to progress with them. Just as there were four levels of process enabler strength, there are four levels of enterprise capability: E-1, E-2, E-3, and E-4. If an enterprise has E-1 capabilities, it is at the first level of enterprise maturity. That means different things in the case of each capability. For instance, an organization at the E-1 level for culture must have some experience with teamwork. In order to get ahead, however, the enterprise must have an E-2 culture, in which it commonly uses cross-functional project teams and its people are familiar with teamwork. To achieve the E-3 level, teamwork must be the norm inside the company. To attain the highest capability level, E-4, teamwork with suppliers and customers must be routine.
Stronger organizational capabilities make for stronger enablers, which allow for better process performance.
Stronger organizational capabilities make for stronger enablers, which allow for better process performance. Thus, when an enterprise has E-1 capabilities in leadership, culture, expertise, and governance, it is ready to advance all its processes to the P-1 level; when all four capabilities reach E-2, the company can move along its processes to P-2; and so on. The exhibit "Evaluating the Maturity of Your Enterprise" presents the four levels of enterprise maturity with the four capabilities broken into 13 elements. (The match with the number of elements in the process enablers table is pure coincidence.) Executives can assess enterprise maturity levels much the same way they can assess process enabler levels: by evaluating whether each proposition is largely true, somewhat true, or largely untrue of their organizations. They can then use colors to identify those aspects of the company that welcome processes (green), still need work (yellow), and are positively hostile to them (red).
Evaluating the Maturity of Your Enterprise (with downloadable PDF worksheet)
Click here to download a PDF worksheet of "Evaluating the Maturity of Your Enterprise."
Many companies take their enterprise capabilities for granted. For instance, when CSAA (the AAA club for northern California, Utah, and Nevada) conducted an analysis to figure out why some of its processes were performing better than others, it found that the problem lay in its enterprise capabilities. A team led by Greg Tucker, CSAA's vice president of business transformation, uncovered shortcomings in the organization's governance and expertise, particularly in process owner training, which prevented its processes from operating consistently at the P-2 level. The team also discovered that cross-functional teamwork wasn't strong in the company's culture, so processes that resided largely within a single division, such as claims processing, were doing better than those that cut across functions, such as customer billing and payment. These insights led the organization to kick off several efforts, including providing process owners with more responsibility, integrating process priorities into strategic planning exercises, and rolling out a new leadership model that emphasized process capabilities. These initiatives helped CSAA boost its enterprise capabilities and stabilize its processes' performance.
One unit's pioneering experiences can energize an entire organization.
In some cases, a company as a whole may be unprepared to embark on a process redesign program, but some of its divisions may be ready to do so. In such situations, executives must assess the strength of enterprise capabilities not at the corporate level but at the level of the business unit. Indeed, one unit's pioneering experiences can energize the entire organization, boosting its enterprise capabilities to a level at which work on redesigning processes can start all over the corporation. For instance, at Tetra Pak, the packaging equipment and materials giant, the task of redesigning processes began in 2001 at the company's Carton Ambient business unit, which makes equipment and materials that allow perishable products such as milk and juices to be stored at room temperature. The unit's capabilities were more mature than the company's, partly because of the passionate commitment of the unit's then head, Dennis Jönsson, to process-based transformation. When the unit redesigned its processes, its performance picked up; for instance, the accuracy of new products' delivery dates rose sharply, from 13% to 85%. The unit's success emboldened Tetra Pak to develop new processes throughout the company—efforts that got a boost when Jönsson took over as Tetra Pak's CEO in 2006.
Using the Framework
Process enablers and enterprise capabilities create a comprehensive framework that allows companies to evaluate the maturity of their business processes and the receptiveness of their organizations to process-based change. The span of the model dispels the commonly held notion that proceeding with processes is easy. At the same time, the presence of several maturity levels signals that companies needn't plan to go from nowhere to perfection in one fell swoop. The stepwise structure indicates that there is a path to becoming a process enterprise, which allays people's anxieties and eliminates confusion.
There is a path to becoming a process enterprise.
PEMM is different from other process maturity frameworks, such as Carnegie Mellon's Capability Maturity Model Integration (CMMI) framework, which applies to specific processes like software development and acquisition. The CMMI model identifies the best practices for specific processes and evaluates the maturity of an organization in terms of how many of those practices it has implemented. By contrast, PEMM applies to companies in any industry and doesn't specify what a particular process should look like. It identifies the characteristics that any process and every enterprise should have in order to design and deploy high-performance processes. A company can apply PEMM to all its processes, which allows the use of a standard approach across the organization, easy sharing of experiences, and quick comparisons of results. In addition, every organization can develop processes that meet its own needs since PEMM doesn't insist that the design contain specific features.
PEMM is also easy to administer. After a brief introduction, even personnel who are new to processes can create and interpret the two matrices. The model's simplicity allows people to apply it themselves rather than rely on experts or consultants; employees are more likely to believe in and act on such assessments. At the same time, the model's objective character—it uses testable propositions rather than opinions—helps factor out emotion and avoid needless arguments. Asking employees to evaluate a process or an enterprise is a subtle way of engaging them, and as they become more involved with processes, their commitment to change increases. Participating in PEMM assessments is educational without the formality and sensitivities usually associated with such activities. The structured nature of the model, its basis in company experiences, and its intuitive plausibility make senior executives as well as frontline personnel more comfortable with process-based change. Through PEMM, people learn about processes and process-centered organizations by doing rather than by listening.
Companies have used PEMM in many ways and at different stages of process-based transformation projects. When enterprises start redesigning business processes or seek to rise from one level to the next, it is imperative that they conduct a maturity analysis first. In 2001, Tom Purves, now Shell's vice president of manufacturing operations for the Americas Gulf Coast, took over as the manager of the Motiva refinery, a joint venture between Shell and Saudi Aramco, in Port Arthur, Texas. He and his leadership team used process-based techniques to redesign two core processes (Ensure Safe Production and Reliability-Centered Maintenance) and improve the refinery's operations. The results were impressive: In 2001, Port Arthur's unbudgeted production loss, the key metric of a refinery's performance, was 7.0%; in 2005, the loss fell to 2.4%—lower than the then best-in-class figure of 3.0%.
Purves was determined to improve the refinery's performance even more by increasing the strength of the process enablers from P-2 to P-3. His team used PEMM to identify areas that would need improvement. Process owners and senior executives evaluated the process enablers and enterprise capabilities, and frontline personnel, independently, did the same. Unsurprisingly, the executives' visions were much rosier than the workers'. Instead of glossing over the differences, Purves made the two groups focus on the areas of disagreement. By avoiding the temptation of averaging and by harnessing the power of the conversation, the two groups came up with an accurate assessment. For instance, senior executives rated Port Arthur's expertise in designing processes higher than their subordinates did. That's because other employees didn't know how senior executives had evaluated process design methodologies or established standards for them. The senior team persuaded employees to accept its assessment of this area but acknowledged the need to improve communication about the issue.
Purves and his team found that several enablers were at the P-3 level, but the assessment showed weaknesses in performers' knowledge and the use of metrics for goal setting. PEMM identified some governance gaps as well. These insights led the team to launch efforts to increase the understanding of processes by performers, to use a more structured approach to setting performance targets, and to create a program management office. As a result, performance has continued to improve. For instance, Port Arthur's alarm rate, a key metric of the Ensure Safe Production process, is now the lowest in Shell's manufacturing system, and the mean time between failures of key equipment has shot up. These changes have contributed significantly to the refinery's bottom line.
On the basis of the Port Arthur experience, Shell is using PEMM to assess its refineries and chemical plants all over the world. Site leaders use the results, which the company has linked to strategic business reviews, to find out where their plants stand on critical issues and to identify the steps needed to develop both enterprise capabilities and process enablers. The ease of using the PEMM framework and the model's low overhead cost have made it feasible for Shell to conduct these evaluations every six months.
PEMM often helps companies tackle the difficult problem of sustaining high-performance processes. Clorox, for example, has been working on its Order to Cash (OTC) process since 2002, and by redesigning several of its subprocesses, the company had achieved impressive results: By 2006, late shipments fell by more than 70%, aged receivables declined by two-thirds, and the percentage of perfect orders skyrocketed from 19% to 70%. Yet, the leaders of the effort weren't sure that the process could sustain those results. Rick Magoun, a vice president of logistics at Clorox and the process owner of OTC, asked the owners of the four subprocesses to assess their maturity. He also asked the ten-person logistics leadership team to assess the enterprise capabilities of those parts of the organization involved in performing the OTC process. Each member conducted an evaluation and the group then discussed the results. They arrived at a consensus, not by splitting differences or going for averages but by debating each evaluation until some people—not necessarily those in the minority—reconsidered their appraisals. This proved to be a powerful way for the team to create a shared understanding of what the transformation entailed and to learn what more it needed to do.
The analysis provided several unexpected findings. First, it showed that the Order to Cash process wasn't as mature as many people believed it to be. This was surprising because the process had been the target of concerted redesign efforts, but it reinforced the idea that age is not the same as maturity. Second, Clorox's enterprise capabilities were more mature than were the enablers of the OTC process. The assessment indicated that executives needed to focus more attention on performer skills, knowledge, and behavior. What's more, the process designs didn't adequately reflect the customer's voice, so that needed work as well. Third, the OTC metrics were in better shape than the other enablers were, so the team could defer work in that area. In the same way, the team found some weaknesses in its enterprise capabilities, including a shortfall in process expertise and insufficient readiness for change. The Clorox team used all these findings to shape an action plan for the following year. Among other things, the team documented process revisions and used those documents to prepare people for change. It also involved more people in redesign efforts, broadening the company's skills. Since the enterprise capabilities were at a higher level than the process enablers were, executives knew that the organization was ready to invest time and resources to address any outstanding issues.
The PEMM application provided Clorox with several additional benefits. For instance, the analysis took the guesswork out of planning; the process owner's team hadn't addressed certain issues simply because it hadn't thought of them. The framework allowed team members to decide where to focus their resources instead of forcing them to rely on intuition and flashes of inspiration. Moreover, the PEMM analysis gave Clorox's leaders answers they could offer the many employees who had become enthusiastic about the company's focus on business processes and were asking what they could be doing to help.
Finally, when high-performance processes break down, companies can use PEMM to find out what ails them. That's what Schneider National, one of the largest trucking companies in the United States, recently did. Five years ago, in order to counteract a slowdown in growth, the company identified five core processes. One of them, the Acquire New Business process, encompasses all the work Schneider performs from the moment a sales representative hears of a potential opportunity to winning a contract. A key metric of this process's performance is how long it takes to respond to a customer's request for proposal. Prior to the redesign, Schneider typically needed between 30 and 45 days to put in a bid. In 2003, the company created a new process that allowed it to get back to a customer in less than three days—an improvement of greater than 90%. As a result, Schneider's win rate, the percentage of sales opportunities that it converted into contracts, increased by 70%.
When high-performance processes break down, companies can use PEMM to find out what ails them.
In early 2005, however, the company started to experience problems. The redesigned process centered on "market owners," experienced leaders with responsibility for guiding pricing and other decisions regarding RFPs. In an effort to relieve pressure on market owners, some business units started involving more managers in these decisions. Other work-arounds cropped up, and soon, the process's performance began to deteriorate. When a Schneider team used PEMM, it determined that although the enablers of the process were at the P-2 and P-3 levels, the enterprise capabilities were lagging. Specifically, the team found gaps in governance and culture. The process owners and Schneider's process council, which served as a forum for process owners and business managers to resolve outstanding issues, weren't powerful enough to prevent line managers from tinkering with processes. The enterprise also hadn't embedded the commitment to solve problems in a structured fashion, rather than an ad hoc manner, deeply enough. Doug Mueller, then the vice president of business transformation and now the head of the Sole Source business unit, had raised those issues but had been unable to get much attention. The PEMM analysis pinpointed areas of weakness, helped get buy-in from the senior management team, and served as a catalyst for developing programs to upgrade Schneider's process governance system and focus its culture more squarely on business processes.• • •
The PEMM framework doesn't make the road to process transformation easy to traverse. Executives must do a lot of difficult, even painful, work to design high-performance processes and create an environment in which those processes flourish. In fact, organizations are often taken aback by the results of PEMM analyses; they feel they have made more progress than the model shows. However, in process transformations, as in life, knowing where you stand and having a road map to follow beats stumbling in the dark.


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I have a cherished tea time ritual, which (admittedly) often involves coffee in lieu of tea. There's just nothing like a warm beverage to start the day off on the right foot. Even when the weather is hot in the Summer, I make sure we have a continual supply of iced herbal tea and sun tea at our disposal.
Part of the reason we have such a large tea stash is that when I used to work night shift at the hospital, I would drink tea all night long. Since leaving that job, I've had to limit the amount of caffeine that I consume (due to insomnia and migraines, among other things), so we're left with a large amount of tea that I can no longer drink. I think Jaymz and Zha will have to step up their tea consumption if we're going to get a handle on this situation anytime soon.
In any case, here's a brief tour of the quantity and variety of tea available in this home:
|The tea shelf (there's more sitting on the kitchen counter)
Here it all is displayed on our dining table:
|That's 41 containers of tea (including the baggie of
assorted individual tea bags)!
We've got loose leaf and bagged, caffeinated and herbal, Thai bubble tea and (one of my personal favorites) yerba mate. There are many therapeutic teas, including those for pregnancy, nursing, tension/sleep, digestion, and skin health. So many to choose from!
So next time you come over, let's have a cup (or two) together. I am delighted to share the abundance of my tea stash with you!
Do you have an impressive tea collection? I'd love to hear about it! If you write about your tea collection before this Friday and link up a post at the showdown on Strocel.com, you'll be entered to win—yep, you guessed it—a new box of tea!

subset: commoncrawl


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This may look like a new promo pic from Tron Legacy, but it's actually the winning image in Princeton University's "Art of Science" competition. Physics doesn't just explain the most awesome phenomena in the universe — it also creates art.
The above image is called "Xenon Plasma Accelerator," by Jerry Ross, a researcher at Princeton's Plasma Physics Lab. And it bears the following explanation:
The Hall thruster is an electric propulsion technology that uses magnetic and electric fields to ionize and accelerate propellant. In this image the plasma accelerator is operating on xenon propellant.
Here's the image that came in third place:
That's "Neutron Star Scattering off a Super Massive Black Hole," by undergraduate Tim Kirby in the Physics Department. [Boston.com via Hermenautic Circle Blog]


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At 11am EST/8am PST the ALA Youth Media Awards will begin. I will be hunkered down in my classroom with a few students (hopefully!), watching the awards as they unfold over our lunch. Every year I set a goal for myself- read the Newbery, and now the Printz, Award winner and honor books before they are announced. So here goes again…..my predictions for this year. These are in no particular order and I don't pretend to know what will take home the gold as opposed to an honor. These are just the books I expect/hope to see honored later today!
The One and Only Ivan by Katherine Applegate
Liar & Spy by Rebecca Stead
Wonder by R.J. Palacio
See You at Harry's by Jo Knowles
Code Name Verity by Elizabeth Wein
Boy21 by Matthew Quick
The Storyteller by Antonia Michaelis
The Fault in Our Stars by John Green
Endangered by Eliot Schrefer
Can't wait to see if I get any of them right! What are you predicting will take home a sticker?
Filed under: newbery, printz award, YA | Tagged: alayma, antonia michaelis, children's literature, newbery, newbery 2013, newbery medal, printz 2013 | 3 Comments »


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The graduate advisor works closely with each student in planning and implementing a degree program that will accommodate the student's professional needs and interests. Using the results of the entrance examinations and a review of the first six to 10 semester hours of course work, the graduate advisor is able to provide information to the student regarding probable success in their program, and any time limitations that may apply. The program of study in each of the five Master of Music degree paths are as follows:
Composition (minimum of 30 hours)
Conducting (minimum of 31 hours)
Music education (minimum of 30 hours)
Music therapy (minimum of 30 hours)
Performance (minimum of 30 hours)
For questions about graduate studies, contact Dr. Cristina Fava, Graduate Coordinator, at firstname.lastname@example.com or (269) 387-4675.


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This is the third Christmas I've spent in Boquerón, Panama. Christmas Eve was a little different than the previous two in that no carolers appeared to sing for anyone in the neighborhood.
In the early evening my next door neighbor brought me a delicious plate of arroz con pollo and the most delicious platanos maduros I've ever put in my mouth. Another neighbor invited me up to her house for hot chocolate and some moña bread (click here to find out what moña bread is ) which is a tradition here in Panama. This was the same family that invited me to the wife's birthday party back in July, and like then, I was the only person outside the family that was invited. When one of Llalla's daughters and her husband and their two kids arrived. Their little six-year old girl, who I've only met a couple of times, came up to me and gave me a warm hug and a hearty "Feliz Navidad." Really sweet for this old Gringo.
After a couple of hours of trying to follow the rapid-fire Spanish conversation the party broke up and I made my way back to my house having to say, "Feliz Navidad" about a dozen time between Llalla's gate and my own.
As is the tradition here, people have been setting off fireworks for the past few days. Primarily bottle rockets and Roman candles. But at the stroke of midnight, turning Christmas Eve into Christmas Day, the whole area erupted. An incredible din of fireworks being set off reverberated all over the area. A racket you just have to actually be here for to believe how much money is going up in smoke. The other day I passed by one of the almost endless number of Fuego Artificiales stands and noted that boxes the size of a case of canned Budweiser was selling for about $175. (It's easy to know what it costs in terms of U.S. Dollars since there's no need to do any currency conversion since Panama uses the dollar as it's paper currency. (Officially the currency here is the "Balboa" and the coins, one, five, 10 and 25 coins are the same size, weight and metal content as their gringo equivalents, plus the B/1 coin as well.)
About five minutes after midnight mi barrio's display began. Judging from the angle from my house I think I know who set off the display. There's a large house just down the road with a couple of expensive SUVs in the drive most days. I'm sure it was them. The following videos took several HOURS to upload to YouTube this morning. I'm sure their servers were working overtime with people uploading vids of their kids opening presents. The first display was more than six minutes long. Then there was about a 15 or 20 minute delay, though the hills were still echoing with distant detonations, and a nearly three-minute encore ensued. Unfortunately the camera didn't capture the brilliant colors but you'll get the idea. Enjoy. I did.


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Fictitious Name Notice
NOTICE IS HEREBY GIVEN that the undersigned, desiring to engage in business under the fictitious name of Navarre Beach Dolphin Tours, at 1392 Sound Retreat Dr, in the County of Santa Rosa, in the city of Navarre, Florida, 32566 intends to register the said name with the Division of Corporations of the Florida Department of State, Tallahassee, Florida. Dated at Navarre, Florida, this 4th day of January 2021. Coastal Life Charters and Adventures LLC, owner, or Corporation full name.
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Navarre, FL 32566
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I've been trying to turn over a new leaf lately and eat more of those so-called "clean" foods. You know, more quinoa, less pasta, more fruit, less dessert. And, not gonna lie, it's been a challenge to go out to a restaurant and not order the mac and cheese (which I typically do every time I spot it on a menu…what can I say, I'm a bit of a cheesy-starchy foods connoisseur).
After a week of eating no meat, no dairy, and no packaged foods, I totally slipped back to my old ways during the Super Bowl. And I felt pretty discouraged because of it—even though I definitely enjoyed the hell out of my pre-game quesadilla and the hot-off-the-grill steak my guy served up later that night.
So thank God for a new report from the Academy of Nutrition and Dietetics. It says that slipping up on a healthy eating plan here and there is actually okay because what really matters most is your overall food pattern.
More From Cosmopolitan
Basically, eating one not-so-healthy food or meal won't make or break your diet—or your eating goals. In fact, the report says that classifying specific foods as "good" or "bad" is not only overly simplistic, it could even lead to unhealthy eating habits in the long run. When it comes to striking a balance in your diet, eating in moderation, controlling your potion sizes, and staying active are key—if you slip up and pig out on fries every now and then, it's really no biggie.
So, I guess banning foods I love (pasta! cheese!) isn't necessarily the answer to being healthier, and I'm pretty stoked about that. Because, seriously, quinoa and soy cheese instead of my beloved mac and cheese just really wouldn't do it for me.
Want more from Natasha? Follow her on Twitter or find her on Facebook.


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I've been so far from here,
Far from your warm arms,
It's good to feel you again,
It's been a long, long time…
…Hasn't it?
Genesis, "Supper's Ready," Foxtrot (1972)
A year and a half has passed since last I wrote the despairing post that has headed Evans Avenue Exit for all this time. In that time, my First Life has gradually improved. I found a new job for more money, was let go from that job, then found another new job for even more money. Selena has traveled through other games, such as the mighty World of Warcraft and a knockoff of it for kids (as many fantasy MMOs tend to be), Wizard 101, with some detours into the life of a sniper in Modern Warfare 2 on Xbox Live. Yet there's always been that thought between us…"We'll be back in SL some day."
Yesterday became "some day." At the urging of Lexxi and Chelle, who've been in here all this time and have missed us terribly, we leased a largish parcel on a private sim, very much like the Fantasyland-run sim where the first Evans Family Compound was. We've erected a new dwelling that is in the great ostentatious tradition of Evans dwellings. (And it was unbelievably cheap, from my experience…I paid L$300 for a furnished dwelling that would have easily run me L$5,000 or more in 2008!) And, perhaps, one day, we will join the ranks of sim owners again. Or I may take up the trade of DJ again; heaven knows I've kept my broadcaster updated with new music as I've acquired it. Or we may find something else to occupy our time.
For now, though, we're consolidating and getting things squared away before we figure out what comes next. And, of course, we've been welcomed back by our friends (and neighbors).
As a blogger of my experience likes to say…"More anon."


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304 Letters & Numbers
Regular price $15.95
This Alphabet Stencil set contains 26 letters, an exclamation mark and a question mark. The height of letters and numbers is approximately 15mm.
The exterior size of the stencil measures approximately: 3.370" x 2.125" or 85.60mm x 53.98mm (credit card size).
*PLEASE NOTE: You will receive ONE of the following random stencil colors: red, orange, yellow, green, light blue, blue, purple, or pink.
There may be variations in the color of the translucent plastic stencil due to the nature of the materials used. The coloring may also vary based on the viewing platform. Colored pencils and graph paper not included.


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Yesterday was Day 2 of Lori Drew's federal trial for cyberfraud in the tormenting of 13-year-old suicide victim Megan Meier. Day 1 focused on the emotional testimony of Megan's mom, Tina, who described her daughter's depression and last words. Day 2 involved Tina's cross examination by defense lawyer H. Dean Steward and the initial testimony of Drew's accomplice in Megan's tormenting, Ashley Grills, who testified with government immunity. Lori Drew's hairdresser also took the stand, and her testimony about Drew's glee while mocking Megan was perhaps the most damning of all.
When Lori Drew helped set up the fake MySpace account because Megan had allegedly been mean to her daughter Sarah, she bragged to her hairdresser Christina Chu about it. Chu was so upset over Drew's callousness she had to retreat to the back of the salon.
"After Meier's death, on the day of her wake, Drew showed up again to have her hair done. Chu asked Drew why she was going to the wake, given her role in the cyberbullying. Drew's response, Chu said, was, 'It's not like I pulled the trigger,'" Wired reports.
In his cross-examination of Tina Meier, Drew's lawyer pummeled her on Megan's past internet behavior. According to Wired, before the Meiers' started monitoring Megan's internet usage closely, "Megan created a MySpace profile as an 18-year-old woman, and swapped sexually-charged banter with other users, he said, citing notes he'd obtained from Megan's psychologist." The lawyer pointed out that Megan had also violated MySpace's terms of service at one point by lying about her age.
Drew's lawyer also pointed out that Megan was taking a trio of antidepressants when she died. "One of them, the antidepressant citalopram, has a reported side affect of contributing to suicidal behavior in children and adolescents suffering from depression, he noted."
Ashley Grills, the then-18-year-old who was Lori Drew's assistant, said that the creation of the MySpace account was initially her idea, but that Lori Drew agreed and "thought it was funny," the L.A. Times notes.
Grills said that Lori Drew was present when they agreed to the terms of service, but neither woman read them.
From the L.A. Times:
Grills testified that she, Drew and Drew's daughter were trying to figure out a way "to expose Megan" for rumors she'd allegedly been spreading about Sarah…She said Drew also helped formulate messages that were sent to Megan and at one point suggested that they have 'Josh' arrange a meeting with Megan at a local mall at which Sarah and her friends would 'pop out' and tease Megan.
This part also hurts the case of MySpace fraud against Drew: the final contact between Megan and "Josh" took place on AOL Instant Messenger, according to testimony by Grills.
Grills also testified that she had no idea that Megan had had emotional problems in the past, until Drew told her shortly after Megan's death, "We could have pushed her overboard because she was suicidal and depressed.'"
When the Drew family and Grills got word that Megan had killed herself, they got off the internet and turned on the TV. Shortly thereafter, Wired reports, "Curt Drew started yelling at them to get rid of the MySpace account. When asked what Lori Drew did at that moment, Grills said at first she sat quietly and was consoling her daughter, then she, too, started yelling at them to delete the account and told them not to say anything to anyone."
Hairdresser: Drew Thought MySpace Hoax Made A 'Funny Story' [Wired] Dead Teen's Mother Testifies About Daughter's Vulnerability In MySpace Suicide Case — Update [Wired] Mother Saw MySpace Plan As Clever, Witness Says [LAT] Witness Recalls Last Messages In MySpace Hoax Case [Breitbart] Government's Star Witness Stumbles: MySpace Hoax Was Her Idea, Not Drew's [Wired] Earlier: MySpace Trial, Day 1: Megan Meier's Last Words Megan Meier's MySpace Hoax Tormenter: "I Just Wanted It To End"


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(CNN) -- Who knew that fighting breast cancer for the third time in seven years would reveal my purpose in life.
Triple negative breast cancer survivor hopes her story will inspire other people to "live in the now."
I have never felt better about my life than now. My mantra each morning when I wake up, during the day between tasks, and at night before I go to bed is, "All is well! Everything in this situation is working for my highest good and from this situation only good will come. All is well!"
After a right breast mastectomy with large margins excised due to cancer spread within the dermas, muscle from the back was removed to place on the chest wall and a skin graft from my right thigh. I was left with huge scaring both outside and within.
The most regrettable loss was never being able to have reconstructive surgery to replace what I thought defined me as an attractive and sexy woman. After healing remarkably fast and well, I had to get back what I'd lost in order to move on and feel good about myself once again.
First of all, I had to start looking at myself in the mirror with no clothes for longer than a second. I massaged my chest with special creams and oils everyday which forced me to look at the area and monitor its healing. After the healing was complete, I had to shop for a breast prosthetic. Wow, that was when my purpose in life was revealed! Spencer shares her experiences with cancer »
I was given a prescription for a custom prosthesis and sent to an orthotics and prosthetics center where I was caught off guard by a prosthetic professional who sized me up when I walked in the door.
"You're not going to like what I have to show you," she said.
Confused and somewhat disappointed I asked, "What do you mean?"
Well, she defined me by my professional attire and assumed the off-the-shelf prosthesis would not meet my expectations. She was right.
After showing me what was available she suggested I look at a couple of custom breast prosthetic products she recommended. I thanked her for her honesty and help and went to investigate.
After doing my homework on several companies, I chose one that actually used a plaster mold to fit me. I was disappointed to say the least and am currently wearing an off the shelf prosthesis that fits in a special bra or can be worn with a special sock or sleeve in a regular bra. Needless to say, the custom prosthesis was not as "custom" as I thought it would be. I said to myself there has to be a better product and at least more options available for women.
My purpose in life is to provide women in need options for a better product and/or create and develop a product that meets the specifications of each and every woman no matter their size, amount of area, or specific shade or hue.
That is why I created a breast prosthesis called AugMe that focuses on specific color matching and contours from skin to prosthesis. I work for a large media corporation so my insurance paid for the custom prosthesis that cost $4,000.
However, for those women who don't have private insurance, Medicare does not cover custom breast prosthesis. Until Medicare changes their policy to cover custom breast prosthesis, there will be little demand for AugMe or any other custom product.
I have now joined forces with Dr. Susan Cassidy, the CEO of another custom prosthetic company, CountourMed, to hopefully change Medicare's policy. We are currently awaiting their decision after presenting letters from breast cancer professionals and organizations as well as seeking congressional attention.
I am a triple negative breast cancer survivor. I hope that through my story, others will be inspired to "live in the now" and love every moment of it.
I recently found out about Dr. Lisa Newman's annual trips to Ghana where she performs surgery on women with triple negative breast cancer. I asked her if she could use breast prosthesis for her patients. She was overwhelmed and said that she currently takes only a few and how helpful and meaningful that would be for her patients in Ghana. Doctor travels to Ghana for cancer clues »
Well I'm sure you can assume that I am now on another journey to provide breast prostheses for those women in Ghana as well as women here in the United States.
I am often asked do I wonder why "I've" been diagnosed with breast cancer and the answer is so obvious to me. Of course I know why. If it weren't for my diagnosis of breast cancer, I would be feeling sorry for others and fearful of what may happen to me. How selfish and non productive.
Now I waste no time feeling sorry for myself or others and I make sure every moment is spent making a positive impact on all those I encounter. It's not about how much time you have, it's about what you're doing with that time. I choose to spend it making people with breast cancer, happy.
If you have had a mastectomy due to breast cancer and reconstruction is not an option, tell me your story and hopefully I can help you. Go to www.augmefoundation.com. You can also go to the site to make a donation to provide breast prostheses for women in Ghana.
All About Breast Cancer • Women's Health


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Editor's Note:
Story highlights
NEW: Tourists urged to steer clear of Bangkok
Many other tourist spots, such as Phuket, remain dry and open for business
The outer suburbs are already flooded, but the central city has largely been spared
The Thai floods have killed 373 people and affected more than 9.5 million
Severe flooding in Thailand on Saturday threatened central areas of Bangkok, a bustling capital barely above sea level and facing inundation at the next high tide predicted at 13 feet.
Residents who decided to stay in their homes despite government pleas to get out waited anxiously to see whether high tide, forecast for Saturday afternoon, would overwhelm defenses along the Chao Phraya River and its many canals.
Bangkok's outer suburbs were already submerged, but the central city had been largely spared the misery Thailand has been suffering for months in the nation's worst flooding since 1942. In the east and the north of the city, water was at waist-level in some neighborhoods, but in central Bangkok, it had been mostly dry.
The city was facing two converging threats, however.
Runoff the equivalent of 480,000 Olympic-size pools was flowing south to the sea through Bangkok, as high tide pushed the water in the opposite direction.
"The challenge is to manage the huge runoff from the north passing via the city on its way to the Gulf of Thailand," a Red Cross bulletin said.
Saturday's high tide, the Red Cross said, was expected to put "extreme pressure" on Bangkok's elaborate system of dikes and other flood defenses.
Prime Minister Yingluck Shinawatra ordered work crews Friday to cut channels in roadways to allow faster drainage, according to the state-run MCOT news agency. But the plan was rejected late in the day in favor of dredging canals and using pumps, the Bangkok Post reported.
Health concerns were rising with the water.
Bangkok residents waded through murky waters without knowing what lurked within, the risk of infection and communicable disease worrying health officials. The government sent out crocodile hunters after reports of crocodiles and snakes in the filthy floodwater.
"We were hearing disturbing reports of dangerous animals such as snakes and crocodiles appearing in the floodwaters and every day we see children playing in the water, bathing or wading through it trying to make their way to dry ground," said Annie Bodmer-Roy, spokeswoman for the humanitarian agency Save the Children.
As floodwater entered homes, some Bangkok residents still in the city made plans to leave.
Thanyarat Hemkittiwat said she was going to stay with relatives outside the city.
"Some families in southern Bangkok had their house flooded," said the 31-year-old worker at a furniture export company, which was shut after it also was flooded. "The water level is 2 meters (six feet) high and smells very bad," she said.
The military had set up a flood relief center, "but now even that has water coming in it," she said.
Asked what help the government had provided, she said, "We don't see that the government is doing anything much to help people, so better to help ourselves by getting out of Bangkok." But the Bangkok Post reported that government buses had evacuated a number of elderly residents from the northern and eastern suburbs, and would pick up residents of the capital on Saturday and take them out of Bangkok. As of Saturday, an estimated 1 million of the city's 12 million residents had left.
Another Bangkok resident said she was worried about abandoning her house, which has been flooded for five days, and would not leave. Still, so many people had left that the streets were relatively quiet.
Panic buying had led to a shortage of food and bottled water in the capital, residents said.
City officials bracing for more flooding have opened nine evacuation centers.
Officials urged tourists to steer clear of Bangkok, while noting that many of the other tourist spots, such as Phuket, remained dry and open for business.
Thailand's Ministry of Public Health had transferred 280 of the capital's 520 patients in severe condition to 22 hospitals upcountry, the MCOT news agency reported.
The remaining 240 patients will be taken to hospitals in other provinces by Sunday, it said, citing Permanent-Secretary for Health Paichit Varachit.
Health Minister Witthaya Buranasiri said that, after months of flooding, 107,101 Thais have been diagnosed with stress, 6,214 with depression and 878 at risk of suicide. In all, 1,356 people were under observation by health officials, the minister said, according to MCOT.
The U.S. State Department issued a travel alert on Thursday, recommending against all but essential travel to affected areas. It noted that most tourist destinations, such as Phuket and Chiang Mai, were unaffected.
U.S. Ambassador Kristie Kenny said the crisis was slow-moving and it was hard to know what would be hit next.
The United States has already provided civilian relief resources, including water pumps, water purifiers and life vests, she said, and two U.S. helicopters are helping the Thai military determine the extent of the flooding.
The floods, caused by monsoon rains that saturated rivers, have killed 373 people nationwide and affected more than 9.5 million people,
Are you there? Share photos, video but stay safe
The government has called the flooding the worst to afflict the nation in half a century and said it might take more than a month before the waters recede from some areas.
The government has set up more than 1,700 shelters nationwide, and more than 113,000 people have taken refuge in them.
Overall damage from the floods could exceed $6 billion, the Thai Finance Ministry said.
CNN's Sara Sidner and Kocha Olarn reported from Bangkok and Moni Basu reported from Atlanta. Aliza Kassim and Elizabeth Yuan contributed to this report.


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culled from:http://www.bothsidesofthetable.com
Ah. We're back to discussing convertible debt again. This time by the efforts of Adeo Ressi to introduce a new kind of structure called "convertible equity."
I applaud all efforts by people to take on this issue and especially be Adeo who – let's be honest – was really the first champion of trying to make the VC world more transparent by launching TheFunded, which didn't exactly endear him to VCs initially.
My initial reaction to Adeo when we spoke was that while it may have solved some issues (debt versus equity) it didn't solve the ones that I've been warning entrepreneurs about most loudly. And frankly I feel he overstates the potential harm of convertible debt, which if properly structured acts mostly as an equity instrument anyways.
To better understand the arguments for / against convertible equity I suggest you read my posts on those topics:
- Is convertible debt preferable to equity?
- Was Paul Graham right in his "high resolution" financing post?
- Some thoughts on raising angel money
"What if I took some of the worst, most egregious terms in a standard term sheet and made them the defacto standard in most convertible debt deals?Yup. That's right. Those terms you fought so hard to get out of "clean term sheets" by using TheFunded, VentureHacks and the like are in your current documents.
If I could persuade you that they're already in these documents would you consider abandoning this structure?
Because convertible debt deals often have both a 'full ratchet' and often have 'multiple liquidation preferences' "
But how?
When convertible debt first started being introduced as a "faster, cheaper way to get startups funded" they didn't have pricing built into them. A standard entrepreneur retort I heard back then (2008-09) was "I don't know what my company is worth now. By doing a convertible note we can delay the discussion until we figure out how big this is going to be."
And some seed stage investors told me, "I prefer not to fight over price now. I just want into the hottest deals. That's all that matters. They'll get priced soon enough by a VC."
I think both points-of-view were a bit naive.
What the entrepreneurs were really saying is, "I don't want to take a lower valuation now, while I don't have customers or a full team. I want to use investor money to build these things. Then those investors – the ones who took the most risks (i.e. my friends, family & former colleagues) – get to pay a higher price later when a VC comes in a prices the round."
Sure, you gave them a 15-20% discount. But that's hardly fair compensation when your former cube mate gave you $25,000 of money she didn't really have to invest in you, took tons of risks with her money, and now has to pay a VC price for that money a year after she invested it.
What investor would put money into a company and then agree a price later based on success? Can you imagine investing in the stock market where your price was determined at a future date and the better that company performed the HIGHER the price you paid for that investment. In fact, most early investor work hard to help their startups get to the next level so it makes no sense for the angel investor and founders to be at odds.
Investors call Bull Cap.
Enter "the cap." What this did is set the maximum price of the deal. As in, "your money into my company will convert at a 15-20% discount to the next round of capital I raise with a maximum price of $8 million pre-money valuation (or whatever the cap was)."
And I've been banging my head against the wall ever since.
Convertible debt with no cap is stupid for investors. Convertible debt WITH a cap is stupid for founders.
With a cap means that every person who wrote you a check assumed that they were going to pay the cap. So if I write you a $500,000 check into a convertible note with a $4.5 million cap I am assuming when I write the check that I will own 10% of your company. If I didn't assume this I shouldn't write the check because I have to get involved knowing that I might pay that price.
But entrepreneurs – convertible notes have no MINIMUM! So you're taking all of the pricing risk. This has worked very well in the 2009-2012 time frame because the tech market has boomed in this period. But many convertible-debt companies are starting to feel that pinch now. I'm starting to hear it more often. And then the market does slow down you're going to hear an entire generation of convertible-debt companies moan.
Let me explain it more clearly in equity terms.
In a standard VC term sheet there is a standard term called an "anti dilution provision" and they are in nearly 100% of deals. What it says in human terms is, "if you raise money after me at a cheaper price than I paid I get a discount on the investment that I'm making now."
Full Rat-shits
The key for entrepreneurs to understand is whether it's a "full ratchet" or a "weighted average ratchet." In a full ratchet it means that if Investor A paid $2 per share for your stock and you later raise money at $1 per share (because that's the only price at which you could find investors) then Investor A's entire holding is converted to this lower price – even if it happens a year later.
So Investor A might have bought 20% of your company in 2012 and in 2013 with no addition money invested suddenly owns 40% of your company. POOF.
You rarely find full ratchets in early-stage deals any more. They are either a sign of naive founders or naive investors (because they will quickly develop a reputation in the market and because future investors in that company will all demand your terms, which therefore will include a full ratchet).
They can occur legitimately in a company whose valuation skyrockets unexpectedly as in, "your last round was at $50 million and you want to raise 9 months later at $750 million. Fine. I'll pay the price but I want a full ratchet."
The logic being that the current investors and founders have more inside knowledge of the company performance and dynamics than a brand new investor and thus if the new investor is going to "pay up" they shouldn't take all of the pricing risk in the deal. I'm not arguing for full ratchets – just explaining them.
Weighted-average ratchets (broad-based or narrow) only convert a portion of Investor A's stock to the new price and the formula that dictates this is based upon how much new money comes in at a lower price and how low that price is. It has nowhere near the same dilutive effects as a full ratchet except in extreme edge cases.
If you really want a deep dive on anti dilution better that you go read Brad Feld's post on the topic.
How Convertible Debt with a Cap Behaves Like Full Ratchet
Now how does this apply to convertible debt with a cap?
A new investor in your round is saying, "I'll agree to pay the $5m, but if you raise at $2.5m I want 100% of my stock to convert at that lower price." So my $500k doesn't buy 10%, it buys 20%. Voila. Just like that. Convertible notes have full ratchets.
But wait! There's more!
Hey, bud. I don't just want a full ratchet. I want that 20% discount you promised me!
Seriously, dude?
Yup! That was part of our deal. Convertible Notes felt good when prices only went up, didn't they? Now that it's 2014 and prices have gone down it doesn't feel so good.
So that $500k I took from you not only didn't convert at $5m but it converted lower than $2.5m? So it's worse than a full ratchet?
In fact, that's what that 20% discount we agreed in your note was all about. You didn't think it was only a discount if your price went up, did you?
Convertible Notes Also Can Have Multiple Liquidation Preferences
Hey, Mark. Are there any other things I should worry about in a convertible note? I mean, I had no idea that they had full ratchets. I thought we got rid of that shit in 2003?
Well, they also have a term that is one of the most hated by entrepreneurs. But since it's not spelled out on the convertible note, most entrepreneurs don't even understand that the note potentially has this term. Convertible notes often have multiple liquidation preferences.
That's not possible. Nobody I know accepts multiple liquidation preferences in early-stage deals. And every seed stage VC tells me they don't ever even ask for them.
If they do a convertible note they do. Even though many I've talked to don't even realize it since it's hidden.
But how? What the …
Well … let's take a $500k convertible note at a $4.5m cap. So I get 10% of your company at worst. Our convertible note says that it "converts into the next round of capital and into the same security."
So when you raise that up round on your Series A of $3 million at $12 million pre (that investor got 20% of the company and has a 1x liquidation preference) my stock converts into that same security. And since I only paid $5 million post money your lawyer is likely going to issue me with almost 3x the number of shares as if I bought them in the Series A to make up for the price difference.
Why is that a problem? I agreed to the lower price when you funded me – so I'm cool with that.
But my $500k, while only buying 10% of the company (and now diluted down to 7.5% after the new investor came in), has nearly $1.5 million of liquidation preferences. That a 3x liquidation preference in disguise. It's what you fought about for all these years.
Damn. How come nobody ever told me?
Dunno. Maybe because it's on small dollar investments. But I'll be damned if convertible notes aren't getting larger and larger.
[update: Adeo thought that I hadn't quite explained easily enough why this creates a 3x liquidation preference so I agreed to expand. Only read this red bit if you didn't quite follow the argument above.
If somebody gives you money under a convertible debt note at a $2.5m valuation and another person funds you with convertible debt at $5m valuation (high resolution financing) and your equity round finally closes at a $10 million valuation … what technically happens?
The most straightforward way to do the deal and what most people do is to issue the first investor 4 times more shares than the ultimate equity investor to adjust for the 4x discount in price (ie if I give you 4x the shares it's the same as though you paid 25% of the price for the shares). The second investor gets 2x more shares (50% discount). So in the end they all end up with Series A stock priced at the exact same price (say, $1.5 per share) but investor 1 & 2 have more stock than investor 3. And if I weren't simplifying the math, I'd show you that the first investors get even more shares since they have a discount to the next round.
So as your initial investor at a $2.5m they now have 4x the stock and thus 4x the liquidation preferences (since each share has liquidation preferences on it).
The alternative is to give investors 1,2 & 3 the exact same amount of preferred Series A stock and give investors 1 & 2 more common stock (which doesn't have liquidation preferences) to adjust for the discount. But investors 1 & 2 won't be happy with this because when they bought the convertible note they were expected to get preferred stock. So they'll feel cheated.
The third option is the one I listed below, which is what I have done.]
Is there way around this?
Yeah. I'm sure there are several. What I've done in the past is convert the notes into their own classes that only have 1x liquidation preferences. I've done deals that had many different price points (since the company brought in convertible notes over time "high resolution financing" and price kept going up with the new notes) and so we've had a class for each note.
So we ended up funding the Series A. But there is a Series AA-1, Series AA-2, Series AA-3 and so on. We all vote together as a single class of preferred stock but each Series has its own price in order to prevent multiple liquidation preferences.
Damn. That's complicated.
Yup. And what a joy it was for me to have to explain to the many convertible note investors that came before me.
And it makes it harder to explain to future investors but I'm sure you'll get over that if your business does well. Those legal fees you saved in your last round suddenly went up in the Series A round. But at least you had more money to pay them.
But what about this debt thing? Adeo says that debt is bad for me.
It might be. I'm not an expert in that but I don't personally see it as a bad thing in the way he does. I don't see it as a ticking time bomb. For the most part convertible debt doesn't act like debt it acts like equity. A good convertible debt round round answers the questions:
1. What happens at maturity?
I recommend that startups agree the "conversion price" at maturity. As in, you're giving me $500k at a 20% discount and a $5m cap. If we don't raise a bone fide round of capital (say, $1.5 million from new investors) within one year, your money will convert at a $3m pre-money (i.e. something lower than the cap – this amount to be negotiated).
But won't that signal to new investors my price? No. No more than the cap will. When you talk to new investors about the mandatory conversion at the end of the debt's life you say, "that was the downside, worst-case provision I agreed to investors in case we weren't successful raising money."
2. What happens in a sale or acqui-hire?
I recommend that you agree a multiple of investment to be paid to investors in this case. I normally recommend 2x but this is negotiable and up to you. This feature in a note says that if I gave you $25,000 and you sold the company without raising more money or before maturity (i.e. my note didn't convert) then I get $50,000 out of the proceeds of the sale.
At a minimum every angel investor should ask for this. Otherwise it's a sucker investment. You give money and if the company sells you get your investment back? That would suck.
And I recommend that companies give this to investors in a convertible note because it's the fair thing to do.
It basically IS a 2x liquidation preference but that investor doesn't own equity in your company so they deserve a return and the liquidation preference automatically goes away when you do your equity financing round.
Are there any advantages to a convertible debt deal? Surely there must be some !!?!!
Yes. Of course. But not the ones you've been sold on. Mostly you were told that they are: Cheaper, faster and you can more easily price people at different prices.
They are not necessarily cheaper. With the many "series seed" documents that exist now you can often get a law firm to do your docs for $5k – even when it's equity. They have to believe you're going to be successful because they won't make money at this price but they will do it.
They are not necessarily faster. I've done series seed, early-stage deals in 8 days. So you can't tell me debt is faster.
And I've explained why the multiple price points causes problems on liquidation preferences. But equity can also have multiple price points either be giving investors warrants or by doing the Series AA-1, Series AA-2, etc. structure I described above.
So to me the real advantages of convertible debt are:
1. They often don't have control provisions. With equity often investors want "blocking rights on a sale or future finaning" that they often don't get in a convertible debt deal. If this is the reason you're doing it, then perhaps talk to investors about whether they'd be willing to give up that right in a Series Seed equity deal.
2. They often don't have board seats attached to them. Again, this should be negotiable with a Series Seed.
There may be more (feel free to add in the comments section if I missed some) but those are the main ones.
So if you're obsessed with having convertible notes I've been telling people,
"Don't do convertible debt with a cap, do convertible debt with a price."Think about it. If you're going to agree the maximum price you might as well agree a minimum price, too. Which means you're agreeing the actual price. That gets rid of the ratchet. At that poing you might as well have done equity but if for reasons of speed, cost and control you prefer not to – at a minimum I'd ask for price security.
Some of the smartest early-stage lawyers have weighed in and to my reading don't seem to be too far off from my position:


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DeM Banter: a little ink for the USAF and issues we share with the USN. Many issues here, from a lack of strategy to a decrepit acquisitions system that must adapt and change soon, but as noted by retired Gen Wald in an earlier post…we can to it all cheaper and more efficiently, but there will be a rise in cost initially to get us there…new, sustainable, survivable, equipment. There are a few newer aircraft in the inventory, KC-10 from the early '80s, B-1 from the 70s, B-2, 80s, F-22 and F-35 are current but fraught with cost over runs (see acquisition system) and systems issues. One could argue all of the above we're designed for a Cold War type scenario…perhaps a lack of strategy and vision? But is the acquisition system agile enought to quickly adapt to changing threats?
On a side note…there is NO "probably" in the statement below…."The U.S. probably couldn't have fought the air wars over Iraq, Afghanistan and Libya without the KC-135 Stratotanker..." NATO knows it…any planner on any staff knows it…not beating my chest here… It just is…
November 4, 2012
TOKYO — For decades, the U.S. Air Force has grown accustomed to such superlatives as unrivaled and unbeatable. These days, some of its key combat aircraft are being described with terms like geriatric, or decrepit.
The aging of the U.S. Air Force, a long-simmering topic in defense circles, made a brief appearance in the presidential debates when Republican nominee Mitt Romney cited it as evidence of the decline of U.S. military readiness. His contention that the Navy is the smallest it's been since 1917 got more attention, thanks to President Barack Obama's quip that the Navy also has fewer "horses and bayonets."
But analysts say the Air Force has a real problem, and it will almost certainly get worse no matter who wins Tuesday's election. It was created in part by a lack of urgency in the post-Cold War era, and by design glitches and cost overruns that have delayed attempts to build next-generation aircraft.
Looming budget cuts limit the force's ability to correct itself, they argue, as China's rise as a world power heightens its need to improve. And though the world's most formidable air force never had much use for bayonets, it's got more than its share of warhorses.
Ike's legacy — the KC-135 Stratotanker
The U.S. probably couldn't have fought the air wars over Iraq, Afghanistan and Libya without the KC-135 Stratotanker, the Air Force's main aerial refueler, which allows fighter jets to remain airborne on long flights.
America has President Dwight Eisenhower to thank for that.
The KC-135 came into service during Eisenhower's watch in 1956. The newest of the roughly 400 Stratotankers in service started flying nearly half a century ago, in 1964.
"We are in unknown territory," said Lt. Col. Brian Zoellner, who has been flying the KC-135 for 15 years and is head of operations for 909th Air Refueling Squadron at Kadena Air Base on Japan's southwestern island of Okinawa. "The unknown is at what point does the KC-135 become unusable."
The KC-46A refueling tanker is being developed as a replacement, but probably won't start delivery for another five years. If Congress has its way, some Stratotankers could still be taking off well into the 2040s.
That '70s show — the F-15, F-16 and A-10
The F-15, America's workhorse warplane since the Vietnam War, was designed to have a service life of about 5,000 flight hours. The Air Force has more than tripled that, to 18,000 hours.
The F-16, another key fighter, has been in use since 1979. The Air Force began retiring the oldest ones two years ago.
Another '70s-era fighter is the A-10 Thunderbolt, which provides close air support for ground troops. It's now being rewinged because its old ones were riddled with cracks. The General Accounting Office estimates the cost of upgrading and refurbishing the aircraft will be $2.25 billion through 2013.
The Air Force is revamping its fighter fleet with the stealthy F-22 Raptor and F-35 Joint Strike Fighter, but production of the F-22 was cut short after its price tag swelled to nearly half a billion dollars a pop. Delays and escalating costs have also dogged the F-35, which is now the most expensive Department of Defense procurement program ever.
Spy planes from the '50s — the U-2
The fabled U-2 "Dragon Lady" spy plane is still being used to keep watch over North Korea and other hot spots. The first U-2 flew in 1955, and the legendary Skunk Works aircraft became a household name for its role in the Cuban missile crisis, not to mention the propaganda bonanza the Soviet Union got by shooting one down in 1960 and capturing its CIA pilot, Francis Gary Powers.
Many analysts argue the unmanned Global Hawk could do the job more effectively, but Congress has nixed that idea for now. More than $1.7 billion has been invested in upgrading the U-2.
Major Kong's favorite bomber — the B-52
Iconic, yes. State-of-the-art, no. The venerable B-52, remembered by movie fans for its starring role in the 1964 Cold War comedy "Dr. Strangelove," remains the backbone of the Air Force's strategic bomber force. It dates back to 1954 and was already losing its edge by the end of the Vietnam War, but nearly 100 B-52s remain in service.
The Air Force developed the B-1 in the 1970s as the B-52's replacement. President Jimmy Carter killed it, President Ronald Reagan brought it back, and none have been delivered since 1988.
Next up was the stealth B-2 Spirit, which first flew in 1989. Because only 21 were built, they ended up costing a prohibitive $2 billion each. The Air Force is now hoping to upgrade with what it calls the Long Range Strike Bomber, but it's not clear when it will be ready.
To be sure, all of these aircraft have undergone massive overhauls and updates, and most experts agree the U.S. Air Force remains the best-equipped in the world. Its aircraft aren't likely to soon start falling out of the sky, either, thanks to intensive, and expensive, maintenance.
Zoellner, the KC-135 pilot, bristled at the idea his Stratotankers aren't safe. He said they "fly like a champ."
But Loren Thompson, of the Lexington Institute, a conservative think tank, said the graying Air Force is evidence of how Washington has failed to keep its eye on the ball.
"The reason the fleet is so decrepit is because for the first 10 years after the Cold War ended, policymakers thought the United States was in an era of extended peace," he said. "Then it spent the next 10 years fighting an enemy with no air force and no air defenses. So air power was neglected for 20 years, and today the Air Force reflects that fact."
Former Air Force Col. Robert Haffa, a senior fellow at the Center for Strategic and Budgetary Assessments, added that although ground forces were the primary concern in Iraq and Afghanistan, air power will be a key to future security requirements as the United States turns its attention to the Pacific and a strengthening China.
Unlike America's more recent adversaries, China has a credible air force that could conceivably strike U.S. bases in the region, requiring a deterrent force that is based farther away, out of range. America's bases in Japan — and possibly Guam — also are within striking distance of a North Korean missile attack.
"As the nation looks to increased focus in the Pacific, these long-range strike platforms will be especially important," Haffa said. "Planes like the B-52 simply cannot survive."


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This week Sue's dictionary has given us the word "round".(Click here to go to "A word in your ear") So many things are round in shape, but I thought about a circle of friends. When travelling to meet new friends and catch up with old ones is one of the delights and memorable occasions that stay in your mind for ever.
I first met Carroll and Jack five years ago when I stayed with them in their beautiful cottage in Margaret River. They took me around and introduced me to the many attractions. This was the start of my love affair with Margaret River, it is now acknowledged as Australia's best town to live in.
I couldn't wait to return and this time I had "my Jack" with me. This delicious meal we shared around a round table, a circle of friendship and warmth renewed.
On another occasion Jack and I sat with our thermos of coffee and sandwiches after walking around the beautiful Araluen Botanic Gardens in the Perth hills. We were delighted when this group of people from Afghanistan invited us to join them at their picnic. They assured us they had plenty to share. Just look at the spread, it was delicious. The women were sitting at a separate area. I became a surrogate man and joined this group. But later joined the women.
These are just a few more round things…


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Q: I was reading about the SmartCar. Why is the British version is rated at 46 mpg city and 70 mpg hwy? The U.S. version is listed at 33 mpg city and 41 mpg hwy. I thought the British rating may be based on kilometers, but it specifies mpg. Is their rating system different?
A: Imperial Gallons are bigger than US (avoirdupois) gallons.
Q: I have about thirty quarts of 10w-30 SF SE oil, thirty-plus years old in metal and paper cans. It's been stored at a temperature between 65 and 85 degrees. Is it all right to use in a 2001 vehicle?
More From Popular Mechanics
A: No. The SF specification is out of date, and the additive package is almost certainly stale. Save this oil for greasing the garage door or the bar on the chainsaw.
Q: Which saves more fuel: Driving at a higher rpm/lower gear with less throttle or a lower rpm/higher gear with more throttle?
A: Lower rpm/higher gear will save more fuel.
Q: I have a 1993 Plymouth Voyager, 3.3, two-wheel drive, all power. The issue I have is with the A/C. I had to put in an on-off switch for the engine fan. The solenoid stopped working and that was the only fix. There were no issues with that fix until last year. The A/C blower motor is now the issue. While driving with the blower on at any speed with the air direction set straight on, a portion of the air is directed to the floor vents. If the engine requires more power like driving uphill, the vent door opens and all the air is redirected to the floor vent. If the blower is on full and the car is started, the complete airflow is directed to the floor vents. In either case, when the blower motor is shut off and on, the vent door closes and the air redirects to the selected vents. However, if starting the vehicle and the blower is on any other speed this does not occur. Suggestions?
A: This is a vacuum issue, not a blower issue. Leaky hose, bad check valve, split vacuum fitting, or something else is not keeping an air blend door in the right position.
Q: I have a 2000 Jeep Grand Cherokee. The automatic lock mechanism on the driver's side door squeaks when I unlock it. Can I fix this myself? I hate to pay $300 to the dealer.
A: Remove the inner door panel and squirt some spray white lithium grease on the squeak.


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The Retailers Guide to Big Data #infographic
Monetate just published a great infographic about the adoption of Big Data by retail companies. Why do retailers should be interested on Big Data? Retailers are watching two main trends: Social and Mobile. There exist 6 billion of mobile subscriptions worldwide (87% of world's population) and Social Networks also represents billions of users (there exist 1.01 billion Facebook users).